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, 2002
--------------
[ ] 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.
(DEBTOR-IN-POSSESSION)
--------------------
(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.)
901 Chestnut St., Suite A Clearwater, Florida 33756
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(Address of Principal Executive Offices)
(386) 253-6262
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(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, 2002 was 12,690,704.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
Index
Three and Six Months Ended March 31, 2002 and 2001
(Unaudited)
Page
Part I - Financial Information ----
- ------------------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet -
March 31, 2002......................................... 1
Consolidated Statements of Operations -
Three and six months ended
March 31, 2002 and 2001................................ 2
Consolidated Statements of Changes in Stockholders' Deficit
Six months ended March 31, 2002......................... 3
Consolidated Statements of Cash Flows -
Six months ended
March 31, 2002 and 2001................................. 4
Notes to Consolidated Financial Statements................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings........................................... 13
Item 3. Defaults Upon Senior Securities............................. 14
Item 6. Exhibits and reports on Form 8-K............................ 14
Signatures......................................................... 15
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
Consolidated Balance Sheet
(Unaudited)
March 31, 2002
Assets
Current assets:
Cash $ -
-------------------
Other assets:
Deposits 8,866
-------------------
$ 8,866
===================
Liabilities and Stockholders' Deficit
Current liabilities:
Bank overdraft $ 1,814
Notes payable 47,747
-------------------
Total current liabilities 49,561
-------------------
Liabilities subject to compromise:
Secured Debt 663,406
Trade and miscellaneous claims 748,097
Debt that may be converted to equity 2,509,029
-------------------
Total liabilities subject of compromise 3,920,532
-------------------
Long-term liabilities:
Notes payable, less current maturities 246,503
-------------------
Total long-term liabilities 246,503
-------------------
-------------------
Total liabilities 4,216,596
-------------------
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;
12,730,704 shares issued; 12,690,704 shares outstanding 1,273
Additional paid-in capital 12,579,040
Common stock payable 212,627
Common stock receivable (21,250)
Accumulated deficit (16,924,420)
Treasury stock; 40,000 common shares (55,000)
-------------------
Total stockholders' deficit (4,207,730)
-------------------
$ 8,866
===================
The accompanying notes are an intregral part of the consolidated financial
statements.
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THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31, Six Months Ended March 31,
--------------------------------- ---------------------------------
2002 2001 2002 2001
------------- -------------- ------------- -------------
Sales $ - $ - $ - $ -
------------- -------------- ------------- -------------
Selling, general and administrative
expenses 254,542 427,422 501,802 620,738
------------- -------------- ------------- -------------
254,542 427,422 501,802 620,738
Loss from operations (254,542) (427,422) (501,802) (620,738)
------------- -------------- ------------- -------------
Other expense:
Interest expense (53,687) (124,158) (127,348) (188,183)
------------- -------------- ------------- -------------
Loss from continuing operations $ (308,229) $ (551,580) $ (629,150) $ (808,921)
------------- -------------- ------------- -------------
Discountinued operations:
Income (loss) from discontinued operations - (28,225) - (28,113)
------------- -------------- ------------- -------------
Net loss $ (308,229) $ (579,805) $ (629,150) $ (837,034)
============= ============== ============= =============
Loss per share:
Basic loss per share from continuing operations (0.02) (0.08) (0.05) (0.12)
Basic loss per share from discontinued operations - - - -
------------- -------------- ------------- -------------
Net loss per share $ (0.02) $ (0.08) $ (0.05) $ (0.12)
============= ============== ============= =============
Weighted average number of
common shares outstanding 12,939,204 7,649,094 12,939,204 6,979,912
============= ============== ============= =============
The accompanying notes are an intregral part of the consolidated financial
statements.
