As filed with the Securities and Exchange Commission on June 30, 1995
Registration No. 33-54756
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Post Effective Amendment No. 1)
THERMWOOD CORPORATION
(Exact name of issuer as specified in its charter)
Indiana 3553 35-1169185
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization Code Number
Old Buffaloville Road, Dale, Indiana 47523, (812) 937-4476
(Address and telephone number of principal offices)
Old Buffaloville Road, Dale, Indiana 47523
(Address of principal place of business or intended
principal place of business)
Kenneth J. Susnjara
President and Chairman
Thermwood Corporation
Old Buffaloville Road
Dale, Indiana 47523
(812) 937-4476
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Barry Feiner, Esq. Peter N. Lalos, Esq.
745 Fifth Avenue Lalos & Keegan
Suite 1701 1156 Nineteenth Street, NW
New York, New York 10151-0008 Fifth Floor
Washington, D.C. 20036-3703
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the Post Effective
Amendment to the Registration Statement becomes effective.
^
THERMWOOD CORPORATION
Cross Reference Sheet Pursuant to Rule 404 (a)
Caption in
Part I Information Required in Prospectus Prospectus
Item 1. Front of Registration Statement Outside Front
and Outside Front Cover of Cover Page
Prospectus.
Item 2. Inside Front and Outside Back Cover Footnotes to Outside
Pages of Prospectus. Front Cover Page
and Outside Back
Cover Page
Item 3. Summary Information and Prospectus Summary;
Risk Factors. Thermwood
Corporation; Risk Factors
Item 4. Use of Proceeds. Use of Proceeds
Item 5. Determination of Offering Price. Outside Front Cover
Page
Item 6. Dilution. Not Applicable
Item 7. Selling Security Holders. Principal and Selling
Stockholders
Item 8. Plan of Distribution. Outside Front Cover
Page Plan of
Distribution
Item 9. Legal Proceedings. Legal Proceedings
Item 10. Directors, Executive Officers, Management;
Promoters and Control Persons. Principal and Selling
Stockholders
Item 11. Security Ownership of Principal and Selling
Certain Beneficial Owners Stockholders
and Management.
Item 12. Description of the Securities. Capitalization;
Description of
Debentures;
Description of
Securities
Item 13. Interest of Named Experts Not applicable
and Counsel.
Item 14. Disclosure of Commission Not applicable
Position on Indemnification
for Securities Act Liabilities.
Item 15. Organization within Last Not applicable
Five Years.
Item 16. Description of Business. Prospectus
Summary;
Thermwood
Corporation;
Business; Principal
and Selling
Stockholders;
Certain Transactions;
Description of
Debentures; Descrip-
tion of Securities;
Selected Financial
Data; Management's
Discussion and
Analysis ofFinancial
Condition and Results
of Operations; Finan-
cial Statements;
Management
Item 17. Management's Discussion and Management's
Analysis or Plan of Operation. Discussion
and Analysis of
Financial Condition
and Results of
Operations
Item 18. Description of Property. Business
Item 19. Certain Relationships and Certain Transactions
Related Transactions.
Item 20. Market for Common Equity Outside Front Cover
and Related Stockholder Matters. Page; Price Range of
Common Stock and
Dividend Policy;
Description of
Securities
Item 21. Executive Compensation. Management
Item 22. Financial Statements. Prospectus Summary,
Selected Financial Data;
Financial Statements
Item 23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure. Not applicable
PROSPECTUS
THERMWOOD CORPORATION
3,277,500 SHARES
OF
COMMON STOCK
______________________________________
This Prospectus relates to an aggregate of 3,105,000 shares
of common stock, no par value, (the "Shares" or "Common
Stock") of Thermwood Corporation (the "Company" or
Thermwood) of which up to 2,070,000 are issuable upon the
conversion of the Company's 12% Convertible Subordinated
Debentures (the Debentures) and up to 1,035,000 are
issuable upon the exercise of an aggregate of 1,035,000 of
the Company's Redeemable Common Stock Purchase Warrants (the
"Redeemable Warrants"). This Prospectus covers the
conversion of the Debentures and the exercise of the
Redeemable Warrants in addition to the resale of the Shares
acquired thereby.
The Debentures, which are unsecured, are convertible prior
to maturity, unless previously redeemed, at any time, into
shares of the Company's Common Stock at a conversion price
of $1.00 per share. Interest is payable quarterly. The
Debentures are not secured by a sinking fund or otherwise or
personally guaranteed. They are subordinated to all of the
Company's Senior Debt, as defined herein, which is secured
by all of the Company's assets. As of May 31, 1995, the
Company had no Senior Debt. The Indenture which governs
the terms of the Debentures does not limit the amount that
the Company may borrow. The Company may, on 30 days prior
written notice, with the approval of Dickinson & Co., the
underwriter of the public offering in which the Debentures
and Redeemable Warrants were sold (the "Underwriter"),
redeem the Debentures, in whole or in part, if the closing
price of the Common Stock for the immediately preceding 30
consecutive trading days equals or exceeds $2.50 per share.
The redemption price will be 105% plus accrued interest
through the date of redemption. See "Description of
Debentures."
Each Redeemable Warrant entitles the holder, through
February 21, 1996, to purchase one share of Common Stock at
a price of $3.00 per share. The Company may, on 30 days
prior written notice, with the approval of the Underwriter,
redeem all of the Redeemable Warrants for $0.05 per Warrant
if the per share closing price of the Common Stock for the
immediately preceding 20 consecutive trading days equals or
exceeds 150% of the then Warrant exercise price. See
"Description of Securities; Redeemable Warrants."
The conversion price of the Debentures and the exercise
price of the Warrants are subject to adjustment under
certain circumstances.
Also offered pursuant to this Prospectus by selling
stockholders (the "Selling Stockholders") are 172,500 shares
of Common Stock. See "Certain Transactions" and "Principal
and Selling Stockholders." The Company will not receive any
of the proceeds from the sale of the shares by the Selling
Stockholders.
The Common Stock is traded on the American and Pacific Stock
Exchanges under the symbol "THM." On June 16, 1995, the
last sale price for the Common Stock, as reported on the
American Stock Exchange, was $1.63 per share. The
Debentures and Redeemable Warrants are traded on the Pacific
Stock Exchange under the symbols THM.D and THMWS,
respectively. See "Price Range of Securities and Dividend
Policy."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES CERTAIN
RISKS. SEE "RISK FACTORS."
The Debentures will be converted and the Warrants will be
exercised on a "best efforts only" basis. Accordingly, no
minimum number of Debentures need be converted or Warrants
exercised. The Company will receive no proceeds from the
conversion of the Debentures but such conversion will result
in the termination of these obligations. The following
table sets forth information relating to the exercise of the
Redeemable Warrants and the sale of Shares by the Selling
Stockholders.
<TABLE>
<CAPTION>
Proceeds Proceeds
Price to Underwriting to the to Selling
Public Discounts (1) Company (2) Stockholders
<S> <C> <C> <C> <C>
Per Share Exercise of
Redeemable Warrants $3.00 (3) $ 0 $3.00 $ 0
Per Share Sale by
Selling Stockholders (4) $ 0 $ 0 (4)
Total $3,075,000 (3) (4) $ 0 $3,075,000 (4)
</TABLE>
(1) No underwriting discounts or commissions will be paid
with respect to the exercise of the Warrants.
(2) Before deducting expenses payable by the Company
estimated at an aggregate of $30,000.
(3) All proceeds received during the offering, less
expenses, will be remitted to the Company.
(4) The shares of Common Stock are to be sold by the
Selling Stockholders at prevailing market prices.
THERMWOOD CORPORATION
Old Buffaloville Road
Dale, Indiana 47523
The date of this Prospectus is February 22, 1993, as amended
June 30, 1995.
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus, and, if given or made, such information or
representations must not be relied upon as having been
authorized by the Company. All information contained in
this Prospectus is as of the date hereof. Neither the
delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since
the date as of which the information is furnished. This
Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so,
or to any person to whom it is unlawful to make such offer
or solicitation.
TABLE OF CONTENTS
Item Page
Available Information . . . . . . . . . . . . . . ?
Prospectus Summary . . . . . . . . . . . . . . . . ?
Risk Factors . . . . . . . . . . . . . . . . . . . ?
Thermwood Corporation . . . . . . . . . . . . . . . ?
Use of Proceeds . . . . . . . . . . . . . . . . . . ?
Price Range of Common
Stock and Dividend Policy . . . . . . . . . . . . ?
Capitalization . . . . . . . . . . . . . . . . . . . ?
Selected Financial Data . . . . . . . . . . . . . . ?
Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . ?
Business . . . . . . . . . . . . . . . . . . . . . ?
Management . . . . . . . . . . . . . . . . . . . . . ?
Certain Transactions . . . . . . . . . . . . . . . . ?
Principal and Selling Stockholders . . . . . . . . ?
Description of Debentures . . . . . . . . . . . . . ?
Description of Securities . . . . . . . . . . . . . ?
Requirement for Current Registration . . . . . . . ?
Plan of Distribution . . . . . . . . . . . . . . . ?
Legal Proceedings . . . . . . . . . . . . . . . . . ?
Legal Matters . . . . . . . . . . . . . . . . . . . ?
Experts . . . . . . . . . . . . . . . . . . . . . . ?
Index to Financial Statements . . . . . . . . . .F-1
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on
Form SB-2 (the "Registration Statement) under the Securities
Act of 1933 (the "Securities Act ") with respect to the
securities offered by this Prospectus. This Prospectus does
not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted
in accordance with the rules and regulations of the
Commission. For further information with respect to the
Company and this offering, reference is made to the
Registration Statement, including the exhibits filed
therewith and otherwise incorporated therein, copies of
which are available for inspection from the Commission.
Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily
complete and, where the contract or other document has been
filed as an exhibit to the Registration Statement, each such
statement is qualified in all respects by reference to the
applicable document filed with the Commission.
The Company is subject to the information requirements of
the Securities Exchange Act of 1934 (the "Exchange Act")
and, in accordance therewith, files reports and other
information with the Commission. Reports, Proxy Statements
and other information filed by the Company can be inspected
and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, NW, Washington, D.C.
20549 and at the Commission's Northeast and Midwest Regional
Offices located respectively at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549 upon payment of the fees prescribed
by the Commission. The Company's Common Stock is listed on
the American and Pacific Stock Exchanges. Reports, Proxy
Statements and other information concerning the Company can
be inspected at these Exchanges.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
detailed information and financial statements (including the
notes thereto) appearing elsewhere in this Prospectus. As
used in this Prospectus, the terms "Company" and "Thermwood"
refer to Thermwood Corporation unless otherwise indicated by
the context.
The Company
Thermwood is a manufacturer of computer based systems and
equipment. It develops, produces, markets and services (i)
computer-controlled machine tools under the trademark
CARTESIAN 5 that perform high speed machining, trimming and
routing functions; and (ii) wood carving machine robots.
It also markets technical services in conjunction with the
sale and maintenance of its products. In addition, the
Company manufactures machine control systems and related
computer software which it uses primarily in its automated
industrial equipment. It has independently marketed these
systems on a limited basis to others under the trademark
SuperControl but ceased such sales activities in fiscal
1993. The Company has manufactured and marketed aircraft
avionic systems under the trademark DIGITAL SKY but
terminated these operations in January 1994 in accordance
with an agreement pursuant to which it sold the rights to
these products. See "Business; Products."
Thermwood's industrial products perform certain production
functions or automate specific tasks accomplished in
factories. These products are used in a variety of
manufacturing operations. The CARTESIAN 5 systems are
primarily employed to cut or machine materials such as wood,
plastic and non-ferrous metal into final shape. The
SuperControl systems can control the operation of a variety
of industrial machines and machine tools.
Thermwood's primary marketing strategy is to provide
machines which combine operations traditionally performed on
several different machines. It attempts to provide the
lowest cost machines which will reliably perform functions
required by the customer. Management believes that costs
can be kept low by producing components which competitors
generally purchase from others. Control systems and router
spindles are two examples of these components.
Conversion of Debt to Equity
In order to restructure its capital and provide relief from
its debt service obligations, the Company, on November 18,
1993, converted an aggregate of $3,437,120 owed to a
director into an aggregate of 1,000,000 shares of Series A
Preferred Stock. See "Certain Transactions" and
Description of Securities; Preferred Stock.
Risk Factors
Investment in the Company involves certain risks. These
include, among others, the following: (i) rapid
technological change; (ii) competition; (iii) dependence on
dealer network and key management; and (iv) effect of
adverse economic conditions. See "Risk Factors."
<TABLE>
The Offering
<S> <C>
Securities Offered
By the Company - Common Stock
Conversion of Debentures 2,070,000 shares
Exercise of Redeemable Warrants 1,035,000 shares
By the Selling Stockholders -
Common Stock 172,500 shares
Offering price per Unit
On conversion of Debentures $1.00 per share
On exercise of Redeemable Warrants $3.00 per share
Sales by Selling Stockholders Prevailing market prices
Debenture Interest Payment Dates Quarterly on January 1,
April 1, July 1, and
October 1.
Debenture Covenants Limitations on cash dividends
and other cash distributions
to stockholders as well
certain dealings with its
officers and directors under
certain circumstances.
Debenture Conversion Rights $1.00 per share of Common
Stock, subject to change under
certain conditions.
Debenture Redemption The Company may, on 30 days
prior written notice, with the
approval of the Underwriter,
redeem the Debentures, in
whole or in part, if the
closing price of the Common
Stock for the immediately
preceding 30 consecutive
trading days equals or exceeds
$2.50 per share. The
redemption price will be 105%
plus accrued interest through
the date of redemption.
Debenture Subordination;
No Sinking Fund, other
Security or Guarantees Subordinated to all Senior
Debt, as defined, none of
which, as of May 31, 1995 was
outstanding. Debenture holders
may recover less ratably than
holders of Senior Debt.
The Debentures are not secured
by a sinking fund or otherwise
and are not guaranteed. The
Indenture does not limit the
amount the Company may borrow.
Warrant Exercise Rights The Redeemable Warrants are
exercisable at $3.00 per
share, subject to change under
certain conditions. The price
of the Company's Common Stock
has not reached $3.00 per
share since October 1989 and
there is no assurance that it
will ever again attain such a
level. See "Risk Factors;
Arbitrary Determination of
Warrant Exercise Price."
Warrant Redemption The Company may, with the
consent of the Underwriter, on
30 days prior written notice,
redeem all of the Redeemable
Warrants for $0.05 per Warrant
if the per share closing price
of the Common Stock for the
immediately preceding 20
consecutive trading days
equals or exceeds 150% of the
then Warrant exercise price.
Estimated net proceeds to
the Company (1) $3,075,000
Use of Proceeds Retirement of Debentures and
Working Capital.
Common Stock outstanding
prior to the Offering 5,149,546
Common Stock outstanding
after the Offering (2) 8,254,546
American Stock Exchange and Pacific
Stock Exchange Symbol
for Common Stock THM
Pacific Stock Exchange Symbol
for Debentures THM.D
for Redeemable Warrants THMWS
</TABLE>
(1) Upon exercise of all Redeemable Warrants and after
deducting $30,000 for the expenses of this offering
payable by the Company. The Company will receive no
proceeds from the conversion of the Debentures but such
conversion will result in the termination of these
obligations. See "Use of Proceeds."
(2) Excludes (i) 400,000 shares reserved for issuance
under the Company's Qualified Stock Option Plan of which
options to purchase 175,000 shares have been granted and are
currently exercisable; (ii) 350,000 shares reserved for
issuance under the Company's Non-Qualified Stock Option Plan
of which options to purchase 200,000 shares have been
granted and are currently exercisable; (iii) 600,000 shares
reserved for issuance upon exercise of options granted to
the Company's President, all of which are currently
exercisable; (iv) 30,000 shares reserved for issuance upon
exercise of options granted to the Company's general
counsel, all of which are currently exercisable; and (v)
30,000 shares reserved for issuance upon exercise of options
granted to an employee, all of which are currently
exercisable. See "Management; Stock Options."
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived
from the financial statements appearing elsewhere in this
Prospectus and should be read in conjunction therewith,
including the notes thereto.
<TABLE>
Statement of Operations Data
<CAPTION>
Nine Months Ended Year Ended
April 30 July 31
1995 1994 1994 1993
<S> <C> <C> <C> <C>
Net Sales....................$8,871,743 $7,225,020 $9,985,341 $10,825,003
Cost of Sales.................5,417,245 4,798,576 6,406,800 8,652,140
Operating Expenses........ 2,416,840 2,212,946 3,036,408 2,959,976
Operating Income (Loss).... 1,037,658 213,498 542,133 (787,113)
Net Other Income (Expense) (208,046) (332,832) (405,987) (607,125)
Net Income (Loss)........... 814,712 (57,556) 208,161 (1,360,057)
Net Income (Loss) Per Share 0.10 (0.03) 0.00 (0.27)
</TABLE>
<TABLE>
Balance Sheet Data
<CAPTION>
April 30, 1995
As Adjusted (1)
Conversion
of Bonds and
Conversion Exercise of
Actual of Bonds Warrants July 31, 1994
<S> <C> <C> <C> <C>
Working Capital $2,335,993 $2,305,993 (2) $5,410,993 $1,706,268
Total Assets 6,493,771 6,493,771 9,598,771 5,417,565
Long-term Liabilities
less Current Portion 1,868,090 23,172 23,172 1,861,741
Stockholders' Equity 1,988,328 3,803,246 6,908,246 1,455,598
</TABLE>
(1) Adjusted to give effect to the conversion of Bonds, net
of unamortized discount, of $1,844,918 to 2,070,000 Shares,
the issuance and sale of 1,035,000 Shares upon the exercise
of all of the Redeemable Warrants and the use of the
estimated net proceeds thereof. See "Use of Proceeds."
