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 December 31, 1998

         [   ]  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.)

                     1125 Commerce Blvd., Sarasota, FL 34243
                     ---------------------------------------
                    (Address of Principal Executive Offices)

                                 (941) 358-0306
                                 --------------
                           (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 December 31, 1998 was 7,206,325.

         Transitional Small Business Disclosure Format:

Yes      No X
   ---     ---

<PAGE>
 

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY


                                      Index



                                                                         Page
Part I - Financial Information                                           ----  

Item 1.  Consolidated Financial Statements

         Consolidated Balance Sheets -
           December 31, 1998 and September 30, 1998..................   1 - 2

         Consolidated Statements of Operations -
           Three months ended December 31, 1998 and 1997.............     3

         Consolidated Statements of Cash Flows -
           Three months ended December 31, 1998 and 1997.............     4

         Notes to Consolidated Financial Statements..................     5

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations.......................   6 - 9

Part II - Other Information

Item 1. Legal Proceedings............................................    10

         Signatures..................................................    11

Exhibit 11...........................................................    12


                                       i
<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets


                                     Assets

<TABLE>
<CAPTION>


                                                                                    December 31,        September 30,
                                                                                        1998                1998
                                                                                  ------------------  ------------------


<S>                                                                              <C>                 <C> 
Current assets
   Cash                                                                           $          41,622   $          67,405
   Accounts receivable
     Trade, net of allowance for uncollectible accounts
     of $64,591 and $64,227, respectively                                                   964,118             314,262
   Notes receivable - trade                                                                  52,000              52,000
   Notes receivable - other                                                                  81,514              76,622
   Other assets                                                                               4,880              18,998
   Inventories                                                                              674,532             489,259
   Prepaid expenses and other                                                               143,374             161,308
                                                                                  ------------------  ------------------

         Total current assets                                                             1,962,040           1,179,854
                                                                                  ------------------  ------------------

Property and equipment                                                                    1,653,376           1,141,502
   Less - accumulated depreciation                                                          288,107             248,530
                                                                                  ------------------  ------------------
                                                                                          1,365,269             892,972
                                                                                  ------------------  ------------------

Other assets
   Deposits                                                                                  34,257              16,266
   Deferred income tax benefit, net                                                         850,828             795,309
   Goodwill, net of accumulated amortization
     of $95,602 and $75,937, respectively                                                 1,545,439             815,010
   Other intangibles, net of accumulated amortization
     of $33,173 and $16,471, respectively                                                   197,571             162,469
                                                                                  ------------------  ------------------
                                                                                          2,628,095           1,789,054
                                                                                  ------------------  ------------------




         Total assets                                                             $       5,955,404   $       3,861,880
                                                                                  ==================  ==================
</TABLE>


See notes to consolidated financial statements.


                                       1
<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets


                      Liabilities and Stockholders' Equity

<TABLE>
<CAPTION>


                                                                                    December 31,        September 30,
                                                                                        1998                1998
                                                                                  ------------------  ------------------


<S>                                                                              <C>                 <C>
Current liabilities
   Accounts payable                                                               $         981,443   $         445,118
   Accrued expenses                                                                         179,034              45,396
   Accrued payroll and payroll taxes                                                         36,550              13,647
   Current maturities of long-term debt
     Notes payable                                                                           35,340              20,340
     Capital leases                                                                          37,030              38,644
                                                                                  ------------------  ------------------

         Total current liabilities                                                        1,269,397             563,145
                                                                                  ------------------  ------------------

Long-term debt, net of current maturities
   Notes payable                                                                             92,653              58,128
   Capital lease obligations                                                                112,025              73,079
                                                                                  ------------------  ------------------
         Total long-term debt, net of current maturities                                    204,678             131,207
                                                                                  ------------------  ------------------

         Total Liabilities                                                                1,474,075             694,352
                                                                                  ------------------  ------------------

Commitments and contingencies                                                                     -                   -

Stockholders' equity
   Preferred stock, Series A, par value $.0001
     5,000,000 shares, authorized, issued
     and outstanding                                                                            500                 500

