U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB


[ X ] ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934

For the fiscal period ended September 30, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
                         Commission File Number 0-21279


                          THERMACELL TECHNOLOGIES, INC.
                         ------------------------------
             (Exact name of registrant as specified in its charter)

                     FLORIDA                                59-3223708
                     -------                                ---------- 
          (State or other jurisdiction of               (I.R.S. Employer
           incorporation or organization)              Identification No.)

          5419 PROVOST DRIVE, HOLIDAY, FLORIDA                34690
       ------------------------------------------            -------
        (Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code: (813) 938-3269

     Securities registered pursuant to Section 12(b) of the Act: NONE

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 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.

[ X ] Yes  [    ] No

Check  if no  disclosure  of  delinquent  filers  in  response  to  Item  405 of
Regulation S-B is contained in this form,  and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  of  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [ X ]

State   issuer's   revenues   for  its  most   recent   reporting   period  (ten
months)........$1,036,376.

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant at January 9, 1998 was $6,933,204.  The bid price of the common stock
at that date was $2.75.

DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Company's  definitive proxy statement for the Annual Meeting of the
Company's  stockholders  to be  held on  April  15,  1998  are  incorporated  by
reference into part III of this Form.


<PAGE>



                          THERMACELL TECHNOLOGIES, INC.

                               FORM 10-KSB - Index
                  FOR THE TEN MONTHS ENDED SEPTEMBER 30, 1997

        PART I                                                             Page
                                                                           ----
        Item 1.     Business                                                1.

        Item 2.     Properties                                              8.

        Item 3.     Legal Proceedings                                       8.

        Item 4.     Submission of Matters to a Vote of Security Holders     9.

        PART II

        Item 5.     Market of the Registrant's Securities and Related
                     Stockholder Matters                                    9.

        Item 6.     Selected Financial Data                                11.

        Item 7.     Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                   11.

        Item 8.     Consolidated Financial Statements and Supplementary
                     Data                                                  15.

        Item 9.     Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosures                  16.

        PART III

        Item 10.     Directors and Executive Officers of the Registrant    16.

        Item 11.     Executive Compensation                                16.

        Item 12.     Security Ownership of Certain Beneficial Owners
                      and Management                                       16.

        Item 13.     Certain Relationships and Related Transactions        16.
     
        Item 14.     Exhibits, Consolidated Financial Statements,
                      Schedules and Reports on Form 8-K                    17.

        Signatures                                                         19.


<PAGE>

This Form 10-KSB  contains  forward  looking  statements,  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934,  regarding future events and the future performance of the
Company  involve risks and  uncertainties  which may cause the Company's  actual
results in future periods to be materially different from any future performance
suggested  herein.  The Company  believes  that the patents it is seeking on its
microshell technologies are unique in manufacture and application.  There can be
no assurance that such patents will be granted.  The patent approval  process is
both involved and time  dependent.  There can be no assurance that approval will
be granted in a manner that protects the Company's  technologies  or that others
have not claimed aspects of these technologies in patents or pending patents. As
to the Company's performance,  actual results could differ materially from those
projected in the forward looking statements contained herein.


PART I

ITEM 1. BUSINESS.

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 (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.

Management of the Company  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. The Company's
strategy is to commercially  exploit the use of its shell  technology to improve
the "R"  values of a number  of  products.  In fiscal  year  1995,  the  Company
completed the development of its 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  are  marketed  under  the
ThermaCool(TM) label.

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 ("Darling  Paint") for approximately  $250,000 in cash. The Company also
assumed  the real  estate  lease for the  Darling  Paint  facility.  The Company
acquired these assets and assumed this real estate lease so that it would 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,
the Company was required to purchase paints and coatings from independent  paint
and coating manufacturers.

                                       1

<PAGE>

On March 19, 1997, the Company  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,  the  Company  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 include major  accounts  such as Builders  Square,  Ace Hardware,
Lowes, and others.  For the fiscal year ending June 30, 1997, Atlas Chemical had
annual revenues of $2.4 million and sustained an operating loss of approximately
$68,000.

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  should
accelerate the Company's plan to achieve profitable operations.

The  Company'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 for the  ThermaCool(TM)
product  line,  developing  commercially  viable  manufacturing  techniques,  or
addressing other markets.

BUSINESS STRATEGY

The  Company's  business  strategy  is  to  become  profitable  by  commercially
exploiting its shell technologies along with the manufacture and distribution of
conventional  paint and coating products.  An important element in the Company's
present strategy  incorporates  the recent  acquisition of Atlas Chemical Co., a
paint  manufacturer  and  distributor  that was established in 1919. With Atlas'
established   distribution   channels,   the   Company   anticipates   marketing
ThermaCool(TM)  coatings that complement established paint and coating products.
The Company's business strategy is dependent upon the successful  implementation
of the following:

                                       2

<PAGE>

(i)   EXPAND THE MARKETING AND DISTRIBUTION OF THERMACOOL(TM) PAINTS AND
       COATINGS.

The use of shells in paints and  coatings is the  Company's  initial  attempt to
commercially apply its shell technology.  Although the ultimate objective of the
Company  is to  commercially  exploit  fully  evacuated  shells in a variety  of
products,  management  believes  that  the  use of  partially  evacuated  shells
properly combined with paints and coatings can improve the insulating properties
of these  products.  Management  believes that the  acquisition of the assets of
Darling  Paint  and the  Atlas  Chemical  Co.  acquisition,  combined  with  the
implementation  of a  successful  marketing  program  will enable the Company to
generate  revenues  from  the  sale  of its  ThermaCool(TM)  paint  and  coating
products.

The initial ThermaCool(TM) product is a roof coating material which incorporates
the partially  evacuated shells into a roof coating mixture which the Company is
able to manufacture  through the assets it had acquired from Darling Paint. This
product can be used to coat new roofs as well as existing  tiles,  shingles  and
flat roofs and can be applied by  manufacturers  of concrete and ceramic  tiles.
The Company is also  marketing a  ThermaCool(TM)  exterior wall coating which it
believes can also reduce emissivity and thermal conductivity.

Coatings are characterized as protective barriers that can be applied to various
surfaces for protection from the elements.  Paint is  characterized as a product
to change the color of a particular surface. By this definition, some paints may
be classified as coatings,  such as a semi-gloss  enamel,  while flat wall paint
would  not.  The  basic  difference  between  a roof and a wall  coating  is the
viscosity or thickness of the product.  A roof, being less vertical than a wall,
can accept a thicker coating  without the product running or sagging.  A thicker
coat  for a roof  is  preferable  due  to its  exposure  to  the  elements.  The
application  of shell  technology  to the  Company's  products is limited to the
ThermaCool(TM)  roof and exterior wall coatings  where the insulative and energy
efficiency  characteristics  of the product are most  beneficial.  To date, more
than  90% of the  Company's  sales  of  ThermaCool(TM)  products  are  for  roof
application.

The Company has  recently  entered the auto racing  market with  several  racing
related products. The Company has filed for patent protection for those products
and plans to  vigorously  pursue this  market.  The  Company  has only  recently
developed  an  interior  paint  using its  ThermaCool(TM)  process.  There is no
assurance that the Company will be able to develop  products other than roof and
exterior wall coatings utilizing its ThermaCool(TM) process.


(ii) DEVELOP AND MANUFACTURE THE COMPANY'S OWN SHELLS.

The Company has applied for a patent  involving  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. Other
patents  have been  granted  relating to various  processes  to  evacuate  glass
shells.

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,
the Company is aware of three large  multinational  companies  that  manufacture

                                       3
<PAGE>

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.  The Company  plans to market  non-evacuated
shells for several  uses and will compete  directly  with others in this market.
The Company  will have  non-evacuated  shells  available  to sell in the general
market  because  not  all  shells  during  the  manufacturing  process  will  be
evacuated.  They will be separated and sold for general use as fillers, but will
be produced at a substantially reduced cost.

Management  believes that the Company's current  facilities and equipment can be
used to  manufacture  partially  evacuated  shells.  The Company has had limited
success in manufacturing shells.

(iii) EXPAND THE SHELL TECHNOLOGY TO OTHER PRODUCTS.

Management of the Company believes the potential exists to commercially  exploit
other markets  suitable for the Company's  shell  technologies.  Since 1992, the
Company's  founders have been  investigating  the possibility of using evacuated
glass shells in a variety of products.  Management has  identified  construction
components such as drywall,  gypsum board,  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 the Company will be successful in  penetrating
other  markets.  The Company will only be able to achieve this strategy if it is
able to economically manufacture its own highly or partially evacuated shells.

SHELL TECHNOLOGY

The Company has the rights to certain patent applications  relating to evacuated
shells. The first involves a technique for manufacturing  insulating shells in a
manner that enables the  evacuation  of retained  gases within the shells.  This
evacuation  results  in low gas  pressure  within  the shell that can reduce the
thermal conductivity,  thus improving insulation qualities. Evacuated shells are
capable of forming vacuums which limit heat transfer.

The  use of  evacuated  glass  shells  as an  important  component  of  improved
insulation and the use of a reflective layer within or outside of the shells has
also  been  referred  to in prior  patents.  The  Company's  patent  application
describes  a  procedure  which  uses  water  vapor and heat,  combined  with the
introduction of certain gases, to cause the evacuation or substantial evacuation
of the gases contained in the interior of the shells.

The Company's other patent  application uses evacuated shells  introduced into a
coating. Such coatings may be used for roofs,  exterior paints,  interior paints
and other uses.  The addition of evacuated or  substantially  evacuated  shells,
into a coating  provides  the  following  characteristics:  (i) a  reduction  in
radiant heat transfer by use of reflective coatings,  (ii) the reduction of heat
transfer between shells by restricting the transfer to point contact,  and (iii)
a reduction in the heat transfer  across a shell by the use of a partial or full
vacuum.

                                       4

<PAGE>

Although  patent  counsel to the  Company  believes  that patent  protection  is
available for these inventions,  there is no assurance that such patents will be
granted. Although management believes that the processes described in the patent
applications are based upon sound scientific  principles,  and the machinery and
equipment  are  available to implement the  production  techniques  necessary to
manufacture  evacuated shells on a commercial  basis,  there is no assurance the
Company will be able to economically and profitably manufacture evacuated shells
or otherwise exploit these inventions. The ThermaCool(TM) product line currently
offered  by  the   Company   does  not  rely  upon  these   inventions   because
ThermaCool(TM)   paint  and  coatings  use  partially,   rather  than  fully  or
substantially, evacuated shells.