(2) Assumes the $30,000 estimated cost of the offering is
allocated entirely to the conversion of the Debentures.
RISK FACTORS
The securities offered hereby involve certain risks. Such
risks include, but are not necessarily limited to, the risk
factors described below. Each prospective investor should
carefully consider the following risk factors relating to
the Company and this offering before making an investment
decision.
1. Fluctuation in Operating Results. The Company has
historically experienced fluctuations in its operating
results arising from changes in economic conditions, the
market and competition. The impact of the introduction of
new products or the development of enhancements by the
Company or its competitors could also affect these
fluctuations. There is no assurance that these fluctuations
will not continue in which event the Company's business
could be adversely affected.
2. Risks of International Market Factors. Approximately
9% of the Company's sales during the 1994 fiscal year were
made outside of the United States and management estimates
that such non-domestic sales were approximately 6% during
the first nine months of the Company's current fiscal year.
The Company is currently seeking a European distributor for
its products. There are significant risks in marketing
products in foreign countries. These include, among
others, the difficulty of administering business abroad,
exposure to currency fluctuations and devaluations or
restrictions on money supplies, foreign and domestic export
laws and regulations, taxation, tariffs, import quotas and
restrictions, shipping interruptions, and other economic and
political events totally beyond the Company's control. In
addition, the Company's ability to prevent the unauthorized
use of its technology in foreign countries may be difficult.
3. Possible Restriction On Ability To Utilize Net
Operating Loss Carryforwards Resulting From Change In Equity
Ownership. As of July 31, 1994, the Company had a net
operating loss carryforwards of approximately $8,185,000.
The amount of these loss carryforwards which can be used to
reduce future taxable income, if any, may be reduced by,
among other things, future changes in the ownership of the
Company's Common Stock. Internal Revenue Code Section 382
would limit the amount of future taxable income, if any,
that could be offset by the net operating loss carryforwards
if, at any time, the percentage of the stock of the Company
owned by one or more 5% shareholders increases by more than
50% over the lowest percent of the Company's stock owned by
such shareholders during the preceding three-year period.
As of July 31, 1994, no carryforwards had been limited by
Section 382. See Note J to Notes to the Financial
Statements.
4. Substantial Dependence on Dealer Network. The
Company's products are marketed primarily through a number
of dealers. Accordingly, the Company is substantially
dependent upon its agreements with such third parties, as
well as their viability and financial stability, to generate
revenues. Because the agreements are not exclusive, the
dealers are permitted to sell products that compete with
Thermwood's products. The loss of any of the Company's
major dealers, in the absence of similar replacement
arrangements, could have a materially adverse effect on the
Company's business. For the fiscal year ended July 31,
1994, approximately 15% of the Company's sales were effected
through a dealer owned by the Company's president and his
wife. For the nine-month period ended April 30, 1995, that
dealer accounted for approximately 35% of the Company's
sales and another dealer accounted for approximately 16% of
the Company's sales. See "Business; Marketing" and
"Certain Transactions."
5. Dependence on and Intense Competition for Key
Personnel. Primary responsibility for the conduct of the
Company's affairs rests with Kenneth J. Susnjara, the
Company's President and Chief Executive and Operating
Officer. There can be no assurance that if the Company
should lose his services, a qualified replacement could be
obtained. The Company does not have an employment agreement
with Mr. Susnjara. See "Management; Executive
Compensation." Thermwood's future success also depends in
large part on the continued service of its key management,
manufacturing and marketing personnel and on its ability to
attract and retain qualified employees. The competition for
such personnel is intense and the loss of key employees
could have a materially adverse impact on the Company. See
"Management; Directors and Executive Officers."
6. Competition. There are many manufacturers of
automated machining systems, industrial robot equipment, and
CNC controllers in the United States and abroad,
particularly in Japan and Europe. A number of these
manufacturers are larger, better financed and have more
resources than does the Company. Many of them have been
engaged in manufacturing and marketing automated industrial
equipment longer than Thermwood. Furthermore, the number of
companies offering routing equipment has increased and it is
management's opinion that the market cannot support all of
them. Although management believes that only a limited
number of companies currently offer multiple task equipment
of the type marketed by Thermwood, other companies with
significantly greater financial resources and product
recognition could enter this market, in which event the
Company's ability to compete could be materially adversely
affected. See "Business; Competition."
7. Rapid Technological Change and Risk of Obsolescence.
Automated industrial equipment is subject to rapid and
often unexpected technological changes. The ability of the
Company to market its products will depend in large part
upon its anticipating and adapting to such changes. If the
Company fails to respond to technological advances, its
products may become obsolete. Furthermore, even if the
Company meets such technological advances, there is no
assurance that its products will continue to be competitive.
See "Business; Industry Background, Products, Research
and Development, and Patents, Trade Secrets and Trademarks."
8. Possible Product Liability Which Could Be Significant.
The risk of accidents involving automated industrial
equipment is significant. Physical damage to industrial
property and workers can be extensive and serious when such
machinery malfunctions or is improperly operated. The
Company, as a manufacturer of this equipment, may be subject
to claims if its products should malfunction. Although the
Company has not been subject to significant claims in the
past and it maintains insurance covering liability up to a
general aggregate limit of $5,000,000 which management
believes is adequate to cover these risks, no assurance can
be given that if claims are exerted, such coverage will be
adequate to satisfy any liability that the Company may
sustain, which could include personal injury and punitive
damages. In addition, in the event that the Company should
lose its insurance, there is no assurance that it will be
able to obtain new coverage at acceptable costs, if at all.
Failure to maintain product liability insurance coverage
could have a materially adverse affect on the Company's
business. The Company has maintained liability insurance
for over 12 years for annual periods commencing on the first
day of May each year.
9. Patents and Proprietary Rights. Although the Company
owns a number of patents on its products, it relies
primarily on trade secret laws to protect its technologies,
innovations and other proprietary property. There can be no
assurance that trade secrets will be established, that
secrecy obligations in effect for its employees,
distributors, suppliers and customers will be honored or
that others will not independently develop similar or
superior technology. To the extent that key employees or
other third parties apply technological information
independently developed by them or by others to the
Company's products, disputes may arise as to the proprietary
rights to such information which may not be resolved in
favor of the Company. There is no assurance that
Thermwood's products will not infringe patents or other
rights owned by others, licenses to which may not be
available on commercially reasonable terms to the Company,
if at all. Moreover, there can be no assurance that the
Company will have the financial or other resources necessary
to enforce or defend a patent infringement or proprietary
rights violation which may be protracted as well as costly.
In addition, if the Company's products are deemed to
infringe upon the patents or proprietary rights of others,
the Company could, under certain circumstances, become
liable for damages, which could also have a materially
adverse effect on it. ^ The Company has not been involved
in any claims concerning patent infringement. See
"Business; Patents, Trade Secrets and Trademarks."
10. Control By Management. If all of the Shares
offered hereby are sold, the Company's officers and
directors will own approximately 29% of the outstanding
Common Stock. The Company's Articles of Incorporation do
not provide for cumulative voting. Accordingly, the
Company's current management, if they act as a group, may be
able to elect all of the Company's directors and continue to
control the Company's affairs and operations. See
"Management; Directors and Executive Officers," "Principal
and Selling Stockholders" and "Description of Securities;
Common Stock."
11. Subordination of Debentures to all of Company's Senior
Debt; No Sinking Fund or Guarantees; Risk of Failure to
Service or Redeem Debentures. The Debentures are
subordinated to all of the Company's current and future
Senior Debt (as defined in the Indenture which governs the
terms of the Debentures) and are not secured by a sinking
fund or otherwise or personally guaranteed. As a result,
Debenture holders are dependent upon the Company's resources
and the Company's ability to generate sufficient revenue
from operations to satisfy all of its obligations on such
indebtedness in addition to servicing the Debentures. As of
May 31 1995, the Company had no Senior Debt. The
Company expects, from time to time, to make additional
borrowings which will constitute Senior Debt. If a default
were to occur, there is no assurance that Debenture holders
would be able to obtain repayment of the sums then due under
their Debentures. See "Description of Debentures;
Subordination of Debentures."
12. Limitation on Right to Pursue Remedies. The Debentures
have been issued under an Indenture which governs the terms
of the Debentures. The Indenture provides, among other
things, that in the event the Company should commit a
default, unless the holders of 25% of the principal amount
of the Debentures elect to declare a default, no individual
Debenture holder will have the right to pursue his remedies
thereunder. See "Description of Debentures; Events of
Default, Notice and Waiver."
13. Anti Take Over Provisions of the Indiana Business
Corporation Law. The Indiana Business Corporation Law
contains provisions which may enable management to retain
control and resist a takeover of the Company. Accordingly,
these provisions could discourage or make more difficult a
merger or other type of corporate reorganization even if
they could be favorable to the interests of the stockholders.
See "Description of Securities; Corporate Law Anti Takeover
Provisions."
14. Preferred Stock; Ability to Use as Anti Take Over
Device. The Company's Articles of Incorporation authorize
the issuance of 2,000,000 shares of non-voting preferred
stock (the "Preferred Stock"), 1,000,000 of which are
currently outstanding. The Board of Directors has the
right, without stockholder approval, to fix the relative
rights and preferences of such Stock, which would affect the
rights of the holders of the Common Stock regarding, among
other things, dividends and liquidation. The Preferred
Stock may also be issued to deter or delay a change in
control of the Company that may be opposed by management
even if the transaction could be favorable to stockholders.
See "Description of Securities; Preferred Stock."
15. Lack of Dividends. The Company has never declared a
dividend on its Common Stock and does not expect to pay cash
dividends in the foreseeable future. It currently intends
to retain all earnings in its business except for amounts
used to pay dividends on the currently outstanding Preferred
Stock. See "Price Range of Common Stock; Dividend Policy,"
"Certain Transactions" and "Description of Securities;
Preferred Stock."
16. Effect of Outstanding Options. There are currently
outstanding options to purchase up to 1,035,000 shares of
Common Stock over the next several years at prices ranging
from $1.00 to $10.00 per share. These options, all of which
are exercisable, give the holders thereof an opportunity to
profit from a rise in the market price of the Common Stock
with a resulting dilution in the interests of the other
stockholders. Further, the terms on which the Company may
obtain additional financing during that period may be
adversely affected by the existence of these options. The
holders of the options are likely to exercise them at a time
when the Company would otherwise be able to obtain
additional capital through an equity financing on terms more
favorable than those provided by the options. See
"Management; Stock Options."
17. Effect of Rule 15c2-6: Possible Inability to Sell the
Securities in the Secondary Market. Rule 15c2-6 promulgated
under the Securities Exchange Act of 1934 imposes certain
sales practice requirements on broker-dealers who sell
"designated" securities to persons other than established
customers and accredited investors (generally institutions
with assets in excess of $5,000,000 or individuals with a
net worth in excess of $1,000,000 or an annual income
exceeding $200,000 or $300,000 jointly with their spouse).
For transactions covered by the Rule, the broker-dealer must
make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the
transaction prior to the sale. The definition of a
"designated" security excludes, among others, a security
registered, or approved for registration upon notice of
issuance, on a national securities exchange that makes
transaction reports available on a real time basis. The
Company's Common Stock is traded on the American Stock
Exchange and the Debentures and Redeemable Warrants are
traded on the Pacific Stock Exchange. Both of these
exchanges are national exchanges that satisfy this criteria.
Accordingly, the Company's securities are not subject to the
conditions of Rule 15c2-6 as long as they continue to be
listed on these exchanges. However, should they be
delisted, Rule 15c2-6 could be applicable, in which event
the market liquidity for these securities could be severely
affected, limiting the ability of purchasers in this
offering to sell their securities.
18. Current Prospectus and State Securities Law
Qualification Required to Convert the Debentures and
Exercise the Redeemable Warrants. The Shares offered hereby
can be purchased upon conversion of the Debentures and/or
exercise of the Redeemable Warrants only if a current
prospectus relating to these Shares is then in effect and
such Shares are qualified for sale or exempt from such
qualification under the securities laws of the state in
which holder of the Debentures and Redeemable warrants
resides. The Company has registered these Shares together
with the Debentures and Redeemable Warrants, and has
qualified them in the states where it has sold these
securities unless such qualification has not been required.
It has also filed an undertaking with the Commission to
maintain a current prospectus relating to Shares until the
expiration of the Warrants. However, there is no assurance
that it will be able to satisfy this undertaking.
Accordingly, the Debenture conversion rights and the
Warrants may be deprived of any value if a current
prospectus is not kept effective or if the Shares are not
qualified or exempt in the states in which converting
Debenture and or exercising Warrant holders reside. See
"Description of Debentures; Conversion" and "Description of
Securities; Redeemable Warrants."
19. Potential Adverse Effect of Warrant Redemption. The
Company may, on 30 days prior written notice, with approval
of the Underwriter, redeem all of the Redeemable Warrants
for $0.05 per Warrant if the per share closing price of the
Common Stock for the immediately preceding 20 consecutive
trading days equals or exceeds 150% of the then Warrant
exercise price. If the Company calls for such redemption,
then all Redeemable Warrants remaining unexercised at the
end of the redemption period must be redeemed. Accordingly,
to the extent that the Redeemable Warrants are redeemed, the
Warrant holders will lose their rights to purchase Common
Stock pursuant to such Warrants. Furthermore, the threat of
redemption could force the Warrant holders to exercise the
Warrants at a time when it may be disadvantageous for them
to do so, to sell the Warrants at the then current market
price when they might otherwise wish to hold them, or to
accept the redemption price which will be substantially less
than the market value of the Warrants at the time of
redemption. See "Description of Securities; Redeemable
Warrants."
20. Arbitrary Determination of Warrant Exercise Price. The
$3.00 exercise price of the Warrants was arbitrarily
determined by negotiation between the Company and the
Underwriter and bears no relationship to the Company's net
worth, book value, results of operations or any other
recognized criteria of value. It should be noted that the
price of the Company's Common Stock has not reached $3.00
per share since October 1989 and there is no assurance that
it will ever again attain such a level again. Accordingly,
there is no assurance that the Warrants will ever have any
value.
21. Transactions with Officers, Directors and Affiliates;
Certain Officers and Directors to Receive a Portion of the
Proceeds of this Offering. Since 1986 the Company has
entered into a number of transactions with one of its
directors and his affiliates relating to loans, the purchase
and lease back of the Company's premises, the leasing of
equipment, and the conversion of debt into Series A
Preferred Stock. See "Certain Transactions" for information
relating to these and other transactions with officers,
directors and affiliates of the Company.
THERMWOOD CORPORATION
Thermwood is a manufacturer of computer based systems and
equipment. It develops, produces, markets and services (i)
computer-controlled machine tools under the trademark
CARTESIAN 5 that perform high speed machining, trimming and
routing functions; and (ii) wood carving machine robots.
It also markets technical services in conjunction with the
sale and maintenance of its products. In addition, the
Company manufactures machine control systems and related
computer software which it uses primarily in its automated
industrial equipment. It has independently marketed these
systems on a limited basis to others under the trademark
SuperControl but ceased such sales activities in fiscal
1993. The Company has manufactured and marketed aircraft
avionic systems under the trademark DIGITAL SKY but
terminated these operations in January 1994 in accordance
with an agreement pursuant to which it sold the rights to
these products. See "Business; Products."
Thermwood's industrial products perform certain production
functions or automate specific tasks accomplished in
factories. These products are used in a variety of
manufacturing operations. The CARTESIAN 5 systems are
primarily employed to cut or machine materials such as wood,
plastic and non-ferrous metal into final shape. The robots
automatically paint various products or carve wood. The
SuperControl systems can control the operation of a variety
of industrial machines and machine tools.
Thermwood's primary marketing strategy is to provide
machines which combine operations traditionally performed on
several different machines. It attempts to provide the
lowest cost machines which will reliably perform functions
required by the customer. Management believes that costs
can be kept low by producing components which competitors
generally purchase from others. Control systems and router
spindles are two examples of these components.
For the Company's last fiscal year, which ended on July 31,
1994, Thermwood had net sales of $9,985,341 and net income
of $208,161. Sales of CARTESIAN 5, technical services and
carving robots ^ accounted for $7,090,944, $2,517,417 and
$376,980 or approximately 71%, 25% and 3% of the Company's
total net sales, respectively. For the nine months ended
April 30, 1995, the Company had net sales of $8,871,743 and
net income of $814,712. Sales of CARTESIAN 5, technical
services and carving robots accounted for $6,590,003,
$2,025,011 and $256,729 or approximately 74%, 23% and 3% of
the Company's total net sales, respectively.
The Company was incorporated in the State of Indiana on
December 22, 1969. Its executive offices and manufacturing
facilities are located at Old Buffaloville Road, Dale,
Indiana 47523 and its telephone number is (812) 937-4476.
See "Business."
USE OF PROCEEDS
If all of the Redeemable Warrants offered hereby are sold,
the estimated net proceeds to the Company, after deducting
the expenses of this Offering, will be approximately
$3,075,000. The Company will receive no proceeds from the
conversion of the Debentures but such conversion will result
in the termination of these obligations. Proceeds obtained
from the exercise of the Redeemable Warrants will be used
for working capital or, to the extent not immediately
required for this purpose, invested principally in United
States government securities, short-term certificates of
deposit, money market funds or other short-term interest-
bearing investments.
