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
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<S> <C>
For the quarterly period ended September 30, 2000 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 Incorporation or Organization) (I.R.S. Employer 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.)
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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 September 30, 2000
Common stock $.01 Par Value 13,648,110 Shares
Transitional Small Business Disclosure Format Yes ( ) No (x)
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THERMODYNETICS, INC. AND SUBSIDIARIES
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 and March 31, 2000....................... 3
Consolidated Statements of Income and Comprehensive
Income Three Months Ended September 30,
2000 and 1999............................................... 4
Consolidated Statements of Income and Comprehensive
Income Six Months Ended September 30,
2000 and 1999............................................... 5
Consolidated Statements of Cash Flows
Six Months Ended September 30,
2000 and 1999............................................... 6
Notes to Consolidated Financial Statements..................... 7-8
Item 2. Management's Discussion and Analysis or
Plan of Operation....................................... 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
Page 2
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THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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<CAPTION>
September 30, March 31,
2000 2000
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,466 $ 2,814
Accounts Receivable, Net 1,206,813 1,226,817
Inventories 2,118,311 1,802,535
Prepaid Expenses and Other Current Assets 394,720 259,079
------------ ------------
Total Current Assets 3,723,310 3,291,245
------------ ------------
PROPERTY , PLANT AND EQUIPMENT
Property, Plant and Equipment - At Cost 11,130,545 10,873,948
Less: Accumulated Depreciation 5,202,813 5,039,960
------------ ------------
Property, Plant, and Equipment - Net 5,927,732 5,833,988
------------ ------------
OTHER ASSETS
Undeveloped Land Held for Investment 121,194 119,666
Intangible Assets - Net of Amortization 97,773 103,743
Officers' Life Insurance 1,531,711 1,477,257
Investment in Foreign Company 100,000 100,000
Deposits and Other 3,845 13,862
Marketable Equity Securities, at Market 37,000 62,456
------------ ------------
Total Other Assets 1,891,523 1,876,984
------------ ------------
TOTAL ASSETS $ 11,542,565 $ 11,002,217
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 1,502,973 $ 1,466,680
Accrued Taxes and Expenses 52,570 97,388
Current Portion of Long Term Debt 363,030 352,414
Notes Payable - Bank 1,765,732 1,525,319
------------ ------------
Total Current Liabilities 3,684,305 3,441,801
------------ ------------
DEFERRED INCOME TAXES 146,000 95,000
------------ ------------
LONG TERM DEBT 3,078,148 3,013,700
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01/Share,
Authorized 25,000,000 shares, issued 13,780,008 shares
at 9/30/00 and 13,580,008 shares at 3/31/00 137,800 135,800
Additional Paid-in Capital 5,307,398 5,298,398
Less: Treasury Stock, at Cost 164,564 164,564
Less: Accumulated Other Comprehensive Loss 407,000 381,544
Retained Earnings (Deficit) (239,522) (436,374)
------------ ------------
Total Stockholders' Equity 4,634,112 4,451,716
------------ ------------
TOTAL LIABILITIES AND $ 11,542,565 $ 11,002,217
STOCKHOLDERS' EQUITY ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
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<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 2,914,324 $ 2,634,438
Cost of Goods Sold 2,151,897 1,962,088
------------ ------------
Gross Profit 762,427 672,350
Selling, General & Administrative Expenses 539,509 473,754
------------ ------------
Income From Operations 222,918 198,596
------------ ------------
Other Income (Expense)
Interest Expense, Net (142,987) (105,595)
Other - Net (4,785) (4,785)
------------ ------------
Total Other Income (Expense) (147,772) (110,380)
------------ ------------
Income Before Income Taxes 75,146 88,216
Provision for Income Taxes 17,000 -0-
------------ ------------
Net Income 58,146 88,216
Other Comprehensive Income (Loss), net of tax
Unrealized holding losses during the period (25,456) (37,000)
------------ ------------
(25,456) (37,000)
------------ ------------
Comprehensive Income $ 32,690 $ 51,216
------------ ------------
Earnings per Share-Basic NIL NIL
============ ============
Earnings per Share-Diluted NIL NIL
============ ============
Weighted Average Shares Outstanding- Basic 13,780,008 13,496,310
============ ============
Weighted Average Shares Outstanding- Diluted 16,835,271 15,758,711
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
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<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 6,101,168 $ 5,594,922
Cost of Goods Sold 4,513,574 4,129,355
------------ ------------
Gross Profit 1,587,594 1,465,567
Selling, General & Administrative Expenses 1,055,373 1,014,226
------------ ------------
Income From Operations 532,221 451,341
------------ ------------
Other Income (Expense)
Interest Expense, Net (279,799) (203,007)
Other - Net (4,570) (9,570)
------------ ------------