MANUFACTURING FACILITIES AND TECHNIQUES

Management has used approximately  $132 thousand of its successful  underwriting
to acquire machinery, tooling, furnaces and other items necessary to manufacture
evacuated shells at its Holiday,  Florida location.  Production of quantities of
shells sufficient for the Company's immediate needs is anticipated during fiscal
year 1998.  Management  anticipates  the  Company  will  continue  to lease this
facility on a three to five year term and acquire additional equipment necessary
to  manufacture  greater  quantities of  micro-shells.  Internal cost  estimates
prepared  by  management  indicate  that  the  Company  will  require  at  least
$1,000,000  to  build a  shell  manufacturing  facility  sufficient  to  provide
commercial  quantities  of shells to  outside  parties  as a  separate  business
endeavor.

The basic process for manufacturing glass shells involves heating glass and then
partially drying and crushing the glass  composition.  The glass  composition is
then size separated for different applications. Glass shells are then formed and
blown at high  temperatures  with  the use of heat in a  vertical  furnace.  The
completed glass shells are then separated from the shell residue.

Management is aware of three other  companies that currently  manufacture  glass
shells.  These glass shells are primarily  used as filler  material for plastics
and ceramics.  The  non-evacuated  glass shells are used because they provide an
improved  "ball  bearing"  effect  for  better  flow,  and as a low cost  filler
material in compounding.  The manufacturing  techniques  proposed by the Company
would be similar to those currently utilized to manufacture shells,  except that
the  Company  would also  employ  procedures  which  evacuate  or  substantially
evacuate the shells in the final stages of the production process.

The Company currently  produces its  ThermaCool(TM)  product line at its Holiday
facility.  The Company also continues to produce and sell general paint products
which have been expanded with the  acquisition  of Atlas  Chemical Co. With this
recent  Atlas  acquisition,   the  Company  presently  has  the  capability  for
production of 500,000 gallons per year. The current plant facilities are capable
of producing up to $10,000,000 in gross product sales.

COMPETITION

The Company's  ThermaCool(TM)  products  compete in the special purpose coatings
market that is an extremely  competitive  market  principally  composed of large
multinational   companies  which  have  significantly  greater  assets,  working
capital, and marketing personnel than the Company.  Special purpose coatings are
similar to  architectural  coatings such as normal house  paints,  but differ in
that they are formulated for special  applications or environmental  conditions,
such as extreme temperatures, chemicals or corrosive conditions.

                                       5

<PAGE>

Major producers of special  purpose  coatings  include PPG  Industries,  DuPont,
Sherwin-Williams,  RPM, Inc., Inmont,  Courtaulds,  PLC, Glidden,  Azkon.V.  and
Valspar  Corp.  The U.S.  Bureau of Census valued the special  purpose  coatings
market at approximately $3 billion in 1995. The roofing,  coating and industrial
construction  coating market segment  represents  approximately 15% of the total
"special purpose coatings" market, or 28,000,000 gallons valued at approximately
$450,000,000.

Management believes that the primary competitive factors in the special coatings
product segment are quality, ease of use, service, warranty,  availability,  and
price.  The cost per  gallon of  ThermaCool(TM)  is at the high end of the price
spectrum  for  paints and  coatings  ($17.00  to $25.00  per  gallon).  Although
management   believes   that  the   improved   insulating   characteristics   of
ThermaCool(TM)  add significant  value and justify the higher cost,  there is no
assurance  that the Company's  products  will be accepted  because of the higher
cost.

The Company's  current  supply sources of shells could become  competitors.  The
Company expects that if its products become successful, competitors will be more
likely to develop and introduce  into the market place  comparable  products and
technologies.  There is no assurance that the Company will be able to compete in
the special purpose coatings or other similar markets.

MARKETING AND DISTRIBUTION

The Company intends to market its ThermaCool(TM) products to roofers,  painters,
distributors  and  manufacturers  of special  purpose  coatings.  The  Company's
initial  target  markets  include   industrial  and  residential   construction,
maintenance,  storage  tanks and roof  coatings.  The  Company  intends to place
advertisements  in trade  journals  for the  plastics,  glass  and  construction
industries.  In addition,  the Company intends to participate in trade shows and
intends  to  aggressively  promote  the  energy  saving  characteristics  of its
ThermaCool(TM) product lines.

Currently, management believes that contractors, who purchase from distributors,
will be the primary  customers  for the  Company's  products.  The Company  also
intends to solicit established  contractor  distribution  centers as a source of
marketing  its  ThermaCool(TM)  products.  Management's  strategy  is to attract
individuals  that have  significant  contacts  in the special  purpose  coatings
industry.  There is no assurance  that the Company will be able to attract these
individuals  or that such  individuals  will be  successful  in their  marketing
efforts.  Currently, the Company has a limited sales staff that is concentrating
on direct sales of  conventional  paint  products until such time as the Company
has adequate production availability for its ThermaCool(TM) products.

The Company  currently  has retail  locations  in Miami,  Florida  and  Holiday,
Florida  that  are  both  adjacent  to  its  manufacturing   facilities.  It  is
management's  intention to sell the Holiday retail  facility and  concentrate on
the manufacture and distribution of its  ThermaCool(TM)  and conventional  paint
products.  The Miami retail location will be retained for customer  convenience.
In addition,  the Company plans to market directly to specialty  industries such
as the RV motor home industry and  manufactured  housing  industry.  The Company
will also target chains such as Home Depot and Builder's Square as point of sale
distribution outlets for its products. The Company believes that viable business
opportunities  for  franchising  and  distribution  relationships  with existing
painting and coating  contractors  are  additional  marketing  and  distribution
strategies that can expand the sale of the Company's products.  The Company also
believes that its products may be distributed through private label arrangements

                                       6

<PAGE>

with other  distributors.  There is no assurance that any of these  marketing or
distribution strategies will be successful.

NEW PRODUCT APPLICATIONS AND DEVELOPMENT

The  Company  has  utilized  funding  from  its IPO to  initiate  a pilot  plant
production facility at its Holiday, Florida location. This effort focuses on the
initial  stages of production of evacuated  shells that will prove  adequate for
near term demand of its  ThermaCool(TM)  products.  Concentration of its efforts
will focus on applications utilizing shell technologies for paints and coatings.
Management has identified construction components such as drywall, gypsum board,
home siding  materials and space foam  insulation as future  potential  markets.
Other potential markets include  refrigeration  and cooling systems,  automotive
and  transportation   applications,   and  cups  and  thermoses.   Research  and
development will eventually focus on the techniques and procedures  necessary to
combine  evacuated  shells  into  materials  which  can  benefit  from  improved
insulation  ("R")  values.  There  is no  assurance  that  the  Company  will be
successful in developing any new applications for evacuated shells.

PRODUCT LIABILITY INSURANCE AND WARRANTIES

The Company  currently has product  liability  insurance in force with limits of
$1,000,000  per  occurrence  and  a  $2,000,000  aggregate  limit.  There  is no
assurance that these limits will be adequate to protect the Company.

The Company  supplies  the  following  warranties  for its  Scientific  Coatings
products: (1) All ThermaCool(TM) products have eight year warranties; (2) #44000
Acrylic House Paint has a nine year warranty;  (3) #4000 Acrylic House Paint has
a seven year  warranty;  (4) #2400  Acrylic  Latex  House  Paint has a five year
warranty; (5) #2200 100% Vinyl Acrylic House Paint has a five year warranty. All
remedies as to warranty failures require only replacement for these products.

The Company  supplies its Atlas  Chemical  products with  warranties for varying
periods of five to twenty years.  Such  warranties  provide for  replacement  of
defective  product with new product of  equivalent  price.  The Company makes no
other warranties as to its products.

EMPLOYEES

As of  September  30,  1997,  the  Company  had 26  employees,  of whom five are
salaried and the balance are paid hourly. Of these employees,  seven are located
at the Holiday facility and the balance are at Atlas Chemical in Miami, Florida.
The Company considers its relations with its employees to be excellent.


                                       7

<PAGE>

ITEM 2. PROPERTIES.

The Company  currently  leases and  occupies  5,000 sq. ft. of space in Holiday,
Florida  where it  maintains  its  corporate  offices  and where the  Scientific
Coating products are  manufactured and distributed.  This lease expires in 1998.
Current lease payments are approximately $3,100 per month. The facility consists
of  approximately  2,000 square feet of office and retail space with the balance
being used for  warehousing  and  manufacturing.  In January  1997,  the Company
vacated its 2,500 square foot executive  office in the Interstate  Business Park
at 8306 Laurel Fair Circle, Suite 240, Tampa, Florida. In addition,  the Company
closed its  Sarasota,  Florida  retail  location  located at 4215 South  Tamiami
Trail, Sarasota, Florida during January 1997. The Company negotiated termination
provisions with the landlords of these facilities.

The Company  currently  leases and occupies 21,000 sq. ft. of space at 4801 N.W.
77th Avenue in Miami,  Florida.  A five year lease  commenced on August 1, 1997.
Current lease payments are approximately $6,650 per month. This facility,  which
houses the Company's Atlas Chemical operations,  consists of approximately 5,000
sq. ft. of office and retail  space  with the  balance  used for  manufacturing,
warehousing and distribution.

ITEM 3.  LEGAL PROCEEDINGS.

On  February  6, 1997,  the  Company  received a letter  from the counsel to the
Williams  family  which owns in the  aggregate  21,923  shares of the  Company's
common stock which was acquired for an aggregate purchase price of $31,950.  The
Williams family claims Mr. Pidorenko  fraudulently  induced their investment and
that the Company is obligated for personal  disputes  between Mr.  Pidorenko and
this family which primarily concern a disagreement over a purchase of a personal
residence.

