SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission File Number: 0-10707
THERMODYNETICS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1042505
(State or other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
651 Day Hill Road, Windsor, CT 06095 860 683-2005
(Address of Principal Executive Offices) (Zip Code) (Telephone Number)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 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.
Yes _X_ No___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at December 31, 1997
Common stock $.01 Par Value 12,569,591 Shares
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
December 31, 1997 and March 31, 1997................. 3
Consolidated Statement of Income
Three Months Ended December 31,
1997 and 1996........................................ 4
Consolidated Statement of Income
Nine Months Ended December 31,
1997 and 1996........................................ 5
Consolidated Statement of Cash Flows
Nine Months Ended December 31,
1997 and 1996........................................ 6
Notes to Consolidated Financial Statements.............. 7-8
Item 2. Management's Discussion and Analysis ................... 9-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................... 11
Item 2. Changes in Securities................................... 11
Item 3. Defaults Upon Senior Securities......................... 11
Item 4. Submission of Matters to a Vote of Security Holders..... 11
Item 5. Other Information....................................... 11
Item 6. Exhibits and Reports on Form 8-K........................ 11
SIGNATURE PAGE ............................................................ 12
Page 2
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
(Unaudited) (Audited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 2,604 $ 2,550
Accounts Receivable, Net 1,002,302 1,227,155
Inventories 1,520,522 1,230,566
Prepaid Expenses and Other Current Assets 281,816 250,956
----------- -----------
Total Current Assets 2,807,244 2,711,227
----------- -----------
PROPERTY , PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost 8,799,248 8,615,418
Less: Accumulated Depreciation 4,371,166 4,132,228
----------- -----------
Property, Plant, and Equipment - Net 4,428,082 4,483,190
----------- -----------
OTHER ASSETS
Undeveloped Land Held for Investment 116,593 115,111
Intangible Assets - Net of Amortization 129,424 142,136
Officers' Life Insurance 908,789 719,881
Deferred Assets 3,143 8,468
Deposits 6,462 5,612
Marketable Equity Securities, at Market 416,500 392,000
----------- -----------
Total Other Assets 1,580,911 1,383,208
----------- -----------
TOTAL ASSETS $ 8,816,237 $ 8,577,625
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 646,155 $ 758,914
Accrued Taxes and Expenses 97,939 120,454
Current Portion of Long Term Debt 291,567 253,178
Notes Payable - Bank 1,083,636 1,303,813
----------- -----------
Total Current Liabilities 2,119,297 2,436,359
----------- -----------
LONG TERM DEBT 2,447,412 2,101,458
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01/Share,
Authorized 25,000,000 shares, issued 12,569,591 shares
At 12/31/97 and 12,476,057 shares at 3/31/97 125,696 124,761
Additional Paid-in Capital 5,411,525 5,404,037
Less: Treasury Stock, at Cost 320,521 320,521
Less: Valuation Reserve for Long-Term Investments 171,500 196,000
Retained Earnings (Deficit) (795,672) (972,469)
----------- -----------
Total Stockholders' Equity 4,249,528 4,039,808
----------- -----------
TOTAL LIABILITIES AND $ 8,816,237 $ 8,577,625
STOCKHOLDERS' EQUITY =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
1997 1996
----------- -----------
Net Sales $ 2,031,411 $ 2,174,916
Cost of Goods Sold 1,502,137 1,549,216
----------- -----------
Gross Profit 529,274 625,700
Selling, General & Administrative Expenses 388,701 476,759
----------- -----------
Income From Operations 140,573 148,941
----------- -----------
Other Income (Expense)
Interest Expense, Net (90,245) (84,391)
Other - Net (6,624) (6,624)
----------- -----------
Total Other Income (Expense) (96,869) (91,015)
----------- -----------
Income Before Income Taxes 43,704 57,926
Provision for Income Taxes -0- -0-
----------- -----------
Net Income $ 43,704 $ 57,926
=========== ===========
Earnings per Share - Basic and Diluted NIL $ NIL
=========== ===========
Weighted Average Shares Outstanding - Basic 12,569,646 12,476,002
=========== ===========
Weighted Average Shares Outstanding - Diluted 15,595,138 16,022,026
=========== ===========
The accompanying notes are an integral part ofthese financial statements.
