UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 Commission File Number: 0-10707
THERMODYNETICS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 06-1042505
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(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
651 Day Hill Road, Windsor, CT 06095 860-683-2005
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(Address of Principal Executive Offices) (Zip Code) (Telephone Number)
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(Former name, former address and former fiscal year,
if changed since last report.)
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, 2000
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Common stock $.01 Par Value 13,648,110 Shares
Transitional Small Business Disclosure Format Yes ( ) No (x)
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
INDEX
Page Number
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2000 and March 31, 2000.................... 3
Consolidated Statements of Income and Comprehensive
Income Three Months Ended June 30,
2000 and 1999....................................... 4
Consolidated Statements of Cash Flows
Three Months Ended June 30,
2000 and 1999....................................... 5
Notes to Consolidated Financial Statements............. 6-7
Item 2. Management's Discussion and Analysis or
Plan of Operation............................... 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 2
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,768 $ 2,814
Accounts Receivable, Net 1,534,464 1,226,817
Inventories 1,997,708 1,802,535
Prepaid Expenses and Other Current Assets 325,816 259,079
------------ ------------
Total Current Assets 3,860,756 3,291,245
------------ ------------
PROPERTY , PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost 10,995,434 10,873,948
Less: Accumulated Depreciation 5,117,128 5,039,960
------------ ------------
Property, Plant, and Equipment - Net 5,878,306 5,833,988
------------ ------------
OTHER ASSETS
Undeveloped Land Held for Investment 121,194 119,666
Intangible Assets - Net of Amortization 100,758 103,743
Officers' Life Insurance 1,504,484 1,477,257
Investment in Foreign Company 100,000 100,000
Deposits and Other 11,635 13,862
Marketable Equity Securities, at Market 62,456 62,456
------------ ------------
Total Other Assets 1,900,527 1,876,984
------------ ------------
TOTAL ASSETS $ 11,639,589 $ 11,002,217
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 1,537,265 $ 1,466,680
Accrued Taxes and Expenses 111,844 97,388
Current Portion of Long Term Debt 363,031 352,414
Notes Payable - Bank 1,800,223 1,525,319
------------ ------------
Total Current Liabilities 3,812,363 3,441,801
------------ ------------
DEFERRED INCOME TAXES 129,000 95,000
------------ ------------
LONG TERM DEBT 3,096,808 3,013,700
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01/Share,
Authorized 25,000,000 shares, issued 13,780,008 shares
at 6/30/00 and 13,580,008 shares at 3/31/00 137,800 135,800
Additional Paid-in Capital 5,307,394 5,298,398
Less: Treasury Stock, at Cost 164,564 164,564
Less: Accumulated Other Comprehensive Loss 381,544 381,544
Retained Earnings (Deficit) (297,668) (436,374)
------------ ------------
Total Stockholders' Equity 4,601,418 4,451,716
------------ ------------
TOTAL LIABILITIES AND $ 11,639,589 $ 11,002,217
STOCKHOLDERS' EQUITY ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3
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THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Net Sales $ 3,186,844 $ 2,960,484
Cost of Goods Sold 2,361,676 2,167,267
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Gross Profit 825,168 793,217
Selling, General & Administrative Expenses 515,864 540,472
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Income From Operations 309,304 252,745
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Other Income (Expense)
Interest Expense, Net (136,812) (97,412)
Other - Net 214 (4,785)
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Total Other Income (Expense) (136,598) (102,197)
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Income Before Income Taxes 172,706 150,548
Provision for Income Taxes 34,000 0
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Net Income 138,706 150,548
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains during the period 0 37,000
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0 37,000
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Comprehensive Income $ 138,706 $ 187,548
------------ ------------
Earnings per Share-Basic $ .01 $ .01
============ ============
Earnings per Share-Diluted $ .01 $ .01
============ ============
Weighted Average Shares Outstanding- Basic 13,582,206 13,305,008
============ ============
Weighted Average Shares Outstanding- Diluted 16,756,015 15,338,341
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 4
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 138,706 $ 150,548
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 80,153 82,634
Deferred tax provision 34,000 0
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 70,585 (155,105)
Decrease (increase) in prepaid expenses and (64,514) (59,625)
other assets
Decrease (increase) in accounts receivable (307,647) (323,275)
Decrease (increase) in inventories (195,173) 172,399
Increase (decrease) in accrued expenses 25,456 (11,259)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(218,434) (143,683)
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INVESTING ACTIVITIES;
Purchases of property, plant and equipment (121,486) (96,989)
Increase in other investments (1,528) (2,286)
Increase in life insurance premiums receivable (27,227) (27,228)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (150,241) (126,503)
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FINANCING ACTIVITIES
Net proceeds from revolving and term debt 368,629 271,264
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 368,629 271,264
--------- ---------
INCREASE (DECREASE) IN CASH (46) 1,078
CASH AT BEGINNING OF PERIOD 2,814 1,658
--------- ---------
CASH AT END OF PERIOD $ 2,768 $ 2,736
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated 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, 2000 and June 30,
1999 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, March 31,
2000 2000
---------- ----------
Raw materials $1,143,978 $1,041,791
Work-in-process 281,652 281,653
Finished goods 572,078 479,091
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$1,997,708 $1,802,535
========== ==========
Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out basis.