PRICE RANGE OF SECURITIES
AND DIVIDEND POLICY
The Common Stock has been traded on the American Stock
Exchange since 1989 and on the Pacific Stock Exchange since
1987. The Debentures and Redeemable Warrants have been
listed for trading on the Pacific Stock Exchange since
February 1993. There has been no trading market for the
Redeemable Warrants. The following table sets forth the
high and low per share sales prices for the Common Stock as
reported on the American Stock Exchange and the high and low
per unit sales prices for the Debentures as reported on the
Pacific Stock Exchange for the Company's last two fiscal
years ended July 31, 1993 and July 31, 1994, respectively,
and for the interim periods indicated:
<TABLE>
<CAPTION>
Common Stock Debentures
Low High Low High
1993
<S> <C> <C> <C> <C>
First Quarter $0.83 $1.13 0 0
Second Quarter $0.81 $1.25 0 0
Third Quarter $0.75 $1.19 $1,040 $1,170
Fourth Quarter $0.50 $0.81 $ 950 $1,040
1994
First Quarter $0.31 $0.75 $ 900 $ 978
Second Quarter $0.50 $0.69 $ 700 $ 870
Third Quarter $0.44 $0.82 $ 800 $1,000
Fourth Quarter $0.50 $1.32 $ 915 $1,180
1995
First Quarter $0.91 $1.18 $1,000 $1,250
Second Quarter $0.91 $1.13 $1,000 $1,200
Third Quarter $0.90 $1.06 $1,110 $1,300
</TABLE>
As of June 16, 1995, there were (i) approximately 800
holders of record of the Common Stock and 5,149,546 shares
outstanding; (ii) approximately 15 holders of record of the
Debentures and 2,070 Debentures outstanding; and (iii)
approximately six holders of record of the Redeemable
Warrants and 1,035,000 Redeemable Warrants outstanding. On
June 16, 1995, the last reported sale price for the Common
Stock, as reported on the American Stock Exchange, was
$1.63. For the year ended December 31, 1994, the average
daily trading volume was 6,425 shares. On June 16, 1995,
the last reported sale price for the Debentures, as reported
on the Pacific Stock Exchange, was $1,250. For the year
ended December 31, 1994, the average daily trading volume
was approximately three Debentures.
Dividend Policy
Thermwood has never paid any dividends on its Common Stock.
The current policy of the Board of Directors is to retain
earnings to finance the operation of the Company's business
except for amounts used to pay dividends on the currently
outstanding Series A Preferred Stock. See "Certain
Transactions" and "Description of Securities; Preferred
Stock." Accordingly, it is anticipated that no cash
dividends will be paid to the holders of the Common Stock in
the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the
Company at April 30, 1995 and as adjusted to give effect to
the sale of all of the Shares offered hereby and the
application of the estimated net proceeds:
<TABLE>
<CAPTION>
As Adjusted
-----------
Conversion of
Debentures and
As of Conversion of Exercise of
April 30, 1995 Debentures Warrants
-------------- -------------- --------------
<S> <C> <C> <C>
Current portion of:
Capital lease obligations $ 11,212 $ 11,212 $ 11,212
Capital lease obligations -
Related party (1) 41,148 41,148 41,148
--------- ----------- --------
Total short-term debt 52,360 52,360 52,360
--------- ----------- --------
Long-term liabilities, less
current portion
Other 23,172 23,172 23,172
12% Convertible Subordinated
Debentures 1,844,918 -0- -0-
--------- ---------- --------
Total long-term debt 1,868,090 23,172 23,172
--------- ---------- --------
Stockholders' equity (deficit):
Preferred stock, no par value.
Authorized 2,000,000 shares;
issued and outstanding-
1,000,000 shares 3,437,120 3,437,120 3,437,120
Common Stock, no par value.
Authorized 20,000,000
shares; issued and outstanding
5,149,546 shares and as adjusted
for the conversion of the
Debentures 7,219,546 shares and
conversion of the Debentures
and exercise of the Redeemable
Warrants 8,254,546 shares (2) 8,988,897 11,028,897 14,133,897
Accumulated deficit (10,437,689) (10,662,771) (10,662,771)
------------- ------------- -------------
Total Stockholders' Equity 1,988,328 3,803,246 6,908,246
------------- ------------- -------------
Total Capitalization $ 3,908,778 $ 3,878,778 $ 6,983,778
============= ============= =============
</TABLE>
(1) This amount is owed to a director or his affiliated
company. See "Certain Transactions."
(2) Excludes (i) 400,000 shares reserved for issuance under
the Company's Qualified Stock Option Plan of which options
to purchase 175,000 shares have been granted and are
currently exercisable; (ii) 350,000 shares reserved for
issuance under the Company's Non-Qualified Stock Option Plan
of which options to purchase 200,000 shares have been
granted and are currently exercisable; (iii) 600,000 shares
reserved for issuance upon exercise of options granted to
the Company's President, all of which are currently
exercisable; (iv) 30,000 shares reserved for issuance upon
exercise of options granted to the Company's general
counsel, all of which are currently exercisable; and (v)
30,000 shares reserved for issuance upon exercise of options
granted to an employee, all of which are currently
exercisable. See "Management; Stock Options.
SELECTED FINANCIAL DATA
(in thousands except for per share data)
The following table summarizes certain financial information with
respect to the Company. This table is derived from, and should be
read in conjunction with, the historical Financial Statements of the
Company included elsewhere in this Prospectus.
<TABLE>
Statement of Operations Data
<CAPTION>
Nine Months
Ended April 30 Fiscal
Year Ended July 31
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sales, less
commissions (1) $8,871 $7,225 $9,985 $10,825 $7,508 $8,536 $9,715
Cost of sales 5,417 4,799 6,406 8,652 5,916 5,433 5,857
----- ----- ----- ------ ----- ----- -----
Gross profit 3,454 2,426 3,579 2,173 1,592 3,103 3,858
Research and development,
marketing, adminis-
trative and general
expenses (1) 2,416 2,213 3,037 2,960 2,948 2,817 3,356
----- ----- ----- ----- ----- ----- -----
Operating income (loss) 1,038 213 542 (787) (1,356) 286 502
Other income (expense) (208) (332) (406) (607) (412) (374) (382)
----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations
before income taxes
and extraordinary loss 830 (119) 136 (1,394) (1,768) (88) 120
Income taxes 15 0 0 0 0 0 1
Earnings (loss) from
discontinued operations 0 0 72 285 (160) (63) 0
Extraordinary loss 0 0 (251) 0 0 0
----- ------ ----- ------- ------- ----- -----
Net income (loss) $ 815 $(119) $208 $(1,360) $(1,928) $(151) $119
===== ====== ===== ======== ======== ====== =====
Income (loss) per
share from continuing
operations $ 0.10 $ (0.03) $(0.01) $(0.28) $(0.36) $(0.02) $0.02
Net income (loss)
per share $ 0.10 $ (0.03) $ 0.00 $(0.27) $(0.40) $(0.03) $0.02
Weighted average number of
shares outstanding 5,150 5,150 5,150 5,054 4,862 4,862 4,862
Cash dividends declared
per common share 0 0 0 0 0 0 0
</TABLE>
<TABLE>
Balance Sheet Information
<CAPTION>
At July 31,
At April 30, ---------------------------------------
1995 1994 1993 1992 1991 1990
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total assets $6,494 $5,418 $6,928 $6,781 $7,363 $7,111
Working capital (deficit) 2,336 1,706 1,291 (939) 1,257 1,223
Long term obligations 1,868 1,862 5,711 2,559 2,732 2,435
Shareholders'
equity (deficit) 1,988 1,456 (1,985) (912) 1,016 1,167
</TABLE>
(1) For the fiscal years ended July 31, commissions expense has
been reclassified from research and development, marketing,
administrative and general expenses to net sales.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Years 1994 and 1993
--------------------------
Net sales for the fiscal year ended July 31, 1994 were
$9,985,341, a decrease of 8% from the 1993 fiscal year, when
sales were $10,825,003. Beginning in the third quarter of
the 1992 fiscal year, order activity began to accelerate.
The Company's backlog at July 31, 1993 was $1,132,000 and
increased slightly to $1,280,000 at July 31, 1994. The
backlog at April 30, 1995 was $1,895,000. Management
attributes the increased level of new orders to pent up
customer demand, the sale of new, more capable machines into
established markets, and to sales of large custom machines
into new markets during the 1993 fiscal year. See
"Thermwood Corporation" and "Business; Products."
Gross profit for the 1994 fiscal year was $3,578,541, 35.8%
of net sales, an increase from 20.0% for the 1993 fiscal
year. Gross profit for the 1994 fiscal year was positively
affected by more efficient production methods due to the
development and production of lower cost standard machines
and the discontinuance of building large custom machines. A
charge against cost of sales of approximately $100,000 in
1993 and $130,000 in 1994 for recognition of inventory
obsolescence and valuation adjustments caused gross profit
to decrease by approximately 1.0% each year.
Research and development, marketing, administrative and
general expenses were $3,036,408 in the 1994 fiscal year,
compared to $2,959,976 in 1993. Research and development
expenditures aggregating $244,000 in 1994 versus $327,000 in
1993 are included in the foregoing amounts. Management
believes that, with the Company's standard machines and
experienced work force, Thermwood is favorably positioned to
take advantage of the existing general economic upturn.
Interest expense for the 1994 fiscal year was $420,725, a
decrease of $173,960 from 1993. The 1994 fiscal year
decrease from the prior year was due primarily to the
reduction of long-term debt during the 1994 fiscal year
through conversion to Preferred Stock. This amount is
expected to further decrease during the 1995 fiscal year
because of a full year with less long-term debt.
Net earnings for the 1994 fiscal year were $208,161,
compared to a net loss of $1,360,057 in 1993. Operating
income for the 1994 fiscal year was $542,133 compared to an
operating loss of $787,113 in 1993. The operating income in
1994 resulted primarily from more efficient production
methods on standard machines when compared to the larger
custom machines produced in prior years. Additional
expenses relating to a private financing contributed to the
net loss in 1993.
Because of available net operating loss carryforwards, there
was no federal income tax expense in 1994 or 1993. The
Company has federal income tax net operating loss
carryforwards of $8,185,000 expiring in the years from 1997
through 2008. It also has other tax credits of lesser value
which appear in Note J of Notes to Financial Statements.
Nine months ended April 30, 1995 and April 30, 1994
---------------------------------------------------
Results of Operations
Net sales for the nine months of the current fiscal year
were $8,871,743, an increase of $1,646,723, or 22.79%, from
last year's nine-month period. Gross profit for the nine
months ended April 30, 1995 increased $1,028,054, or 42.37%,
over the same period of the 1994 fiscal year.
Gross profit as a percentage of sales increased from 33.58%
for the nine-month period ended April 30, 1994 to 38.94% for
the nine-month period ended April 30, 1995. The higher
gross profit for the 1995 nine month period and reduced
interest costs (due to the restructuring discussed below)
resulted in earnings from continuing operations before
income taxes and extraordinary loss of $829,612, as compared
to a loss of $119,334 for the same period in fiscal year
1994. The cost of sales increase of approximately 13% from
the nine-month period of fiscal year 1994 was due primarily
to proportionately increased sales during the same period.
Research and development, marketing and administrative and
general expenses increased approximately 9% for the nine-
month period ended April 30, 1995, compared to the same
period in fiscal year 1994. Included in these numbers is a
profit bonus paid to employees which was not paid during the
first three quarters of fiscal year 1994. If this bonus
were excluded, research and development, marketing,
administrative and general expenses would actually have
decreased by approximately $122,000 from the nine months
ended April 30, 1994.
Interest expense for the nine-month period ended 1995 was
$222,437 compared to $344,247 for the same period of fiscal
year 1994, a decrease of approximately 35%. This decrease
is due primarily to a restructuring of related party debt
discussed below.
Net earnings for the nine-month period ended April 30, 1995
increased by $872,268 over the net loss of $57,556 for the
first nine months in fiscal year 1994.
On November 18, 1993, the Company entered into an agreement
with its major creditor, who is also a director, to convert
approximately $3.4 million in current and long-term debt to
preferred stock. This conversion has significantly improved
the Company's balance sheet by reducing liabilities by $3.4
million and increasing shareholders' equity by the same
amount.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1994 the Company's working capital was
$1,706,268 compared to $1,291,124 at July 31, 1993. This
increase was due primarily to the restructuring of debt and
the Company's product line enabling the Company to pay a
portion of its current debt and accrued expenses.
At April 30, 1995 the Company's working capital had
increased to $2,335,993. This increase was due primarily to
cash provided by operations and improved operating results.
Inventory levels were increased to support the backlog
covering the shorter production period and faster turnaround
of low-cost standard machines now focused upon by the
Company.
In order to efficiently produce a record backlog which
existed at the beginning of the Company's 1993 fiscal year
and to strengthen its weak working capital position in the
1993 fiscal year, the Company arranged for approximately
$500,000 in short-term financing. This financing provided
the Company with temporary funds until completion of the
sale of the Debentures for which the Company received
approximately $1,800,000 in 1993. These funds were used
primarily to retire the short-term financing and pay past
due obligations.
Thermwood's decision to cease producing custom machines and
to withdraw from the aerospace industry reduced sales for
the 1994 fiscal year compared with the 1993 fiscal year;
however, the marketing, sale and manufacture of standard
machines helped margins and profitability. Gross profit for
the nine-month period ending April 30, 1995 increased from
34% for the nine-month period ending April 30, 1994 to 39%.
The Company had a positive cash flow from operating
activities for the 1994 fiscal year in the amount of
$333,099. The net earnings of $208,161 for the fiscal year,
adjusted to add back non-cash expenses such as depreciation
and amortization of $292,727, and inventory write downs of
$130,000 noted earlier contributed to a positive cash flow.
A decrease in accounts receivable also provided cash flow;
however, payments of accounts payable and other accrued
expenses decreased cash flow. For the nine-month period
ended April 30, 1995, the Company had a positive cash flow
from operating activities in the amount of $575,948.
During the 1994 fiscal year, the Company's investing
activities were primarily for replacement of production and
office equipment. Expenditures for fixed assets in the 1995
fiscal year are also anticipated to be for normal recurring
replacements and purchases of labor-saving equipment for
production. The Company has no plans for any significant
capital expenditures in the current fiscal year.
Principal payments on lease obligations and long-term debt
during the 1994 fiscal year were to a related party and to a
leasing company owned by the related party. Cash flows from
financing activities included $204,943 of dividend payments
on the Series A Preferred Stock to the related party. See
"Certain Transactions" and "Description of Securities;
Preferred Stock."
BUSINESS
GENERAL
The Company develops, manufactures and markets all of its
products. Its operations are divided into a number of
different areas. The production organization, which is
responsible for all manufacturing, is directed by the
Production Manager. Product and production engineering is
directed by the Vice President of Engineering. The
Machining Products division is responsible for the sale of
the Company's automated industrial equipment which includes
the CARTESIAN 5 System and wood carving robots. This
division is managed by a Vice President. The Technical
Services Division is responsible for selling as well as
providing technical services and is managed by the Vice
President of that Division. In addition, there is a
marketing group which is managed by the Company's President
and a research and development group which is supervised by
the Vice President of Engineering. Each sales division is
treated as a separate profit center and is generally charged
for the production, marketing, and research and development
resources it uses to support its operations.
INDUSTRY BACKGROUND
Flexible Automation
Prior to the availability of microprocessor-based machinery
control systems, there were only two alternatives to
automating the industrial process: a manual operation using
humans to manipulate tools; or "hard automation" employing
dedicated automatic machinery. High initial cost and
limited flexibility have made hard automation suitable only
for applications involving large volumes of identical parts.
Smaller volumes of parts were traditionally produced by
using human labor, hand tools or machine tools operated
manually.
In today's marketplace, competitive pressures demand a
greater variety of products. Due to demographic and
economic factors, neither hard automation nor manual labor
appears to be a feasible means of meeting this manufacturing
requirement.
The gap between hard automation and manual labor is
currently being filled by a variety of flexible automation
equipment. This equipment is often better suited to small
and medium volumes of parts and is usually designed to
perform a number of tasks utilizing the same computer-
controlled machine.
Flexible automation equipment is manufactured in a variety
of forms and addresses a number of applications. Specific
markets have developed for certain classes of equipment with
a number of vendors offering products in each of these niche
markets. Many vendors, including the Company, build
products which service several of the markets.
Flexible automation equipment is more economically feasible
during times when increased production capacity is required
or when older, obsolete or otherwise less competitive
equipment is being replaced. Accordingly, demand for this
equipment usually increases during periods of economic
growth and decreases during periods of economic recession.
Machine Control Systems
There are two types of control systems used to program and
operate industrial robot devices. One uses a "lead through
teach" method and stores the information on a continuous
path format. In this method, the drive system is
disconnected from the movable parts of the machine. The
machine is then moved through the desired motions. The
position of the machine is sampled many times per second and
this information is recorded. During operation, these
motions are replayed.
The second type is the Computer Numerical Control ("CNC")
system. This system uses sets of instructions appearing in
blocks, each containing information concerning a particular
movement of the machine. In operation, the machine
sequentially executes each block of instructions. For
example, blocks can include movements such as straight
lines, arcs and circles, or can be used to turn certain
machine functions on or off.
CNC systems are also used to control the movements of other
automated industrial equipment. This type of system differs
from the older Numerical Controls ("NC") in that a CNC
system contains one or more computers within the control
mechanism providing more capability than an NC control,
which lacks a computer and simply executes instructions
developed elsewhere.
Programming a CNC system can be accomplished in a variety of
ways. These include inputting the block of information
directly into a terminal, generating programs using a
computer and a computer aided design/computer aided
manufacturing (CAD/CAM) system, and moving the machine to a
position and having the machine's controller create the
block of instructions.