2
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Consolidated Statements of Changes in Stockholders' Deficit
Six Months Ended March 31, 2002 (Unaudited)
Common Stock
---------------------- Additional Common Common
Number of Paid-in Stock Stock Accumulated Treasury
Shares Amount Capital Payable Receivable Deficit Stock Total
----------- --------- ----------- ----------- -------------- ------------ ----------- -----------
Balance,
September 30, 2001 5,847,109 $ 585 $ 11,712,394 $ 1,079,961 $ (21,250) $ (16,295,270) $ (55,000) $ (3,578,580)
Common stock issued
for conversion of
note payable 6,883,595 688 866,646 (867,334) - - - -
Net loss for
the period - - - - - (629,150) - (629,150)
Balance,
March 31, 2002 12,730,704 $ 1,273 $ 12,579,040 $ 212,627 $ (21,250) $ (16,924,420) $ (55,000) $ (4,207,730)
=========== ======== ============ =========== ============== ============ =========== ===========
The accompanying notes are an intregral part of the consolidated financial
statements.
3
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended March 31,
---------------------------------
2002 2001
--------------- ---------------
Operating activities
Net loss $ (629,150) $ (837,034)
--------------- ---------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization - 91,468
Interest and penalties on note conversion
paid with common stock - 200,203
Amortization of discount on notes payable 54,352 116,371
Decrease in:
Accounts receivable and notes receivable - 83,671
Officer advance - 6,900
Prepaid and other assets 41,325 38,300
Increase (decrease) in:
Accounts payable (1,684) (133,739)
Accrued expenses 232,996 171,843
--------------- ---------------
Total adjustments 326,989 575,017
--------------- ---------------
--------------- ---------------
Net cash used by operating activities (302,161) (262,017)
--------------- ---------------
Investing activities
Purchase of property and equipment - (15,161)
Decrease (increase) in trust account - 27,500
--------------- ---------------
Net cash provided (used) by investing activities - 12,339
--------------- ---------------
Financing activities
Bank overdraft 1,814 -
Proceeds from issuance of notes payable 294,250 169,481
Proceeds from common stock subscription - 107,127
Principal payments on capital leases and notes payable - (14,090)
--------------- ---------------
Net cash provided by financing activities 296,064 262,518
--------------- ---------------
Net increase (decrease) in cash (6,097) 12,840
Cash at beginning of period 6,097 12,879
--------------- ---------------
Cash at end of period $ - $ 25,719
=============== ===============
The accompanying notes are an intregral part of the consolidated financial
statements.
4
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2002 and 2001
(Unaudited)
1. Basis of Presentation
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 three and six months ended March 31, 2002 and 2001, (b) the
financial position at March 31, 2002, and (c) cash flows for the six months
ended March 31, 2002 and 2001, have been made.
The unaudited consolidated financial statements and notes are presented as
permitted by Form 10-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 Subsidiary (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, 2001. The results of
operations for the three-month and six-month periods ended March 31, 2002 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 subsidiary, Atlas Chemical Co. ("Atlas"),
after elimination of material, inter-company accounts, and transactions.
Reclassifications have been made to the 2001 consolidated financial statements
to conform to the classifications used in 2002, and to reflect accounting
effects of discontinued operations.
2. Bankruptcy Filing and Going Concern Considerations
In November 2001, the Company filed a voluntary petition for reorganization
under Chapter 11 of the U. S. Bankruptcy Code with the U.S. Bankruptcy Court. As
a result of the filing of the voluntary petition under Chapter 11 of the United
States Bankruptcy Code, it is anticipated that claims will be asserted in excess
of those amounts set forth in the Company's books and records, and that the
Company will dispute and file objections to certain of such claims. The
Company's management cannot express any opinion as to the likelihood of an
outcome respecting any claims asserted or to be asserted in the Chapter 11 case,
including claims resulting from the assumption or rejection of leases and
executory contracts and various other claims. 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 $16,924,420 and negative working capital
of $3,970,093 as of March 31, 2002, and total liabilities exceeding total assets
by $4,207,730 as of March 31, 2002. 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 of liabilities that might be necessary should the
Company be unable to continue as a going concern.