The Company does not believe it is obligated to these  individuals  for personal
disputes  with Mr.  Pidorenko.  The Williams  family has rejected the  Company's
request to purchase their shares at their original  purchase price.  The Company
believes  it has  meritorious  defenses  to any legal  proceedings  which may be
instituted  by such  individuals.  Mr.  Pidorenko  has agreed to  indemnify  the
Company against any claims asserted by these parties.

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.  The summons  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. This
marketing agreement related 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.,  not-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 for some time.  The Company has agreed to indemnify  Monroe


                                       8

<PAGE>

Parker  Securities,  Inc., its underwriter,  against any claims asserted by this
party.

To the  knowledge of the officers  and  directors of the Company,  other than as
disclosed above and in the notes to the consolidated financial statements, there
are no material legal proceedings now pending or threatened against the Company.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

                                     PART II


ITEM 5. MARKET VALUE

Before the Company's public offering,  which closed on March 19, 1997, there was
no market for the Company's Common Stock, Units, or Warrants.  Consequently, the
offering  prices  of the  Units  and  Warrant  Exercise  Price  were  determined
arbitrarily by negotiation  between the Company and the  Underwriter.  Among the
factors considered in such negotiations were estimates of the business potential
of the  Company,  the present  state of its  development  of new  products,  its
financial  condition,  an assessment of its management and the general condition
of the securities markets at the time of this offering.

On March 19,  1997,  1,581,250  Units of the  Company's  securities  (each  Unit
consisting of one share of Common Stock and one Redeemable  Warrant) were issued
to investors at $4.00 per Unit. Trading of such Units commenced  thereafter.  On
March 19,  1997,  the  Underwriter  commenced  trading of the  Common  Stock and
Warrants separately.

The  proceeds  of the  offering  that was  completed  on March 19,  1997 and the
related costs of its undertaking are summarized as follows:



     Gross Proceeds                          $6,325,000
     Less: Underwriter commissions              632,500
           Underwriter expenses                 259,308
           Company's expenses for offering      689,259
     Net Proceeds to Company                 $4,743,933
     Use of Proceeds:
           Repayment of indebtedness         $1,708,805
           Purchase of fixed assets             132,321
           Interest expense and accruals        383,906
           Acquisition of Atlas Chemical Co.  1,059,325
           Working capital                    1,459,576
                                              ---------
     Total                                   $4,743,933


                                       9

<PAGE>

The  Company's  Units,  Common  Stock,  Warrants are listed and traded on NASDAQ
under the symbols, VCLLU, VCLL and VCLLW, respectively. The following table sets
forth,  for the  periods  indicated,  the range of high bid and low bid  closing
quotations for the securities  indicated as reported by NASDAQ. These quotations
are between dealers, do not include retail mark-ups,  mark-downs,  or other fees
or commissions, and may not represent actual trades.



                                                  Common         Redeemable
                                   Units          Stock           Warrants
-------------------------------------------------------------------------------
                                Closing Bid     Closing Bid      Closing Bid
     1997 Fiscal Year           High     Low    High    Low      High    Low
-------------------------------------------------------------------------------

     Second quarter            5 3/4       5   3 5/16   3 1/4    1 1/8  1 1/8

     Third quarter                --      --   3 1/16 2 15/16      5/8    5/8

     Year End, Sept. 30, 1997     --      --    4 3/8       4    13/16  13/16

     (1)  Prior to March  1997,  there was no active  trading  in the  Company's
securities.

As of September  30, 1997,  there were  approximately  123 holders of record for
common stock and 3 holders of record of the  warrants.  However,  the  Company's
underwriter  has  advised  the  Company  that  more  than  300 of its  customers
beneficially own the Company's Common Stock as of December 1, 1997.

UNDERWRITER'S SECURITIES

In  connection  with the public  offering,  the Company sold to the  Underwriter
Options to purchase 137,500 Units of the Company's securities,  identical to the
Units publicly sold, at an exercise price of 165% of the public  offering price.
The Underwriters'  Units are exercisable at a price per Unit of $6.00 subject to
certain adjustments, until they expire on March 12, 2001.

The Underwriters'  Warrants contained in the Underwriters'  Units underlying the
Underwriters'  Options contain  certain  registration  rights and  anti-dilution
provisions.  The holders of the Underwriters' Warrants have no voting,  dividend
or other  rights as  shareholders  of the  Company  with  respect  to the shares
underlying the Warrants.

DIVIDEND POLICY

The Company has not paid any  dividends  on its common stock and does not intend
to pay cash dividends on its common stock in the foreseeable future. The Company
intends  to  follow a policy of  retaining  earnings,  if any,  to  finance  the
development and expansion of its business.

TRANSFER AGENT AND WARRANT AGENT

Continental  Stock  Transfer & Trust  Company of New York,  New York acts as the
Company's Transfer Agent and Warrant Agent.


                                       10

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

The following presents selected  financial  information of the Company as of and
for the periods ended  September 30, 1997,  November 30, 1996,  and November 30,
1995.  The Company  changed its fiscal  year to end  September  30, 1997 for the
present year,  which is a ten month period.  The  information set forth below is
qualified by, and should be read in conjunction with, the consolidated financial
statements and related notes thereto in their entirety

                                             PERIODS ENDED

                              1997                1996                1995
                            Sept. 30             Nov. 30             Nov. 30
                         ------------------------------------------------------

INCOME STATEMENT DATA

Total revenue            $  1,036,376       $    615,845          $     43,691

Net loss                 $ (1,037,730)      $ (1,033,553)         $   (314,857)

Net loss per share       $      (0.47)      $      (1.34)         $     ($0.53)

Shares used in per
 share computation          2,217,106            771,154               626,191


BALANCE SHEET DATA, as of September 30, 1997 and November 30, 1996

 Total assets            $  3,542,675       $   1,537,273         $    734,733
 Working capital         $    334,911       $  (2,444,417)        $   (874,313)
 Long-term debt          $     63,089       $          --         $         --
 Stockholders' equity    $  2,428,090       $  (1,363,939)        $   (330,395)


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
  
GENERAL

The Company was a developmental  stage enterprise during its initial three years
of operation. During this period, management devoted the majority of its efforts
to research and  development,  financing,  purchasing and activities  related to
starting  up  production  and  marketing.   These   activities  were  funded  by
investments from stockholders and borrowings from unrelated third parties.

The Company has not, prior to its IPO, been in a position to generate sufficient
revenues  during its limited  operating  history to fund its  ongoing  operating
expenses or its product development activities. As a result of its

                                       11

<PAGE>

  
IPO, the Company repaid all its outstanding  indebtedness.  In fiscal year 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 approximately $2,586,600 at September 30, 1997.

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.  Since the
Company's acquisition of Atlas Chemical in July of 1997, the Company has taken a
more  long-term  approach to the  development  of its shell  technologies.  This
present  strategy  anticipates a more  systematic  introduction  of new coating
products  utilizing its technologies as a supplement to the  conventional  paint
and coating  products  offered by Atlas  Chemical to its  distribution  channel.
Management  believes  this more  prudent  approach to  development  will further
enhance the Company's long-term business prospects.

Although  the  Company  has not  yet  generated  sufficient  revenues  from  its
operations to be profitable, management anticipates that its systematic approach
of introducing its  ThermaCool(TM)  product line,  coupled with the revenue base
and established  marketing and  distribution  channels of Atlas  Chemical,  will
yield profitable results in fiscal year 1998.

The Company will  continue to incur  losses until it is able to increase  sales,
expand  its  product   lines,   and  increase  its   distribution   capabilities
sufficiently to offset ongoing operating and expansion costs.

RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

Revenues

Total revenue for the ten month period ended  September 30, 1997, was $1,036,376
compared to $615,845 for the twelve month period ending November 30, 1996, which
represents  an increase of $420,531,  or 68%. The  increase  was  primarily  the
result  of the sales  contribution  of its  wholly  owned  subsidiary  which was
acquired on July 28, 1997 and  provided  approximately  two months of  operating
activity for this fiscal year.

Cost of Sales

Cost of sales for the fiscal year ended  September  30, 1997,  increased  71% to
$675,085  from  $394,867 in the fiscal 1996 ending  November 30,  1996.  Cost of
sales as a percentage of sales increased from 64.1% to 65.1 % from 1996 to 1997.
This increase is attributed to higher costs  associated  with the Atlas Chemical
business that was acquired  during July 1997.  Recently,  Atlas has  experienced
lower  gross  profit  margins on its  product  lines,  in part,  because few new
products  were  introduced  to  its  customers  over  the  last  several  years.
Management intends to introduce its  ThermaCool(TM)  products to the established
customer base of Atlas,  stimulating  new sales and thereby  improving the gross
profit margin for this division of the Company.

Selling, General and Administrative Expenses

For  the  period  ended   September  30,  1997,   total  selling,   general  and
administrative  expenses  were  $1,500,517  as compared to  $1,280,339,  for the
fiscal year ended November 30, 1996, a 17% increase. This increase is attributed
to the  additional  expense of the Atlas  Chemical  operation  for the ownership

                                       12

<PAGE>

period since the Company's acquisition of that business.  Management anticipates
that it will reduce overhead  expenses as it reduces duplicate costs incurred at
its Holiday and Miami locations.

In an effort to  streamline  operations  and cut  costs,  management  closed the
Sarasota  location in January 1997. The effect of this closure has resulted in a
reduction of $10,000 per month in the Company's  operating costs. In addition to
this retail  store  closure,  the Company also closed its  executive  offices in
Tampa,  Florida and relocated all  operations to its  manufacturing  facility in
Holiday,  Florida. As part of this  restructuring,  management incurred expenses
relating to severance agreements with employees, lease termination payments, and
additional  expenses for the relocations  which were  substantially  complete by
January 31, 1997.

Interest Expense

Interest  expense  decreased  20%, or $41,517 to $165,630 for the fiscal  period
ending  September  30,  1997 from  $207,147 in the  previous  fiscal year ending
November 30, 1996.  Although the recent fiscal year was a ten month period,  the
primary  reduction in interest  charges is  attributed  to the payoff of all the
Company's indebtedness following the public offering that was completed on March
19,  1997.  The Company  reduced  its debt from  approximately  $1.9  million at
November 30, 1996 to approximately $98,500 at September 30, 1997.