PRODUCTS
Automated Industrial Equipment
The CARTESIAN 5 machining systems are high speed computer
controlled, fully automatic machining centers. These
centers are designed to perform a variety of tasks such as
routing and shaping wood parts, trimming of three
dimensional plastic parts, machining of aluminum honeycomb,
drilling and high speed machining of aluminum both
vertically and horizontally, mortising (i.e., cutting square
holes in furniture), and sawing and squaring (i.e., cutting
inside square corners). They generally operate over larger
table areas and at higher speeds than do conventional
machine tools but cannot machine the heavy materials and
large cross sections that standard machine tools are capable
of doing.
The CARTESIAN 5 systems utilize the Company's proprietary
SuperControl system and consist of one or more high speed
cutting, drilling or machining heads and related tooling
which move around a table under computer control to perform
programmed operations. There are two basic types of
systems, one where the table is fixed and the cutting heads
move both left and right and back and forth, and the other
where the table moves back and forth and the cutting heads
move only left and right. Both systems permit the heads to
reach all points on the table. Cutting is accomplished by
metal bits, drills, blades and water jets. Additional
motions or axes, which permit the head to both pivot and
rotate, can be installed, thereby making three dimensional
cuts. Multiple and varying cutting and drilling heads can
be added, allowing a number of different machining
operations to be accomplished in a single cycle or multiple
parts to be machined simultaneously.
Currently the Company markets seven standard CARTESIAN 5
systems of varying sizes and capabilities which are
generally offered as standard designs. Because a number of
table sizes, configurations, tooling and other options are
available, most of these designs are combinations of
standard components rather than totally new designs.
The CARTESIAN 5 systems are utilized principally in the
woodworking, plastics, boating and automotive industries.
In prior fiscal years the Company has marketed large,
completely customized machines, primarily to the aerospace
industry. During the 1994 fiscal year the Company
discontinued marketing and building customized machines.
The Company currently focuses on standard machines in an
effort to produce these products more efficiently and at
lower cost. During the 1994 fiscal year the Company's
percentage of revenues from sales to the aerospace industry
was approximately 5%, compared with 12% in 1993 and 19%, in
1992. The Company made no sales to this industry during the
nine months ended April 30, 1995. The Company does not
expect material sales to the aerospace industry in the
future. Current prices to end users range from
approximately $49,000 to over $200,000 per system. The
average price of a standard system is approximately
$115,000.
Robotic Systems
Thermwood has developed a wood carving robot to automate the
operation of a multi-spindle carving machine. This machine
is used in the furniture industry to manufacture carved wood
parts. It is moved manually by a highly skilled operator
while a number of cutting heads duplicate the motions in a
panagraph machine which records the motions of the human
carver as he operates the machine. It then accurately
replays these motions, duplicating the operator's skill.
Once programmed, the Carving Robot can be operated by a
lower cost, unskilled worker.
Retail prices for the Carving Robot range from approximately
$85,000 to $100,000. Based on current interest and
activity, management anticipates that sales of this product
should increase but no assurance to that effect can be
given.
SuperControl Systems
Thermwood designs and manufactures its own CNC control
systems which it uses primarily for its own automated
industrial equipment. It has manufactured two versions of
the SuperControl CNC control system, the 9100A and the
91000. During the 1994 fiscal year, the more limited 9100A
was discontinued.
Avionics Equipment
Thermwood developed and has offered color moving map
systems. During the 1993 fiscal year the Company sold the
COLOR SkyMap product line to King Radio Corporation. Under
the terms of the agreement, the Company produced and sold
Color SkyMap systems until the end of January 1994. The
Company does not plan to offer these products in the future.
MARKETING
The market for industrial automation equipment can be
divided into a large number of applications in a variety of
industries. Thermwood seeks to produce industrial products
which address specific applications in a variety of
industries. It also attempts to provide complete, pre-
engineered, standard automation systems which require little
or no engineering input from the end user. These systems
are designed for easy installation, programming and use and
may be operated and maintained by existing plant personnel
without extensive training or technical background.
Thermwood's systems are currently designed to operate at
higher quality and reliability levels than earlier versions
of these products. In addition, the Company has striven to
support these systems with improved technical services and
assistance. Although Thermwood's marketing strategy has
involved emphasis on small to medium sized companies, the
Company has also received orders from larger companies.
The Company generally sells its products through a network
of dealers supervised by the Vice President of Sales and
the account managers of the particular operating division
responsible for each product or service. Dealers
assist the Company in making sales and are paid on a
commission basis for this service. Commissions generally
range from 15% to 20% of the Company's published retail
prices. As of May 31, 1995 the Company had approximately 14
authorized dealers marketing its industrial products.
Thermwood usually requires each dealer to execute a non-
exclusive written agreement with it. A dealer is required
to sell one machine within each six-month period in order to
retain its dealership. Most dealers concentrate their
sales efforts in specific geographical areas and in
particular industries such as woodworking or plastics, and
sell only one of the Company's product lines. However, some
market and sell products to more than one industry and sell
both the CARTESIAN 5 systems and the Company's line of
industrial robots.
One dealer accounted for approximately 15% of the Company's
sales for the fiscal year ended July 31, 1994. See "Certain
TransactionS" for information relating to the Company's
agreement with this dealer which is owned by the Company's
president and his wife who is also an officer and director.
No other dealer accounted for 10% or more of the Company's
business during the 1994 fiscal year. For the nine month
period ended April 30, 1995, that dealer accounted for
approximately 35% of the Company's sales and another dealer
accounted for approximately 16% of the Company's sales. The
loss of any large dealer could have a materially adverse
effect on the Company's business. Thermwood's business is
not seasonal.
Typically, Thermwood seeks to develop sales leads through
advertising in trade magazines and product exhibitions at
selected trade shows. The Company then furnishes such leads
to dealers in the geographic area where the potential
customer is located. It also supplies the dealers with
promotional materials and sales aids, including product
literature, a dealer's manual, news letters, press releases
and advertising, technical briefs, sales incentive programs
and video tapes of product demonstrations. The Company
assists its dealers by providing training for them and
their customers. Thermwood encourages trainees and
potential customers to visit its manufacturing facilities
where it maintains areas and machinery to demonstrate the
operation and use of its industrial products.
TECHNICAL SERVICES
Management believes that providing extensive and ongoing
technical services to customers is essential for the success
of small and medium sized companies. Accordingly, Thermwood
offers a variety of technical services through its Technical
Services Division. These services include training,
installation assistance, preventive maintenance and
upgrading and enhancement of installed products as
technology advances. The Technical Services Division also
has responsibility for the quality control of the Company's
industrial products during their manufacture. Technical
services are marketed to current customers as well as to
companies that purchase Thermwood equipment in the used
market. A toll-free service line is maintained for the use
of all owners of the Company's equipment.
Thermwood does not offer its customers written service
contracts. Although the Company does not provide its
customers with the right to return products, this right may
be implied. The Company has incurred no significant
expenses or problems in servicing its products during the
past three fiscal years.
PRODUCT DEVELOPMENT
Much of Thermwood's product development effort during the
last two years has been directed toward development of a
variety of cutting and machining heads for use on the
CARTESIAN 5 line of equipment. This development is
continuing in an effort to broaden the capability of the
equipment and thus increase market size for these products.
In addition, the Company has an ongoing program to reduce
the manufacturing costs of its products and pass these
reductions on to customers in the form of price decreases.
Thermwood is completing efforts to add the capability of
performing three-dimensional wood carving to its entire CNC
router line. The resulting system is expected to produce
carved wood components at a three to ten times faster
production rate than the Company's current carving robot
product. Management expects to offer these new capabilities
within the next six months and expects sales of these new
products to replace sales of the current carving robot
product. For the nine months ended April 30, 1995, this
product accounted for approximately $681,000 or 8% of sales.
Development efforts have been continuing on the 91000
SuperControl which is an updated version of the CNC control
systems formerly used on Thermwood equipment. The basic
system development is complete and is currently being sold
and shipped on the Company's equipment. Current efforts are
being directed toward adding certain high-end features and
capabilities.
CUSTOMERS
Although the Company has sold its industrial products to
large corporations (i.e., companies with annual sales
approximating or exceeding $1 billion), its primary customer
base is comprised of small to medium sized manufacturers
(i.e., companies with annual sales ranging from
approximately $10 million to approximately $500 million)
located throughout the United States. No customer accounted
for more than 10% of the Company's sales in the fiscal year
ended July 31, 1994 or the nine months ended April 30, 1995.
Thermwood generally requires a purchaser of industrial
products to pay 30% of the sales price when placing the
order, an additional 40% prior to shipment and the balance
within 30 days after date of invoice. Charges for technical
services and spare parts are due within 30 days after
billing.
Thermwood offers its customers a limited warranty, ranging
from 90 days for labor to one year for parts. The Company
also provides training and installation. See "Technical
Services" above.
BACKLOG
As of July 31, 1994 the Company's backlog was approximately
$1,706,000 compared with a backlog of $1,132,000 as of July
31, 1993. The backlog as of April 30, 1995 was
approximately $1,895,000. Management anticipates that
substantially all of this backlog should be manufactured and
delivered prior to August 31, 1995.
Backlog figures generally include only written orders from
customers which management believes are firm and will be
shipped within eight to 12 weeks. Approximately 90% of the
backlog is covered by down payments from customers ranging
from 25% to 30%. On orders where down payments have not
been required, the Company has obtained irrevocable letters
of credit for payment upon proof of shipment.
Because of the possibility of customer changes in delivery
schedules or cancellation of orders, the Company's backlog
as of any particular date may not be indicative of actual
revenues for any specific period.
MANUFACTURING AND PRODUCTION
The Company maintains its manufacturing facilities in Dale,
Indiana. See "Property and Facilities" below. It
manufactures its products on a batch rather than a
continuous flow or conventional production line basis.
Except for demonstration models, the Company does not
generally manufacture products without a purchase order
although, in order to expedite the manufacturing process,
certain basics parts of machines may be fabricated before
purchase orders are received. The major portion of
inventory is purchased to satisfy specific customer orders
with the balance acquired from one to four months in advance
of projected orders.
Thermwood designs, develops and engineers all of its
industrial products. Components contained in these
products are either purchased from outside suppliers or
fabricated by Company personnel. The Company fabricates
such components as computer-based electronic control systems
and the steel structure of the CARTESIAN 5 systems. Where
possible, the Company utilizes its CARTESIAN 5 systems to
fabricate components.
Raw materials are purchased from third party sources. Most
raw materials and components, including those which are
custom made for the Company, are either purchased or
available from several sources. There are, however, a
number of components which can only be obtained from single
source suppliers. Management does not consider this to be a
problem because it believes that the Company would be able
to eliminate or replace these components if required. No
supplier accounted for more than 15% of total components
purchased by the Company for the fiscal year ended July 31,
1994 or the nine-month period ended April 30, 1995.
COMPETITION
There are many manufacturers of flexible automation
equipment and CNC machining systems in the United States and
abroad, particularly in Japan and Europe. A number of these
manufacturers are larger, better financed and have more
resources than does the Company. Many of them have been
engaged in manufacturing and marketing automated industrial
equipment longer than Thermwood.
The Company's primary competitors in the high speed
machining market are a number of major domestic, Japanese
and European firms such as Shoda Iron Works, Heian, Shinks
Machinery Works, Motion Master and Komo Machine In
addition, the number of companies offering routing equipment
has increased and it is management's opinion that the market
cannot support all of them. Management believes, however,
that the ability of the Company to offer products which
perform a variety of functions and sell at low prices,
provides Thermwood with a competitive advantage, although no
assurance to this effect can be given.
Competition in flexible automation equipment is based upon
real and perceived differences in equipment features, price,
performance, reliability, service, marketing, financial
strength and product development capability. The Company
may be at a competitive disadvantage with those
manufacturers that offer a broader line of such equipment or
related non-robotic equipment.
Thermwood seeks to design its products for high levels of
performance and reliability while offering them at moderate
prices.
RESEARCH AND DEVELOPMENT
Thermwood plans to continue its research and development
efforts primarily directed toward the improvement of
existing products and the development of new products and
the development of new, lower cost products. The Company
utilizes a variety of sources in its research and
development efforts, including employees, vendor engineering
staffs, contract employees who are retained solely for
specific projects, consultants and independent design firms.
See "Product Development" above for information relating to
the Company's current development efforts.
For the fiscal years ended July 31, 1994 and 1993, the
Company spent $244,000 and $327,000, respectively, for
research and development. There was no customer sponsored
research and development during the 1994 fiscal year.
Management believes that expenditures need to be increased
in order for the Company to maintain a competitive position
in the immediate future. However, the Company may
eventually be at a competitive disadvantage with respect to
firms that spend significantly more on research and
development efforts.
PATENTS, TRADE SECRETS AND TRADEMARKS
Thermwood currently holds 13 domestic patents and has
applications pending in the United States for 12 additional
patents. There is no assurance that any additional patents
will be granted. Management does not believe that major
reliance can be placed on patents for the protection of its
products although patent protection for the Company's
newly developed products is increasing.
Thermwood relies primarily upon trade secret laws, internal
non-disclosure safeguards and restrictions incorporated into
its dealership, sales, employment and other agreements to
protect its proprietary property and information. In
addition, the Company has proprietary rights arrangements
with its employees which provide for the disclosure and
assignment by the employee to Thermwood of any discovery,
invention or improvement relating to its business. While
management is unaware of any breach of the Company's
security, competitors may develop similar products outside
the protection of any measures that Thermwood takes. In
addition, policing unauthorized use of the Company's
technology, particularly in foreign countries, may be
difficult. The Company has been unsuccessful in prosecuting
two claims for what it believed were prospective
unauthorized use of proprietary rights. The Company has not
been involved in any claims concerning patent infringement.
See "Risk Factors; Patents and Proprietary Rights."
The Company markets its products under various trademarks,
including THERMWOOD, CARTESIAN 5, 91000 SUPERCONTROL,
CARTESIAN EAGLE, ROUTER ART and PANEL-CAD. It has several
trademark registrations and applications for
registrations.
EMPLOYEES
As of May 31, 1995 the Company had 93 full time employees,
of whom 46 were engaged in manufacturing, 11 in marketing,
13 in administration, seven in engineering, three in
research and development, and 13 in technical services.
None of the Company's employees is a member of any union or
collective bargaining organization. Thermwood considers its
relationship with its employees to be satisfactory.
Designing and manufacturing the Company's industrial
equipment requires substantial technical capabilities in
many varied disciplines, ranging from mechanics and computer
sciences to mathematics. Although management believes that
the capability and experience of Thermwood's technical staff
compare favorably with other similar manufacturers, there is
no assurance that the Company can retain existing employees
or attract and hire the type of skilled employees it may
need in the future.
PROPERTY LAND FACILITIES
Thermwood's manufacturing facilities and executive offices
are located in a 73,000 square foot building in Dale,
Indiana which has been leased from Edgar Mulzer, a director
and major stockholder of the Company. Management believes
that these facilities are in good condition and adequately
satisfy the Company's current requirements.
The lease, which entitles the Company to utilize the
facilities and offices through February 14, 2007, required
the Company to pay an annual base rental of $232,000 as well
as all taxes, maintenance, repairs, utilities and insurance.
The lease, together with a related agreement which contains
a purchase option, is accounted for as a capital lease. In
November 1993 the Company entered into an agreement with Mr.
Mulzer to convert the obligation under the lease, as well as
other long-term debt amounts owed to Mr. Mulzer, into shares
of the Company's Series A Preferred Stock.
The Company also leases certain equipment at an aggregate
annual rental of approximately $65,000 from one of Mr.
Mulzer's affiliated companies. See "Management" and
"Certain Transactions."
<TABLE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as
follows:
<CAPTION>
Name Age Position
<S> <C> <C>
Kenneth J. Susnjara (1) 47 Chairman of the Board, Chief
Executive and Operating Officer
and President
Linda S. Susnjara (1) 46 Secretary and Director
Michael P. Hardesty 41 Executive Vice President
Rebecca F. Fuller 45 Treasurer, Chief Financial Officer
David J. Hildenbrand 38 Vice President of Sales
Richard A. Kasten 43 Vice President of Technical Services
Peter N. Lalos (2) 61 Director
Edgar Mulzer (2) 77 Director
Lee Ray Olinger (2) 68 Director
</TABLE>
(1) Mr. and Mrs. Susnjara are husband and wife.
(2) Member of the Incentive Stock Option Committee, Non-
Qualified Stock Option Committee, Audit Committee,
Nominating Committee and Compensation Committee of the Board
of Directors.
All directors hold office until the next annual meeting of
shareholders and the election and qualification of their
successors. Officers serve at the discretion of the
Board. Each director receives $500 for each meeting of the
Board attended by him or her and reimbursement of reasonable
expenses incurred in connection therewith.
Set forth below is a biographical description of each
director and officer of the Company.
Kenneth J. Susnjara. Mr. Susnjara co-founded Thermwood in
1969 and has been a director since inception and Chairman,
President and Chief Executive Officer since 1971. He also
served as Treasurer prior to March 1979 and again from
October 1983 to June 1985. He has devoted his full time to
the Company's business except for a brief period in 1985
when he acted as a distributor for the Company. Mr.
Susnjara is the author of a book on industrial robotics
entitled A Manager's Guide to Industrial Robotics and
lectures on robotics and automation to business and
university groups. See "Certain Transactions."
Linda S. Susnjara. Mrs. Susnjara has been a director of the
Company since 1985 and Secretary since 1989. She is and has
been since 1985 the President of Automation Associates
Incorporated, a dealer of the Company's industrial products.
See "Certain Transactions." Mrs. Susnjara is not active in
the Company's business.