   Preferred  stock,  Series B  convertible,  $1,000 stated  value,  8% dividend
     Authorized 1,500 shares,
     250 issued and outstanding                                                             250,000             250,000

   Common stock, par value $.0001
     Authorized 20,000,000 shares,
     7,206,325 and 5,129,325 issued and outstanding, respectively                               721                 513

   Additional paid-in capital                                                             8,262,285           6,612,481
   Deduct notes receivable associated with stockholder loan                                (567,829)           (453,695)
   Accumulated deficit                                                                   (3,464,348)         (3,242,271)
                                                                                  ------------------  ------------------

         Total stockholders' equity                                                       4,481,329           3,167,528
                                                                                  ------------------  ------------------


         Total liabilities and stockholders' equity                               $       5,955,404   $       3,861,880
                                                                                  ==================  ==================


</TABLE>

See notes to consolidated financial statements.


                                       2
<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>


                                                                             For the Three Months Ended
                                                                                    December 31,
                                                                         -----------------------------------
                                                                              1998                 1997
                                                                         ---------------       -------------
                                                                          (unaudited)          (unaudited)
<S>                                                                   <C>                   <C> 
Revenue
     Sales                                                             $        811,410      $      758,284

Less cost of sales                                                              573,143             492,709
                                                                         ---------------       -------------

     Gross profit                                                               238,267             265,575

Selling, general and administrative
     expenses                                                                   517,460             339,645
                                                                         ---------------       -------------

                  Loss from operations                                         (279,193)            (74,070)
                                                                         ---------------       -------------

Other income (expense)
     Interest income                                                              4,431              11,986
     Interest expense                                                            (2,835)             (4,679)
     Other                                                                            -               1,695
                                                                         ---------------       -------------
                  Total other income (expense)                                    1,596               9,002
                                                                         ---------------       -------------

                  Loss before income taxes                                     (277,597)            (65,068)

Income taxes
     Deferred income tax benefit                                                 55,519              13,014
                                                                         ---------------       -------------

                  Net loss                                             $       (222,078)     $      (52,054)
                                                                         ===============       =============


Basic loss per common share                                            $          (0.04)     $        (0.02)
                                                                         ===============       =============

Weighted average number of
     common shares outstanding                                                5,730,568           3,024,761
                                                                         ===============       =============

</TABLE>


See notes to consolidated financial statements.

                                       3
<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                                          For the Three Months Ended
                                                                                                 December 31,
                                                                                       ---------------------------------
                                                                                            1998              1997
                                                                                       ---------------   ---------------
                                                                                        (unaudited)       (unaudited)
<S>                                                                                   <C>               <C>
Cash flows from operating activities:
            Reconciliation of net loss to net cash
             used in operating activities
               Net loss                                                                $     (222,078)   $      (52,054)
               Adjustments to reconcile net loss to net
                 cash used in operating activities
                 Depreciation                                                                  39,577            30,265
                 Amortization                                                                  36,367            16,271
                 Deferred income tax benefit                                                  (55,519)          (13,014)
               Changes in assets and liabilities, net of acquisitions
                 (Increase) in accounts and notes receivable                                  (61,932)          (27,510)
                 (Increase) decrease in inventories                                            49,239           (35,742)
                 (Increase) decrease in prepaid and other assets                               37,576            (2,282)
                 (Decrease) in accounts payable                                               (22,906)          (59,006)
                 Increase (decrease) in accrued expenses                                      134,768           (94,628)
                 Common stock issued for services                                                   -            23,285
                                                                                       ---------------   ---------------
                       Net cash used in operating activities                                  (64,908)         (214,415)
                                                                                       ---------------   ---------------

Cash flows from investing activities
            Capital expenditures                                                              (71,875)          (47,536)
            Acquisitions                                                                   (1,420,101)                -
            Expenditures for patent, net                                                      (40,000)                -
                                                                                       ---------------   ---------------
                       Net cash used in investing activities                               (1,531,976)          (47,536)
                                                                                       ---------------   ---------------

