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, 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 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, 1999
----- ----------------------------
Common stock $.01 Par Value 13,305,008 Shares
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 1999 and March 31, 1999.................... 3
Consolidated Statements of Income and Comprehensive
Income Three Months Ended June 30,
1999 and 1998....................................... 4
Consolidated Statements of Cash Flows
Three Months Ended June 30,
1999 and 1998....................................... 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 ........................................................... 11
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,736 $ 1,658
Accounts Receivable, Net 1,582,799 1,259,524
Inventories 1,784,698 1,957,097
Prepaid Expenses and Other Current Assets 329,579 267,654
Deferred Income Taxes 100,000 100,000
------------ ------------
Total Current Assets 3,799,812 3,585,933
------------ ------------
PROPERTY , PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost 9,451,846 9,354,857
Less: Accumulated Depreciation 4,848,307 4,768,658
------------ ------------
Property, Plant, and Equipment - Net 4,603,539 4,586,199
------------ ------------
OTHER ASSETS
Undeveloped Land Held for Investment 119,666 118,109
Intangible Assets - Net of Amortization 112,698 115,683
Officers' Life Insurance 1,270,462 1,243,234
Investment in Foreign Company 100,000 100,000
Deposits and Other 6,722 8,293
Marketable Equity Securities, at Market 222,000 185,000
------------ ------------
Total Other Assets 1,831,548 1,770,319
------------ ------------
TOTAL ASSETS $ 10,234,899 $ 9,942,451
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 1,094,005 $ 1,249,110
Accrued Taxes and Expenses 150,872 162,131
Current Portion of Long Term Debt 317,214 341,109
Notes Payable - Bank 1,858,145 1,513,443
------------ ------------
Total Current Liabilities 3,420,236 3,265,793
------------ ------------
LONG TERM DEBT 2,144,698 2,194,241
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01/Share,
Authorized 25,000,000 shares, issued 13,305,008 shares
at 6/30/99 and 13,305,008 shares at 3/31/99 133,050 133,050
Additional Paid-in Capital 5,444,855 5,444,855
Less: Treasury Stock, at Cost 320,521 320,521
Less: Accumulated Other Comprehensive Loss 222,000 259,000
Retained Earnings (Deficit) (365,419) (515,967)
------------ ------------
Total Stockholders' Equity 4,669,965 4,482,417
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,234,899 $ 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 JUNE 30,
(UNAUDITED)
1999 1998
------------ ------------
Net Sales $ 2,960,484 $ 2,632,455
Cost of Goods Sold 2,167,267 1,887,582
------------ ------------
Gross Profit 793,217 754,873
Selling, General & Administrative Expenses 540,472 507,036
------------ ------------
Income From Operations 252,745 247,837
------------ ------------
Other Income (Expense)
Interest Expense, Net (97,412) (96,828)
Other - Net (4,785) (4,784)
------------ ------------
Total Other Income (Expense) (102,197) (101,612)
------------ ------------
Income Before Income Taxes 150,548 146,225
Provision for Income Taxes -0- -0-
------------ ------------
Net Income 150,548 146,225
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains during the period 37,000 (85,750)
------------ ------------
37,000 (85,750)
------------ ------------
Comprehensive Income $ 187,548 $ 60,474
------------ ------------
Earnings per Share-Basic $ .01 $ .01
============ ============
Earnings per Share-Diluted $ .01 $ .01
============ ============
Weighted Average Shares Outstanding- Basic 13,305,008 12,633,731
============ ============
Weighted Average Shares Outstanding- Diluted 15,338,341 15,829,128
============ ============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 150,548 $ 146,225
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 82,634 86,309
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (155,105) (17,861)
Decrease (increase) in prepaid expenses
and other assets (59,625) (45,530)
Decrease (increase) in accounts receivable (323,275) (317,154)
Decrease (increase) in inventories 172,399 (273,620)
Increase (decrease) in accrued expenses (11,259) 21,385
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(143,683) (400,246)
--------- ---------
INVESTING ACTIVITIES;
Purchases of property, plant and equipment (96,989) (69,137)
Increase in other investments (2,286) (1,516)
Increase in life insurance premiums receivable (27,228) (27,227)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (126,503) (97,880)
--------- ---------
FINANCING ACTIVITIES
Sale of common stock -0- -0-
Principal payments on debt obligations (73,438) (73,889)
Net proceeds from revolving and term debt 344,702 572,607
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 271,264 498,718
--------- ---------
INCREASE (DECREASE) IN CASH 1,078 592
CASH AT BEGINNING OF PERIOD 1,658 2,023
--------- ---------
CASH AT END OF PERIOD $ 2,736 $ 2,615
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
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, 1999 and June 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 June 30:
1999 1998
---------- ----------
Raw materials $ 914,255 $1,184,613
Work-in-process 317,987 299,895
Finished goods 552,456 237,522
---------- ----------
$1,784,698 $1,722,040
========== ==========
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, 1999 June 30, 1998
------------- -------------
Weighted Average Shares Outstanding-
(Basic) 13,305,008 12,633,731
Assumed Conversion of Stock Options 2,033,333 3,195,397
---------- ----------
Weighted Average Shares Outstanding-
(Diluted) 15,338,341 15,829,128
---------- ----------
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 $ 386
Net operating loss carryforward 341,631
Other 2,090
---------
344,107
---------
Liabilities:
Accelerated depreciation (1,540)
---------
(1,540)
Net deferred tax asset before valuation allowance 345,647
Less: Valuation allowance (245,647)
---------
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 June 30, 1999, the Company had net operating loss carryforwards of
approximately $1,148,000 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".