Michael P. Hardesty. Mr. Hardesty has been the Company's
Executive Vice President since August 1988. He joined the
Company in 1975 and was employed first as a project
engineer, then project manager and then general manager
until July 1980 when he was promoted to Vice President of
Operations. He served in that capacity until May 1985 when
he became Vice President of the Machining Products Division,
a position he held until assuming his current position.
Rebecca F. Fuller. Ms. Fuller joined Thermwood in 1981 and
was promoted to accounting manager in 1983 and controller in
1985. She assumed her current position as Treasurer in July
1993.
David J. Hildenbrand. Mr. Hildenbrand joined the Company in
1977 and was employed in various technician and sales
manager capacities until August 1988, when he was promoted
to his present position.
Richard A. Kasten. Mr. Kasten became a Vice President in
December 1993. Prior thereto, from 1990, he was employed by
the Company as a manager of applications.
Peter N. Lalos. Mr. Lalos has been engaged in the private
practice of law in Washington, D.C. since 1961 and is the
senior partner in the law firm of Lalos and Keegan. He
served as Secretary of the Company from September 1981 to
December 1989 and as a director from April 1981 to July
1986. He was reelected to the Board in December 1989. See
"Certain Transactions" for information relating to legal
fees paid by the Company to Mr. Lalos' law firm.
Edgar Mulzer. Mr. Mulzer has been a director of the Company
since 1974. He was Chairman of the Board of The Dale State
Bank, a commercial bank located in Dale, Indiana, from 1970
through 1993. Mr. Mulzer is currently retired. See
"Certain Transactions" for information relating to loan and
lease transactions between the Company and Mr. Mulzer and
his affiliates, including the bank.
Lee Ray Olinger. Mr. Olinger has been a director of the
Company since 1989. He is currently, and has been since
1986, the Chairman of the Board of First Bank of
Huntingburg, a commercial bank located in Huntingburg,
Indiana. He became a director of this bank in 1949. See
"Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth the annual remuneration that
the Company paid during its fiscal years ending July 31,
1994, 1993, and 1992 to the Chief Executive Officer, to each
of its executive officers whose total cash remuneration
exceeded $100,000 and to all executive officers as a group:
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long-term Compensation
----------------------- ---------------------
Awards Payouts
------------- -------
Other Rest- All
Name and Annual ricted Options/ Other
Principal Compen- Stock SARs LTIP Compen-
Position Year Salary Bonus sation Award(s) (#) Payouts sation n-
(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth J. Susnjara
Chairman of the 1994 $74,250(2) 0 $2,000 0 0 0 0
Board, President 1993 64,025(2) 0 2,000 0 0 0 0
and director 1992 64,913(2) 0 0 0 0 0 0
All other officers 1994 170,116 $4,237 0 0 0 0 0
as a group (4) 1993 180,755 0 0 0 0 0 0
persons
All other officers 1992 442,234 0 0 0 0 0 0 - -
as a group (9)
persons
</TABLE>
(1) Other annual compensation represents directors' fees
paid to Mr. Susnjara.
(2) Sixty thousand dollars of this amount represents the
amount which was paid to Mr. Susnjara pursuant to the
Company's Profit Sharing Plan as described below. See
"Profit Sharing Plan."
No stock options or stock appreciation rights were issued in
the 1994 fiscal year except for 10,000 Shares to Ms. Fuller,
and no options were exercised in 1994. At July 31, 1994,
the market price for some of the unexercised options
exceeded the exercise price of the Common Stock. On
September 6, 1994, registration statements on Form S-8 were
filed with the Commission under the Securities Act in
connection with the registration of the Shares issuable upon
exercise of options granted under the Company's Employee
Incentive Stock Option Plan and Non-Qualified Stock Option
Plan.
In 1985 the Board of Directors appointed Mr. Susnjara to the
position of President and Chief Executive Officer. In this
position, he is entitled to receive a bonus based on the pre-
tax profits of the Company as set forth below. Effective
August 1, 1993, the bonus was changed from 20% to 5% of the
Company's operating income. Pursuant to the revised plan,
Mr. Susnjara is to receive a minimum of $5,000 per month for
the duration of the plan. See Profit Sharing Plan below.
Certain other officers may be entitled to participate in the
Company's profit sharing plan. See Profit Sharing Plan
below.
PROFIT SHARING PLAN
On August 1, 1985, the Company instituted a management
profit sharing plan. This plan has been operative since the
1987 fiscal year and has been continued in an amended form.
The plan covers the Company's Chairman of the Board and
President, the Vice President of Engineering, the Vice
President of Sales, the Vice President of Technical
Services, the Treasurer, and various departmental managers.
Pursuant to the plan, the Chairman is entitled to 5%
(reduced from 10% and 20% in prior years) and the Treasurer
is entitled to 3% of annual corporate operating income. The
Vice Presidents of Sales and Technical Services are each
entitled to 5% of the annual operating income generated by
the division supervised by such officer. Department
managers are entitled to various bonuses based on the
productivity of their departments. The Chairman is also
entitled to receive a non-reimbursable advance of $5,000 per
month for the duration of the Plan. See "Executive
Compensation" above.
All employees not subject to another bonus plan are paid 5%
of one month's salary (based upon a 40-hour work week) at
the end of the month following a month in which the Company
had profits of at least $100,000. A 7.5% bonus will be paid
if monthly profits increase to at least $150,000.
Divisional losses are deducted from the amounts due under
the plan so that total bonuses paid do not exceed 25%
(reduced from 35% in prior years) of annual corporate
operating income. Payments under the plan are made in
six monthly installments commencing six months after they
are earned. Participants are required to be continuously
employed during the period that they are being paid.
Divisional losses of a fiscal year must be recouped in the
succeeding year, or years, in order to be eligible for
profit sharing earnings in the succeeding year(s).
STOCK OPTIONS
Incentive Stock Option Plan
The Company's Incentive Stock Option Plan (the "Qualified
Plan") was adopted by the Board of Directors and approved by
the stockholders in December 1989. A total of 400,000
shares of Common Stock are reserved for issuance under the
Plan which provides for the granting of "incentive stock
options" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended, to officers and key
employees of the Company, including those who are also
directors. The purpose of the Plan is to enable the Company
to attract, retain and motivate key employees by granting
them an equity interest in the Company.
The Plan is administered by the Board of Directors and a
Committee currently consisting of three Board members, which
selects participants, based on their ability to contribute
to the Company's success, and determines the terms of the
options granted, including the exercise price and dates and
the number of shares subject thereto. No option is
transferable by the optionee other than by will or the laws
of descent and distribution, and each option is exercisable,
during the lifetime of the optionee, only by such optionee.
The exercise price of all options must be at least equal to
the fair market value of the Common Stock on the date of the
grant, and the term of each option may not exceed ten years.
With respect to any participant who may own more than 10% of
the Company's outstanding voting shares, the exercise price
must be at least equal to 110% the fair market value of the
Common Stock on the date of the grant, and the term may be
no longer than five years. The aggregate fair market value
of the shares of Common Stock (determined at the time the
options are granted) with respect to options exercisable for
the first time by an optionee during any calendar year may
not exceed $100,000. The options contain an anti-dilution
provision which provides for a change in the exercise price
and the number of shares issuable upon exercise in the event
of certain occurrences such as stock dividends and splits,
recapitalizations and mergers.
When an optionee voluntarily terminates his relationship
with the Company, all options not then exercisable will
immediately expire. However, in the event of a voluntary
termination, the Company has the right to redeem exercisable
options from the employee prior to termination by paying him
the difference between the exercise price and the then fair
market value of the Common Stock. If termination is
involuntary, options which are then exercisable will expire
30 days thereafter unless such termination results from
death, in which event they will expire one year thereafter.
The Plan will end December 3, 1995 unless terminated sooner
by the Board of Directors. Options outstanding on the
termination date will remain in effect until they expire or
are exercised in full.
As of May 31, 1995 options to acquire 175,000 shares of
Common Stock at exercise prices ranging from $1.00 to $5.00
per share had been granted to 13 employees. All of these
options are currently exercisable.
Non-Qualified Stock Option Plan
The Company's Non-Qualified Stock Option Plan (the "Non-
Qualified Plan") was adopted by the Board of Directors in
December 1984. A total of 350,000 shares of Common Stock
are reserved for issuance under this Plan which provides for
the granting of options to the Company's officers, key
employees, and directors, including those who are not
officers or employees.
The Non-Qualified Plan is administered by the Board of
Directors and a Committee currently consisting of three
Board members, which selects participants, based on their
ability to contribute to the Company's success, and
determines the terms of the options, including the dates and
the number of shares subject thereto and the exercise price,
which may be less then the fair market value when granted.
The Committee has the right to determine whether options
will contain an anti-dilution provision, and can grant the
optionee the ability to require the Company to redeem
exercisable options from him by paying him the difference
between the exercise price and the then fair market value of
the Common Stock. Options cannot be granted after January 1,
2005.
Generally, no option is transferable by the optionee other
than by will or the laws of descent and distribution and
each option is exercisable, during the lifetime of the
optionee, only by such optionee. Options become exercisable
after an optionee has retained his relationship with the
Company for one year and thereafter at the rate of 25% per
year. When an optionee voluntarily terminates his
relationship with the Company with the Company's consent or
the Company terminates him without cause, options which are
then exercisable will expire 30 days thereafter unless the
Committee has provided for a different time period. In all
other cases of termination, options which are then
exercisable will expire immediately, unless such termination
results from death, in which event they will expire one year
thereafter.
Under current federal income tax law, an optionee will not
recognize any income on the date the option is granted and
the Company will not be entitled to any deduction at that
time. When he exercises his option, an optionee will
realize ordinary income equal to the difference between the
then fair market value and the exercise price. If the
optionee surrenders any part of his option for cash or
Common Stock, he will realize ordinary income equal to the
cash or fair market value of the stock received. The
Company will be entitled to a deduction equal to the amount
of income realized by the optionee.
As of May 31, 1995 options to acquire 200,000 shares of
Common Stock at exercise prices ranging from $1.125 to $2.00
per share had been granted to four directors and officers,
all of which are currently exercisable.
Other Options
In addition to the options granted under the Plans as set
forth above, options to purchase 600,000 shares have been
issued to Mr. Susnjara; options to purchase 30,000 shares
have been issued to the law firm of Lalos and Keegan, the
Company's general counsel; and option to purchase 30,000
shares have been issued to an employee. Mr. Susnjara's
options are exercisable as follows: 200,000 at $5.00 per
share; 200,000 at $7.50 per share; and 200,000 at $10.00 per
share. The options granted to Lalos and Keegan and the
employee are exercisable at $1.00 per share. The options
granted to Lalos and Keegan will terminate on May 22, 1996.
The other options will terminate on October 17, 1997. All
of the options are currently exercisable.
Section 401(k) Plan
The Company adopted a tax-qualified cash savings plan (the
"401(k) Plan") which became effective in October 1989. This
Plan covers all employees who have completed 12 months of
continuous service prior to a plan entry date. Pursuant to
the 401(k) Plan, eligible employees may make salary deferral
(before tax) contributions of up to 12% of their total
compensation per plan year up to a specified maximum
contribution as determined by the Internal Revenue Service.
The Company also makes matching contributions equal to 25%
of the employee's contribution up to a maximum of 3% of the
employee's annual compensation. The 401(k) Plan also
includes provisions which authorize the Company to make
discretionary contributions. Such contributions, if made,
are allocated among all eligible employees as determined
under the 401(k) Plan. The trustee under the 401(k) Plan is
Merrill Lynch of Evansville, Indiana. It invests the assets
of each participant's account in funds at the direction of
such participant.
CERTAIN TRANSACTIONS
Bank Loans from Affiliated Parties
Thermwood had an agreement, which expired on September 25,
1992, to borrow up to $1,500,000 from the Dale State Bank
(the "Dale Bank") in the form of a line of credit. Mr.
Mulzer was Chairman of the Board and the principal
shareholder of the Dale Bank during the period that this
loan was made. The loan bore interest at the annual rate of
prime plus 2.5% payable quarterly and was secured by all of
the Company's assets. Thermwood replaced this loan, as of
September 25, 1992, with a term loan in the amount of
$1,500,000 from the Dale Bank, also secured by all of the
Company's assets. The principal of the term loan, together
with interest at the annual rate of prime plus 2.75%, was
due on March 24, 1993, at which time it was assumed by Mr.
Mulzer, who had agreed to collect interest only, payable
quarterly, until August 1, 1994, at which time amortization
was to have begun. Interest expense incurred on these loans
totaled $41,117 and $127,000 for the 1994 and 1993 fiscal
years, respectively. The balance of the loan from Mr.
Mulzer in the amount of $1,499,800, including accrued
interest of $23,011, was converted to Series A Preferred
Stock on November 18, 1993. See "Conversion by Affiliated
Party of Debt to Preferred Stock" below.
Other Loans from Affiliated Party
The Company borrowed $250,000 from Mr. Mulzer under a
self amortizing 10.5% five-year term loan, payable in
monthly installments of principal and interest of $5,373
through March 1996. On November 18, 1993, the balance of
the loan in the amount of $169,218, including accrued
interest of $13,971, was converted to Series A Preferred
Stock. Interest expense on this loan was $9,256 in 1994.
See "Conversion by Affiliated Party of Debt to Preferred
Stock" below.
Sale and Lease Back of Company's Facilities with Affiliated
Party
In February 1987 the Company purchased its premises from an
independent third party for $1,000,636 and simultaneously
resold them to Mr. Mulzer for $1,800,000. At the same time
the Company leased the premises back from Mr. Mulzer for a
20 year period at a monthly rental of $19,353 or
approximately $232,000 on an annual basis. Total lease
payments and accrued interest were $138,579 for the 1994
fiscal year and $154,829 for the 1993 fiscal year.
The lease agreement, which is treated as a capitalized lease
for financial reporting purposes, also obligates the Company
to pay all maintenance, taxes, assessments, insurance
premiums and utilities incurred in connection with the
operation of the premises. Pursuant to a related agreement,
the Company has an option to repurchase the premises from
Mr. Mulzer, exercisable through 2006 at prices descending on
an annual basis from $1,786,781 in 1987 to $240,000 in the
last year. See "Business; Property and Facilities."
On November 18, 1993, the entire lease payment obligation in
the amount of $1,608,629. together with accrued interest of
$122,491, was converted to Preferred Stock. Upon the
issuance of the Preferred Stock, all requirements for future
lease payments ceased, the liability therefor having been
converted into Preferred Stock. See "Conversion by
Affiliated Party of Debt to Preferred Stock" below.
CONVERSION BY AFFILIATED PARTY OF DEBT TO PREFERRED STOCK
As previously noted, an aggregate of $3,437,120 owed by the
Company to Mr. Mulzer under various loan and lease
agreements was converted by him to an aggregate of 1,000,000
shares of Series A Preferred Stock on November 18, 1993.
The Company paid Mr. Mulzer dividends on his Preferred Stock
in the amount of $204,944 during the 1994 fiscal year. See
"Description of Securities; Preferred Stock" for information
relating to the rights of the Series A Preferred
Stockholders.
EQUIPMENT LEASES WITH AFFILIATED PARTY
Thermwood has entered into agreements with a company owned
by Mr. Mulzer pursuant to which it has leased certain
computer, demonstration and manufacturing equipment with a
right to purchase this equipment at the end of the term of
each agreement for nominal consideration. Lease payments
under these agreements were $89,442 for the 1994 fiscal year
and $70,748 for the 1993 fiscal year. These leases will
terminate in the 1996 fiscal year. See "Business; Property
and Facilities."
PRODUCT SALES THROUGH AND LEASE AGREEMENT WITH AFFILIATED DEALER
Mr. and Mrs. Susnjara are the owners of Automation
Associates Incorporated ("AAI"), a dealer of the Company's
industrial products. The agreement between the Company and
AAI contains the same terms and conditions as do the
Company's agreements with its other dealers. The Company
paid AAI $310,000 in commissions during the 1994 fiscal year
for assisting in effecting approximately $1,600,000 in
sales. This amount represents approximately 15% of the
Company's gross sales for the 1994 fiscal year. The Company
paid AAI $301,000 in commissions during the 1993 fiscal
year.
AAI also leases space from the Company at what management
believes is fair market value. Rental payments were $7,200
during the 1994 fiscal year.
PAYMENT OF LEGAL FEES TO AFFILIATED PARTY
Lalos and Keegan, a law firm in which Mr. Lalos is the
senior partner, accrued fees of $102,000 and $77,000 for the
fiscal years ended 1994 and 1993, respectively. During the
1994 fiscal year the Company paid this firm an aggregate of
$53,000, all of which represented previously accrued fees.
Accordingly, as of July 31, 1994, the Company owed Lalos and
Keegan approximately $69,000, all of which had been paid
as of May 31, 1995. This firm performs patent, trademark,
general corporate and litigation services for the Company.
FAIRNESS OF TRANSACTIONS WITH AFFILIATED PARTIES
Management believes that the terms of the transactions
between the Company and its affiliated parties as described
in this section are as fair as those which the Company would
have obtained if these transactions had been effected with
independent third parties. Each transaction was approved by
a majority of the disinterested directors. In the future,
all such transactions will continue to be approved by a
majority of the disinterested directors.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of the
date hereof with respect to the beneficial ownership of
shares of Common Stock as of the date hereof, and as
adjusted to reflect this offering, by (i) each person known
by the Company to be the beneficial owner of more than 5% of
such shares of Common Stock; (ii) each director; (iii) each
Selling Stockholder; and (iv) all officers and directors as
a group.
