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 September 30, 1999
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
(Address of Principal Executive Offices) (Zip Code)
860-683-2005
(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 Sept. 30, 1999
Common stock $.01 Par Value 13,580,008 Shares
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
September, 1999 and March 31, 1999..................... 3
Consolidated Statements of Income and Comprehensive
Income Three Months Ended September 30,
1999 and 1998.......................................... 4
Consolidated Statements of Income and Comprehensive
Income Six Months Ended September 30,
1999 and 1998.......................................... 5
Consolidated Statements of Cash Flows
Six Months Ended September 30,
1999 and 1998.......................................... 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
2
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,763 $ 1,658
Accounts Receivable, Net 1,289,411 1,259,524
Inventories 1,815,825 1,957,097
Prepaid Expenses and Other Current Assets 314,931 267,654
Deferred Income Taxes 100,000 100,000
------------ ------------
Total Current Assets 3,522,930 3,585,933
------------ ------------
PROPERTY , PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost 9,746,787 9,354,857
Less: Accumulated Depreciation 4,927,955 4,768,658
------------ ------------
Property, Plant, and Equipment - Net 4,818,832 4,586,199
------------ ------------
OTHER ASSETS
Undeveloped Land Held for Investment 119,666 118,109
Intangible Assets - Net of Amortization 109,713 115,683
Officers' Life Insurance 1,297,688 1,243,234
Investment in Foreign Company 100,000 100,000
Deposits and Other 16,595 8,293
Marketable Equity Securities, at Market 185,000 185,000
------------ ------------
Total Other Assets 1,828,662 1,770,319
------------ ------------
TOTAL ASSETS $ 10,170,424 $ 9,942,451
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 1,029,399 $ 1,249,110
Accrued Taxes and Expenses 139,518 162,131
Current Portion of Long Term Debt 354,558 341,109
Notes Payable - Bank 1,493,876 1,513,443
------------ ------------
Total Current Liabilities 3,017,351 3,265,793
------------ ------------
LONG TERM DEBT 2,419,640 2,194,241
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01/Share,
Authorized 25,000,000 shares, issued 13,580,008 shares
at 9/30/99 and 13,305,008 shares at 3/31/99 135,800 133,050
Additional Paid-in Capital 5,454,351 5,444,855
Less: Treasury Stock, at Cost 164,564 320,521
Less: Accumulated Other Comprehensive Loss 259,000 259,000
Retained Earnings (Deficit) (433,154) (515,967)
------------ ------------
Total Stockholders' Equity 4,733,433 4,482,417
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,170,424 $ 9,942,451
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
3
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ 2,634,438 $ 2,665,374
Cost of Goods Sold 1,962,088 1,931,735
------------ ------------
Gross Profit 672,350 733,639
Selling, General & Administrative Expenses 473,754 480,157
------------ ------------
Income From Operations 198,596 253,482
------------ ------------
Other Income (Expense)
Interest Expense, Net (105,595) (99,702)
Realized Loss on Sale of Securities -0- (126,580)
Other - Net (4,785) (4,785)
------------ ------------
Total Other Income (Expense) (110,380) (231,067)
------------ ------------
Income Before Income Taxes 88,216 22,415
Provision for Income Taxes -0- -0-
Net Income 88,216 22,415
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains during the period (37,000) (5,750)
------------ ------------
(37,000) (5,750)
------------ ------------
Comprehensive Income $ 51,216 $ 16,665
------------ ------------
Earnings per Share-Basic $ .01 NIL
============ ============
Earnings per Share-Diluted $ .01 NIL
============ ============
Weighted Average Shares Outstanding- Basic 13,496,310 12,665,276
============ ============
Weighted Average Shares Outstanding- Diluted 15,758,711 15,227,015
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
4
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ 5,594,922 $ 5,297,829
Cost of Goods Sold 4,129,355 3,809,317
------------ ------------
Gross Profit 1,465,567 1,488,512
Selling, General & Administrative Expenses 1,014,226 977,194
------------ ------------
Income From Operations 451,341 511,318
------------ ------------
Other Income (Expense)
Interest Expense, Net (203,007) (196,530)
Realized Loss on Sale of Securities -0- (126,580)
Other - Net (9,570) (19,568)
------------ ------------
Total Other Income (Expense) (212,571) (342,678)
------------ ------------
Income Before Income Taxes 238,770 168,640
Provision for Income Taxes -0- -0-
Net Income 238,770 168,640
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains during the period -0- (80,000)
------------ ------------
-0- (80,000)
------------ ------------
Comprehensive Income $ 238,770 $ 88,640
------------ ------------
Earnings per Share-Basic $ .02 $ .01
============ ============
Earnings per Share-Diluted $ .02 $ .01
============ ============
Weighted Average Shares Outstanding-Basic 13,400,793 12,633,381
============ ============
Weighted Average Shares Outstanding-Diluted 15,557,665 15,562,090