5
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2002 and 2001
(Unaudited)
2. Bankruptcy Filing and Going Concern Considerations(continued)
The Company has classified its liabilities subject to compromise as follows
according to its proposed plan of reorganization:
Secured Debt - Consists Administrative Expenses, Other Priority Claims, and
Secured Claims.
Trade and miscellaneous claims - Consists of Priority Tax Claims and Unsecured
Claims
Debt that may be converted to equity - Consists of secured or unsecured claims
which may be converted to equity.
3. Per Share Calculations
Per share data was computed by dividing net loss by the weighted average number
of shares outstanding during the three and six month periods ended March 31,
2002 and 2001. The weighted average shares outstanding for the three month
period ended March 31, 2002 was 12,939,204 as compared to 7,649,094 for the
three month period ended March 31, 2001. The weighted average shares outstanding
for the six month period ended March 31, 2002 was 12,939,204 as compared to
6,979,912 for the six month period ended March 31, 2001.
4. Equity Transactions
During the year ended September 30, 2001, $566,667 of redeemable convertible
promissory notes including $100,464 of accrued interest and $200,203 in
penalties, were converted into 6,883,595 shares of common stock. These shares
were not issued as of the fiscal year ended September 30, 2001 and were recorded
as a common stock payable. These shares were issued during the six-month period
ended March 31, 2002.
6
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
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
In November 2001, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida. The Company is operating as a
debtor-in-possession under the Code, which protects it from its creditors
pending reorganization under the jurisdiction of the Bankruptcy Court. As
debtor-in-possession, the Company is authorized to operate its business but may
not engage in transactions outside the ordinary course of business without
approval of the Bankruptcy Court. As a result of the filing of the voluntary
petition under Chapter 11 of the United States Bankruptcy Code, it is
anticipated that claims will be asserted in excess of those amounts set forth in
the Company's books and records, and that the Company will dispute and file
objections to certain of such claims. The Company's management cannot express
any opinion as to the likelihood of an outcome respecting any claims asserted or
to be asserted in the Chapter 11 case, including claims resulting from the
assumption or rejection of leases and executory contracts and various other
claims.
OVERVIEW
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
7
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
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. Shells can also be used as filler material for products such as
bowling balls.
Our management's long-term business strategy is to (i) develop and manufacture
our own shells and (ii) use our shell technology to improve the "R" values in a
number of applications that create new and improved products. These products may
include, but are not limited to, paints and coatings, drywall, gypsum board,
home siding materials and space foam insulation. Other markets in which we may
utilize our technology include refrigeration and cooling systems, automotive and
transportation applications, cups and thermoses. There is no assurance that we
will be successful in penetrating these markets and developing commercially
viable manufacturing techniques for our shell technology. In our 1995 fiscal
year, 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 these products. The products were marketed
under the ThermaCool(TM) label. There have been limited sales of this product
since its introduction due to our financial limitations.
BUSINESS STRATEGY
Our business strategy is to develop and commercialize shell technology and
products incorporating shell technology. An important element in the our past
strategy was to acquire paint manufacturers and distributors to introduce our
technology into the paint and coating industry. That strategy has been abandoned
because of our financial constraints. One of our current objectives will
re-start our marketing of Vaxcells incorporating our shell technology. Our
restructuring strategy of developing a commercially viable manufacturing process
for shells and expansion into markets for our shell technology will result in
incurring additional losses due to the costs associated with these strategies.
We expect to incur losses until we are able produce shells consistently on a
production-wide basis and are able to market these shells to generate revenues.
The Company's business strategy is dependent upon the successful implementation
of the following:
(i) Plan of Reorganization and Turnaround Business Strategy
ThermaCell filed for Chapter 11 protection on November 7,
2001. ThermaCell obtained Bankruptcy Court authority to negotiate a senior
secured credit facility from PAC Funding, LLC ("PAC") and has continued to
operate its business as a debtor-in-possession. PAC is a Florida limited
liability company, whose members are Augustine Capital Fund, L.P. and Private
Capital Group. PAC has committed $500,000 in senior secured lending. As of May
15, 2002, PAC funded $348,650. A committee of unsecured creditors has not been
appointed. The debtor-in-possession funding provided by PAC has allowed
ThermaCell to continue operations and avoid liquidation. ThermaCell is not
generating sales revenues from operations and is dependent upon PAC for funding
its working capital requirements.