<TABLE>
<CAPTION>
Name and Number Number
Address of Shares of Shares
(where applicable) Owned Percentage Number Owned Percentage
of Beneficial Before Before of Shares After After
Owner (1) Offering Offering (2) Offered Offering Offering (2)
- ------------------ -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Kenneth J. Susnjara
(3) (4) (5) 2,080,000(6) 35.4(6) 25,000(7) 2,055,000(6) 35.0 (6)
Peter N. Lalos (8) 135,000(9) 2.6(9) 10,000(7) 125,000(9) 2.4 (9)
13412
Darnestown Road
Gaithersburg,
Maryland 20878
Edgar Mulzer 990,562(10) 19.1 (10) 0 990,562(10) 19.1(10)
401 10th Street
Tell City, Indiana 47586
Linda S. Susnjara
(3) (4) (11) 50,000(12) 1.0(12) 0 50,000(12) 1.0 (12)
Lee Ray Olinger 0 0 0 0 0
c/o First Bank of
Huntingburg
4th & Main Street
Huntingburg, Indiana 47542
Barry W. Blank 75,000 1.50 75,000 0 0
Richard Maser 25,000 (13) 25,000 0 0
Violet Blank 12,500 (13) 12,500 0 0
Robert Hennig 12,500 (13) 12,500 0 0
Jacob Shaphren and
Helen Shaphren 5,000 (13) 5,000 0 0
Henry A. Solomon and
Carol Solomon, Trustee
FBO H. A. Solomon
Pension Plan 5,000 (13) 5,000 0 0
Edgar J. Huffman 2,500 (13) 2,500 0 0
All officers and
directors as a group
(9 persons) (15) 3,420,562 56.2 35,000 3,385,562 55.6
</TABLE>
(1) Unless otherwise noted, all shares are beneficially
owned and the sole voting and investment power is held by
the person indicated.
(2) Except as otherwise indicated in the footnotes below,
does not include (i) an aggregate of 3,105,000 shares of
Common Stock reserved for issuance upon conversion of the
Debentures and exercise of the Redeemable Warrants; (ii)
400,000 shares reserved for issuance under the Company's
Qualified Stock Option Plan of which options to purchase
175,000 shares have been granted and are currently
exercisable; (iii) 350,000 shares reserved for issuance
under the Company's Non-Qualified Stock Option Plan of which
options to purchase 200,000 shares have been granted and are
currently exercisable; (iv) 600,000 shares reserved for
issuance upon exercise of options granted to Mr. Susnjara,
all of which are currently exercisable; (v) 30,000 shares
reserved for issuance upon exercise of options granted to
the law firm of Lalos and Keegan, all of which are currently
exercisable; and (vi) 30,000 shares reserved for issuance
upon exercise of options granted to an employee, all of
which are currently exercisable. See "Management; Stock
Options" and "Certain Transactions."
(3) The address of this person is c/o the Company.
(4) Mr. and Mrs. Susnjara may each be deemed to be a
beneficial owner of the Company's securities owned by the
other because of their marital relationship. Accordingly,
Mrs. Susnjara may be deemed a Selling Stockholder to the
extent of the shares being offered hereunder by Mr.
Susnjara.
(5) Mr. Susnjara has been the Company's President, Chief
Executive Officer and Chairman of the Board of Directors for
more than the past three years. He has also been an owner
of a distributor of the Company's products for more than the
past three years. See "Business; Marketing," "Management"
and "Certain Transactions."
(6) Includes (i) 50,000 shares issuable upon conversion
of Debentures and 25,000 shares issuable upon exercise of
Redeemable Warrants; (ii) 50,000 shares issuable upon the
exercise of options granted to Mr. Susnjara under the
Company's Non-Qualified Stock Option Plan; and (iii) 600,000
shares issuable upon the exercise of other options granted
to him. The figures in the table, as they relate to Mr.
Susnjara, give effect to the exercise of these options as
of the date hereof and upon completion of this offering.
(7) These shares will not be sold except in compliance with
the provisions of Section 16 (b) of the Exchange Act.
(8) Mr. Lalos has been a director of the Company and his
firm has acted as general counsel to the Company for more
than the past three years. See "Management" and "Certain
Transactions."
(9) Includes (i) 20,000 shares issuable upon conversion
of Debentures and 10.000 shares issuable upon exercise of
Redeemable Warrants; (ii) 50,000 shares issuable upon the
exercise of options granted to Mr. Lalos under the Company's
Non-Qualified Stock Option Plan; (i) 10,000 shares issuable
upon exercise of Redeemable Warrants owned by Mr. Lalos; and
(iv) 30,000 shares issuable upon exercise of options granted
to the law firm of Lalos and Keegan. The figures in the
table, as they relate to Mr. Lalos, give effect to the
exercise of these options and Warrants as of the date hereof
and upon completion of this offering.
(10) Includes 50,000 shares issuable upon the exercise of
options granted to Mr. Mulzer under the Company's Non-
Qualified Stock Option Plan. The figures in the table, as
they relate to Mr. Mulzer, give effect to the exercise of
these options as of the date hereof and upon completion of
this offering.
(11) Mrs. Susnjara has been a director of the Company and an
owner of a distributor of the Company's products for more
than the past three years. See "Business; Marketing,"
"Management" and "Certain Transactions."
(12) Includes 50,000 shares issuable upon the exercise of
options granted to Mrs. Susnjara under the Company's Non-
Qualified Stock Option Plan. The figures in the table, as
they relate to Mrs. Susnjara, give effect to the exercise of
these options as of the date hereof and upon completion of
this offering.
(13) Less than 1%.
(14) Includes an aggregate of 830,000 issuable upon the
exercise of options granted to the Company's officers and
directors and an aggregate of 105,000 shares issuable upon
the conversion of Debentures and the exercise of Redeemable
Warrants owned by Messrs. Susnjara and Lalos. The figures
in the table, as they relate to the Company's officers and
directors as a group, give effect to the conversion of the
Notes by Messrs. Susnjara and Lalos and the exercise of
these options as of the date hereof and the sale of the Unit
and Underlying Shares and exercise of the options upon
completion of this offering.
Mr. Susnjara may be deemed a "parent" of the Company as that
term is defined under the Securities Act and the rules and
regulations promulgated thereunder because of his position
as Chief Executive Officer and the percentage of his
ownership of the Company's Common Stock.
PLAN OF DISTRIBUTION
The Common Stock covered by this Prospectus may be sold from
time to time directly by the Selling Stockholders.
Alternatively, the Selling Stockholders may from time to
time offer the Common Stock for sale through underwriters,
dealers or agents, which persons may be deemed underwriters
under the Securities Act, The Distribution of the Common
Stock by the Selling Stockholders may be effected from time
to time in one or more transactions that may take place on
the American Stock Exchange , including ordinary broker's
transactions, privately negotiated transactions or through
sales to one or more broker/dealers for resale of such
securities as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be
sold by such Selling Stockholders in connection with such
sales.
The Company will pay the registration expenses incident to
the sale of the Common Stock by the Selling Stockholders to
the public. Such expenses include legal and accounting
expenses, filing fees payable to the Commission and
applicable securities regulatory filing fees, and printing
expenses. The Company, however, will not pay for any
expenses, commissions or discounts of underwriters, dealers
or agents or the fees and expenses of counsel for the
Selling Stockholders.
DESCRIPTION OF DEBENTURES
General
The Debentures have been issued under an indenture (the
"Indenture") which is dated as of February 3, 1993, between
the Company and the American Stock Transfer and Trust
Company (the "Trustee"). A copy of the Indenture is filed
as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Available Information." Neither
the Indenture, the Trustee nor the Debentures are subject to
the provisions of the Trust Indenture Act of 1939.
Accordingly, Debenture holders do not have the protections
of that Act available to them. The following summaries of
what management believes are all of the material provisions
of the Indenture do not purport to be complete and are
subject to and qualified in their entirety by reference to
all of the provisions of the Indenture, including the
definitions therein of certain terms. Whenever particular
provisions or defined terms of the Indenture are referred
to, such provisions or defined terms are incorporated herein
by reference. Parenthetical references set forth in this
section are to sections in the Indenture or to paragraphs in
the Form of Debenture which is appended to the Indenture as
Exhibit A.
The Debentures are (i) limited to $2,070,000 aggregate
principal amount (Debenture paragraph 4); (ii) unsecured
subordinated obligations of the Company (Debenture paragraph
4); (iii) mature on February 25, 2003 (Face of Debenture);
and (iv) bear interest at the rate per annum set forth on
the cover page of this Prospectus, payable quarterly on
January 1, April 1, July 1 and October 1 each year, to the
holders of record, with certain exceptions, at the close of
business on the 15th day of the month preceding the payment
date (Debenture paragraphs 1 and 2). Principal (and
premium, if any) and interest are payable and the Debentures
are exchangeable and convertible and transfers thereof are
registrable at the offices or agencies of the Company
maintained for such purposes in the Borough of Manhattan,
City and State of New York, initially to American Stock
Transfer and Trust Company, 40 Wall Street, New York, New
York 10005, provided that payment of interest may be made at
the option of the Company by check mailed to the address of
the person entitled thereto as it appears in the Debenture
register. (Debenture paragraphs 2 and 3)
The Debentures are issued only in fully registered form in
denominations of $1,000 or an integral multiple thereof.
The Debentures are exchangeable and transfers thereof are
registrable without charge therefor, but the Company may
require payment of a sum sufficient to cover tax or other
governmental charge payable in connection therewith.
(Debenture paragraph 9)
CONVERSION
The holders of the Debentures are entitled at any time and
from time to time up to the close of business on February
25, 2003, subject to prior redemption, to convert the
Debentures or portions thereof (which are $1,000 or integral
multiples thereof) into shares of the Company's Common Stock
at an initial conversion price, which is subject to
adjustment in certain circumstances as set forth below, of
$1.00 per share. (Article X; Section 10.01) No adjustment
will be made on conversion of any Debenture for interest
accrued thereon or for dividends on any Common Stock issued
other than dividends payable in Common Stock or Convertible
Securities (as defined in the Indenture). (Article X;
Section 10.02) The Company is not required to issue
fractional interests in the Common Stock upon conversion of
the Debentures and, in lieu thereof, will round any
fractional share to the nearest share. (Article X; Section
10.03) In the case of Debentures called for redemption,
conversion rights will expire at the close of business on
the business day prior to the redemption date. (Article X;
Section 10.01)
The conversion price is subject to downward adjustment in
the event that the Company issues shares of Common Stock
(including shares issuable pursuant to a stock dividend) and
the per share consideration received by the Company upon
issuance of the Common Stock is less than the current
conversion price. (Article X; Section 10.05) In case of a
stock split or reverse stock split, the current conversion
price shall be proportionately decreased or increased.
(Article X; Section 10.05) No adjustment in the current
conversion price will be required unless such adjustment
would require a change of at least 10% of the conversion
price; provided, however, that any adjustment that would
otherwise be required to be paid shall be carried forward
and taken into account in any subsequent adjustment.
(Article X; Section 10.10)
In the event of a merger or consolidation of the Company
with another corporation, a capital reorganization or
reclassification of the Company's capital stock, or sale of
all or substantially all of the Company's assets that is
effected in such a way that holders of the Common Stock are
entitled to receive stock, securities or assets (including,
without limitation, cash) with respect to or in exchange for
Common Stock, then the holders of the outstanding Debentures
shall from such point onward have the right thereafter to
convert each such Debenture into the kind and amount of
stock, securities or assets received by a holder of the
number of shares of Common Stock into which such Debentures
might have been converted immediately prior to such
transaction. (Article X; Section 10.17) There does not
appear to be any established meaning of the phrase
"substantially all" under the Indiana Business Corporation
Law. Accordingly, it is uncertain whether the Debenture
conversion right will be adjusted in the event of a sale of
less then all of the Company's assets under the
circumstances noted above.
It should be noted that, in the event of such a transaction,
no subsequent adjustment of the current conversion price is
required. Thus, for example, if the Company were to engage
in a merger in which Common Stock holders received cash in
an amount less than the then current conversion price,
exercise of the conversion right would result in the
Debenture holder receiving less than the principal amount of
such Debenture.
In the event of a taxable distribution to Common Stock
holders which results in an adjustment of the conversion
price, the Debenture holders may, in certain circumstances,
be deemed to have received a distribution subject to federal
income tax as a dividend.
The shares of Common Stock, when issued upon the conversion
of the Debentures in accordance with the terms thereof, will
be fully paid and non-assessable.
SUBORDINATION OF DEBENTURES
The payment of the principal of (and premiums, if any) and
interest on the Debentures are subordinated in right of
payment to the extent set forth in the Indenture to the
prior payment in full of the principal of (and premiums, if
any) and interest on all Senior Debt of the Company.
(Article XI; Section 11.01) Senior Debt is defined to
include indebtedness for money borrowed outstanding on the
day of execution of the Indenture or thereafter, created for
money borrowed from banks, or other traditional long-term
institutional lenders such as insurance companies and
pension funds, unless in the instrument creating or
evidencing such indebtedness it is provided that such Debt
is not senior in right of payment to the Debentures.
(Article XI; Section 11.02 (c)) At May 31, 1995, the
Company had no Senior Debt. The Company may from time to
time to make borrowings which will constitute Senior Debt.
The Company is not limited in the amount of additional
indebtedness, including Senior Debt, which it can create,
incur, assume or guarantee. Accordingly, the Debenture
holders are not protected against highly leveraged or other
transactions involving the Company that may adversely affect
them.
Upon any payment or distribution of the Company's assets to
creditors on any dissolution, winding up, total or partial
liquidation, reorganization or readjustment of the Company,
whether voluntary or involuntary, or bankruptcy, insolvency,
receivership or other proceedings all principal of (and
premiums, if any) and interest due upon all Senior Debt must
be paid in full before the Debenture holders or the Trustee
are entitled to receive or retain any assets so paid or
distributed in respect of the Debentures. (Article XI;
Section 11.03)
COVENANTS
The Company may not declare or pay any cash dividends, make
any cash distribution to stockholders, or purchase, redeem
or otherwise acquire or retire for value any shares of its
capital stock or warrants or rights to acquire such stock
if, at the time of such declaration, payment, distribution,
purchase, redemption, other acquisition or retirement, an
Event of Default shall have occurred and is continuing.
(Article IV; Section 4.04) The Company may not (i) sell or
lease any property or render any service to, make any
investment in, purchase any property or borrow any money
from, or make any payment for any service rendered by an
Affiliate unless the Board of Directors determines in good
faith that the terms of such transaction are at least as
favorable to the Company as those which could be obtained in
a similar transaction with an independent third party; (ii)
make any payment to any of its officers, directors or
employees, or agreement to do so, unless the Board of
Directors determines in good faith that the amount to be
paid, or to be agreed to be paid, for such service bears a
reasonable relationship to the value of such services to the
Company; or (iii) make any sale to an Affiliate of any
capital stock or other securities or obligations of an
Affiliate at a cash sale price less than the original cost
thereof to the Company or such Affiliate, as the same may
have been reduced from time to time by cash dividends or
interest payments thereon or payments of principal thereof
received by the Company or such Affiliate plus interest on
such investment, as the same may have been reduced from time
to time at a rate not less than the rate borne by the
Debentures, but in no event less than current fair market
value. (Article IV; Section 4.05)
The Company is required to file with the Trustee copies of
the reports it files with the Commission. (Article IV;
Section 4.02) It is also required to deliver to the
Trustee, within 120 days after the end of each fiscal year,
an Officers' Certificate stating whether or not the signers
know of any Default that occurred during the fiscal year.
If they do, the Certificate shall describe the Default and
its status. (Article IV; Section 4.03)
REDEMPTION
The Company may, on 30 days prior written notice, with the
approval of the Underwriter, redeem the Debentures, in whole
or in part, if the closing price of the Common Stock for the
immediately preceding 30 consecutive trading days equals or
exceeds $2.50 per share. The redemption price will be 105%
plus accrued interest through the date of redemption.
(Article III)
MODIFICATION OF THE INDENTURE
With the consent of the holders of not less than 662/3% in
principal amount of outstanding Debentures, the Company and
the Trustee may enter into an indenture or indentures
supplemental to the Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any
provisions of the Indenture or modifying in any manner the
rights of the Debenture holders under the Indenture,
provided that no such supplemental indenture shall, without
the consent of the Debenture holders affected (a) reduce the
rate of, or change the time of payment of, interest on any
Debenture; (b) reduce the principal (or premium on), or
change the fixed maturity of any Debenture; (c) impair the
right to institute suit for the enforcement of any such
payment when due; (d) reduce the above stated percentage of
outstanding Debentures; or (e) alter the provisions of the
Indenture so as to adversely affect the terms of conversion
of the Debentures into Common Stock or the subordination of
the Debentures to Senior Debt. (Article IX; Section 9.02)
EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of Default are defined in the Indenture as being (a)
a default for 45 days in payment of any interest installment
when due, and default in payment of principal (or premium,
if any) when due; (b) a default for 60 days after written
notice to the Company by the Trustee or by the holders of
25% in principal amount of the outstanding Debentures in the
performance of any other covenant of the Company in the
Indenture; and (c) certain events of bankruptcy, insolvency
and reorganization of the Company. (Article VI; Section
6.01) If an Event of Default shall occur and be continuing,
either the Trustee or the holders of 25% in principal amount
of the outstanding Debentures may declare the principal of
all of the Debentures to be due and payable. (Article VI;
Section 6.02)
The holders of a majority in principal amount of the
outstanding Debentures may direct the time, method and place
of conducting any proceeding for any remedy available to the
Trustee, or exercising any power of trust conferred on the
Trustee. (Article VI; Section 6.05) The right of a
Debenture holder to institute a proceeding with respect to
the Indenture is subject to certain conditions precedent,
including the provision of notice and indemnification for
the Trustee. (Article VI; Section 6.06) The holders of a
majority in principal amount of the outstanding Debentures
may, on behalf of the Debenture holders, waive any past
default and its consequences under the Indenture, except a
default in the payment of the principal of (or premium, if
any) or interest on any Debenture or a default in respect of
the conversion right of Debenture holders. (Article VI;
Section 6.05)
CONCERNING THE TRUSTEE
American Stock Transfer and Trust Company is the Trustee
under the Indenture. The Trustee is the transfer agent and
registrar for the Common Stock and the Warrant Agent for the
Redeemable Warrants. See "Description of Securities;
Transfer Agent, Registrar and Warrant Agent."
