October 15, 1997
THERMACELL TECHNOLOGIES INC (VCLL)
Quarterly Report (SEC form 10QSB)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-QSB contains 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. Actual results could differ materially from those projected in the forward looking
statements contained in this Form 10-QSB.
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 Holiday, 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.
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 coatings and to obtain an established marketing distribution channel
which included major accounts such as Builders Square, Ace Hardware, Kmart, among others.
For the fiscal year ending June 30, 1997, Atlas Chemical had annual revenues of $2.4 million
and sustained a net loss of approximately $68,000.
THERMACELL TECHNOLOGIES, INC.
The Company has sustained significant operating losses since its inception. Management's
strategy of expanding 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. The Atlas Chemical acquisition completed on July 28,
1997 should accelerate the Company's plan to achieve profitable operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1997 COMPARED TO THREE MONTHS
ENDED AUGUST 31,
Total consolidated revenue for the three months ended August 31, 1997 was $463,568
compared to $171,777 for the same period of 1996, which represents an increase of $291,791
or 170%. The increase was a result of both expanded sales of paint products and coatings
produced by the Company's paint manufacturing facility and the sales contribution for one month
of the recently acquired Atlas Chemical Company.
Gross profit margins were 39% and 54%, respectively, for the three month period ending
August 31, 1997 as compared to the prior period ending August 31, 1996. This decrease is the
result of a change in mix of paint and coatings products sold by the Company and the lower
margin contribution of Atlas Chemical. It is expected that with the higher levels of materials
purchases, economies of scale from the combined business will allow the Company to benefit
from higher gross profit margins in the future.
For the three months ended August 31, 1997, total selling, general and administrative
expenses(S,G & A) were $497,585, as compared to $278,210 for the same period of the
previous year, an increase of $219,375, or 79%. This increase was due to higher expenses
incurred by the company in marketing, staffing and other expenses associated with the
Company's operations together with the additional costs for SG & A of the Atlas Chemical
operation. The Company has taken steps to reduce duplication of personnel and is in the process
of consolidating its staffing, marketing, and production for more efficient and effective business
operations. With the expanded distribution provided with the Atlas acquisition, the Company
should receive substantial benefit from sales of its new coatings products to national customers.
These efforts will allow the Company to significantly grow its business over the next twelve
months.
The Company continued to experience a loss from operations of $317,301 for the period ending
August 31, 1997 as compared to a loss of $184,982 for the same prior year period. The higher
consolidated gross profit for this period was more than offset by the higher level of S, G & A
expense incurred during this three month period and consequently contributed to the higher
operating loss. Management anticipates that increasing levels of sales, including the significant
contribution of the Atlas business will result in improvement in future operating performance.
THERMACELL TECHNOLOGIES, INC.
Based upon management's current estimates of future taxable income, management has
determined that a valuation allowance of fifty percent (50%) is appropriate during the current
period ending August 31, 1997 to represent that portion of deferred taxes that may be realized in
the future.
The net loss, after income taxes benefit, and net loss per share were $270,874 and $.09 per
share respectively, for the three months ended August 31, 1997 as compared to a net loss and net
loss per share of $195,017 and $.28 respectively, for the same period in 1996. There was no
interest expense in the present period as compared to the prior year's quarter. Although the loss
for the period increased, the earnings per share declined due to the greater number of shares
outstanding for the period because of the shares issued in the Company's recent successful
underwriting. |
