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, 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 (I.R.S. Employer
of 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 Dec. 31, 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
December 31, 1999 and March 31, 1999 ..................... 3
Consolidated Statements of Income and Comprehensive
Income Three Months Ended December 31,
1999 and 1998 ............................................ 4
Consolidated Statements of Income and Comprehensive
Income Nine Months Ended December 31,
1999 and 1998 ............................................ 5
Consolidated Statements of Cash Flows
Nine Months Ended December 31,
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>
December 31, March 31,
1999 1999
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,871 $ 1,658
Accounts Receivable, Net 1,193,053 1,259,524
Inventories 1,755,703 1,957,097
Prepaid Expenses and Other Current Assets 290,098 267,654
Deferred Income Taxes 100,000 100,000
------------ ------------
Total Current Assets 3,341,725 3,585,933
------------ ------------
PROPERTY , PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost 10,548,647 9,354,857
Less: Accumulated Depreciation 4,963,860 4,768,658
------------ ------------
Property, Plant, and Equipment - Net 5,584,787 4,586,199
------------ ------------
OTHER ASSETS
Undeveloped Land Held for Investment 119,666 118,109
Intangible Assets - Net of Amortization 106,728 115,683
Officers' Life Insurance 1,324,916 1,243,234
Investment in Foreign Company 100,000 100,000
Deposits and Other 18,306 8,293
Marketable Equity Securities, at Market 185,000 185,000
------------ ------------
Total Other Assets 1,854,616 1,770,319
------------ ------------
TOTAL ASSETS $ 10,781,128 $ 9,942,451
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 1,246,022 $ 1,249,110
Accrued Taxes and Expenses 160,538 162,131
Current Portion of Long Term Debt 341,824 341,109
Notes Payable - Bank 1,160,262 1,513,443
------------ ------------
Total Current Liabilities 2,908,646 3,265,793
------------ ------------
LONG TERM DEBT 3,071,565 2,194,241
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01/Share,
Authorized 25,000,000 shares, issued 13,580,008 shares
at 12/31/99 and 13,305,008 shares at 3/31/99 135,800 133,050
Additional Paid-in Capital 5,454,355 5,444,855
Less: Treasury Stock, at Cost 164,564 320,521
Less: Accumulated Other Comprehensive Loss 259,000 259,000
Retained Earnings (Deficit) (365,674) (515,967)
------------ ------------
Total Stockholders' Equity 4,800,917 4,482,417
------------ ------------
TOTAL LIABILITIES AND $ 10,781,128 $ 9,942,451
============ ============
STOCKHOLDERS' EQUITY
</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 DECEMBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ 2,564,781 $ 2,465,222
Cost of Goods Sold 1,921,875 1,844,943
------------ ------------
Gross Profit 642,906 620,279
Selling, General & Administrative Expenses 520,178 469,458
------------ ------------
Income From Operations 122,728 150,821
------------ ------------
Other Income (Expense)
Interest Expense, Net (64,386) (96,202)
Realized Loss on Sale of Securities -0- -0-
Other - Net 9,144 (4,785)
------------ ------------
Total Other Income (Expense) (55,242) (100,987)
------------ ------------
Income Before Income Taxes 67,486 49,834
Provision for Income Taxes -0- -0-
------------ ------------
Net Income 67,486 49,834
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains during the period -0- (5,750)
------------ ------------
-0- (5,750)
------------ ------------
Comprehensive Income $ 67,486 $ 44,084
------------ ------------
Earnings per Share-Basic $ .01 NIL
============ ============
Earnings per Share-Diluted NIL NIL
============ ============
Weighted Average Shares Outstanding- Basic 13,580,277 12,700,091
============ ============
Weighted Average Shares Outstanding- Diluted 15,589,801 15,137,699
============ ============
</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 NINE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ 8,159,703 $ 7,763,052
Cost of Goods Sold 6,051,230 5,654,260
------------ ------------
Gross Profit 2,108,473 2,108,792
Selling, General & Administrative Expenses 1,534,404 1,446,651
------------ ------------
Income From Operations 574,069 662,141
------------ ------------
Other Income (Expense)
Interest Expense, Net (267,393) (292,731)