DESCRIPTION OF SECURITIES
The following statements are brief summaries of certain
provisions of the Company's Articles of Incorporation, By-
Laws and other documents. These summaries are qualified in
their entirety by reference to documents filed as exhibits to
the Registration Statement.
COMMON STOCK
Description of General Terms
The Company is authorized to issue 20,000,000 shares of
Common Stock, no par value, of which 5,149,546 shares are
currently issued and outstanding. Holders of Common Stock
are entitled to receive dividends when, as and if declared by
the Board of Directors out of funds legally available
therefor. See "Price Range of Common Stock and Dividend
Policy." They have no preemptive or other rights to
subscribe for additional shares and the Common Stock has no
redemption, sinking fund or conversion provisions. Each
share of Common Stock is entitled to one vote on any matter
submitted to the holders thereof and to equal rights in the
assets of the Company upon liquidation subject to the prior
rights on liquidation of creditors and any Preferred Stock
holders. The outstanding shares of Common Stock are fully
paid and non-assessable.
The shares of Common Stock have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of Directors can elect all of the
Directors of the Company. In such event, the holders of the
remaining shares will not be able to elect any of the
Directors. If all of the Shares offered hereby are sold, the
Company's officers and directors will own approximately 29%
of the outstanding Common Stock.
Reserved Shares
The Company has reserved up to (i) 3,105,000 shares of Common
Stock for issuance upon conversion of the Debentures and
exercise of the Redeemable Warrants; (ii) 400,000 shares for
issuance under the Qualified Stock Option Plan of which
options to purchase 175,000 shares have been granted and ^
are currently exercisable; (iii) 350,000 shares for issuance
under the Non-Qualified Stock Option Plan of which options to
purchase 200,000 shares have been granted and are currently
exercisable; (iv) 600,000 shares for issuance upon exercise
of options granted to Mr. Susnjara, all of which are
currently exercisable; (v) 30,000 shares reserved for
issuance upon exercise of options granted to Lalos and
Keegan, all of which are currently exercisable; and (vi)
30,000 shares reserved for issuance upon exercise of options
granted to an employee, all of which are currently
exercisable. See "Management; Stock Options," "Principal and
Selling Stockholders," "Certain Transactions," and
"Description of Debentures; Conversion."
REDEEMABLE WARRANTS
The Redeemable Warrants have been issued in registered form
under, governed by, and subject to the terms of a warrant
agreement (the "Warrant Agreement") between the Company and
American Stock Transfer and Trust Company, as warrant agent
(the "Warrant Agent"). The following statements are brief
summaries of what management believes are all of the material
provisions of the Warrant Agreement and are subject to the
detailed provisions thereof, to which reference is made for a
complete statement of such provisions. Copies of the Warrant
Agreement may be obtained from the Company or the Warrant
Agent and have been filed with the Commission as an exhibit
to the Registration Statement. See "Available Information."
The are currently outstanding 1,035,000 Redeemable Warrants
to purchase an aggregate of 1,035,000 shares of Common Stock.
The Company has reserved an equivalent number shares of
Common Stock for issuance upon exercise of the Warrants.
Each Warrant entitles the registered holder thereof to
purchase, at any time through February 21, 1996, one share of
Common Stock at a price of $3.00 per share. The Warrant
exercise price and the number of shares issuable upon
exercise of the Redeemable Warrants are subject to adjustment
as described below
The Redeemable Warrants are subject to redemption by the
Company, with the consent of the Underwriter, on 30 days
notice at $0.05 per Redeemable Warrant when the closing bid
price of the Common Stock equals or exceeds 150% of the then
Warrant exercise price for 20 consecutive trading days
ending three days prior to the mailing of the notice of
redemption. Warrant holders have the right to exercise their
Warrants until the close of business on the date fixed for
redemption. If any of the Redeemable Warrants are redeemed,
then all of such Warrants remaining unexercised at the end of
the redemption period must be redeemed.
The Redeemable Warrants contain provisions that protect the
holders thereof against dilution by adjustment of the
exercise price and the number of shares issuable upon
exercise in certain events including, but not limited to,
stock dividends, stock splits, reclassifications, mergers, or
a sale of substantially all of the Company's assets. The
Company does not intend to issue fractional shares of Common
Stock, but will round any fractional share to the nearest
share. A Warrant holder does not possess any rights as a
stockholder of the Company. The shares of Common Stock, when
issued upon the exercise of the Redeemable Warrants in
accordance with the terms thereof, will be fully paid and non-
assessable.
Redeemable Warrants are exchangeable and transferable on the
books of the Company at the principal office of the Warrant
Agent. Each Redeemable Warrant may be exercised upon
surrender of a Warrant certificate on or prior to the close
of business on February 21, 1996 (or earlier redemption date
thereof) after which the Redeemable Warrants become wholly
void and of no value, at the offices of the Warrant Agent
with the form of "Election to Purchase" on the reverse side
of the Warrant certificate completed and executed as
indicated, accompanied by payment of the full exercise price
(by cash, or by bank check, certified check or money order
payable to the order of the Warrant Agent) for the number of
Redeemable Warrants being exercised.
Upon receipt of duly exercised Redeemable Warrants and
payment of the exercise price, the Company shall issue and
cause to be delivered to, or upon the written order of, the
exercising Warrant holder, certificates representing the
number of shares of Common Stock so purchased. If less than
all of the Redeemable Warrants evidenced by a Warrant
certificate are exercised, a new Warrant certificate
representing the remaining number of Redeemable Warrants will
be issued to the Warrant holder by the Warrant Agent. No
amendment adversely affecting the rights of the holders of
the Redeemable Warrants may be made without the approval of
the holders of a majority of the then outstanding Redeemable
Warrants.
LISTING OF DEBENTURES AND WARRANTS
The Debentures and Redeemable Warrants are listed for trading
on the Pacific Stock Exchange. The symbol for the Debentures
is THM.D and the symbol for the Warrants is THMWS.
PREFERRED STOCK
The Company is authorized to issue an aggregate of 2,000,000
shares of non-voting Preferred Stock, no par value. There
are currently 1,000,000 shares of Series A Preferred Stock
outstanding. The Preferred Stock may be issued in series
from time to time with such designations, rights,
preferences and limitations, including but not limited to
dividend rates and conversion features, as the Board of
Directors may determine. Accordingly, Preferred Stock may
be issued having dividend and liquidation preferences over
the Common Stock without the consent of the Common Stock
holders. In addition, the ability of the Board to issue
Preferred Stock also could be used by the Company as a means
of resisting a change of control of the Company and,
therefore, could be considered an "anti-takeover" device.
The Company's Board of Directors has no current plans to
issue any Preferred Stock.
Series A Preferred Stock
Holders of the Series A Preferred Stock are entitled to
receive cumulative cash dividends out of the net profits of
the Company at the rate of $0.34 per share per annum,
payable monthly in equal installments within the first 15
days of each month for the preceding month when and as
declared by the Board of Directors. The Company has the
right, in its sole discretion, to redeem the Stock, or any
portion thereof, at any time at the rate of $3.40 per share.
Series A Preferred Stockholders have a preference over the
Common Stockholders on liquidation of the Company to the
extent of $3.40 per share plus any then accrued dividends.
CORPORATE LAW ANTI TAKEOVER PROVISIONS
Chapter 43 of the Indiana Business Corporation Law ("Chapter
43") is intended to discourage abusive hostile tender offers
for control of an Indiana corporation. Because the
Company's Common Stock is registered under Section 12 of the
Exchange Act, the Company is subject to Chapter 43.
Chapter 43 provides that an Indiana corporation may not
engage in any of a broad range of business combinations with
a person, or affiliate of such person, who is an "interested
shareholder" for a period of five years from the date that
such person became an interested shareholder and that such
transactions must satisfy certain other criteria, unless the
transaction resulting in a person becoming an interested
shareholder, or the business combination, is approved by the
board of directors of the corporation before the person
becomes an interested shareholder. Under Chapter 43, an
"interested shareholder" is defined as any person that is
(i) the owner of 10% or more of the outstanding voting stock
of the corporation; or (ii) an affiliate or associate of the
corporation who was the owner, directly or indirectly, of
10% or more of the outstanding voting stock of the
corporation at any time within the five-year period
immediately prior to the date on which it is sought to be
determined whether such person is an interested shareholder.
Chapter 43 is not applicable to transactions involving
shareholders who became interested shareholders prior to
1986, when this law became effective.
A corporation may, at its option, exclude itself from the
coverage of Chapter 43 by amending its certificate of
incorporation by action of a majority of its stockholders
unaffiliated with the interested shareholder to exempt the
corporation from coverage, provided that such charter
amendment shall not become effective until 18 months after
the date that it is adopted. The Company has not adopted
such a charter amendment.
The foregoing provisions could discourage or make more
difficult a merger or other type of corporate
reorganization, whether or not such transactions are favored
by management, even if they could be favorable to the
interests of the stockholders.
Transfer Agent, Registrar and Warrant Agent
The transfer agent and registrar for the Common Stock ^ and
Redeemable Warrants and the Warrant Agent for the Redeemable
Warrants is American Stock Transfer and Trust Company, 40
Wall Street, New York, New York 10005.
REQUIREMENT FOR CURRENT REGISTRATION
The Company is required to have a current registration
statement on file with the Commission and to effect
appropriate qualifications, except where exemptions
therefrom are available, under the laws and regulations of
the states in which the holders of the Debentures and the
Redeemable Warrants reside in order to comply with
applicable laws in connection with the conversion of the
Debentures and exercise of the Redeemable Warrants and the
resale of the Common Stock issued upon such conversion or
exercise or the redemption of the Debentures or Redeemable
Warrants. The Company, therefore, is required to file post
effective amendments to its Registration Statement when
subsequent events require such amendments in order to
continue the registration of the Common Stock underlying the
Debentures and the Redeemable Warrants and to take
appropriate action under state securities laws. There can
be no assurance that the Company will be able to keep its
Registration Statement current or to effect appropriate
action under applicable state securities laws, the failure
of which may cause the conversion of the Debentures and
exercise of the Redeemable Warrants and resale or other
disposition of the underlying Common Stock to be effected
under circumstances which do not comply with applicable
securities laws. See "Risk Factors; Current Prospectus and
State Securities Law Qualification Required to Convert the
Debentures and Exercise the Redeemable Warrants."
LEGAL PROCEEDINGS
On or about March 24, 1992, a civil action entitled The
Karges Furniture Company, Inc. v. Thermwood Corporation,
Cause No. 82-C01-9203-CP-109 was filed in the Circuit Court
for Vanderburgh County, Indiana seeking a judgment against
the Company for recission of a certain contract for the sale
of a machine sold in 1988 and in use since then. On or
about October 7, 1993, the action was withdrawn.
LEGAL MATTERS
The legality of the securities offered hereby will be passed
upon for the Company by Barry B. Feiner, P.C., 745 Fifth
Avenue, New York, New York 10151-0008.
EXPERTS
The financial statements of Thermwood Corporation as of July
31, 1994 and 1993, and for the years then ended, have been
included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm
as experts in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Balance Sheets F-3
Statements of Operations F-5
Statements of Shareholders' Equity (Deficit) F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-10
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Thermwood Corporation:
We have audited the accompanying balance sheets of Thermwood
Corporation as of July 31, 1994 and 1993, and the related
statements of operations, shareholders' equity (deficit),
and cash flows for the years then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Thermwood Corporation as of July 31, 1994 and
1993, and the results of its operations and its cash flows
for the years then ended in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Indianapolis, Indiana
September 23, 1994
<TABLE>
THERMWOOD CORPORATION
BALANCE SHEETS
<CAPTION>
April 30 July 31
1995 1994 1993
(Unaudited)
Assets
Current Assets
<S> <C> <C> <C>
Cash $ 152,540 $ 9,707 $ 26,034
Accounts receivable,
less allowances
for doubtful accounts
($55,831 at April 30,
1995, $25,000 at July 31,
1994, and $31,500 at
July 31, 1993) 1,306,783 681,347 1,310,826
Inventories 3,309,603 2,844,057 2,838,317
Prepaid expenses 204,420 271,383 298,999
Net assets of discontinued
operations 0 0 18,040
--------- --------- ---------
Total Current Assets 4,973,346 3,806,494 4,492,216
--------- --------- ---------
Property and Equipment
Land 73,260 73,260 73,260
Buildings and improvements 1,151,101 1,151,101 1,809,602
Furniture and equipment 1,973,665 1,874,508 1,829,184
Less accumulated depreciation
and amortization (1,867,994) (1,688,593) (1,486,370)
----------- ----------- -----------
Net Property and Equipment 1,330,032 1,410,276 2,225,676
----------- ----------- -----------
Other Assets
Patents, trademarks and other 98,756 99,139 94,638
Bond issuance costs less
accumulated amortization 91,637 101,656 115,015
----------- ---------- ----------
Total Other Assets 190,393 200,795 209,653
----------- ---------- ----------
Total Assets $6,493,771 $5,417,565 $6,927,545
=========== =========== ===========
</TABLE>
<TABLE>
THERMWOOD CORPORATION
BALANCE SHEETS (CONTINUED)
<CAPTION>
April 30 July 31
1995 1994 1993
(Unaudited)
Liabilities and
Shareholders' Equity (Deficit)
Current Liabilities
<S> <C> <C> <C>
Accounts payable $ 961,459 $ 928,834 $1,465,605
Accrued compensation and
payroll taxes 317,900 257,812 139,985
Customer deposits 940,907 369,205 466,095
Accrued interest -
related party 0 0 101,303
Other accrued liabilities 364,727 473,560 779,013
Current portions of:
Capital lease obligations 11,212 13,718 21,630
Capital lease obligations -
related party 41,148 57,097 121,289
Notes payable - related party 0 0 74,878
Deferred gain - related party 0 0 31,294
--------- --------- ----------
Total Current Liabilities 2,637,353 2,100,226 3,201,092
--------- --------- ----------
Long-Term Liabilities,
Less Current Portion
Capital lease obligations 23,172 1,211 14,929
Capital lease obligations -
related party 0 26,148 1,638,981
Deferred gain - related party 0 0 638,932
Bonds payable, net of unamortized
discount of $225,082 at
April 30, 1995, $235,618
for 1994, and $249,649
for 1993 1,844,918 1,834,382 1,820,351
Notes payable - related party 0 0 1,597,999
--------- --------- ---------
Total Long-Term Liabilities 1,868,090 1,861,741 5,711,192
--------- --------- ---------
Shareholders' Equity (Deficit)
Preferred stock, no par value,
2,000,000 shares authorized,
1,000,000 issued and
outstanding 3,437,120 3,437,120 0
Common stock, no par value,
20,000,000 shares authorized,
5,149,546 shares issued
and outstanding 8,988,897 8,988,897 8,988,897
Accumulated deficit (10,437,689) (10,970,419) (10,973,636)
------------ ------------ ------------
Total Shareholders'
Equity (Deficit) 1,988,328 1,455,598 (1,984,739)
------------ ------------ ------------
Total Liabilities and Share-
holders' Equity (Deficit) $6,493,771 $5,417,565 $6,927,545
========== ========== ==========
</TABLE>
<TABLE>
THERMWOOD CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
Nine Months Ended April 30 Years Ended July 31
1995 1994 1994 1993
(Unaudited)
<S> <C> <C> <C> <C>
Sales $9,987,304 $7,928,657 $10,932,467 $11,890,207
Less commissions 1,115,561 703,637 947,126 1,065,204
--------- ---------- ----------- -----------
Net sales 8,871,743 7,225,020 9,985,341 10,825,003
Cost of sales 5,417,245 4,798,576 6,406,800 8,652,140
--------- --------- --------- ----------
Gross profit 3,454,498 2,426,444 3,578,541 2,172,863
Research and development,
marketing, administrative
and general expenses 2,416,840 2,212,946 3,036,408 2,959,976
--------- --------- --------- ---------
Operating income
(loss) 1,037,658 213,498 542,133 (787,113)
--------- --------- --------- ----------
Other income (expense):
Interest expense -
related party (6,570) (130,723) (130,277) (378,706)
Interest expense - other (215,867) (213,524) (290,448) (215,979)
Other 14,391 11,415 14,738 (12,440)
----------- --------- --------- ----------
Net other income
(expense) (208,046) (332,832) (405,987) (607,125)
Earnings (loss) from
continuing operations,
before income taxes
and extraordinary loss 829,612 (119,334) 136,146 (1,394,238)
Income taxes 14,900 0 0 0
------- --------- ------- -----------
Earnings (loss) from
continuing operations,
before extraordinary loss 814,712 (119,334) 136,146 (1,394,238)
------- --------- ------- -----------
Discontinued operations:
Gain on sale 0 0 0 268,107
Earnings from
operations, net 0 61,778 72,015 17,074
------- --------- ------- ----------
Earnings from
discontinued operations 0 61,778 72,015 285,181
------- --------- -------- ----------
Earnings (loss) before
extraordinary loss 814,712 (57,556) 208,161 (1,109,057)
Extraordinary loss on
extinguishment of debt 0 0 0 (251,000)
-------- --------- -------- -----------
Net earnings (loss) $814,712 $(57,556) $208,161 $(1,360,057)
======== ========= ======== ============
Weighted average number of
common shares
outstanding 5,149,546 5,149,546 5,149,546 5,053,713
========= ========= ========= =========
Earnings (loss) per
common share:
Continuing operations $ 0.10 $ (0.03) $ (0.01) $ (0.28)
Discontinued operations 0.00 0.00 0.01 0.06
Extraordinary loss 0.00 0.00 0.00 (0.05)
--------- ---------- --------- ---------
$ 0.10 $ (0.03) $ 0.00 $ (0.27)
========= ========== ========= =========
</TABLE>
<TABLE>
THERMWOOD CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Preferred Stock Common Stock Accumulated
Shares Amount Shares Amount (Deficit)
-------- ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at
July 31, 1992 0 $ 0 4,862,046 $ 8,701,397 $ (9,613,579)
Issuance of common
stock in connection
with private placement 0 0 287,500 287,500 0
Net loss 0 0 0 0 ( 1,360,057)
--------- --------- --------- ----------- ------------
Balances at
July 31, 1993 0 0 5,149,546 8,988,897 (10,973,636)
Issuance of
preferred
stock 1,000,000 3,437,120 0 0 0
Preferred
dividends paid 0 0 0 0 (204,944)
Net earnings 0 0 0 0 208,161
---------- ---------- ---------- ---------- -----------
Balances at
July 31, 1994 1,000,000 3,437,120 5,149,546 8,988,897 (10,970,419)
Preferred
dividends paid 0 0 0 0 (281,982)
(Unaudited)
Net earnings
(Unaudited) 0 0 0 0 814,712
----------- ---------- ---------- ---------- -----------
Balances at
April 30, 1995
(Unaudited) 1,000,000 $3,437,120 5,149,546 $8,988,897 $(10,437,689)
=========== ========== ========= ========== =============
</TABLE>
<TABLE>
THERMWOOD CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months
Ended April 30 Years Ended July 31
1995 1994 1994 1993
Cash Flows From (Unaudited)
Operating Activities:
<S> <C> <C> <C> <C>
Net earnings (loss) $ 814,712 $ (57,556) $ 208,161 $(1,360,057)
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operating activities:
Depreciation and
amortization 234,539 226,602 292,727 263,071
Private placement discount 0 0 0 345,000
Provision for inventories 30,000 70,000 130,000 100,000
Gain on sale of
discontinued operations 0 0 0 (268,107)
(Gain) loss on disposal of
property and equipment 0 0 (17,500) 0
Changes in operating assets
and liabilities:
Accounts receivable (625,436) 161,670 629,479 (186,325)
Inventories (495,546) (199,456) (135,740) 189,723
Prepaid expenses and
other assets 62,098 107,891 47,261 (129,016)
Accounts payable and other
accrued expenses (16,121) (179,388) (724,399) 43,665
Accrued interest -
related party 0 (151,216) 0 (74,288)
Customer deposits 571,702 170,786 (96,890) (388,885)
--------- ---------- --------- -----------
Net cash provided (used) by
operating activities 575,948 149,333 333,099 (1,465,219)
--------- ---------- --------- -----------
Cash Flows From
Investing Activities:
Proceeds from sale
of equipment 0 8,053 45,985 0
Purchases of property
and equipment (96,563) (58,330) (154,753) (187,565)
Proceeds from sale of
discontinued operations 0 0 0 495,000
---------- --------- ---------- --------
Net cash provided (used)
by investing activities (96,563) (50,277) (108,768) 307,435
Cash Flows From
Financing Activities:
Principal payments on notes
payable, lease obligations
and long-term debt (54,570) (56,393) ( 86,759) ( 193,412)
Increase in related
party debt 0 51,045 51,045 0
Net proceeds of private placement 0 0 0 230,000
Payment of notes from
private placement 0 0 0 (575,000)
Net proceeds from bonds issued 0 0 0 1,720,550
Payment of dividends on
preferred stock (281,982) (117,111) (204,944) 0
----------- --------- ------------ ----------
Net cash provided (used) by
financing activities (336,552) (122,459) (240,658) 1,182,138
----------- --------- ------------ ----------
Increase (decrease) in cash 142,833 (23,403) (16,327) 24,354
Cash at beginning of period 9,707 26,034 26,034 1,680
----------- --------- ----------- ------------
Cash at end of period $ 152,540 $ 2,631 $ 9,707 $ 26,034
=========== ========= ============ ============
</TABLE>
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
The Company operates within a single business segment called
industrial automation equipment, and manufactures high
technology machining systems and industrial robots. The
Company sells its products primarily through the assistance
of dealer networks established throughout the United States.