Total Other Income (Expense) (284,369) (212,571)
------------ ------------
Income Before Income Taxes 247,852 238,770
Provision for Income Taxes 51,000 -0-
------------ ------------
Net Income 196,852 238,770
Other Comprehensive Income (Loss), net of tax
Unrealized holding losses during the period (25,456) -0-
------------ ------------
(25,456) -0-
------------ ------------
Comprehensive Income $ 171,396 $ 238,770
------------ ------------
Earnings per Share-Basic $ .01 $ .02
============ ============
Earnings per Share-Diluted $ .01 $ .02
============ ============
Weighted Average Shares Outstanding- Basic 13,681,647 13,400,793
============ ============
Weighted Average Shares Outstanding- Diluted 16,799,147 15,557,665
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5
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THERMODYNETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
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<CAPTION>
2000 1999
---- ----
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OPERATING ACTIVITIES:
Net income $ 196,852 $ 238,770
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Re-issuance of treasury stock -0- 5,000
Depreciation and amortization 168,823 165,263
Deferred tax provision 51,000 -0-
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 36,293 (219,711)
Decrease (increase) in prepaid expenses (125,624) (55,579)
and Other assets
Decrease (increase) in accounts receivable 20,004 (29,887)
Decrease (increase) in inventories (315,776) 141,272
Increase (decrease) in accrued expenses (33,818) (18,113)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,246) 227,015
--------- ---------
INVESTING ACTIVITIES;
Purchases of property, plant and equipment (256,597) (391,930)
Increase in other investments (1,528) (1,557)
Increase in life insurance premiums receivable (54,454) (54,454)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (312,579) (447,941)
--------- ---------
FINANCING ACTIVITIES
Sale of common stock -0- 2,750
Principal payments on debt obligations (90,575) (153,983)
Net proceeds from revolving and term debt 406,052 373,264
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 315,477 222,031
--------- ---------
INCREASE (DECREASE) IN CASH 652 1,105
CASH AT BEGINNING OF PERIOD 2,814 1,658
--------- ---------
CASH AT END OF PERIOD $ 3,466 $ 2,763
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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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, 2000
and September 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:
Sept 30, March 31,
2000 2000
---- ----
Raw materials $1,338,589 $1,041,791
Work-in-process 147,426 281,653
Finished goods 632,296 479,091
---------- ----------
$2,118,311 $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 and six months
ended September 30, 2000 and September 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:
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<CAPTION>
Three Months Ended Six Months Ended
Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding-
(Basic) 13,780,008 13,496,310 13,681,647 13,400,793
Assumed Conversion of Stock Options 3,055,263 2,262,401 3,117,500 2,516,872
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding-
(Diluted) 16,835,271 15,758,711 16,799,147 15,557,665
========== ========== ========== ==========
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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:
Sept 30, 2000 March 31, 2000
------------- --------------
Assets:
Uniform capitalization adjustment $ 21,000 $ 21,000
Net operating loss carryforward 643,000 694,000
Investment tax credits 144,000 144,000
Other 18,000 18,000
--------- ---------
826,000 877,000
--------- ---------
Liabilities:
Accelerated depreciation (972,000) (972,000)
--------- ---------
(972,000) (972,000)
--------- ---------
Net deferred tax asset (liability) $(146,000) $ (95,000)
========= =========
At September 30, 2000, the Company had net operating loss carryforwards of
approximately $1,627,000 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".
6 Months Ended Sept 30,
2000 1999
---- ----
Cash payments for interest $ 279,799 $ 203,007
Issuance of common stock to 401(k) plan $ 11,000 $ 4,500
Valuation reserve to reflect long-term equity
securities at market $ (25,456) $ -0-
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.
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THERMODYNETICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 2000 totaled $2,914,324,
an increase of $279,886 or 11%, compared to the quarter ended September 30,
1999. For the six-month periods, shipments for the current year were $506,246 or
9% higher than the prior year.
The increase in year to date net sales continues the trend of the last
several years, as the larger markets served by the company are experiencing
strong product demand, led by the core business of water source heat pumps as
well as swimming pool heat pumps, marine space conditioning and ice machine
applications. However a sharp reduction in orders was experienced beginning this
past July, signifying a shift in the economic factors influencing these markets.
Shipments for the next three months (October through December 2000) are expected
to reflect the current level of customer demand, with sales levels comparable to
those recorded for the same period of the prior year.