Page 4
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
1997 1996
------------ ------------
Net Sales $ 6,446,283 $ 6,612,854
Cost of Goods Sold 4,671,598 4,847,601
------------ ------------
Gross Profit 1,774,685 1,765,253
Selling, General & Administrative Expenses 1,303,840 1,268,718
------------ ------------
Income From Operations 470,845 496,535
------------ ------------
Other Income (Expense)
Interest Expense, Net (274,176) (235,570)
Other - Net (19,872) (21,145)
------------ ------------
Total Other Income (Expense) (294,048) (256,715)
------------ ------------
Income Before Income Taxes and
Extraordinary Item 176,797 239,820
Provision for Income Taxes -0- -0-
------------ ------------
Net Income Before Extraordinary Item 176,797 239,820
Extraordinary Item:
Gain on Forgiveness of Indebtedness -0- 121,004
------------ ------------
Net Income $ 176,797 $ 360,824
============ ============
Earnings per Share-Basic and Diluted
Net Income Before Extraordinary Item $ .01 $ .01
Extraordinary Item -0- .01
------------ ------------
Earnings Per Share-Basic and Diluted $ .01 $ .02
============ ============
Weighted Average Shares Outstanding-Basic 12,543,781 12,434,431
============ ============
Weighted Average Shares Outstanding-Diluted 15,605,390 16,370,649
============ ============
The accompanying notes are an integral part ofthese financial statements.
Page 5
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income before extraordinary item $ 176,797 $ 239,820
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 256,975 277,301
Gain on forgiveness of indebtedness -0- 121,004
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (112,759) (199,256)
Decrease (increase) in prepaid expenses (31,710) (66,213)
and other assets
Decrease (increase) in accounts receivable 224,853 219,784
Decrease (increase) in inventories (289,956) (134,526)
Increase (decrease) in accrued expenses (14,092) (29,213)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
210,108 428,701
----------- -----------
INVESTING ACTIVITIES;
Purchases of property, plant and equipment (183,830) (231,438)
Increase in other investments (1,482) (1,406)
Increase in life insurance premiums receivable (188,908) (137,864)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(374,220) (370,708)
----------- -----------
FINANCING ACTIVITIES
Sale of common stock -0- 550
Principal payments on debt obligations (449,008) (1,607,606)
Net proceeds from revolving and term debt 613,174 1,549,083
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
164,166 (57,973)
----------- -----------
INCREASE (DECREASE) IN CASH 54 20
CASH AT BEGINNING OF PERIOD 2,550 2,529
----------- -----------
CASH AT END OF PERIOD $ 2,604 $ 2,549
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 6
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim period. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The results of operations for the three and nine months ended December 31, 1997
and December 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: INVENTORIES
Inventories consist of the following at December 31:
1997 1996
---------- ----------
Raw materials $ 956,375 $ 880,199
Work-in-process 208,625 355,296
Finished goods 355,522 215,689
---------- ----------
$1,520,522 $1,451,184
========== ==========
NOTE 3: EARNINGS PER SHARE
During the period ended December 31, 1997, the Company adopted "Statement
of Accounting Standards No. 128, Earnings per Share" (SFAS 128). Earnings per
share for the three and nine months ended December 31, 1997 and December 31,
1996 have been computed in accordance with this pronouncement, based on the
weighted average of outstanding shares during the periods. The weighted average
number of shares outstanding used in the calculations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding-
(Basic) 12,569,646 12,476,002 12,543,781 12,434,431
Assumed Conversion of Stock Options 3,025,492 3,546,024 3,361,608 3,936,218
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding-
(Diluted) 15,595,138 16,022,026 15,605,390 16,370,649
---------- ---------- ---------- ----------
</TABLE>
Page 7
<PAGE>
NOTE 4: INCOME TAXES
The Company adopted "Statement of Accounting Standards No. 109, Accounting
For Income Taxes" (SFAS 109) effective April 1, 1994. The statement requires
that deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their bases for financial
reporting purposes. In addition, SFAS 109 requires the recognition of future tax
benefits, such as net operating loss carryforwards, to the extent that
realization of such benefits are more likely than not.
