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 June 30, 1998 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 of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 June 30, 1998
--------------------------- ----------------------------
Common stock $.01 Par Value 12,665,276 Shares
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 1998 and March 31, 1998................... 3
Consolidated Statements of Income and Comprehensive
Income Three Months Ended June 30,
1997 and 1996...................................... 4
Consolidated Statement s of Cash Flows
Three Months Ended June 30,
1997 and 1996...................................... 5
Notes to Consolidated Financial Statements............ 6-7
Item 2. Management's Discussion and Analysis ................. 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................... 10
Item 2. Changes in Securities................................. 10
Item 3. Defaults Upon Senior Securities....................... 10
Item 4. Submission of Matters to a Vote of Security Holders... 10
Item 5. Other Information..................................... 10
Item 6. Exhibits and Reports on Form 8-K...................... 10
SIGNATURE PAGE ......................................................... 10
Page 2
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,615 $ 2,023
Accounts Receivable, Net 1,356,232 1,039,078
Inventories 1,722,040 1,448,420
Prepaid Expenses and Other Current Assets 285,803 240,563
Deferred Income Taxes 100,000 100,000
----------- -----------
Total Current Assets 3,466,690 2,830,084
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost 9,032,389 8,963,252
Less: Accumulated Depreciation 4,530,463 4,450,814
----------- -----------
Property, Plant, and Equipment - Net 4,501,926 4,512,438
----------- -----------
OTHER ASSETS
Undeveloped Land Held for Investment 118,109 116,593
Intangible Assets - Net of Amortization 124,638 127,623
Officers' Life Insurance 1,049,667 1,022,440
Deferred Assets 1,450 5,125
Deposits 7,893 7,601
Marketable Equity Securities, at Market 306,250 392,000
----------- -----------
Total Other Assets 1,608,007 1,671,382
----------- -----------
TOTAL ASSETS $ 9,576,623 $ 9,013,904
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 894,575 $ 912,435
Accrued Taxes and Expenses 136,733 120,831
Current Portion of Long Term Debt 291,566 291,566
Notes Payable - Bank 1,634,354 1,061,747
----------- -----------
Total Current Liabilities 2,957,228 2,386,579
----------- -----------
LONG TERM DEBT 2,292,456 2,366,345
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01/Share,
Authorized 25,000,000 shares, issued 12,665,276 shares
At 6/30/98 and 12,569,591 shares at 3/31/98 126,653 125,696
Additional Paid-in Capital 5,416,051 5,411,524
Less: Treasury Stock, at Cost 320,521 320,521
Less: Valuation Reserve for Long-Term Investments 281,750 196,000
Retained Earnings (Deficit) (613,494) (759,719)
----------- -----------
Total Stockholders' Equity 4,326,939 4,260,980
----------- -----------
TOTAL LIABILITIES AND $ 9,576,623 $ 9,013,904
=========== ===========
STOCKHOLDERS' EQUITY
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
1998 1997
------------ ------------
Net Sales $2,632,455 $2,214,663
Cost of Goods Sold 1,887,582 1,579,160
------------ ------------
Gross Profit 754,873 635,503
Selling, General & Administrative Expenses 507,036 476,430
------------ ------------
Income From Operations 247,837 159,073
------------ ------------
Other Income (Expense)
Interest Expense, Net (96,828) (90,098)
Other - Net (4,784) (6,624)
------------ ------------
Total Other Income (Expense) (101,612) (96,722)
------------ ------------
Income Before Income Taxes 146,225 62,351
Provision for Income Taxes -0- -0-
------------ ------------
Net Income 146,225 62,351
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains during the period (85,750) (49,000)
------------ ------------
(85,750) (49,000)
------------ ------------
Comprehensive Income $60,474 $13,351
------------ ------------
Earnings per Share-Basic $.01 NIL
============ ============
Earnings per Share-Diluted $.01 NIL
============ ============
Weighted Average Shares Outstanding- Basic 12,633,731 12,491,484
============ ============
Weighted Average Shares Outstanding- Diluted 15,829,128 15,260,027
============ ============
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
1998 1997
--------- ---------
OPERATING ACTIVITIES:
Net income $ 146,225 $ 62,349
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 86,309 88,140
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (17,861) 57,125
Decrease (increase) in prepaid expenses (45,530) (22,922)
and other assets
Decrease (increase) in accounts receivable (317,154) 54,005
Decrease (increase) in inventories (273,620) (201,618)
Increase (decrease) in accrued expenses 21,385 35,480
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(400,246) 72,709
--------- ---------
INVESTING ACTIVITIES;