Net Loss

The net loss and the net loss per  share  were  $1,037,730  and  $0.47 per share
respectively, for the period ended September 30, 1997, as compared to a net loss
and net loss per share of  $1,033,553  and $1.34  per  share  respectively,  for
fiscal year 1996.  The loss was a slight  increase  of $4,177 over the  previous
fiscal  year,  but the loss per share was 65% less due to the greater  number of
shares outstanding as a result of the Company's successful IPO during the fiscal
period. The fiscal period ending September 30, 1997 was a ten month period. On a
weighted  average basis,  there were  2,217,106  shares  outstanding  for fiscal
period ending  September 30, 1997 as compared to 771,154 shares  outstanding for
fiscal year ending November 30, 1996, a 188% increase.

Acquisition of Atlas Chemical Co.

On July 29, 1997, the Company  acquired  Atlas Chemical Co., of Miami,  Florida,
through a  purchase  of all of its common  stock.  Atlas is a  manufacturer  and
distributor  of paint and coating  products that was  established  in 1919.  The
Company  anticipates  that  expansion of its new product sales will benefit from
the established marketing and distribution channels that Atlas has in place. For
its fiscal  year ending  June 30,  1997,  Atlas  Chemical  had  revenues of $2.4
million and experienced a net loss of $68,007.


FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

Revenues

Total  revenue for the year ended  November 30, 1996,  was $615,845  compared to
$43,691 for the same period of 1995, which  represented an increase of $583,154.
The  increase  was a result of expanded  sales of paint  products  and  coatings
produced by the  Company's  paint  manufacturing  facility  acquired in the 1995
fiscal year.  The increased  sales were a direct  result of increased  marketing
efforts and production capabilities.

                                       13

<PAGE>

Selling, General and Administrative Expenses

For the year ended November 30, 1996, total selling,  general and administrative
expenses  were  $1,280,339,  as compared to $376,919  for the same period of the
previous  year,  an  increase  of  $903,420.  The  increase  was due to expenses
incurred with the initial  production of the Company's  proprietary  products in
its newly acquired manufacturing facility,  expenses incurred in relation to the
refinement  of  the   formulations   of  the  paint  and  paint  coatings  being
manufactured,  as well as costs  associated  with increased  marketing  efforts,
staffing and other expenses associated with the Company's expanded operations.

In June 1996,  the Company  opened a new retail  location in  Sarasota,  Florida
based upon the prospects of completing a public  offering in the near term.  Due
to the failure of the prior  offering,  the Company  experienced  negative  cash
flow. In an effort to streamline operations and cut costs, management closed the
Sarasota location in February 1997. The effect of this closure is an anticipated
reduction of $10,000 per month in the Company's  operating costs. In addition to
the above retail store closure, the Company also closed its executive offices in
Tampa,  Florida and relocated all  operations to the  manufacturing  facility in
Holiday, Florida.

Net Loss

The net loss and the net loss per share were $1,033,553 and $1.34, respectively,
for the year ended November 30, 1996, as compared to a net loss and net loss per
share of  $314,857  and $.50,  respectively,  for the same  period of 1995.  The
increase  in loss is,  in part,  attributed  to a Company  instituted  marketing
campaign for the Sunbelt region of the United States.


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.  On March 19,  1997,  the Company
closed a public offering of 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.  With the  successful  public
offering  completed in March 1997,  the Company was able to repay  substantially
all of its  indebtedness  and  utilize  the  remainder  of this  funding for the
acquisition of Atlas Chemical Co. of Miami,  Florida, the initiation of its self
manufacture of  micro-shells  for its internal  needs,  and for working  capital
purposes.


During the fiscal period ending  September 30, 1997,  certain  holders of bridge
loan financing exchanged the Company's  convertible debt obligations,  including
accrued  interest,  in the  amount of  approximately  $640,000,  into its common
stock. The Company satisfied substantially all of the balance of its bridge loan
obligations  through  repayment from the proceeds of the public offering and the
undertaking  of the  Company's  chief  executive  officer to  personally  assume
certain  obligations.  As was anticipated with this undertaking of the Company's
chief  executive  officer,  the  Company  advanced  funds in the net  amount  of
approximately  $450,000 to this officer to immediately  repay these  obligations
pending the sale of  securities  owned by this officer  subsequent to the public
offering.  The Company obtained a security interest in this common stock pending
such  sale.  The sale of these  securities  has not  taken  place  and the funds
advanced for repayment of this debt remains a note receivable to the Company.


                                       14

<PAGE>

     The Company continues to experience  operating losses,  although the public
offering has resulted in  improvements  in the Company's net working capital and
stockholders'  equity that now are $334,911 and  $2,428,090  for the fiscal year
ending  September 30, 1997 as compared to deficits of $2,444,417  and $1,363,939
at November 30, 1996,  respectively.  The Company has historically not generated
sufficient revenues from operations to self-fund its capital  requirements.  The
Company  alleviated its working capital deficit and obtained much needed capital
from  its  public  offering.  With its  present  business  strategy,  management
believes it is focusing on the key elements  necessary to the Company to be both
profitable  and  successful  over the  long-term.  Management  has adopted  this
present  strategy and is focused on its  successful  implementation.  Management
will arrange for the financial resources,  if necessary, to properly execute its
plan.

In the opinion of management, the Company has sufficient working capital to meet
its planned needs for the next twelve months.  However, the Company will require
additional  capital and  substantial  revenues  from the sale of  ThermaCool(TM)
products  in order to fund a  substantial  growth  in  operations  over the next
twenty-four  months.  Management  believes it will be  successful  in  obtaining
future financing.

On January 5, 1998, NASD Regulation,  Inc. announced that a complaint was issued
on December 23, 1997 charging Monroe Parker Securities,  Inc. and certain of its
officers with price  manipulation and excessive  markups in the trading of Seven
Madden,  Ltd. and fraud in the sales of  securities of United  Leisure.  Neither
firm is affiliated  with the Company.  The  complaint  asks for  restitution  to
defrauded investors and potential sanctions that may include a fine, suspension,
individual bar, or firm expulsion from the NASD.  Management believes there will
be no adverse  effect for the  Company  relating  to these  allegations  against
Monroe Parker Securities, Inc.

Monroe  Parker  Securities,   Inc.  was  the  Company's  investment  banker  and
underwriter  for the public  offering that was concluded on March 19, 1997.  The
underwriter  was granted an  appointee  to the board of directors as a condition
for this undertaking.  During December,  Monroe Parker ceased substantive market
making activities in the Company's common stock. Consequently,  the price of the
stock  declined from about $4 to a low of $.50. On January 9, 1998, the price of
the common stock closed at $2.75. On December 19, 1997,  Stephen  Drescher,  who
was the Monroe  Parker  designee to the Company's  board of directors,  resigned
effective that date.


SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company believes it will experience  stronger demand for its products in the
spring,  summer and fall of each year. By directing its marketing efforts to the
warmer states,  the Company feels that  fluctuations  resulting from seasonality
will be minimized.


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.


ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The information required by Item 8 appears at page F-1, which appears after
this page.


                                       15

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     None.



                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


     The  information  required by this item is incorporated by reference to the
     definitive  proxy  statement  to be filed  by the  Company  for the  Annual
     Meeting of Stockholders to be held on April 15, 1998.



ITEM 11: EXECUTIVE COMPENSATION

     The  information  required by this item is incorporated by reference to the
     definitive  proxy  statement  to be filed  by the  Company  for the  Annual
     Meeting of Stockholders to be held on April 15, 1998.



ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The  information  required by this item is incorporated by reference to the
     definitive  proxy  statement  to be filed  by the  Company  for the  Annual
     Meeting of Stockholders to be held on April 15, 1998.



ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this item is incorporated by reference to the
     definitive  proxy  statement  to be filed  by the  Company  for the  Annual
     Meeting of Stockholders to be held on April 15, 1998.


                                       16

<PAGE>


ITEM 14: EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K.

     (a) The following documents are filed as part of this report:

          (1)(2)  CONSOLIDATED  FINANCIAL  STATEMENTS  AND  FINANCIAL  STATEMENT
          SCHEDULES. 
          
          A list of the Consolidated  Financial Statements filed as part of this
          Report is set forth in Item 8 and appears at Page F-1 of this  Report;
          which  list  is  incorporated  herein  by  reference.   The  Financial
          Statement  Schedules  and the  Report of  Independent  Auditors  as to
          Schedules follow the Exhibits.

     (a)(3) EXHIBITS.


     1.1  Revised  Form  of   Underwriting   Agreement*
     1.2  Revised  Form  of Underwriter's Warrants*
     1.3  Revised Form of Selected Dealers Agreement*
     1.4  [Reserved]
     1.5  [Reserved]
     1.6  Executed  Escrow  Agreement  and Amendment
          thereto entered into by First of America, Bank of Michigan, N.A.,
          the Company and the Underwriters*

     3.1 Certificate of Incorporation and Amendment to Certificate of
         Incorporation of the Company*

      3.1(a)   Certificate  of  Amendment to  Certificate  of  Incorporation  to
               reflect 1 for 10 reverse stock split*

      3.1(b)   Form of  Certificate  of  Amendment  to  Certificate  of  Rights,
               Designation and Preferences of Series A Preferred Stock*

     3.2  Bylaws of the Company*
     3.3  Amendment to Bylaws*
     4.1  Specimen  of  Common  Stock   Certificate*
     4.2  Specimen  of  Warrant Certificate*

     4.3  Revised Form of Warrant Agreement*

     4.4  Conversion Notice and Election Form for Convertible Note Holder*
     5.1  Opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. as to
          legality of issuance of Units*


                                       17

<PAGE>

    10.0 Employment Agreement (4/4/96) John Pidorenko*

      10.0(a) Employment Agreement (4/4/96) John Trusty*

      10.0(b) Form of Convertible Note*

      10.0(c) Trademark Registration for ThermaCool(TM) *

      10.0(d) Published International Patent Application*

      10.0(e) Stock Option Plan*

      10.0(f) Asset Purchase Agreement for Darling Paint and Coatings
              effective November, 1995*

      10.0(g) Lease for Executive Offices*

      10.0(h) Lease for Darling Paint*

      10.0(i) Lease for Sarasota Store*

      10.0(j) Form of Promissory Note (3/6/96)*

      10.0(k) Stock Purchase Agreement between the Stockholders of Atlas
              Chemical Co. and the Issuer effective August 1, 1997**
     

     23.1 Consent of Cherry, Bekaert & Holland, C.P.A.'s, Clearwater, Florida

            --------------------------
     * Previously filed under cover of Form SB-2 (SEC File No. 333-22001).
     **See Form 8-K filed August 7, 1997 via EDGAR.