8
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
In order to be confirmed, the Plan of Reorganization must
satisfy certain requirements of the Bankruptcy Court, including that each claim
in a particular class receive the same treatment as each other claim in that
class and that the Company be adequately capitalized (upon through emergence
from Chapter 11) so that confirmation of the Plan of Reorganization will not be
followed by a liquidation or the need for further reorganization.
Under the Plan of Reorganization it is anticipated that PAC
will receive approximately 70% of ThermaCell's equity, existing unsecured
creditors 20% of ThermaCell's equity, and existing shareholders 10% of
ThermaCell's equity. Pac would convert it existing secured credit into equity
that upon of emergence from the Chapter 11 proceedings, the only debt of
ThermaCell would be debt due to professionals, assessments imposed by the IRS,
which will be contested and other administrative claims. It is anticipated that
ThermaCell will fund or negotiate these claims as part of the Chapter 11
proceedings.
Management believes that the shell technology is viable and
that there are substantial markets for its products. The reorganization
proceedings, if successful, will help ThermaCell achieve its objectives and
retain some shareholder value.
(ii) Develop and manufacture the Company's own shells
The Company's manufacturing process allows for the production
of insulating shells in a manner to enable the evacuation of gases or the
addition of low conductive gas into the shells. Such evacuation results in lower
gas pressure or gases within the shells that can reduce thermal conductivity,
thus providing improved insulating qualities. The manufacturing process involves
the formation of water vapor in the shells and then the subsequent evacuation of
the shells by heating the shells. This process causes out-permeation of the
water vapor.
To the best of management's knowledge, no one has been able to
develop a commercially viable process for the production of fully evacuated
glass shells, due to, among other factors, manufacturing and technical
restraints. Currently, there are three large multinational companies that
manufacture shells. The essential difference between the manufacturing process
for partially evacuated shells, as compared to substantially or fully evacuated
shells, is the technique employed to evacuate gases from the shells which
improve its thermal conductivity or insulating value. Our plans to market
non-evacuated shells for several uses will compete directly with others in this
market. We plan to have non-evacuated shells available to sell in the general
market because not all shells during the manufacturing process will be
evacuated. These non-evacuated shells will be separated and sold for general use
as fillers, but will be produced at a substantially reduced cost.
Our present Daytona facilities and equipment can be used to
manufacture partially evacuated shells. To-date we have manufactured pilot plant
quantities of shells but have not produced commercial quantities.
(iii) Expand the shell technology to other products
We believe the potential exists to commercially exploit other
9
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
markets suitable for our shell technologies. These include filler materials for
bowling balls, aroma therapy applications and construction components such as
drywall, gypsum board, prefabricated cement products, home siding materials and
space foam insulation as potential markets. Other potential markets include
refrigeration and cooling systems, automotive and transportation applications,
and cups and thermoses. There is no assurance that we will be able to attract
capital to manufacture our products or successfully penetrate any of these
markets. We will only be able to implement this strategy if we are able to
economically manufacture highly or partially evacuated shells.
RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2002 COMPARED TO THE THREE-MONTH
PERIOD ENDED MARCH 31, 2001
Sales
- -----
There were no sales for the three-month period ended March 31, 2002 and 2001. We
are currently developing our microsphere technologies and have not generated
revenues from these products. There are no assurances that we will be able to
generate revenues from products incorporating this technology in the future.
Selling, General and Administrative Expenses
- --------------------------------------------
For the three-month period ended March 31, 2002, total selling, general, and
administrative expenses were $254,542 as compared to $427,422 for the
three-month period ended March 31, 2001, a decrease of $172,880 or 41%. This
decrease is primarily related to $200,203 in penalties, paid with our common
stock, associated with our redeemable convertible promissory notes charged
during the three-month period ended March 31, 2001 with no similar charge in the
current period.