Purchases of property, plant and equipment (69,137) (59,483)
Increase in other investments (1,516) - 0 -
Increase in life insurance premiums receivable (27,227) (27,227)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(97,880) (86,710)
--------- ---------
FINANCING ACTIVITIES
Sale of common stock -0- -0-
Principal payments on debt obligations (73,889) (87,922)
Net proceeds from revolving and term debt 572,607 102,007
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
498,718 14,105
--------- ---------
INCREASE (DECREASE) IN CASH 592 14
CASH AT BEGINNING OF PERIOD 2,023 2,550
--------- ---------
CASH AT END OF PERIOD $ 2,615 $ 2,564
========= =========
The accompanying notes are an integral part of these financial statements
Page 5
<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 months ended June 30, 1998 and June 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
NOTE 2: INVENTORIES
Inventories consist of the following at June 30:
1998 1997
---------- ----------
Raw materials $1,184,613 $ 868,037
Work-in-process 299,895 208,625
Finished goods 237,532 355,522
---------- ----------
$1,722,040 $1,432,184
========== ==========
NOTE 3: EARNINGS PER SHARE
The Company has adopted "Statement of Accounting Standards No. 128,
Earnings per Share" (SFAS 128). Earnings per share for the three months ended
June 30, 1998 and June 30, 1997 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:
Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Weighted Average Shares Outstanding-
(Basic ) 12,633,731 12,491,484
Assumed Conversion of Stock Options 3,195,397 2,768,543
---------- ----------
Weighted Average Shares Outstanding-
(Diluted) 15,829,128 15,260,027
---------- ----------
Page 6
<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 $ (621)
Net operating loss carryforward 426,695
Other 4,545
---------
430,619
Liabilities:
Accelerated depreciation (2,534)
---------
(2,534)
---------
Net deferred tax asset before valuation allowance 433,153
Less: Valuation allowance (333,153)
---------
Net deferred tax asset $ 100,000
=========
The Company continually reviews the adequacy of the valuation allowance and
recognizes a benefit from income taxes only when reassessment indicates that it
is more likely than not that the benefits will be realized. In fiscal 1998 the
Company reduced the valuation allowance applied against the net operating loss
carryforwards, based upon reasonable and prudent tax planning strategies and
future income projections.
At June 30, 1998, the Company had net operating loss carryforwards of
$1,255,000 expiring from 2001 to 2007. In addition, unused tax credits of
$144,000 expire from 1999 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".
3 Months Ended June 30,
1998 1997
---- ----
Cash payments for interest $ 96,828 $ 90,098
Issuance of common stock to 401(k) plan $ 5,483 $ 8,423
Valuation reserve to reflect long-term equity
securities at market $(85,750) $(49,000)
NOTE 6: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The Company has adopted "Statement of Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), which establishes standards for
reporting and display of comprehensive income and its components (i.e. revenues,
expenses, gains and losses) in a complete set of financial statements. All prior
periods have been restated to conform to the provisions of this statement.
Page 7
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 1998 totaled $2,632,455 which
amount is the highest level of net sales achieved for any three month period in
the Company's history. This represents an increase of $477,109 over the prior
quarter and $417, 822 over the comparable period of the prior year. This
significant growth in shipments is attributable to further improvements in sales
to existing markets and the addition of new applications for the Company's
tubing and coaxial coil product line.
Sales during the year ended March 31, 1998 were adversely affected by a
persistence of moderate temperature conditions, largely caused by the El Nino
weather patterns in the continental United States. The absence of extreme
ambient conditions retarded the demand for space conditioning products, which
represents the largest market served by the Company. As temperatures returned to
more seasonal conditions in the 1998 spring months, the pent-up demand for HVAC
products created a surge in orders for condenser/evaporators used in both
residential and commercial applications. Additionally, the continued strong
performance of domestic economic indicators has resulted in an increase in the
construction of industrial facilities that require heating and air conditioning
systems.
During the latest fiscal quarter, the Company commenced shipments of a
newly developed line of coils to a new customer for use in their commercial ice
cube machines. This new application for condenser coils is expected to generate
significant sales for the balance of the fiscal year and future periods as well.