(b)   Reports on Form 8-K

     (i)  Form 8-K filed August 7, 1997 containing the Stock Purchase  Agreement
          between the Issuer and the stockholders of Atlas Chemical Co.

     (ii) Form 8-K/A filed  October 15, 1997  containing  the audited  financial
          statements  of Atlas  Chemical  Co. and  related  pro-forma  financial
          information.


                                       18
<PAGE>


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



     Date:   January 13, 1998                     By: /s/ John Pidorenko
                                                       _____________________
                                                          John Pidorenko

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.


   SIGNATURE                              TITLE                     DATE
   ---------                              -----                     ----
/s/ John Pidorenko            President and Chief Executive
_______________________       Officer (Principal Executive     January 13, 1998
 John Pidorenko               Officer) and Chairman of
                              the Board


/s/ Gerald Couture            Vice President and Chief
_______________________       Financial Officer (Principal     January 13, 1998
 Gerald Couture               Financial Officer) and Principal
                              Accounting Officer
/s/ Kendall B. Stiles
_______________________       Director                         January 13, 1998
Kendall B. Stiles M.D.


                                       19
<PAGE>


                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                    SEPTEMBER 30, 1997 AND NOVEMBER 30, 1996


<PAGE>





                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY





                                    CONTENTS

                                                                      Page
                                                                      ---- 

          Report of Independent Certified Public Accountants           F-1

          Consolidated Balance Sheets                               F-2 & F-3

          Consolidated Statements of Operations                        F-4

          Consolidated Statements of Changes in Stockholders' Equity   F-5

          Consolidated Statements of Cash Flows                        F-6

          Notes to Consolidated Financial Statements                F-7 TO F-15


<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
ThermaCell Technologies, Inc.
Holiday, Florida


We have  audited the  accompanying  consolidated  balance  sheets of  ThermaCell
Technologies, Inc. and Subsidiary as of September 30, 1997 and November 30, 1996
and the related consolidated statements of operations,  changes in stockholders'
equity, and cash flows for the periods then ended. These consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,   the  financial  position  of  ThermaCell
Technologies, Inc. and Subsidiary as of September 30, 1997 and November 30, 1996
and the results of its  operations and its cash flows for the periods then ended
in conformity with generally accepted accounting principles.

Clearwater, Florida                        /s/ Cherry, Bekaert & Holland, L.L.P.
December 19, 1997
except for Note 19 as to which
the date is January 5, 1998

                                      F-1
<PAGE>




                                    THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                                            Consolidated Balance Sheets

                                                       Assets
<TABLE>
<CAPTION>


                                                                                September 30,            November 30,
                                                                                    1997                     1996
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

<S>                                                                        <C>                      <C>
Current assets
   Cash                                                                     $           580,522      $             3,512
   Notes receivable                                                                           -                  213,750
   Accounts receivable
     Trade, net of allowance for uncollectible accounts
       of $90,147 for 1997 and $21,000 for 1996                                         384,351                   64,006
     Officers                                                                                 -                    4,637
     Other                                                                                1,676                    6,000
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------
                                                                                        386,027                   74,643
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

   Inventories                                                                          410,972                  150,872
   Prepaid expenses and other                                                             8,886                   14,018
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

          Total current assets                                                        1,386,407                  456,795
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

Property and equipment                                                                  697,671                  322,979
   Less accumulated depreciation                                                         86,773                   41,060
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------
                                                                                        610,898                  281,919
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

Other assets
   Restricted cash                                                                            -                   15,000
   Deposits                                                                              14,795
   Deferred offering costs                                                                    -                  297,648
   Deferred income tax benefit, net                                                     631,372                  337,350
   Goodwill, net                                                                        819,199                   75,433
   Other intangibles, net                                                                80,004                   73,128
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------
                                                                                      1,545,370                  798,559
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------




          Total assets                                                      $         3,542,675      $         1,537,273

                                                                              ==================       ==================
                                                                              ==================       ==================
</TABLE>

See notes to consolidated financial statements.

                                                       F-2
<PAGE>


                                    THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                                            Consolidated Balance Sheets

                                        Liabilities and Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                September 30,            November 30,
                                                                                    1997                     1996
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

<S>                                                                        <C>                      <C>
Current liabilities
   Accounts payable                                                         $           551,572      $           444,537
   Accrued expenses                                                                     277,192                  175,696
   Accrued payroll and payroll taxes                                                    187,321                  223,156
   Current maturities of long-term debt
     Notes payable                                                                       18,434                        -
     Capital lease obligations                                                           16,977                        -
   Bridge financing                                                                           -                1,898,500
   Stockholders                                                                               -                  135,000
   Other                                                                                      -                   24,323
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

          Total current liabilities                                                   1,051,496                2,901,212

Long-term debt, net of current maturities
   Notes payable                                                                         41,856                        -
   Capital lease obligations                                                             21,233                        -
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------
          Total long-term debt, net of current maturities                                63,089                        -
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

          Total liabilities                                                           1,114,585                2,901,212
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

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

   Common stock, par value $.0001
     Authorized 20,000,000 shares,
     outstanding 3,021,139 and 869,899 shares,
     1997 and 1996, respectively                                                            301                       87

   Additional paid-in capital                                                         5,564,319                  184,314
   Deduct notes receivable associated with stockholder loan                            (550,460)                       -
   Accumulated deficit                                                               (2,586,570)              (1,548,840)


                                                                              ------------------       ------------------
                                                                              ------------------       ------------------

          Total stockholders' equity                                                  2,428,090               (1,363,939)
                                                                              ------------------       ------------------
                                                                              ------------------       ------------------


          Total liabilities and stockholders' equity                        $         3,542,675      $         1,537,273
                                                                              ==================       ==================
                                                                              ==================       ==================
</TABLE>

See notes to consolidated financial statements.




                                                      F-3

<PAGE>

                       THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                          Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                            For the periods ended
                                                   ----------------------------------------
                                                    September 30,            November 30,
                                                        1997                     1996
                                                   ----------------          --------------
<S>                                             <C>                       <C>

Revenue
      Sales                                      $       1,036,376         $       615,845

Less cost of sales                                         675,085                 394,867
                                                   ----------------          --------------

      Gross profit                                         361,291                 220,978

Selling, general and administrative
      expenses                                           1,500,517               1,280,339
                                                   ----------------          --------------

                    Loss from operations                (1,139,226)             (1,059,361)
                                                   ----------------          --------------

Other income (expense)
      Commissions                                          (35,000)                      -
      Interest income                                       50,764                  24,763
      Interest expense                                    (165,630)               (207,147)
      Other                                                 (7,412)                 (3,500)
                                                   ----------------          --------------

                    Total other income (expense)          (157,278)               (185,884)
                                                   ----------------          --------------

                    Loss before income taxes            (1,296,504)             (1,245,245)

Income taxes
      Deferred income tax benefit                          258,774                 211,692
                                                   ----------------          --------------

                    Net loss                     $      (1,037,730)        $    (1,033,553)
                                                   ================          ==============

Loss per common share                            $           (0.47)        $         (1.34)
                                                   ================          ==============

Weighted average number of
      common shares outstanding                          2,217,106                 771,154
                                                   ================          ==============

</TABLE>

See notes to consolidated financial statements.



                                                       F-4
<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

           Consolidated Statements of Changes in Stockholders' Equity


<TABLE>
<CAPTION>

                                            Common Stock              Preferred Stock          Additional
                                        ---------------------   -----------------------
                                        ---------------------   -----------------------
                                         Number of               Number of                  Paid-in     Accumulated
                                           Shares    Amount       Shares      Amount        Capital     Deficit           Total
                                        ------------ --------   ---------- ------------   ------------  -----------   -------------
                                        ------------ --------   ---------- ------------   ------------  -----------   -------------
<S>                                      <C>        <C>         <C>        <C>            <C>          <C>           <C>  
Balance November 30, 1995                   667,472  $    66     5,000,000  $    500       $ 184,327    $ (515,287)   $  (330,394)
Issuance of common stock as incentive to
  employees                                  19,000        2             -           -             (2)           -               -
Issuance of stock as a perquisite for
  providing financing/capital               153,227       16             -           -             (7)           -               9
Issuance of stock to a promoter as a
  perquisite                                 20,000        2             -           -             (2)           -               -
Issuance of stock as a credit for
 services                                    10,200        1             -           -             (1)           -               -
Net loss for year ended
 November 30, 1996                                -        -             -           -              -    (1,033,553)    (1,033,553)
                                                 --       --            --          --             --    -----------    -----------
Balance November 30, 1996                   869,899   $   87     5,000,000  $    500       $  184,315   $(1,548,840)   $(1,363,938)

Issuance of stock for public offering     1,581,250      158             -                  5,433,033            -       5,433,191
Expenses associated with public offering          -        -             -                   (689,259)           -        (689,259)
Issuance of stock for bridge loan
 conversion                                 569,990       56             -           -        636,230            -         636,286
Note receivable associated with
 stockholder loan                                 -        -             -           -       (550,460)           -        (550,460)
Net loss for period ended
 September 30, 1997                               -        -             -           -              -    (1,037,730)    (1,037,730)
                                                 --       --            --          --             --    -----------    -----------
Balance September 30, 1997                3,021,139   $  301     5,000,000       500       $5,013,859   $(2,586,570)   $ 2,428,090
                                        ============  =======   =========== ===========   ============  ==============  ===========
                                        ============  =======   =========== ===========   ============  ==============  ===========