The primary components of the Company's deferred tax assets and liabilities
and the related valuation allowance are as follows:
Assets:
Uniform capitalization adjustment $ 2,351
Net operating loss carryforward 501,997
Other 5,728
---------
510,076
Liabilities:
Accelerated depreciation 29,424
29,424
Net deferred tax asset
before valuation allowance 480,652
Less: Valuation allowance (480,652)
---------
Net deferred tax asset $ -0-
=========
The Company established a valuation reserve for the full amount of the net
deferred tax asset due to the uncertainty associated with its realization
through future operating results.
At December 31, 1997, the Company had net operating loss carryforwards of
$1,476,000 expiring from 2001 to 2007. In addition, unused tax credits of
$144,000 expire from 1998 to 2001 and are also being carried forward.
NOTE 5: CASH FLOW INFORMATION AND NON CASH INVESTING ACTIVITIES
The following supplemental information is disclosed pursuant to the
requirements of Financial Accounting Standards Board's "Statement of Accounting
Standards No 95, Statement of Cash Flows".
9 Months Ended Dec. 31,
1997 1996
---- ----
Cash payments for interest $ 274,176 $ 235,570
Issuance of common stock to 401(k) plan $ 8,423 $ 3,011
Valuation reserve to reflect long-term equity
securities at market $ (24,500) $(147,000)
Page 8
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales for the three and nine months ended December 31, 1997 were lower than
the respective periods in fiscal 1997 as atypical weather patterns in the United
States reduced sales of space conditioning products throughout the industry.
Moderate temperatures during the summer season followed a generally cool spring,
creating over-inventory positions at many large HVAC manufacturers. Accordingly,
the sales growth expected for the quarter did not materialize. The Company is
currently developing other heat transfer products to broaden its customer base.
Sales for the three months ended December 31, 1997 were $143,505 or 6.5%
below the level of the comparable prior year period. For the nine months, sales
were $166,571 or 2.5% lower than the December 1996 year-to-date results.
Projected shipment levels for the fourth quarter, period ending March 31, 1998,
are expected to be comparable to the most recently completed quarter as milder
than normal winter climates in many parts of the country have continued to
depress sales of space conditioning products.
In late January, the Company introduced a new product line, suction line
heat exchangers, primarily geared to the commercial refrigeration market. At the
January 1998 Air-conditioning, Heating and Refrigeration Exposition, a large
international trade show, these products were well received by both the OEM and
wholesale/distribution markets. Initial orders have already been received with
shipments scheduled to commence within the current quarter.
Gross profit margins remained relatively flat for both the three and nine
month periods and compared to the prior year. For fiscal 1998, the current
quarter resulted in a 26% gross margin; while year-to-date the result was 27%.
In the prior year, gross margins for the quarter and nine months were 29% and
27%, respectively. In December, additional manufacturing cells were installed in
many production areas that are expected to increase future productivity and
improve scheduling flexibility; this resulted in additional labor costs which
adversely impacted manufacturing margins. Some carryover of these one-time costs
will also be reflected in January's results. The favorable impact of these
changes are expected to begin to be reflected in the latter stages of this
fiscal year (March 1998) and into the first and second quarters of fiscal 1999.
Selling, general and administrative expenses ranged between 19% and 22% of
net sales for the current three and nine-month periods of both years. These
expenses declined in the current quarter compared to the third quarter of fiscal
1997 due to the timing of certain expenditures in the current and prior years.
Overall, the Company continues to expand its engineering and marketing functions
in support of new product development and market diversification. This trend is
reflected in the increase in operating expenses on a year to date comparative
basis.
Other expense remained constant at 4% of net sales for all periods.
Interest paid to banks represents the largest portion of this category. During
the current quarter, the Company completed a refinancing of a portion of its
term debt, which was used to reduce its revolving line of credit.
An extraordinary gain of $121,004, net of related expenses was recorded in
the prior year pursuant to the refinancing of a real estate mortgage secured by
one of the Company's manufacturing plants.