Cash flows from financing activities
            Proceeds from issuance of common stock                                          1,650,000                 -
            Proceeds from issuance of notes payable                                            35,235                 -
            Principal payments on notes payable                                                     -            (9,076)
            Principal advances on stockholder loan                                           (114,134)          (21,920)
                                                                                       ---------------   ---------------
                       Net cash provided by financing activities                            1,571,101           (30,996)
                                                                                       ---------------   ---------------

                       Net increase (decrease) in cash                                        (25,783)         (292,947)

Cash beginning                                                                                 67,405           580,522
                                                                                       ---------------   ---------------

Cash ending                                                                           $        41,622    $      287,575
                                                                                       ===============   ===============

</TABLE>


See notes to consolidated financial statements.

                                       4
<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
                   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, 1998 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 three months ended December 31, 1998 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 December 31, 1998 and December 31, 1997 were 5,730,568
and 3,024,761, respectively.

Note 3 - Accounting Change

The Company adopted Statement of Accounting  Standards #128, Earnings per Share,
during the quarter  ended  December 31,  1997.  Since the Company has reported a
loss  only the  basic  earnings  (loss)  per share is  thereby  reported  as the
reporting of diluted  loss per share would be  anti-dilutive.  The  inclusion of
converted  preferred  shares in the  calculation of weighted  average shares for
diluted  earnings per share  purposes would be  anti-dilutive  and per FASB 128,
cannot be included in the financial statements.

Note 4 - Equity Transactions

During the quarter ended December 31, 1998, the Company  received  $250,000 that
it recorded as an equity investment for 1,205,000 shares of common stock.  These
funds were used for working capital  purposes.  These shares were issued without
any restrictive  legend on the direction of David  Feingold,  SEC counsel to the
Company.  Subsequently on December 21, 1998, David  Feingold's firm,  Feingold &
Kam resigned as SEC counsel to the Company and on December 30, 1998  commenced a
law suit for unpaid fees. The Company is presently  reviewing all the securities
transactions  during the October to December 1998 period that attorney  Feingold
represented the Company.

                                       5

<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY


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 was 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
which  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.

                                       6
<PAGE>

On  October  15,  1998,  the  Company  agreed to acquire  T-Coast  Pavers/Sealco
Systems,  Inc.  which have annual  revenues of more than $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  with $2.5 million in annual revenues,  for 572,000
common  shares  on  December  1,  1998.  American  Paints'  operations  will  be
consolidated into the Company's Atlas manufacturing facility to reduce duplicate
costs and increase operating profits.

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.

RESULTS OF OPERATIONS

Three months ended December 31, 1998 compared to three months ended December 31,
1997

Total  consolidated  revenue for the three  months  ended  December 31, 1998 was
$811,410  compared to $758,284 for the same period of 1997,  which represents an
increase of $53,126,  or 7%.  This  increase  was  primarily  attributed  to the
additional   revenues   of  two  recent   acquisitions:   American   Paints  and
T-Coast/Sealco  Systems,  Inc. even though their  contribution was for one month
during this quarter.  The revenues for the Company's  existing business declined
for this  period over the prior  period.,  This  resulted  from the loss of some
customers and adverse weather  conditions  within the Company's  Florida markets
that depressed sales.

Gross  profit  margins were 29.4% and 35.0%,  respectively,  for the three month
period ended  December 31, 1998, as compared to the prior period ended  December
31,  1997.  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 to 25%.

For the three  months  ended  December  31,  1998,  total  selling,  general and
administrative  expenses  were  $517,460 as  compared  to $339,645  for the same
period of the previous  year, an increase of $177,815,  or 52%. This increase is
the result of higher marketing,  staffing and other general expenses  associated
with both the  Company's  acquisitions.  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
for both the recent  acquisitions.  With the expansion of distribution  channels
provided by the American Paints acquisition, the Company anticipates substantial
benefit from the sales of products to an expanded customer base.