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
5
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 238,770 $ 168,640
Adjustments to reconcile net income to net cash provided by
operating activities:
Re-issuance of treasury stock 5,000 -0-
Depreciation and amortization 165,263 165,267
Realized loss on sale of securities -0- 126,580
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (219,711) (103,830)
Decrease (increase) in prepaid expenses and (55,579) (31,470)
Other assets
Decrease (increase) in accounts receivable (29,887) (204,371)
Decrease (increase) in inventories 141,272 (368,084)
Increase (decrease) in accrued expenses (18,113) 5,303
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
227,015 (241,965)
--------- ---------
INVESTING ACTIVITIES;
Purchases of property, plant and equipment (391,930) (38,535)
Increase in other investments (1,557) (1,516)
Investment in foreign company -0- (100,742)
Increase in life insurance premiums receivable (54,454) (54,454)
Sale of marketable securities -0- 47,420
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (447,941) (247,827)
--------- ---------
FINANCING ACTIVITIES
Sale of common stock 2,750 -0-
Principal payments on debt obligations (153,983) (147,348)
Net proceeds from revolving and term debt 373,264 637,819
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 222,031 490,471
--------- ---------
INCREASE (DECREASE) IN CASH 1,105 679
CASH AT BEGINNING OF PERIOD 1,658 2,023
--------- ---------
CASH AT END OF PERIOD $ 2,763 $ 2,702
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
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 six months ended September 30, 1999
and September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: INVENTORIES
Inventories consist of the following at September 30:
1999 1998
---------- ----------
Raw materials $ 945,383 $1,279,077
Work-in-process 317,987 299,895
Finished goods 552,456 237,522
---------- ----------
$1,815,826 $1,816,504
========== ==========
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 and six months
ended September 30, 1999 and September 30, 1998 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 Six Months Ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted Average Shares
Outstanding (Basic) 13,496,310 12,665,276 13,400,793 12,633,381
Assumed Conversion of Stock Options 2,262,401 2,561,739 2,516,872 2,928,709
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding-
(Diluted) 15,758,711 15,277,015 15,557,665 15,562,090
---------- ---------- ---------- ----------
</TABLE>
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 $ 773
Net operating loss carryforward 310,852
Other 4,179
---------
315,804
Liabilities:
Accelerated depreciation (3,080)
---------
(3,080)
Net deferred tax asset before valuation allowance 318,884
Less: Valuation allowance (218,884)
---------
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.
At September 30, 1999, the Company had net operating loss carryforwards of
approximately $914,000 expiring from 2001 to 2007. In addition, unused tax
credits of $144,000 expire from 2000 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".
6 Months Ended Sept. 30,
1999 1998
--------- ---------
Cash payments for interest $ 203,007 $ 196,530
Issuance of common stock to 401(k) plan $ 4,500 $ 5,483
Valuation reserve to reflect long-term equity
securities at market $ -0- $ (80,000)
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.
8
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 1999 totaled $2,634,438,
approximately the same amount for the same period of the prior year. For the six
months ended September 1999, net sales of $5,594,922 in the current year
outdistanced the $5,297,839 recorded in the period ended September 30, 1998.
During the first quarter of fiscal 2000 the Company achieved a record quarterly
sales level of $2,960,484, fueled by growth in the Company's core market of
water source heat pump applications. A portion of these sales represented
non-recurring inventory stock building programs undertaken by certain customers.
The second quarter sales slowdown is a seasonal trend created by a number
of factors. Vacation shutdowns and/or reduced work schedules at many OEM
factories traditionally reduce demand for the Company's products during the
summer months. Shipments for the third quarter are projected to increase above
those of the second quarter as customer requirements return to levels more
consistent with the balance of the year.
Cost of goods sold aggregated 74% of sales for both the three and six month
periods of the current year. For the same periods in fiscal 1999, these costs
totaled 72% of sales. The average cost of copper and copper-alloy tubing
continued to increase slightly in the current quarter, following the trend of
the first three months of the fiscal year. Recent price stabilization in the
commodity market should serve to mitigate cost increases in the near term. The
Company has also added staff in production support functions, increasing
manufacturing overhead costs. Additional technicians and manufacturing engineers
may be hired in the coming months to further support new products and processes.