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, 2000 and June 30, 1999 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, 2000 June 30, 1999
------------- -------------
Weighted Average Shares Outstanding-
(Basic ) 13,582,206 13,305,008
Assumed Conversion of Stock Options 3,173,810 2,033,333
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Weighted Average Shares Outstanding-
(Diluted) 16,756,015 15,338,341
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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:
June 30, 2000 March 31, 2000
------------- --------------
Assets:
Uniform capitalization adjustment $ 21,000 $ 21,000
Net operating loss carryforward 660,000 694,000
Investment tax credits 144,000 144,000
Other 18,000 18,000
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843,000 877,000
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Liabilities:
Accelerated depreciation (972,000) (972,000)
--------- ---------
(972,000) (972,000)
--------- ---------
Net deferred tax asset (liability) $(129,000) $ (95,000)
At June 30, 2000, the Company had net operating loss carryforwards of
approximately $1,672,000 expiring from 2001 to 2007
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,
2000 1999
---- ----
Cash payments for interest $136,812 $ 97,412
Issuance of common stock to 401(k) plan $ 11,000 $ 0
Valuation reserve to reflect long-term equity
securities at market $ 0 $ 37,000
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, 2000 reached a new record
level of $3,186,844, which were $226,360 or 8% higher than the comparable
quarter of the prior year. Prior to this current period, net sales for the three
months ended June 30, 1999 had achieved the highest amount of shipments in any
prior quarter for the company.
The increase in net sales continued the trend started several years ago,
where many of the markets served by the company have experienced extremely
strong requirements for products, 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 large 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 2000) are
expected to continue at a high level although 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 at
least 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, 2001 could establish a new record for annual shipments. Net
sales for the 1999 and 2000 fiscal years had been all time records of $10.4 and
$10.7 million, respectively; fiscal year 2001 is expected to be the third
consecutive record year at or above $11 million.
Cost of sales aggregated approximately 74% of net sales for the current
period, versus 73% for the same period last year. Direct labor unit costs
increased as higher average labor rates were only partially offset by
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.
Manufacturing overhead expenses also were somewhat higher than fiscal 2000 due
to increases in utility costs and other occupancy related expenses.
Selling, general and administrative expenses decreased by $24,608 over the
same period last year. Changes in staffing levels in various support functions
were made during the later stages of last fiscal year, which are now reflected
as part of lower base operating period costs in fiscal 2001. As the Company
plans on supplementing its marketing and engineering staffs during later stages
of the current year, future period expenses should be comparable to fiscal 2000
results.
Other expenses increased by $34,401 over the prior year as certain term
debt bank interest charges were capitalized in fiscal 2000 as part of the
addition to the company's main manufacturing facility. Increases in the prime
borrowing rate charged by banks also contributed to the interest expense
reflected in the current year.
A federal income tax provision of $34,000 was recorded in fiscal 2001 to
reflect an increase in the company's deferred tax liability at June 30, 2000. No
provision was shown for the prior year as the valuation of the company's
deferred tax asset remained unchanged for that three-month period.
The Company recorded net comprehensive income of $37,000 in fiscal 2000,
due to market value fluctuations of an investment in publicly traded securities.
No comparable adjustment was required in the current three-month period.
Overall, income before income taxes increased from $150,548 in fiscal 2000
to $172,706 in the current three-month period however after tax income declined
as a result of the current year tax provision.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $48,393 at June 30, 2000, compared to negative
$150,556 at March 31, 2000 and $379,576 at June 30, 1999. During the current
quarter, current assets increased by $569,511and total assets remained above the
$11 million level, finishing at $11,639,589 on June 30, 2000. Current
liabilities increased by a smaller margin ($370,562) contributing to the return
to positive working capital. Certain non-recurring costs relating to the
expansion of the manufacturing facility were required to be funded by operating
capital in late fiscal 2000, creating a temporary imbalance in the company's
cash requirements at year end. From an operations viewpoint, accounts receivable
increased during the quarter by $307,647, reflecting the record level of
shipment in the period. Inventories also increased during the period by
$195,173, or 11%, from March 31, 2000 due to timing of customer order
requirements and higher levels of finished goods carried as a result of
transitional issues relating to the building expansion. Inventories are expected
to remain near this level during this fiscal year as the company rearranges its
workspace to incorporate the added manufacturing square footage.
Investing activities increased from $126,503 during the prior year quarter
to $150,241 in the three months ended June 30, 2000. The Company is continuing a
program started in the prior year to upgrade its production equipment. It is
expected that overall expenses in this area during the balance of the year will
be slightly above fiscal 2000 levels.
Page 8
<PAGE>
Net cash provided by financing activities in the quarter ended June 30,
2000 was above that of the comparable prior year quarter as the increases in
inventories and accounts receivable resulted in additional advances against the
revolving line of credit.
The Company completed construction of a 15,000 square foot addition to its
primary manufacturing facility in March 2000. A construction loan from the
Company's principal bank was converted to a permanent mortgage upon completion
of the project.
Inflation and other cost increases have begun to play a more significant
role in the Company's day to day operations as competitive pricing pressures
have restricted the Company's ability to fully recover these added expenses.
Improvements in manufacturing processes and procedures, have enabled the Company
to offset a portion of the effects of inflation and continuing internal
refinements are expected to generate further cost reductions during the coming
year. Tightening of the labor markets for skilled and semi-skilled employees is
expected to continue for the foreseeable future, although the impact on
personnel related costs are unknown at this time. Further increases in interest
rates charged by financial institutions will impact both the Company's cost of
borrowing to fund future growth as well as the ability of its customers to sell
products in markets sensitive to interest rate fluctuations.
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," "continue",
"may", "plan", "predict", "should", "will", "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 10
<PAGE>
THERMODYNETICS, INC. AND SUBSIDIARIES
SIGNATURE PAGE
In accordance with the requirements of the Exchange Act , the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
THERMODYNETICS, INC.
Date: August 9, 2000 By: /s/ Robert A. Lerman
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Robert A. Lerman
President
Date: August 9, 2000 By: /s/ Robert I. Lieberman
-----------------------
Robert I. Lieberman
Treasurer and Chief Financial Officer
Page 11