3 Months Ended June 30,
1999 1998
-------- --------
Cash payments for interest $ 97,412 $ 96,828
Issuance of common stock to 401(k) plan $ -0- $ 5,483
Valuation reserve to reflect long-term equity
securities at market $ 37,000 $(85,750)
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.
7
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 1999 reached a new record
level of $2,960,484, which were $328,029 or 12% higher than the comparable three
month period of the prior year. Net sales were $278,417 (10%) higher than the
three months ended March 1999, which was the former record.
The increase in net sales continued the trend begun during the 1997 fiscal
year. Shipments to customers were extremely strong during the quarter, led by
water source heat pump applications. This core business, spurred by new housing
starts in many regions of the US, continued to exhibit significant growth. Other
markets for coaxial coils, swimming pool heat pumps, marine space conditioning
and ice machines, also contributed significantly to the Company's shipments
during the quarter. Shipments for the next three months (July through September
1999) are expected to be somewhat lower than the April-June quarter due to
normal seasonal trends and scheduled summer vacation shutdowns at certain
customer facilities; however projected levels are expected to be comparable to
those recorded in the same period last year.
Assuming a continuation of the trends currently anticipated, net sales for
the fiscal year ending March 31, 2000 are expected to exceed those of the prior
fiscal year, establishing a new record for annual shipments.
Cost of sales aggregated approximately 73% of net sales for the current
period, versus 71% for the same period last year. Direct labor unit costs
declined resulting from efficiencies attributable to cellular manufacturing.
Material costs increased slightly as copper pricing in the commodity markets
exhibited some slight upward trending and the manufacturing mix included more
material intensive coils.
Selling, general and administrative expenses increased by $33,436 over the
same period last year. Staffing additions in various support functions were made
during the later stages of last fiscal year, which are now reflected as part of
the period costs in fiscal 2000. The Company plans on further supplementing its
marketing and engineering staffs during the current year.
Other expenses remained flat as bank interest charges varied by less than
1% for both years. The Company recorded net comprehensive income of $37,000 in
fiscal 2000 compared to a loss of $85,750 in the prior year, due to market value
fluctuations of an investment in publicly traded securities.
Overall, net income increased slightly from $146,225 in fiscal 1999 to
$150,548 in the current three-month period and comprehensive income increased by
$127,074 over the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $379,576 at June 30, 1999, compared to $320,140 at
March 31, 1999 and $509,132 at June 30, 1998. During the current quarter,
current assets increased by $213,879 and total assets eclipsed the $10 million
level for the first time, finishing at $10,234,899 on June 30,1999. Current
liabilities increased by a similar margin as additions to operating assets were
funded by higher borrowings against the Company's line of credit.
Accounts receivable increased during the quarter by $323,275, reflecting
the record level of shipment in the period. Conversely, inventories were reduced
by $172,399, or 9%, 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 during the period, in conjunction with the inventory reduction
program.
Investing activities increased from $97,880 during the prior year quarter
to $126,503 in the three months ended June 30, 1999. The Company is engaged in a
program to upgrade and augment its production equipment in fiscal 2000. It is
expected that overall expenses in this area during the balance of the year will
be slightly above fiscal 1999 levels.
Net cash provided by financing activities in the current year were
significantly below that of the quarter ended June 30, 1999. During the prior
year's quarter, an increase in inventories was required to support customer
requirements, which resulted in advances against the revolving line of credit.
As inventories were reduced in the current quarter, there was a complimentary
effect on the revolving debt.
8
<PAGE>
In June 1999 the Company commenced construction of a 15,000 square foot
addition to its primary manufacturing facility. Completion is expected by the
end of 1999 and certain of the operations currently housed in a separate Company
owned building will be 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.
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. 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 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.
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.
10
<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 13, 1999 By: /s/ Robert A. Lerman
----------------------------------------
Robert A. Lerman
President
Date: August 13, 1999 By: /s/ Robert I. Lieberman
----------------------------------------
Robert I. Lieberman
Treasurer and Chief Financial Officer
11
<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> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,736
<SECURITIES> 0
<RECEIVABLES> 1,582,799
<ALLOWANCES> 0
<INVENTORY> 1,784,698
<CURRENT-ASSETS> 3,799,812
<PP&E> 9,451,846
<DEPRECIATION> 4,848,307
<TOTAL-ASSETS> 10,234,899
<CURRENT-LIABILITIES> 3,420,236
<BONDS> 0
0
0
<COMMON> 133,050
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,234,899
<SALES> 2,632,455
<TOTAL-REVENUES> 2,960,484
<CGS> 2,167,267
<TOTAL-COSTS> 540,472
<OTHER-EXPENSES> 4,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,411
<INCOME-PRETAX> 150,548
<INCOME-TAX> 0
<INCOME-CONTINUING> 150,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,548
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