Other markets, including swimming pool heat pumps and marine air conditioning
products have also exhibited strong growth during the period.
Cost of sales improved to 72% of sales for the current quarter compared to
74% for the year ended March 31, 1998. Improvements in efficiencies were
realized both through the continued refinement of the operation of manufacturing
cells and the higher production volumes during the period. The Company is in the
process of further rearrangement of manufacturing resources to maximize
utilization of production equipment and improve material handling capabilities.
Selling, general and administrative expenses increased by $67,418 or 15%
and $30,606 or 6% over the three months ended March 31, 1998 and June 30, 1997,
respectively. Engineering and laboratory test expenses increased to satisfy the
growing demand to support new product development and research activities. Sales
commissions also increased during the period as a function of higher shipping
levels. Additional investments in engineering and technical support staff are
anticipated to be expended during the balance of the year.
Interest expense remained relatively constant for all periods resulting in
little fluctuation in total other expenses. A series of refinancings was
completed in the prior year and no significant activity in this area is
contemplated at the present time.
Other comprehensive loss adjustments for both the current quarter and prior
year comparable period consisted of unrealized holding losses on long-term
investments.
Page 8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1998 was $509,132 compared to $443,505 at March
31, 1998 and $299,443 at June 30, 1997. During the current quarter, current
assets increased by $636,606, largely due to higher levels of accounts
receivable and inventories needed to support increased shipments. During the
same period current liabilities increased by $570,649 consisting of additional
borrowings under the revolving line of credit. These advances were used to
finance the additional investments in operating assets and capital expenditures
during the quarter.
As a result of the large increases in current assets, net cash used in
operating activities totaled $400,246 for the current quarter compared to net
cash generated of $72,709 in 1997. Although inventory increased in both periods,
the need to increase raw material stock in fiscal 1999 to satisfy order levels
resulted in overall higher levels at June 1998. Accounts receivable increased by
$317,154 for the current three months, reflecting the substantial increase in
shipments. Days receivables outstanding remained unchanged from year-end
reflecting no deterioration in the collection of amounts due from customers.
Cash used in investing activities increased from $86,710 in fiscal 1997 to
$97,880 for the three months ended June 1998, due to an increase in capital
expenditures in the current quarter. Anticipated purchases of production
equipment are expected to run slightly higher than the prior year due to the
need to add production capacity in support of higher sales levels.
As previously indicated the additional investments in inventories and
accounts receivable were funded through advances under the revolving debt
facility. The line of credit also served to finance capital projects and other
equipment purchases during the quarter. It is anticipated that the latter
financings will be converted to term debt later in the year, which will provide
additional availability, if needed, under the revolving line of credit.
Inflation and other cost increases continue to play a minor role in the
Company's day to day operations. Improvements to manufacturing processes and
procedures, coupled with small increases in purchased goods and services have
enabled the Company to maintain its current cost structure. Stability in the
precious metals markets has also enabled the Company to continue to purchase raw
materials at competitive prices for conversion into products shipped to
customers. As the Company continues its conversion to cellular manufacturing,
further cost reductions are anticipated which should offset future effects of
inflation for the balance of the fiscal year.
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 9
<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) No Exhibits have 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 PAGE
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: August 4, 1998 By: /s/ Robert A. Lerman
----------------------------------------
Robert A. Lerman
President
Date: August 1, 1998 By: /s/ Robert I. Lieberman
----------------------------------------
Robert I. Lieberman
Treasurer and Chief Financial Officer
<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-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,615
<SECURITIES> 0
<RECEIVABLES> 1,356,232
<ALLOWANCES> 0
<INVENTORY> 1,722,040
<CURRENT-ASSETS> 3,466,690
<PP&E> 9,032,389
<DEPRECIATION> 4,530,463
<TOTAL-ASSETS> 9,576,623
<CURRENT-LIABILITIES> 2,957,228
<BONDS> 0
0
0
<COMMON> 126,653
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,576,623
<SALES> 2,632,455
<TOTAL-REVENUES> 2,632,455
<CGS> 1,887,582
<TOTAL-COSTS> 507,036
<OTHER-EXPENSES> (4,784)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,828
<INCOME-PRETAX> 146,225
<INCOME-TAX> 0
<INCOME-CONTINUING> 146,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,225
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