</TABLE>


See notes to consolidated financial statements

                                                       F-5

<PAGE>


                                    THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

                                        Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

                                                                                       For the periods ended
                                                                              ----------------------------------------
                                                                               September 30,            November 30,
                                                                                   1997                     1996
                                                                              ----------------         ---------------
<S>                                                                        <C>                      <C>  
Cash flows from operating activities
   Reconciliation of net loss to net cash
     used in operating activities
       Net loss                                                             $      (1,037,730)       $     (1,033,553)
       Adjustments to reconcile net loss to net
         cash used in operating activities
           Depreciation                                                                51,320                  30,049
           Amortization                                                                19,717                 171,930
           Loss on sale of capital asset                                                    -                   3,500
           Deferred income tax benefit                                               (258,774)               (211,692)
           Changes in assets and liabilities, net of effects of acquisition
          (Increase) decrease in accounts and notes receivable                        196,272                (166,910)
          Increase in inventories                                                     (23,684)                (79,856)
          (Increase) decrease in prepaid and other assets                              14,314                 (13,724)
          Increase (decrease) in accounts payable                                    (100,978)                428,356
          Increase (decrease) in accrued expenses                                     (36,895)                293,412
                                                                              ----------------         ---------------
               Net cash used in operating activities                               (1,176,438)               (578,488)
                                                                              ----------------         ---------------

Cash flows from investing activities
   Capital expenditures                                                              (323,234)               (213,606)
   Proceeds from sale of capital asset                                                      -                   1,500
   Acquisition of subsidiary, net of cash acquired                                   (992,421)                      -
   Cost associated with acquisition                                                   (59,325)                      -
   Expenditures for patent, net                                                       (23,143)                      -
                                                                              ----------------         ---------------
               Net cash used in investing activities                               (1,398,123)               (212,106)
                                                                              ----------------         ---------------

Cash flows from financing activities
   Proceeds from issuance of common stock                                           5,433,191                      68
   Proceeds from issuance of notes payable                                            174,692               1,192,822
   Principal payments on notes payable                                             (1,529,241)                (10,202)
   Principal payments on stockholder loans                                                  -                 (68,304)
   Principal advances on stockholder loan                                            (550,460)                      -
   Costs associated with obtaining financing                                         (391,611)               (396,051)
                                                                              ----------------         ---------------
               Net cash provided by financing activities                            3,136,571                 718,333
                                                                              ----------------         ---------------
                                                                              ----------------         ---------------

               Net increase (decrease) in cash                                        562,010                 (72,261)

Cash beginning                                                                         18,512                  90,773
                                                                              ----------------         ---------------

Cash ending                                                                 $         580,522        $         18,512
                                                                              ================         ===============

</TABLE>



See notes to consolidated financial statements.

                                                       F-6

<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ACTIVITY

Thermacell  Technologies,   Inc.  (the  "Company")  is  a  Florida  corporation,
incorporated  August 12, 1993.  The Company is an  operating  company that has a
wholly owned  subsidiary,  Atlas Chemical Co.,  ("Atlas"),  that was acquired in
July 1997.  The Company  manufactures  and  distributes  paint and coatings that
encompass innovative microsphere technologies. The Company, having completed two
acquisitions,  also  produces  conventional  paints  and  coatings  at  its  two
manufacturing  facilities.  Prior to 1995, the Company was in the  developmental
stage. During fiscal year end 1996, significant  manufacturing and sales efforts
began ushering the company out of the development stage.  Operations previous to
that year were  devoted  primarily  to  developing  products,  raising  capital,
obtaining financing,  acquiring  manufacturing and sales facilities,  marketing,
and administrative functions.

On July 28,  1997,  the  Company  acquired  all the  outstanding  common  stock,
representing  100% ownership of Atlas,  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, and Lowes, among others.

INVENTORIES

Inventories are valued using the average cost method. All inventories are stated
at the lower of cost or market.

PROPERTY AND EQUIPMENT

Property  and  equipment  are  recorded at cost less  accumulated  depreciation.
Depreciation is computed using the  straight-line  and accelerated  methods over
the estimated useful lives of assets.

INTANGIBLE ASSETS

Intangible assets subject to amortization include organization costs,  agreement
not to  compete,  trademark,  goodwill  and  patents.  Organizational  costs and
agreement not to compete are being amortized on a straight-line  basis over five
years and three years, respectively.  Trademark and goodwill are being amortized
on a  straight-line  basis over ten and  fifteen  years,  respectively.  Amounts
attributable  to patents are being  amortized over the useful life of the patent
(but not more than 20 years) beginning the month the patent becomes effective.

PRINCIPLE OF CONSOLIDATION

The  accompanying  financial  statements  include  the  accounts  of  Thermacell
Technologies,  Inc. and its  subsidiary  Atlas,  after  elimination  of material
inter-company accounts and transactions.

ACQUISITION OF ATLAS CHEMICAL CO.

In  July  1997,  the  Company,   through  its  wholly  owned   subsidiary  Atlas
Acquisition, Inc., purchased all the outstanding common stock of Atlas of Miami,
Florida for total consideration of $1,000,000.  Subsequently,  Atlas Acquisition
Inc. and Atlas were merged.  The  acquisition  of these shares was accounted for
under the purchase  method of accounting  with the excess of the purchase  price
over the fair  market  value of the  assets  acquired  (approximately  $760,000)
allocated to goodwill. The Company obtained the funds for this purchase from the
underwriting completed in March 1997.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and  liabilities  at the date of the financial  statements,  and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company's  cash,  trade accounts  receivable and
payable  approximated their carrying value at year end. It is not practicable to
estimate  the fair  value of other  financial  instruments  held or owned by the
Company,  including,  but not limited to, other  receivables and payables due to
the lack of readily  available  information  regarding the marketability of such
instruments  and the effect of credit risk on the  measurement of fair value for
such instruments.

LOSS PER COMMON SHARE

Primary loss per common  share  equals net loss divided by the weighted  average
number of common shares outstanding. The convertible securities are not included
in the fully diluted  earnings per share  calculation for September 30, 1997 and
November  30, 1996  because they are  anti-dilutive.  There were no  convertible
securities at November 30, 1996 as discussed in Note 5.  Consequently,  there is
no separate presentation of fully dilutive loss per share.

                                       F-7

<PAGE>

                  THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)




NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ADVERTISING

The Company expenses advertising costs as they are incurred.

INCOME TAXES

Income taxes are accounted for by an asset and liability  approach for financial
accounting and reporting  purposes.  Deferred income taxes are provided based on
the estimated  future tax effects of  differences  between  financial  statement
carrying amounts and the tax bases of existing assets and  liabilities,  and are
adjusted  for changes in tax laws and tax rates when those  changes are enacted.
The  provision  for income  taxes  represents  the total of income taxes paid or
payable for the current year, plus the change in deferred taxes during the year.

FISCAL YEAR

The  Company  changed  its  financial  reporting  year from a fiscal year ending
November 30 to September  30. The Company also changed the  financial  reporting
year of its subsidiary from a fiscal year ending June 30 to September 30.

IMPACT OF NEW ACCOUNTING STANDARDS

In February 1997, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 128  "Earnings  Per  Share."  SFAS No. 128  supersedes  APB  Opinion  No. 15
"Earnings Per Share" and specifies the computation,  presentation and disclosure
requirements  for earnings per share  ("EPS") for entities  with  publicly  held
stock or  potential  publicly  held common  stock.  Essentially,  this  standard
replaces the primary EPS and fully diluted EPS  presentations  under APB Opinion
No. 15 with a basic EPS and diluted EPS presentation.  SFAS No. 128 is effective
for  financial  statements  for both  interim and annual  periods  ending  after
December 15, 1997, earlier application is not permitted.

In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital  Structure."  SFAS  No.  129  summarizes  previously  issued  disclosure
guidance  contained  within APB Opinions Nos. 10 and 15, as well as SFAS No. 47.
There will be no changes to the Company's  disclosures  pursuant to the adoption
of SFAS No. 129.  This  statement  is effective  for  financial  statements  for
periods ending after December 15, 1997.

In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive  Income,"
which  establishes  standards for reporting and display of comprehensive  income
and its components in a full set of general purpose  financial  statements.  The
comprehensive  income  and  its  components  in a full  set of  general  purpose
financial  statements.  The comprehensive  income and related  cumulative equity
impact  of  comprehensive   income  items  will  be  required  to  be  disclosed
prominently as part of the notes to the financial  statements.  The Company will
have no additional  disclosures to comply with the requirements of SFAS No. 130.
The statement is effective for fiscal years beginning after December 15, 1997.

 In June 1997, the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and Related  Information,"  which  changes the way public  companies
report  information  about segments of their business on their annual  financial
statements  and requires them to report  selected  segment  information in their
quarterly  reports  issued  to  shareholders.   It  also  requires  entity  wide
disclosures  about the  products and  services an entity  provides,  the foreign
countries  in  which  it  holds  assets  and  reports  revenues,  and its  major
customers. This statement is effective for fiscal years beginning after December
15, 1997.



NOTE 2--INVENTORIES

Inventories  consist of the  following  at  September  30, 1997 and November 30,
1996:

                                                  1997           1996
                                                  ----           ----

Raw materials................................  $ 232,041     $  76,375

Finished goods (manufactured and purchased)..    178,931        74,497
                                                 -------       -------

                                               $ 410,972     $ 150,872

                                                 =======       =======

                                      F-8

<PAGE>


NOTE 3--RESTRICTED CASH

Cash  restricted  for  payment to a former note holder and held in agency by the
Company was $15,000 at November 30,  1996.  There were no cash  restrictions  at
September 30, 1997.

NOTE 4--PROPERTY AND EQUIPMENT

Property  and  equipment  consisted of the  following at September  30, 1997 and
November 30, 1996:

                                                       1997           1996
                                                       ----           ----

            Furniture and fixtures.............  $    64,889    $    38,233

            Equipment..........................      389,816        255,473

            Transportation equipment...........      174,158         26,023

            Leasehold improvements.............       68,808          3,250
                                                     --------       --------

            Total cost.........................      697,671        322,979

            Accumulated depreciation...........      (86,773)       (41,060)
                                                     --------       --------

            Property and equipment, net........   $  610,898    $   281,919

                                                     ========       ========

NOTE 5--BRIDGE FINANCING

In  September  1995,  the  Company  commenced  a private  placement  offering of
securities in the form of convertible  unsecured  notes in order to obtain funds
to be used  for  working  capital,  to pay  operating  expenses,  to  acquire  a
complementary  paint company or equipment necessary to manufacture the Company's
insulative coatings,  and to pay the organizational and underwriting costs to be
incurred in an initial public offering of the Company's stock. A second offering
of  unsecured  notes and  common  stock  was  commenced  January  1996 to obtain
additional  funds for the purposes stated above.  The selling agents received up
to ten percent (10%) of the amounts raised.