The Company  continued to experience  losses from operations of $279,193 for the
period  ended  December  31,  1998 as compared to a loss of $74,070 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  higher  S.  G & A  expense  during  this  period.
Management   anticipates  that  increasing   levels  of  sales,   including  the
contribution of both of the recent  acquisitions,  will result in improvement in
future operating performances and eventually profitable operations.

                                       7
<PAGE>


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 ended  December 31, 1998 to represent that portion of
deferred taxes that may be realized in future periods.

The  interest  expense  for the period  ended  December  31,  1998 was $2,835 as
compared to the prior year's  quarter of $4,679.  The  interest  expense for the
current period was incurred primarily for financing of Company vehicles that was
similar to the interest expense for prior period.

The basic loss, after income tax benefit, and basic loss per share were $222,078
and $0.04 per share  respectively,  for the three months ended December 31, 1998
as  compared  to a basic  loss and  basic  loss per  share of  $52,054  and $.02
respectively,  for the same period in 1997. This loss represents a 327% increase
over the basic loss experienced in the year ago quarter.  The loss per share for
the period  increased  100% over the  previous  year ago  period.  The  weighted
average shares outstanding for the quarter ended December 31, 1998 was 5,730,568
as compared to 3,024,761 for the preceding year quarter ended December 31, 1997.

The Company has focused,  in the recent  quarter  ended  December  31, 1998,  on
expanding its  operations by strategic  acquisitions  to increase the production
throughput of its  manufacturing  facilities.  The second quarter of this fiscal
year will benefit from the higher sales  contributions  of the two  acquisitions
that should result in  profitability  for the Company.  Thereafter,  the company
will  aggressively  market  its  paint  and  coatings  products,  with the added
opportunity  to sell its  expanded  product line to a greater  customer  base. A
focus of its strategy will be to continue to expand within the Sunbelt Region of
the United States. In addition to the Company's  marketing  efforts,  the recent
acquisitions  will further the  utilization of the Company's  paint and coatings
production capacity.
Management is optimistic about the benefits of its near-term strategy.

The Company anticipates  improvements in raw material purchasing  economies that
will result in further cost savings in its  purchases  within its  manufacturing
operation.  This  benefit will  continue in this fiscal  year.  The Company also
anticipates  improvement  in gross  profit  margins  during the  balance of this
fiscal year resulting from these improved purchasing economies.


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 three months ended, the Company received $250,000 that it
recorded as an equity  investment  for 1,205,000  shares of common stock.  These
funds were used for working capital purposes.

The issuance of these 1,205,000  shares of common stock during November of 1998,
as the Company understood it at that time, was to acquire the equity interest of
Thomson Kernaghan Ltd. of Toronto,  Canada,  who held a preferred stock position
that allowed  conversion to common stock pursuant to a Regulation S transaction.
The Company has recently  received a demand by Thomson  Kernaghan  for immediate
conversion of its remaining holdings of preferred stock to common stock. Thomson
Kernaghan  has asserted that no sale of its  preferred  stock  position was ever
consummated  through the efforts of the Company's former SEC counsel,  Mr. David
Feingold (see Part II, Item 1, Legal  Proceedings  below).  On February 9, 1999,
Thomson  Kernaghan  demanded that the Company  deliver  789,089 shares of common
stock and penalties of $295,570.  The Company originally disputed this demand of
common  shares.  On February  17,  1999,  Mr.  Feingold  informed the Company of
Diversified Lendings assumption of the Company's obligation to Thomson Kernaghan
as part of the common stock issued during the quarter ending  December 31. Based
upon its  obligations  to Thomson  Kernaghan,  the Company on February  18, 1999
agreed to issue 650,000 shares of common stock in complete  satisfaction of this
issue.  Thomson Kernaghan also agreed to the sale of such common stock only with
the full agreement of the Company.

                                       8
<PAGE>


Net cash used in operating  activities  for the three months ended  December 31,
1998 was  $64,908  compared to net cash used of  $214,415  for the three  months
ended December 31, 1997.  This decrease in cash used by operating  activities is
primarily due to a decrease in levels of inventory  and prepaid  expenses with a
benefit from a higher level of accrued  expenses despite the higher net loss. In
the prior year period, increases in both accounts payables and inventory coupled
with decreases in accounts  payables and accrued expenses  contributed to higher
net cash used in operating  activities even though the Company  incurred a lower
net loss.