Interest Expense
- ----------------
Interest expense, net of interest income, decreased 57%, or $70,471 to $53,687
for the three-month period ended March 31, 2002 from $124,158 in the previous
three-month period ended March 31, 2001. Interest expense primarily relates to
our outstanding convertible debentures.
Net Loss
- --------
The net loss and the net loss per share was $308,229 and $0.02, respectively,
for the three-month period ended March 31, 2002, as compared to a net loss and
net loss per share of $579,805 and $0.08, respectively, for the three-month
period ending March 31, 2001. This decrease is primarily related to $200,203 in
penalties, paid with our common stock, associated with our redeemable
convertible promissory notes charged during the three-month period ended March
31, 2001 with no similar charge in the current period. On a weighted average
basis, there were 12,939,204 shares outstanding for three-month period ending
March 31, 2002 as compared to 7,649,094 shares outstanding for three-month
period ended March 31, 2001.
10
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2002 COMPARED TO THE SIX-MONTH PERIOD
ENDED MARCH 31, 2001
Sales
- -----
There were no sales for the six-month period ended March 31, 2002 and 2001. We
are currently developing our microsphere technologies and have not generated
revenues from these products. There are no assurances that we will be able to
generate revenues from products incorporating this technology in the future.
Selling, General and Administrative Expenses
- --------------------------------------------
For the six-month period ended March 31, 2002, total selling, general, and
administrative expenses were $501,802 as compared to $620,738 for the six-month
period ended March 31, 2001, a decrease of $118,936 or 19%. This decrease is
primarily related to $200,203 in penalties, paid with our common stock,
associated with our redeemable convertible promissory notes charged during the
six-month period ended March 31, 2001 with no similar charge in the current
period. Payroll and payroll taxes increased approximately $70,000 during the six
month period ended March 31, 2002 as compared to the similar period in 2001.
Interest Expense
- ----------------
Interest expense, net of interest income, decreased 32%, or $60,835 to $127,348
for the six-month period ended March 31, 2002 from $188,183 in the previous
six-month period ended March 31, 2001. Interest expense primarily relates to our
outstanding convertible debentures.
Net Loss
- --------
The net loss and the net loss per share was $629,150 and $0.05, respectively,
for the six-month period ended March 31, 2002, as compared to a net loss and net
loss per share of $837,034 and $0.12, respectively, for the six-month period
ending March 31, 2001. This decrease is primarily related to $200,203 in
penalties, paid with our common stock, associated with our redeemable
convertible promissory notes charged during the six-month period ended March 31,
2001 with no similar charge in the current period. On a weighted average basis,
there were 12,939,204 shares outstanding for six-month period ending March 31,
2002 as compared to 6,979,912 shares outstanding for six-month period ended
March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
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.
11
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
We filed for Chapter 11 protection on November 7, 2001. We obtained Bankruptcy
Court authority to negotiate a senior secured credit facility from PAC Funding,
LLC ("PAC") and we have continued to operate our business as a
debtor-in-possession. PAC is a Florida limited liability company, whose members
are Augustine Capital Fund, L.P. and Private Capital Group. PAC has committed
$500,000 in senior secured lending. As of May 15, 2002, PAC funded $348,650. A
committee of unsecured creditors has not been appointed. The
debtor-in-possession funding provided by PAC has allowed us to continue
operations and avoid liquidation. We are not generating sales revenues from
operations and we are dependent upon PAC for funding our working capital
requirements.
We continue to experience operating losses. Our net working capital deficiency
and accumulated deficit are $3,970,093 and $16,924,420, respectively at March
31, 2002. We have not historically generated sufficient revenues from operations
to self-fund our capital requirements. Management is focusing on raising
additional capital to fund its present development. We do not have sufficient
working capital to meet our immediate needs.