Included in notes payable at November 30, 1996 is $1,898,500,  representing  the
aggregate  amount  raised by the  selling  agents  through  the  issuance of the
securities  under private  placement  offerings  described above. The notes bore
interest at the rate of twelve percent (12%), with principal and interest due on
the earlier of the date of the  closing of the public  offering or one year from
the date of the notes that were  executed  during the period  October  15,  1995
through July 26, 1996.  The notes  contain a provision for penalty upon default.
The notes were convertible,  at the option of the holder, to an amount of common
stock  based  between  50% to 60% of the price of the  shares  of the  Company's
common  stock  offered  in the  public  offering.  The  option  to  convert  was
conditioned  upon the closing of the initial  public  offering of the  Company's
stock, At November 30, 1996, $505,000 of these notes were in default.

Following  the public  offering  that was  completed  in March 1997,  all bridge
financing  indebtedness  was either repaid with full interest or converted  into
the common stock of the Company.



NOTE 6--RELATED PARTY TRANSACTIONS

The  Company  received  $149,287  in legal  services  from a law firm  that is a
stockholder  and had an account payable of $24,287 and $110,470 at September 30,
1997 and November 30, 1996, respectively.

Notes receivable totaling $550,460 at September 30, 1997 are from an officer and
stockholder of the Company.  These are demand notes bearing  interest at 5%. One
note,  for  approximately  $450,000,  resulted  from the  assumption  of certain
obligations by the President of the Company prior to the underwriter agreeing to
a undertake  the public  offering  that was  consummated  in March 1997.  It was
anticipated  at that time that the  President  would sell  common  stock in that
offering.   The  underwriting   firm  did  not  complete  this  undertaking  and
consequently  the Company  advanced  funds to meet these  maturing  obligations,
irrespective  of the sale of these  securities.  A  security  interest  in these
securities  was perfected by the Company as  collateral  for these demand notes.
Future sale of the officer's common stock is anticipated to repay the advance of
funds.  The note  receivable has been presented as a reduction in  stockholders'
equity in these financial statements.

Monroe  Parker  Securities,   Inc.  was  the  Company's  investment  banker  and
underwriter  for the public  offering that was concluded on March 19, 1997.  The
underwriter  was granted an  appointee  to the board of directors as a condition
for this  undertaking.  During December 1997,  Monroe Parker ceased  substantive
market making  activities in the Company's  common stock.  On December 19, 1997,
Stephen  Drescher,  who was Monroe  Parker  designee to the  Company's  board of
directors, resigned effective that date.


                                      F-9

<PAGE>

NOTE 7--CAPITAL LEASES

The  Company  acquired  a phone  system,  a truck  and an  automobile  under the
provisions of long-term leases. For financial reporting purposes,  minimum lease
payments relating to the phone system and vehicles have been capitalized. Two of
the leases expire in 1999,  with the third expiring in 2000. The leased property
under  capital  leases  as of  September  30,  1997  has  a  cost  of $  55,826,
accumulated   amortization  of  $17,305,  and  a  net  book  value  of  $38,521.
Amortization of the leased property is included in depreciation expense.

The future  minimum lease  payments under the capital leases and the net present
value of the future minimum lease payments at September 30, 1997 are as follows:
                  

          Total minimum lease payments                      $    42,577
          Less amount representing interest                       4,367
                                                                 -------
          Present value of net minimum lease payments            38,210
          Less current maturities                                16,977
                                                                 -------
                                                            $    21,233     
                                                                 =======

NOTE 8--LONG TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>

 
                                                                         September 30, 1997      November 30, 1996

<S>                                                                   <C>                      <C>

 10.35% note due in 60 monthly installments of $525 including interest,
    through October 2001, collateralized by vehicle                          $ 20,835               $      --

 9.5% note due in 60 monthly installments of $589,including interest,
     through October 22, 2002, collateralized by vehicle                       26,239                      --

 9.5% note due in 60 monthly installments of $300, including interest,
     through September 1999, collateralized by vehicle                          7,500                      --

 9.5% note due in 36 monthly installments of $597, including interest,
     through July, 1998, collateralized by vehicle                              5,716                      --
                                                                               ------                    ------


                                                                               60,290                      --
                           Less current maturities                             18,434                      --
                                                                               ------                    ------
                                                                             $ 41,856                $     --

                                                                               ======                    ======

</TABLE>

         Maturities of long-term debt are as follows:


                               1998                 $   18,434
                               1999                     13,665
                               2000                     11,410
                               2001                     12,264
                               2002                      4,517
                                                        ------
                                                    $   60,290
                                                        ======

NOTE 9--OPERATING LEASES

The Company leases a building,  office space,  office  equipment,  and a vehicle
under  operating  leases.  These leases  expire at various  dates  through 2002.
Rental  expense  under these  leases was $100,944 and $52,216 for 1997 and 1996,
respectively.  The following is a schedule by years of minimum rentals under the
above lease agreements as of September 30, 1997.

         Year ending September 30,
                  1998...............................$    98,583
                  1999...............................$    90,262
                  2000...............................$   124,621
                  2001...............................$   124,871
                  2002...............................$   111,825


                                      F-10

<PAGE>

NOTE 10--STOCK TRANSACTIONS

In April  1996,  the  Company  effected a  one-for-ten  reverse  stock split and
increased  the number of common  shares  authorized  from  10,000,000  shares to
20,000,000 shares

The Company has one  employment  contract that  provides for granting  shares of
stock for  years of  service  to an  officer  and key  employee.  The  Company's
president was awarded  options  exercisable  for five years that entitled him to
acquire up to 500,000  shares of the Company's  common stock at a price of $4.00
per share.  In addition,  the Company  from time to time grants stock  incentive
awards  to  officers  and other key  employees.  There was one award of  200,000
shares at $4.00 per share to the chief  financial  officer of the Company during
fiscal year ending  September  30,  1997.  There were no awards  outstanding  at
September 30, 1997 or November 30, 1996.

During the period ended September 30, 1997, the Company issued  1,581,250 shares
of common stock as part of its public  offering for total net  consideration  of
$4,743,832 after deducting expenses  associated with the offering.  In addition,
569,990  shares of common stock were issued for  consideration  of $636,286,  as
part of a debt-to-equity conversion option for bridge loan holders.



NOTE 11--RESEARCH AND DEVELOPMENT COSTS

Research and development  cost included in the statements of operations  totaled
$12,833 and $9,500 for the periods  ended  September  30, 1997 and  November 30,
1996, respectively.



NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid totaled $ 48,408 and $13,198 for the periods  ended  September 30,
1997 and November  30, 1996,  respectively.  In  addition,  certain  bridge loan
holders  converted their debt obligations into common stock for consideration of
$636,286.



NOTE 13--CONCENTRATION OF CREDIT RISK

The Company  operates from two locations in Florida and  manufactures  and sells
paint  and  related  products.  The  Company  extends  credit  to its  customers
substantially without collateral.  The business operations are influenced by the
general economic conditions of the surrounding area.

The Company  maintains  its cash  accounts  primarily  with one bank  located in
Holiday,  Florida.  The total cash  balances are insured by the  F.D.I.C.  up to
$100,000.  The Company had cash  balances on deposit at September  30, 1997 that
exceeded  the balance  insured by the F.D.I.C.  in the amount of  $462,481.  The
Company does not  anticipate  any losses  related to the balances not insured by
the F.D.I.C.



NOTE 14--ACQUISITION OF A PAINT MANUFACTURING COMPANY

On July 28,  1997,  the  Company  acquired  all the  outstanding  common  stock,
representing  100% ownership,  of Atlas, a paint  manufacturer  and distributor,
located in Miami,  Florida.  The total purchase price of $1,000,000 was tendered
with  $800,000  paid in cash at the time of closing and $200,000  held in escrow
until the audited financial  statements of Atlas for the fiscal year ending June
30, 1997 were issued. These financial statements have been issued.  Disbursement
of the  balance of the escrow  funds is  anticipated  in  January,  1998 less an
adjustment of approximately $25,000.

The  operating  results of Atlas from July 29, 1997 through  September  30, 1997
have been included in the Company's  statements of operations for the ten months
ended September 30, 1997. Had a full year of operations of Atlas, based upon its
June 30 year end, been included in the Company's  financial  statements  for the
periods  ended  September  30, 1997 and November 30, 1996,  the balance sheet at
November 30, 1996 and the statement of  operations,  for the periods then ended,
would have been as follows on a pro forma basis:


                                      F-11

<PAGE>


NOTE 14--ACQUISITION OF A PAINT MANUFACTURING COMPANY (continued)

<TABLE>
<CAPTION>


                                                                           1996 (Unaudited)

                                           --------------------------------------------------------------------------------
                                           -------------------------------- -------------------------- --------------------

                                                           ThermaCell                        Atlas             Total
                                           -------------------------------- -------------------------- --------------------

<S>                                      <C>                               <C>                        <C>

       Total assets                                      $  1,537,273                      $ 803,103        $ 2,340,376

       Total liabilities                                    2,901,212                        418,342          3,319,554

       Total shareholders' equity                          (1,363,939)                       384,761           (979,178)
       (deficit)
                                                                                                             

       Total liabilities &  shareholders'                $  1,537,273                      $ 803,103        $ 2,340,376
       equity
                                           -------------------------------- -------------------------- --------------------
                                           -------------------------------- -------------------------- --------------------

                                           -------------------------------- -------------------------- --------------------

</TABLE>



<TABLE>
<CAPTION>


                                                                             1997 (Unaudited)
                                       -------------------------------------------------------------------------------------------
                                       -------------------------------- -------------------------- -------------------------------
                                                                                                         
                                                  ThermaCell                       Atlas                           Total
                                       -------------------------------- -------------------------- -------------------------------
<S>                                   <C>                              <C>                        <C>