Cash used in investing  activities  for the three months ended December 31, 1998
and 1997 was  $1,531,976 and $47,536,  respectively.  The major use of funds was
for the two  acquisitions-American  Paints and T-Coast/ Sealco Systems completed
during this period. In addition, capital expenditures for the recent period were
increased  to $71,875 from  $47,536  over the prior years  period.  There was no
acquisition  in the year ago period.  The recent period  includes an expenditure
for patents while in the year ago period there was no such expenditure.

Cash provided by financing  activities  for the three months ended  December 31,
1998 was $1,571,101 as compared to cash used in financing  activities of $30,996
for the three months ended  December 31, 1997.  During the recent  quarter,  the
Company  issued common stock with an aggregate  value of $1,400,000  for both of
its current period acquisitions.  Shareholder loans increased during this period
that included the assumption of certain company incurred  professional  expenses
by a shareholder.

As of December  31,  1998,  the  Company had net working  capital of $692,643 as
compared to $616,709 at fiscal year ended  September 30, 1998.  This increase in
net working  capital of $75,934 is primarily due to in higher levels of accounts
receivable  and  inventories  while the  Company  had higher  levels of accounts
payable and accrued  expenses.  The Company's ratio of current assets to current
liabilities was 1.5 at December 31, 1998, and 2.1 at fiscal year ended September
30, 1998.

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.

The Company  continues to focus its marketing  efforts within the Sunbelt Region
of the United States to increase  consumer  awareness and acceptance of both its
existing and new products. In addition to this marketing effort, the Company has
positioned  itself  to  expand  the  near  term  production  of its  proprietary
products.

Management  believes that additional  capital will be needed to fund its present
plan to build within this fiscal year a manufacturing facility to produce shells
for its paint and coating  technology  products.  The Company 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 the  building  of such a  manufacturing  facility  to 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
to supplement the cash proceeds that can be generated from its recently acquired
businesses.  Should such  funding not be  available,  the Company  would have to
significant curtail its planned operations to achieve breakeven operations.

                                       9
<PAGE>


                           PART II - OTHER INFORMATION


Item 1.           Legal Proceedings.

On May 2, 1997,  the Company was served with a summons  regarding a civil action
filed in the United States District Court,  Eastern  District of Michigan by IA,
Inc., as plaintiff, that alleges the Company, and its president, John Pidorenko,
and Monroe  Parker  Securities,  Inc.,  the  Company's  underwriter,  breached a
marketing  agreement  executed by Mr.  Pidorenko  on March 26, 1992  relating to
technologies  developed by IA, Inc. This agreement  contained a  confidentiality
and non-disclosure clause for technologies purportedly developed by IA, Inc. The
Company was not a party to that agreement.  The Company believes that it has not
infringed on any patents held by IA, Inc., non-withstanding the validity of such
patents  and/or their  claims.  The petition  requested  various  court  actions
including a jury trial, but no specific request for damages. The Company intends
to  vigorously  defend  itself  in this  action.  The  Company  believes  it has
meritorious  defenses in this matter which is in a  preliminary  stage and which
will not be  resolved  until a  considerable  period  of time has  elapsed.  The
Company has agreed to indemnify Monroe Parker Securities, Inc., its underwriter,
against any claims asserted by this party.

On or about  February 11, 1998,  Mr. Kevin  Horrell  filed an amended  complaint
against the Company and Mr. Pidorenko. The previous complaint has been dismissed
in the Circuit Court of the 12th Judicial Circuit, in Sarasota County,  Florida,
Case No. 97-4867CA-01.  Mr. Horrell alleged that he was due certain unrestricted
securities of the Company in connection  with prior  financing  activities.  Mr.
Horrell alleged breach of contract,  fraud in the inducement of a contract,  and
violations of Rule 10b-5.  On February 16, 1999, an oral  settlement was reached
in which John Pidorenko,  the Company's president,  transferred 40,000 shares of
the  Company's  common  stock he  personally  owned to Mr.  Horrell.  A complete
settlement of this matter is expected.