Realized Loss on Sale of Securities -0- (126,580)
Other - Net 426) (24,355)
------------ ------------
Total Other Income (Expense) (267,819) (443,666)
------------ ------------
Income Before Income Taxes 306,250 218,475
Provision for Income Taxes -0- -0-
------------ ------------
Net Income 306,250 218,475
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains during the period -0- (80,000)
------------ ------------
-0- (80,000)
------------ ------------
Comprehensive Income $ 306,250 $ 138,475
------------ ------------
Earnings per Share-Basic $ .02 $ .01
============ ============
Earnings per Share-Diluted $ .02 $ .01
============ ============
Weighted Average Shares Outstanding- Basic 13,460,621 12,665,721
============ ============
Weighted Average Shares Outstanding- Diluted 16,211,141 15,558,455
============ ============
</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 NINE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 306,250 $ 218,475
Adjustments to reconcile net income to net
cash provided by operating activities:
Re-issuance of treasury stock 5,000 -0-
Depreciation and amortization 204,157 247,901
Realized loss on sale of securities -0- 126,580
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (3,088) (89,412)
Decrease (increase) in prepaid expenses and (32,493) (39,920)
Other assets
Decrease (increase) in accounts receivable 66,471 53,894
Decrease (increase) in inventories 201,394 (425,246)
Increase (decrease) in accrued expenses 2,907 16,848
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
750,598 109,120
----------- -----------
INVESTING ACTIVITIES;
Purchases of property, plant and equipment (1,193,790) (258,764)
Increase in other investments (1,557) (1,516)
Investment in foreign company -0- (105,092)
Increase in life insurance premiums receivable (81,682) (106,681)
Sale of marketable securities -0- 47,420
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (1,277,029) (424,633)
----------- -----------
FINANCING ACTIVITIES
Sale of common stock 2,750 22,000
Principal payments on debt obligations (459,370) (220,939)
Net proceeds from revolving and term debt 984,264 515,155
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 527,644 316,216
----------- -----------
INCREASE (DECREASE) IN CASH 1,213 703
CASH AT BEGINNING OF PERIOD 1,658 2,023
----------- -----------
CASH AT END OF PERIOD $ 2,871 $ 2,726
=========== ===========
</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 nine months ended December 31, 1999
and December 31, 1998 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:
1999 1998
---------- ----------
Raw Materials $ 885,260 $1,336,239
Work-in-process 317,987 299,895
Finished goods 552,456 237,532
---------- ----------
$1,755,703 $1,873,666
========== ==========
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 nine months
ended December 31, 1999 and December 31, 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 Nine Months Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Weighted Average Shares
Outstanding (Basic) 13,580,277 12,700,091 13,460,621 12,665,721
Assumed Conversion of Stock Options 2,009,524 2,437,608 2,750,520 2,902,734
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding
(Diluted) 15,589,801 15,137,699 16,211,141 15,558,455
---------- ---------- ---------- ----------
</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 $ 1,159
Net operating loss carryforward 326,282
Other 6,269
---------
333,710
---------
Liabilities:
Accelerated depreciation (4,620)
---------
(4,620)
---------
Net deferred tax asset before valuation allowance 338,330
Less: Valuation allowance (238,330)
---------
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 December 31, 1999, the Company had net operating loss carryforwards of
approximately $960,000 expiring from 2001 to 2007. In addition, unused tax
credits of $144,000 expire in 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,
1999 1998
-------- --------
Cash payments for interest $314,793 $292,731
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 December 31, 1999 totaled $2,564,781,
approximately $100,000 or 4% higher than the same period of the prior year.
Compared to the second quarter of the current year, net sales for the December
1999 quarter decreased by $69,657. For the nine months ended December 1999, net
sales of $8,159,703 in the current year were about 5% greater than the 1998
total of $7,763,052.