       Net sales                                $     684,459                $    2,399,103                  $    3,083,562
       Cost of sales                                  394,235                     1,727,994                       2,122,229
                                       -------------------------------- -------------------------- -------------------------------
       Gross profit                                   290,224                       671,109                         961,333

       Selling, general & adm.                      1,299,092                       777,109                       2,076,201

       Interest expense                              (164,987)                       (4,031)                       (169,018)
       Other expense                                  (35,000)                       (4,602)                        (39,602)
       Other income                                    56,061                        19,056                          75,117
                                       -------------------------------- -------------------------- -------------------------------
                                       -------------------------------- -------------------------- -------------------------------
       Total other income (expense)                  (143,926)                       10,423                        (133,503)
                                       -------------------------------- -------------------------- -------------------------------
                                       -------------------------------- -------------------------- -------------------------------
       Loss before income taxes                    (1,152,794)                      (95,577)                     (1,248,371)
       Deferred income tax benefit                    229,995                        27,570                         257,565
       Net loss                                    ($ 922,799)                    ($ 68,007)                      ($990,806)
                                       ================================ ========================== ===============================
                                                                                                                     ($0.45)
                                                                                                   ===============================
       Shares outstanding                                                                                         2,217,106
                                                                                                   ===============================


</TABLE>
                                      F-12


<PAGE>

NOTE 14--ACQUISITION OF A PAINT MANUFACTURING COMPANY (continued)

<TABLE>
<CAPTION>


                                                                     1996 (Unaudited)
                                         ------------------------ ----------------------- ----------------------

                                                 ThermaCell                Atlas                   Total
                                         ------------------------ ----------------------- ----------------------

<S>                                     <C>                      <C>                     <C>

       Net sales                               $    615,845            $  2,699,375             $ 3,315,220
       Cost of sales                                394,867               1,936,444               2,331,311
                                         ------------------------ ----------------------- ----------------------
       Gross profit                                 220,978                 762,931                 983,909
       
       Selling, general & adm.                    1,280,339                 790,987               2,071,326

       Interest expense                            (207,147)                 (8,281)               (215,428)
       
       Other                                         (3,500)                 (5,397)                 (8,897)
       
       Other income                                  24,763                   1,266                  26,029
                                         ------------------------ ----------------------- ----------------------
       Total other income (expense)                (185,884)                (12,412)               (198,296)
                                         ------------------------ ----------------------- ----------------------
                                         ------------------------ ----------------------- ----------------------
       Loss before income taxes                  (1,245,245)                (40,468)             (1,285,713)
       
       Deferred income tax benefit                  211,692                   7,679                 219,371
                                         ------------------------ ----------------------- ----------------------
       Net loss                                 ($1,033,553)               ($32,789)            ($1,066,342)
                                         ======================== ======================= ======================
       Loss per common share                                                                         ($1.38)
                                                                                          ======================
       Shares outstanding                                                                           771,154
                                                                                          ======================

</TABLE>


NOTE 15--INCOME TAXES

In accordance  with  Statement of Financial  Accounting  Standards No. 109 (SFAS
109) "Accounting for Income Taxes",  the Company recorded deferred tax assets to
reflect  the future tax  benefits of  financial  operating  loss  carry-forwards
incurred in 1997 and 1996.

The Company has a net operating  loss  carry-forward  of $3,171,475 at September
30, 1997 that expires in 2009 through  2012.  Management's  determination  of an
adequate  valuation  allowance  is based upon its  current  estimates  of future
taxable income. If the Company is unable to generate  sufficient  taxable income
in the future through operating  results,  increases in the valuation  allowance
will be required through a charge to expense.  However,  if the Company achieves
sufficient profitability to utilize a greater portion of the deferred tax asset,
the valuation allowance will be reduced through a credit to income.

A  valuation  allowance  is  required  by SFAS 109 if,  based on the  weight  of
available  evidence,  it is more likely than not that some portion or all of the
deferred tax assets will not be realized.  The need for the valuation  allowance
is evaluated periodically by management. Based on available evidence, management
concluded  that a valuation  allowance of 50 percent is  sufficient at September
30, 1997 and November 30, 1996.  Significant  components  of the  Company's  net
deferred tax assets are as follows:

                                                                         
                                         1997           1996
                                        ------         ------
Deferred taxes..................    $ 1,262,744   $   674,700

  Less valuation allowance......       (631,372)     (337,350)
                                       ----------------------- 
Net deferred tax assets.........    $   631,372   $   337,350
                                       =========     =========

Based  on  management's  assessment,  it is more  likely  than  not that the net
deferred tax assets will be realized through future taxable earnings.

                                      F-13

<PAGE>


NOTE 16--WARRANTS

On March 19,  1997,  1,581,250  units of the  Company's  securities  (each  unit
consisting  of one  share of  common  stock and one  Series A  redeemable  stock
purchase warrant) were issued to investors at $4.00 per unit. On March 19, 1997,
the underwriter commenced trading of the common stock and warrants separately.


In  connection  with the public  offering,  the Company sold to the  underwriter
options to purchase 137,500 units (the "underwriter  warrants") of the Company's
securities,  identical to the units  publicly sold, at an exercise price of 165%
of the public offering price. The underwriter's units are exercisable at a price
per unit of $6.00  subject to certain  adjustments,  until March 12, 2001,  when
they expire.

The underwriter's  warrants contained in the underwriter's  units underlying the
underwriter's  options contain  certain  registration  rights and  anti-dilution
provisions.  The holders of the underwriter's warrants have no voting,  dividend
or other  rights as  shareholders  of the  Company  with  respect  to the shares
underlying the warrants.



NOTE 17--BUSINESS STRATEGY AND OPERATIONAL PLAN

The Company  has  historically  been  unprofitable,  primarily  because it was a
development stage enterprise whose activities required significant  expenditures
to develop its business concept,  opportunities,  products, and operations. With
the Atlas  acquisition,  completed  in July 1997,  and with the  proceeds of the
successful  underwriting  completed in March 1997,  management  has  initiated a
business  strategy and  operational  plan that include the  following  essential
elements:  (i)  achieve  profitability  for  fiscal  year 1998 by  restructuring
operations and  consolidating  production  facilities;  (ii) begin production of
limited quantities of microshells to provide for internal  requirements over the
next twelve to eighteen  months;  (iii) expand sales of  conventional  paint and
coating  products  through the channel of distribution  available from the Atlas
acquisition;  and (iv) initiate a timely marketing  program for ThermaCool paint
products to demonstrate the benefits of this new technology  without the Company
depending on ThermaCool sales for its near-term profitability.  With its present
business  strategy,  management  believes  it is  focusing  on the key  elements
necessary  to  the  Company  to be  both  profitable  and  successful  over  the
long-term.  Management  has adopted this present  strategy and is focused on its
successful implementation.  Management will arrange for the financial resources,
if necessary, to properly execute its plan.

In the opinion of management, the Company has sufficient working capital to meet
its planned needs for the next twelve months.  However, the Company will require
additional capital and substantial revenues from the sale of ThermaCool in order
to fund a substantial  growth in operations  over the next  twenty-four  months.
Management believes it will be successful in obtaining future financing.


NOTE 18--CONTINGENT LIABILITIES

The  Company  is  involved  in two  lawsuits  in which  damages or claims may be
sought.  On February 6, 1997, the Company  received a letter from the counsel to
the Williams  family which owns in the aggregate  21,923 shares of the Company's
common stock which was acquired for an aggregate purchase price of $31,950.  The
Williams family claims Mr. Pidorenko  fraudulently  induced their investment and
the Company is obligated for personal  disputes  between Mr.  Pidorenko and this
family  which  primarily  concern a  disagreement  over a purchase of a personal
residence.

The Company does not believe it is obligated to these  individuals  for personal
disputes  with Mr.  Pidorenko.  The Williams  family has rejected the  Company's
request to purchase their shares at their original  purchase price.  The Company
believes  it has  meritorious  defenses  to any  legal  proceeding  that  may be
instituted  by such  individuals.  Mr.  Pidorenko  has agreed to  indemnify  the
Company against any claims asserted by these parties.

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.  The summons  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. This
marketing agreement related to technologies developed by IA, Inc. This agreement
contained  a  confidentiality   and   non-disclosure   clause  for  technologies
purportedly developed by IA, Inc.

                                      F-14

<PAGE>


NOTE 18--CONTINGENT LIABILITIES (continued)

The Company was not a party to that agreement.  The Company believes that it has
not infringed on any patents held by IA, Inc., not  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 for some time.  The Company has agreed to indemnify  Monroe
Parker  Securities,  Inc., its underwriter,  against any claims asserted by this
party.

The  Company,  as a result of the  acquisition  of Atlas,  is a party to certain
claims relating to the pollutant tax as defined in Chapter 206, Florida Statutes
that was subsequently  repealed. The former shareholders of Atlas have agreed to
personally  idemnify the Company from any contingent  liability relating to this
matter.

The  Company,as  a result of the  acquisition  of Atlas,  is a party to  certain
claims  relating to bankruptcy of Seaboard  Chemical  Corporation who operated a
facility for treatment,  storage and disposal of hazardous  substances from 1975
until 1989. The North  Carolina  Department of  Environment,  Health and Natural
Resources identified Atlas as one of approximately 2,000 potentially responsible
parties  for  cleanup  of this  site.  Atlas was  classified  as a "de  minimis"
participant  and, as such, has limited cost and liability for site cleanup.  The
former shareholders of Atlas have agreed to personally idemnify the Company from
any contingent liability relating to this matter.

NOTE 19--SUBSEQUENT EVENT

On January 5, 1998, NASD Regulation,  Inc. announced that a complaint was issued
on December 23, 1997 charging Monroe Parker Securities,  Inc. and certain of its
officers with price  manipulation and excessive markups in the trading of Steven
Madden,  Ltd. and fraud in the sales of  securities of United  Leisure.  Neither
firm is affiliated  with the Company.  The  complaint  asks for  restitution  to
defrauded investors and potential sanctions that may include a fine, suspension,
individual bar, or firm expulsion from the NASD.  Management believes there will
be no adverse  effect for the  Company  relating  to these  allegations  against
Monroe Parker Securities, Inc.


                                      F-15