On  December  30,  1998,  the law firm of  Feingold & Kam  initiated  litigation
against the Company regarding a fee dispute and claimed fees and expenses due of
$18,750.  This firm  withdrew as the  Company's SEC counsel on December 21, 1998
and  commenced  this  legal  action.  This  action  is  related  to a Legal  and
Consulting Engagement Agreement, dated October 8, 1998, which is an enclosure in
this filing. The Company believes it has meritorious defenses in this matter and
further believes it has counterclaims regarding the conduct of David Feingold, a
principal in that law firm.  Specifically,  Mr.  Feingold issued opinions to the
Company's stock transfer agent to deliver common stock without legend to various
persons.  The justification for such issuance was to acquire the equity interest
of Thomson Kernaghan who held a convertible preferred stock position pursuant to
a Regulation S.  transaction.  Two officers of the Company issued  confirmations
that such shares should be issued but left the specific  instructions  as to the
form of such issuance to attorney Feingold.  Subsequently,  the Company has been
confronted with a demand by Thomson  Kernaghan for conversion to common stock of
its remaining  preferred stock issuance.  Thomson Kernaghan has asserted that no
sale of its preferred stock position was ever consummated through the efforts of
Mr.  Feingold  and  Diversified  Lending.  Mr.  Feingold  has  represented  that
Diversified  Lending is responsible for satisfying the Company's  obligations to
Thomson  Kernaghan.  The Company  believes that if  Diversified  Lending did not
validly assume this  obligation,  then Mr. Feingold may have  improperly  issued
Company  securities to  affiliates of his law firm for his own benefit  although
the Company did receive $250,000 during this period.  The Company's common stock
price on the  NASDAQ  Small  Cap  market  was  substantially  above  the  actual
consideration  paid  for  each of  these  shares.  The  Company  is  taking  all
appropriate steps to obtain documents supporting Mr. Feingold's  assertions,  or
alternatively,  return of these shares or adequate  consideration for this stock
issuance and the appropriate  restrictions on these securities.  On February 16,
1999,  the Company was advised by Mr.  Feingold  that the lawsuit for his firm's
fees was being  withdrawn.  On February  17,  1999,  Mr.  Feingold  informed the
Company he  disagrees  with the  Company's  position  and that the  issuance  of
unlegended stock to certain individuals and entities was proper, notwithstanding
the fact that Thomson  Kernaghan  asserts it never agreed to the  assumption  by
Diversified Lending of the Company's Regulation S obligations which included the
issuance of common  stock.  On February  18, 1999,  the Company  agreed to issue
650,000 shares of common stock to Thomson Kernaghan in complete  satisfaction of
the  Company's  obligation.  Thomson  Kernaghan  also agreed to the sale of such
common stock only with the full  agreement of the  Company.  The Company  cannot
predict what the effect of this situation  will have on its financial  position.

                                       10
<PAGE>


The Company anticipates that Russell Haraburda, a principal in the Eden Group, a
Sarasota Florida company will make a legal claim for monies  purportedly due him
from the Company and/or its president,  John Pidorenko,  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. The Company will vigorously challenge any such
demands.

Item 5.           Other Information

On January 21,  1999,  Mr. Peter  Mahovlich,  a member of the board of directors
resigned.

Item 6.           Exhibits and reports on Form 8K

          Form 8-K filed on December 14, 1998 containing  information  regarding
the acquisition of American Paints, Inc.

         Form 8-K filed on January 11, 1998 containing information regarding the
acquisition of T-Coast Pavers/Sealco Systems, Inc.

         Legal and  Consulting  Engagement  Agreement,  dated  October  8, 1998,
between the Company and the law firm of Feingold & Kam.



                                   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    2/19/99

                                                 /s/ Gerald Couture
                                                 ----------------------------
                                                 Gerald Couture
                                                 Vice-President, Finance and CFO


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