Page 9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997 was $687,947 compared to $274,868 at
March 31, 1997 and $468,400 at December 31, 1996. The improvement in working
capital was largely due to the refinancing of certain term debt, which resulted
in lower levels of trade debt and the reduction of borrowings under the
revolving line of credit.
Cash provided by operating activities totaled $210,108 for the current
period as net income and depreciation, coupled with a reduction in trade
receivables offset continuing investments in operating assets. The increase in
inventory of $289,956 was primarily created by the need to generate higher
levels of finished goods due to the manufacturing realignment at the end of the
quarter. Inventory levels are anticipated to remain higher than prior year
levels as the Company must maintain a higher level of raw material stock in
order to meet customer requirements for shorter lead-times. In the prior year,
slightly higher levels of operating income, together with an extraordinary gain
of $121,004 resulting from a refinancing, resulted in cash provided from
operations of $428,701 for the same period.
Cash used in investing activities was level for both the current and prior
years. During the current year, a substantial investment in plant assets was
made to enable the conversion of a portion of the factory to manufacturing
cells.
Financing activities relate to refinancings and repayments of the Company's
term and revolving debt. During the current year the Company refinanced a
portion of term debt secured by plant assets and used the proceeds to reduce
short-term borrowings. The lower interest rate negotiated is expected to reduce
debt service expense in future periods. In the prior year, a real estate
mortgage was refinanced which generated an extraordinary gain of $121,004 on the
retirement of the then-existing mortgage.
No further refinancings are under consideration, as the Company believes it
has sufficient resources available to fund current development programs.
However, as the Company is investigating acquisition opportunities, additional
capital to finance such activities may be necessary. It is believed that
financing is available for suitable investments.
FORWARD LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements regarding
the Company, its business prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking statements include,
without limitation: the Company's ability to successfully and timely develop and
finance new projects, the impact of competition on the Company's revenues, and
changes in unit prices, supply and demand for the Company's tubing products
especially in applications serving the commercial, industrial and residential
construction industries.
When used words such as "believes," "anticipates," "expects," "intends" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. The Company undertakes no obligation
to revise any forward-looking statements in order to reflect events or
circumstances that may subsequently arise. Readers are urged to carefully review
and consider the various disclosures made by the Company in this report, news
releases, and other reports filed with the Securities and Exchange Commission
that attempt to advise interested parties of the risks and factors that may
affect the Company's business.
Page 10
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material legal proceedings known or threatened against the
Company.
Item 2. Change in Securities.
No class of registered securities of the Company have been materially
modified, and no class of registered securities have been materially limited or
qualified by the issuance or modification of any other class of securities of
the Company.
Item 3. Defaults Upon Senior Securities.
There have been no defaults of any terms of the Company's securities.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Securities Holders of the
Company during the quarterly period for which this report is filed.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27, Financial Data Schedule, has been submitted with this
report.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
Page 11
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THERMODYNETICS, INC.
Date: February 13, 1998 By: /s/Robert A. Lerman
------------------------------------
Robert A. Lerman
President
Date: February 13, 1998 By: /s/Robert I. Lieberman
------------------------------------
Robert I. Lieberman
Treasurer and Chief Financial Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-QSB for the period ended as stated below and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000351902
<NAME> Thermodynetics, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,604
<SECURITIES> 0
<RECEIVABLES> 1,002,302
<ALLOWANCES> 0
<INVENTORY> 1,520,522
<CURRENT-ASSETS> 2,807,244
<PP&E> 8,799,248
<DEPRECIATION> 4,371,166
<TOTAL-ASSETS> 8,816,237
<CURRENT-LIABILITIES> 2,119,297
<BONDS> 0
0
0
<COMMON> 125,696
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,816,237
<SALES> 2,031,411
<TOTAL-REVENUES> 2,031,411
<CGS> 1,502,137
<TOTAL-COSTS> 388,701
<OTHER-EXPENSES> 6,624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,245
<INCOME-PRETAX> 43,704
<INCOME-TAX> 0
<INCOME-CONTINUING> 43,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,704
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