Selling, general and administrative expenses decreased by $6,403, or 1%, in
the current quarter as compared to the same period of the prior year. For the
six-month periods, these expenses increased by $37,032 (4%), from fiscal 1999 as
compared to fiscal 2000. These variances are created by timing differences, as
operating expenses have remained flat for all periods presented.
Increases in the prime lending rate resulted in higher debt service costs
for both revolving and term debt. During the prior year, a realized loss on the
sale of marketable securities occurred in the second quarter, resulting in a
charge to earnings of $126,580. No securities were sold in the current year.
Net income for the three-month period increased from fiscal 1999 to fiscal
2000. Income from operations was higher in the prior year due to the adverse
factors affecting manufacturing costs previously detailed. Offsetting this
increase was the loss on sale of securities reflected as other expense. For the
six months, net income increased from $168,640 at September 30, 1998 to $238,770
at September 30, 1999 as a result of the same factors.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $505,579 at September 30, 1999, compared to
$320,140 at March 31, 1999 and $521,277 at September 30, 1998. During the
current six-month period, current assets decreased by $63,003 while current
liabilities decreased by $248,442, resulting in a net increase in working
capital of $185,439. Inventories were reduced by $141,272, or 7%, from March 31,
1999 as the Company has targeted this area for special emphasis during the
current year. Inventories are expected to remain near this level for the balance
of fiscal year 2000. Trade accounts payable also decreased significantly during
the six-month period, primarily as a result of the inventory reduction program.
Resources used to fund investing activities increased from $247,827 during
the prior year six-month period to $447,941 in the six months ended September
30, 1999. Construction of a 15,000 square foot addition to the Company's primary
manufacturing facility commenced in June 1999. Completion is expected by the end
of calendar year 1999 and certain operations currently housed in a separate
Company owned building will be
9
<PAGE>
relocated to the new space. The addition is financed with a construction loan
from the Company's principal bank; the loan is planned to be converted to a
permanent mortgage upon completion of the project; the Company is also engaged
in a program to upgrade and augment its production equipment in fiscal 2000.
During fiscal year 1999 the Company invested $100,000 in a Belgian company
engaged in the processing of pharmaceutical related products. The investment was
financed with margined securities that suffered declines in value in concert
with the general stock market decline in September 1998. This resulted in margin
calls and the Company sold a portion of its holdings, recording a loss of
$126,580 for that period.
Net cash provided by financing activities in the current year were
significantly below that of the six month period ended September 30, 1998.
During the prior year, an increase in inventories was required to support
customer requirements, which resulted in advances against the revolving line of
credit. As inventory levels were reduced in the current year, cash provided by
operating activities was used to repay revolving debt. Additional term debt of
$373,264 was incurred during the period representing advances against the
construction loan for the building addition. Upon completion, the projected loan
balance for the main building, including a refinancing of the existing mortgage
is expected to be approximately $1,750,000.
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 price increases in purchased goods and services
have enabled the Company to maintain its current cost structure. 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. Further, upon completion of the building addition, certain
operations will be relocated from an adjacent facility, which will also improve
efficiencies and lower manufacturing costs.
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 product line
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.
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) 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.
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: November 12, 1999 By: /s/ Robert A. Lerman
-----------------------
Robert A. Lerman
President
Date: November 12, 1999 By: /s/ Robert I. Lieberman
--------------------------
Robert I. Lieberman
Treasurer and Chief Financial
Officer
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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,763
<SECURITIES> 0
<RECEIVABLES> 1,289,411
<ALLOWANCES> 0
<INVENTORY> 1,815,825
<CURRENT-ASSETS> 3,522,930
<PP&E> 9,746,787
<DEPRECIATION> 4,927,955
<TOTAL-ASSETS> 10,170,424
<CURRENT-LIABILITIES> 3,017,351
<BONDS> 0
0
0
<COMMON> 135,800
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,170,424
<SALES> 2,634,438
<TOTAL-REVENUES> 2,634,438
<CGS> 1,962,088
<TOTAL-COSTS> 473,754
<OTHER-EXPENSES> 4,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,595
<INCOME-PRETAX> 88,216
<INCOME-TAX> 0
<INCOME-CONTINUING> 88,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,216
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