Cost of sales aggregated approximately 74% of net sales for the current
quarter and year to date periods as well as the prior year periods. Direct and
indirect labor costs per unit increased slightly as higher average labor rates
were offset by production efficiencies. Material costs increased slightly as
copper pricing in the commodity markets continued to exhibit some upward
trending for the first six months of the fiscal year. Manufacturing overhead
expenses also were somewhat higher than fiscal 2000 due to increases in employee
benefit costs and occupancy-related expenses.
Selling, general and administrative expenses remained constant as a
percentage of net sales, averaging 18% for all periods presented. Increases in
the costs of personnel and employee related expenses resulted in higher dollar
charges to these accounts in the current year. The Company plans on
supplementing its marketing and engineering staffs during later stages of the
current year.
For the three and six month periods of fiscal 2001, other expenses
increased by $37,392 and $71,798, respectively, over the comparable periods of
the prior year. In fiscal 2000 certain term debt bank interest charges were
capitalized 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. The company's
primary bank has reduced the effective interest rate on all non real estate
secured term and revolving debt by one quarter of one percentage point
commencing October 1, 2000.
Federal income tax provisions of $17,000 and $51,000, respectively, were
recorded in the second quarter and year to date periods of fiscal 2001 to
reflect an increase in the company's deferred tax liability at September 30,
2000. No provision was shown for the prior year as the valuation of the
company's deferred tax asset remained unchanged for the same period.
The Company recorded a charge of $25,456 as a net comprehensive loss for
both current year periods due to market value fluctuations of an investment in
publicly traded securities. In the prior year, the comprehensive loss charged to
net income was $37,000 for the three months ended September 30, 1999. No
adjustment was required for the comparable six-month period.
Overall, income before income taxes approximated 3% of net sales for the
both the current and prior year quarters. For the six-month periods, income
before income taxes was 4% of net sales. Comprehensive income decreased for both
current year periods as the charges for comprehensive losses and deferred taxes
had a negative impact on earnings.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $39,005 at September 30, 2000, compared to a
negative $150,556 at March 31, 2000 and $505,579 at September 30, 1999. During
the six-month period, current assets increased by $432,065 and total assets
remained above the $11 million level, finishing at $11,542,565 on September 30,
2000. Current liabilities increased by only $242,504 during the same period
contributing to the return to positive working capital. From an operations
viewpoint, inventories increased by $315,776 reflecting higher levels of
finished goods necessary to meet shorter order lead times required by customers.
Raw tubing stocks
Page 9
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have also increased due to industry wide reduced mill capacity and recent
increases in demand for fabricated tubing materials by other industries.
Accounts receivable decreased by $20,004 despite the significant increase in
sales during the period. The timing of cash collections from customers has
improved over the prior year and days receivables outstanding has been reduced
significantly. Prepaid expenses also rose during the period as annual payments
for real and personal property tax assessments made in July will be amortized
over the following twelve months.
Investing activities decreased from $447,941 during the prior year quarter
to $312,579 in the six months ended September 30, 2000. During the second
quarter of fiscal 2000 the Company began construction of a 15,000 square foot
addition to its primary manufacturing facility. The construction project, which
also included systems modifications to the existing plant, was completed by the
end of the March 31, 2000 fiscal year.
Net cash provided by financing activities for the six months ended
September 30, 2000 was above that of the comparable prior year period as the
increases in inventories and prepaid expenses resulted in additional advances
against the revolving line of credit.
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 balance
of the current year. Tightening of the labor markets is expected to continue for
the foreseeable future, and employment related expenses such as medical
insurance and workers compensation coverage are also projected to increase in
cost. Although the company has recently negotiated an interest rate reduction
with its bank for certain term and revolving debt, further increases of the
prime lending rate are likely to impact the Company's ability 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 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.
Page 10
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THERMODYNETICS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material legal proceedings known or threatened against the
Company.
Item 2. Change in Securities.
No class of registered securities of the Company have been materially
modified, and no class of registered securities have been materially limited or
qualified by the issuance or modification of any other class of securities of
the Company.
Item 3. Defaults Upon Senior Securities.
There have been no defaults of any terms of the Company's securities.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Securities Holders of the
Company during the quarterly period for which this report is filed.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) No Exhibits have been submitted with this report
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
Page 11
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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: November 3, 2000 By: /s/ Robert A. Lerman
-----------------------
Robert A. Lerman
President
Date: November 3, 2000 By: /s/ Robert I. Lieberman
-----------------------
Robert I. Lieberman
Treasurer and Chief Financial Officer