The water source heat pump market was adversely affected by several factors
during the current quarter. The continuing rise in interest rates derailed a
period of constantly increasing housing starts. In addition, subsidies and other
incentive programs offered by local utility companies to contractors to include
water source heat pumps in new residential developments were discontinued,
effectively reducing order levels for these HVAC systems.
Cost of goods sold aggregated 75% of sales for both the three and nine
month periods of the current year. For the same periods in fiscal 1999, these
costs totaled 74% of sales. The average cost of copper and copper-alloy tubing
continued to increase slightly in the current quarter, following the trend for
the entire fiscal year. The Company has also added staff in production support
functions, increasing manufacturing overhead costs. It is likely that additional
manufacturing technicians will be hired in the future to further support new
product applications.
Selling, general and administrative expenses increased by $50,720, or 11%,
in the current quarter as compared to the same period of the prior year. For the
six-month periods, these expenses increased by $87,753 (6%), from fiscal 1999 as
compared to fiscal 2000. These increases reflect additions to staff in the sales
engineering function, together with other cost increases for personnel and
employee related expenses.
Increases in the prime lending rate resulted in higher debt service costs
for both revolving and term debt. In the current year, a portion of interest
charges that relates to an addition to the Company's primary manufacturing
facility was capitalized as a cost component of the project. 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 slightly from fiscal 1999
to fiscal 2000. Income from operations was higher in the prior year due to the
above described factors affecting increases to manufacturing costs. For the nine
months, net income increased by $87,775 as a result of the loss on sale of
securities in fiscal 1999.
The Company suffered no significant impact from any Year 2000 issues as
comprehensive testing of its information processing systems was completed
earlier in the year. No major suppliers or customers reported problems relating
to the shift from December 1999 to January 2000.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $324,371 at December 31, 1999, compared to $320,140
at March 31, 1999 and $425,119 at December 31, 1998. During the current
nine-month period, current assets decreased by $244,208 while current
liabilities decreased by $248,442, resulting in a net increase in working
capital of $4,234. Inventories were reduced by $201,394, or 10%, 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 receivable also decreased during the
nine-month period, primarily as a result of lower sales in the current quarter
as compared to the fourth quarter of fiscal 1999.
Resources used to fund investing activities increased from $424,633 during
the prior year to $1,277,029 in the nine months ended December 31, 1999.
Construction of a 15,000 square foot addition to the Company's
9
<PAGE>
primary manufacturing facility commenced in June 1999 and was substantially
completed by the end of December. The addition was financed with a construction
loan from the Company's principal bank. The loan will be converted to a
permanent mortgage upon completion of the project. The Company is also investing
in upgrades and enhancements to 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 increased to $527,644 in the
current year compared to $316,216 in fiscal 1999. Borrowings to finance the
building addition totaled $984,264, however a significant decrease was realized
in the balance outstanding under the revolving loan facility. Reductions in
inventory and other current assets reduced borrowings for working capital
requirements. During the prior year, an increase in inventories supported
customer requirements, which was financed through advances against 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 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 are also expected
to improve efficiencies and lower manufacturing costs.
FORWARD LOOKING STATEMENTS
This 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: February 11, 2000 By: /s/ Robert A. Lerman
-------------------------------------
Robert A. Lerman
President
Date: February 11, 2000 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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,871
<SECURITIES> 0
<RECEIVABLES> 1,193,053
<ALLOWANCES> 0
<INVENTORY> 1,755,703
<CURRENT-ASSETS> 3,341,725
<PP&E> 10,548,647
<DEPRECIATION> 4,963,860
<TOTAL-ASSETS> 10,781,128
<CURRENT-LIABILITIES> 2,908,646
<BONDS> 0
0
0
<COMMON> 135,800
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,781,128
<SALES> 2,564,781
<TOTAL-REVENUES> 2,564,781
<CGS> 1,921,875
<TOTAL-COSTS> 520,178
<OTHER-EXPENSES> 9,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (64,386)
<INCOME-PRETAX> 67,486
<INCOME-TAX> 0
<INCOME-CONTINUING> 67,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,486
<EPS-BASIC> 0.01
<EPS-DILUTED> 0
</TABLE>