We will not be able to meet our future cash requirements unless new financing is
obtained. Moreover, we will require substantial capital to execute our Plan of
Reorganization and the Plan of Reorganization must be approved in the short term
to remain a going concern. We will need short term outside investments on a
continuing basis to finance our current operations. We expect to continue to
experience losses for the near future. If we do not obtain short term financing,
we may not be able to continue as a going concern and the Company may have to
convert to a Chapter 7 bankruptcy. We do not have a bank line of credit and
there can be no assurance that any required or desired financing will be
available through bank borrowings, debt, or equity offerings, or otherwise, on
acceptable terms. If future financing requirements are satisfied through the
issuance of equity securities, investors may experience significant dilution in
the net book value per share of common stock and there is no guarantee that a
market will exist for the sale of the Company's shares.
Inflation
Inflation has not proven to be a factor in our business since our inception and
is not expected to have a material impact on our business in the foreseeable
future.
Going Concern Assumption
On November 7, 2001 we filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court. We have
incurred significant losses since our inception. These losses and other factors
resulted in most of our available cash resources being used to support operating
activities. In addition, we have assumed significant commitments and obligations
as described in the financial statements. These factors, among others, raise
substantial doubt about our ability to continue as a going concern.
12
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
The accompanying consolidated financial statements have been prepared assuming
that we will continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
We have taken certain steps to revise our operating and financial requirements,
which we believe are sufficient to provide us with the ability to continue in
existence. These steps and our plans regarding these matters include the filing
of a voluntary petition for reorganization under Chapter 11 of the U.S
Bankruptcy Code with the U.S. Bankruptcy Court. The first impact of the Chapter
11 filing was to stay certain legal proceedings that had been instituted against
us. We also believe that the Chapter 11 filing has allowed us to reorganize and
rethink our direction, and to obtain debtor-in-possession financing.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management of the
Company to make estimates and assumptions affecting the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as revenues and expenses during
the reporting period. The amounts estimated could differ from actual results.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
We are subject to a number of lawsuits and claims arising out of the conduct of
our business. Management believes that the probable resolution of such matters
may materially affect our financial position, results of operations or cash
flows.
In November 2001, we filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
Middle District of Florida in Tampa, Florida. We have arranged for
debtor-in-possession financing with our largest shareholder. Our intent is to
have our plan of reorganization approved in July 2002, 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.
13
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
In light of the Chapter 11 filing the following lawsuits have been stayed:
On October 4, 2000, a judgment was rendered by the United States District Court,
Middle District of Florida, in a trial regarding claims 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 1997. The Plaintiffs, in the pretrial, claimed damages
in the amount of approximately $3.5 million. The judgment concluded that no
monies or other consideration was due Mr. Haraburda or the Eden Group, Inc. The
Company's claims regarding two promissory notes of the Eden Group, Inc., Mr.
Haraburda's firm, that were unpaid were also denied. Subsequently, Mr. Haraburda
and Eden Group, Inc. appealed the decision to the United States Court of Appeals
for the Eleventh Circuit. The Company also appealed the decision regarding the
obligations of Eden Group, Inc. under the promissory notes. This court affirmed
the lower court's decision and there has been no further action by Mr. Russell
Haraburda and Eden Group, Inc.
The Company is involved in several lawsuits for outstanding obligations from
vendors, leasing companies, and certain professionals for services provided.
There are default judgments that have been granted because the Company did not
had the financial resources to appropriately defend itself as representation was
declined or withdrawn.
Generally, legal actions to enforce or otherwise effect repayment of all
pre-petition liabilities as well as all pending litigation against ThermaCell
are stayed while we continue to operate our business as debtor-in-possession.
Item 3. Defaults Upon Senior Securities.
-------------------------------
The Company is currently in default on approximately $1,500,000 of notes payable
and capital leases.
Item 6. Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits
-none
(b) Reports of Form 8-K
-none
14
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
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 6/24/2002
/s/ James Hagarman
-----------------------
James Hagarman
President
15