The Company's machining systems and industrial robots are
utilized principally in the woodworking, plastics, and
boating industries.
Revenues and Warranties:
The manufacturing process may extend over several months and
advance cash deposits are normally required from customers.
Sales are recorded when machines are shipped or when billed
for inspected machines being held for future delivery at a
customer's request. Estimated costs of product warranties
are charged to cost of sales at the time of sale.
Inventories:
Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Property and Equipment:
Property and equipment are recorded at cost for assets
purchased and at the present value of minimum lease payments
for assets acquired under capital leases. Depreciation and
amortization are computed by the straight-line method over
the estimated useful lives of the assets, as shown below :
Buildings and improvements 10 to 30 years
Equipment 3 to 10 years
Depreciation expense for 1994 and 1993 was $283,566 and
$277,735, respectively.
Research and Development:
Research and development costs are expensed as incurred.
Expenditures for research and development were approximately
$244,000 and $327,000 during 1994 and 1993, respectively.
Customer Deposits:
Customer deposits are recorded as a current liability with
no offset against costs incurred on work-in-process. As of
July 31, 1994, substantially all of the deposits had no
incurred work-in-process cost.
Pension and Profit Sharing Plans:
The Company has a deferred income 401(k) savings plan for
its employees. The Company matches 25% of employee
contributions up to 3% of each employee's salary. Pension
expense for 1994 and 1993 amounted to $18,633 and $16,915,
respectively. The Company also has a management profit
sharing plan. Profit sharing expense amounted to $139,012
for 1994. There was no profit sharing expense in 1993.
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Earnings (loss) per share:
Earnings (loss) per share is based on net earnings (loss)
less preferred stock dividends and the weighted average
number of shares of common stock outstanding. Shares
contingently issuable in connection with stock options and
warrants and convertible subordinated debentures have been
excluded as their impact on the earnings (loss) per share
would not be dilutive.
Discontinued Operations:
During 1993 the Company sold its avionics equipment business
known as Digital Sky, including the related software,
technical data, patents and trademarks. Under the sale
agreement, the Company was permitted to continue to market
products of the avionics equipment business through January
1994, and thereafter may only service products which were
previously sold by the Company. In 1993 the Company
recognized a gain of $268,000 upon the sale of this segment.
The results of the avionics equipment business operations
have been reported separately in the accompanying statements
of operations as a discontinued operation.
Income Taxes:
In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109
(SFAS 109) "Accounting for Income Taxes." SFAS 109 requires
a change from the deferred method of accounting for income
taxes to an asset and liability method. Under this method,
deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement amounts for assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates which apply
to taxable income in the years in which those temporary
differences are expected to reverse. Under SFAS 109, the
effects on deferred tax assets and liabilities of a change
in tax rates is recognized in the period the change is
enacted.
Effective August 1, 1993, the Company adopted SFAS 109. The
effect of the change in accounting for income taxes is not
material to the Company's financial condition or results of
operations. Accordingly, no cumulative effect of the
accounting change has been presented.
Reclassifications:
Certain amounts presented in prior year financial statements
have been reclassified to conform to the April 30, 1995
presentation.
NOTE B -- INVENTORIES:
Inventories at July 31 consist of:
1994 1993
Finished goods $ 72,368 $ 210,881
Work-in-process 1,273,080 1,266,094
Raw Materials 1,498,609 1,361,342
-------------- -------------
$ 2,844,057 $ 2,838,317
============== =============
NOTE B -- INVENTORIES (CONTINUED):
Inventories have been reduced by approximately $330,000 and
$200,000 as of July 31, 1994 and 1993, respectively, to
reflect valuation and obsolescence adjustments.
NOTE C -- LEASES:
The Company has leased its production facilities and certain
equipment, primarily from related parties. Amounts included
in property and equipment at July 31 relating to capital
leases are as follows:
<TABLE>
<CAPTION>
1994 1993
----- ----
<S> <C> <C>
Land $ 73,260 $ 73,260
Building and 1,151,101 1,809,602
improvements
Furniture and equipment 359,318 362,103
----------- ----------
1,583,679 2,244,965
Less: accumulated
amortization 658,139 553,509
----------- -----------
$ 925,540 $1,691,456
=========== ===========
</TABLE>
Future minimum lease payments as of July 31, 1994 for
all capital leases are as follows:
Years ending July 31:
1995 $79,556
1996 28,259
--------
Total minimum lease
payments 107,815
Less: Amount
representing interest
(Principally at 12% - 15%) 9,641
--------
Present value of net
minimum lease payments $ 98,174
=========
During 1994 capital lease obligations of $1,608,629 were
converted to preferred stock (Notes G, H and I). As a
result of this conversion, building and improvements were
reduced by $658,501 representing the unamortized deferred
gain from the sale and leaseback of the leased property.
This deferred gain was previously reported as a component of
long-term liabilities.
Total operating lease expense for 1994 and 1993 was $5,216
and $10,041, respectively. As of July 31, 1994, there were
no future minimum lease payments relating to operating
leases.
NOTE D -- NOTES PAYABLE - RELATED PARTY:
Notes payable - related party at July 31, 1993 consisted of:
Promissory note to related party --
unsecured; due March 1996; interest
at 10.5% payable in monthly
installments of $5,373. $173,077
Note payable to related party --
secured by substantially all assets
of the Company; interest at prime
plus 2.75% payable quarterly to
maturity in August 1, 1994. 1,499,800
Less: Current portion (74,878)
-----------
Total long-term notes payable -
related party $1,597,999
==========
During 1994, all long-term debt - related party was converted
to preferred stock (Notes G, H and I).
NOTE E -- BONDS PAYABLE:
In 1993 the Company completed a public offering of 2,070
units totaling $2,070,000. Each unit consisted of one
Convertible Debenture in the principal amount of $1,000,
bearing interest at 12% per year, and 500 Redeemable
Warrants. The bonds were issued at a discount of $254,573
which is being amortized using the interest method.
The Debentures, which mature in February 2003, are
convertible, unless previously redeemed, into shares of the
Company's common stock at a price of $1.00 per share,
subject to anti-dilutive adjustments. Interest is payable
quarterly and the Debentures are subordinate to all of the
Company's senior debt. The Company may, on 30 days written
notice, and with the approval of the underwriter of the
public offering, redeem the Debentures, in whole or in part,
if the closing price of the Company's common stock for the
immediately preceding 30 consecutive trading days equals or
exceeds $2.50 per share. The redemption price will be 105%
plus accrued interest through the date of redemption.
Each Warrant entitles the holder to purchase one share of
common stock at a price of $3.00 per share, subject to anti-
dilutive adjustments, through February 1996. The Company
may, on 30 days notice, and with approval of the
Underwriter, redeem all of the Warrants for $0.05 per
Warrant if the per share closing price of the Company's
common stock for the immediately preceding 20 consecutive
trading days equals or exceeds 150% of the then Warrant
exercise price.
NOTE F -- COMMON STOCK OPTIONS:
The Company has both a qualified and a non-qualified stock
option plan. The Company reserved 400,000 shares of common
stock for issuance under the qualified plan. Options to
purchase 184,750 of the shares have been granted, of which
174,750 were exercisable as of July 31, 1994. These options
must be exercised within ten years of the grant date.
The nonqualified plan provides for the issuance of options
to purchase up to 350,000 shares of common stock of which
options to purchase 200,000 shares were outstanding and
exercisable as of July 31, 1994. The plan is effective
through January 1, 1995.
Other options to purchase 660,000 shares have been granted
by the Board of Directors, all of which were exercisable as
of July 31, 1994. An option to purchase 600,000 of these
shares was granted to the President of the Company. The
option extends through October 18, 1997 and permits the
purchase of 200,000 shares at $5.00 per share, 200,000 at
$7.50 per share, and 200,000 at $10.00 per share. An option
for 30,000 shares was granted to the law firm of Lalos and
Keegan at $1.00 per share, is currently exercisable and
extends through May 22, 1996. A 30,000 share option was
granted to an employee at $1.00 per share and is exercisable
through October 1997.
A summary of common stock options for the years ended July
31 follows.
<TABLE>
<CAPTION>
1994 1993
Option Option
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 1,076,750 $1.00 to 1,131,750 $1.00 to
$10.00 $10.00
Granted 10,000 $1.00 0 0
Canceled/expired 42,000 $1.00 to 55,000 $1.00 to
$5.00 $5.00
Exercised 0 0 0 0
---------- --------- --------- ---------
$ 1.00 to $1.00to
Outstanding at end of year 1,044,750 $10.00 1,076,750 $10.00
========== ========= ========= ===========
Exercisable at end of year 1,034,750 1,056,750
========== =========
Average exercise price $4.85 $4.79
===== =====
</TABLE>
NOTE G -- SHAREHOLDERS' EQUITY:
The Company is authorized to issue 2,000,000 shares of non-
voting preferred stock, no par value, of which 1,000,000
shares were issued and outstanding as Series A Preferred
Stock at July 31, 1994. All of these shares were issued to
a director/shareholder in a conversion of debt transaction
(Notes H and I). The holders of Series A Preferred Stock
are entitled to receive cumulative cash dividends out of the
net profits of the Company at the rate of $0.34 per share
per annum, payable monthly in equal installments within the
first fifteen days of each month for the preceding month as
directed by the Board of Directors of the Company. The
Company has the right in its sole discretion to redeem the
stock at any time at $3.40 per share. In the event of the
liquidation of the Company, the holders of the Series A
Preferred Stock are entitled to receive $3.40 per share plus
any unpaid cumulative and current dividends before payment
to holders of shares of the Company's common stock.
On November 30, 1992, the Company entered into a private
placement financing arrangement wherein each unit issued
consisted of one $10,000 note and 5,000 shares of restricted
common stock. The notes were repaid on March 1, 1993. As a
result of this arrangement, the number of common shares
outstanding was increased by 287,500 shares. Proceeds from
the private placement net of $57,500 underwriting costs were
allocated to common stock ($287,500) and the notes
($230,000). The amount allocated to common
NOTE G -- SHAREHOLDERS' EQUITY (CONTINUED):
stock was based on the fair value of the common stock on the
date of issuance. Amounts allocated to common stock and
underwriting costs were reflected as a discount on the
notes. Upon repayment of the notes on March 1, 1993, the
unamortized discount of $251,000 was charged to operations
as an extraordinary loss.
NOTE H -- RELATED PARTY TRANSACTIONS:
Interest expense incurred on debt represented by a line of
credit payable to a director/shareholder totaled $41,117 and
$127,278 during 1994 and 1993, respectively. The Company
also had an unsecured promissory note to this director and
had an unsecured promissory note to a leasing company owned
by this director. Interest expense incurred on the
promissory notes totaled $9,256 and $19,242 during 1994 and
1993, respectively (Note D). The line of credit and the
promissory note were converted to Series A Preferred Stock
on November 18, 1993 (Note I).
The Company also has various capitalized lease agreements
with this director and a leasing company owned by this
director. The Company leases land, building and
improvements from the director. Total payments made during
1994 and 1993 relating to this lease amounted to $19,353 and
$290,310, respectively. Interest expense relating to this
lease aggregated $64,940 and $193,987 during 1994 and 1993,
respectively. The capital lease obligation at July 31, 1993
was $1,611,895, and accrued interest was $73,639. The net
book value of these leased assets was $778,830 and
$1,486,879 at July 31, 1994 and 1993, respectively. During
fiscal year 1994 the capital lease obligation relating to
land, building and improvements was converted to preferred
stock (Note I).
The Company additionally leases equipment, leasehold
improvements and demonstration and manufacturing equipment
from the leasing company. In fiscal year 1991 the Company
sold and leased-back from the leasing company a machine that
it is using as demonstration equipment in its Dale, Indiana
plant. The selling price of the machine was $170,000.
There was no gain or loss recognized on this transaction
because the machine was valued at manufactured cost. Total
payments made during 1994 and 1993 relating to these leases
amounted to $89,442 and $70,748, respectively, of which
$21,386 and $21,475, respectively, represent interest.
Accrued interest on these leases as of July 31, 1993 was
$6,422. The lease obligation as of July 31, 1994 and 1993
was $83,245 and $148,375, respectively.
Director and shareholder - A director and shareholder is a
partner in the law firm retained as the Company's outside
counsel. Total expenses for legal services from the firm
were $101,599 and $76,694 for 1994 and 1993, respectively.
The Company had $68,818 and $50,192 in accounts payable at
July 31, 1994 and 1993, respectively, relating to legal
services.
President and secretary - The president and secretary of the
Company who are husband and wife and are also directors of
the Company, are the owners of a dealership which leases
office space from the Company. The Company primarily sells
its machines directly to the purchaser within this dealer's
region; however, sales may also be made directly to the
dealer who in turn sells the machine to the purchaser. The
agreement between the Company and the dealer is a standard
agreement similar to other dealer agreements entered into by
the Company.
Rent income from the dealership was $7,200 in both 1994 and
1993. Sales commissions of $309,509 and $301,114 were
paid to the dealership during 1994 and 1993, respectively,
for assisting in effecting sales. The Company had no sales
to the dealership in 1994 or 1993.
NOTE I -- RELATED PARTY - DEBT RESTRUCTURING:
On November 18, 1993, the Company entered into an agreement
with its major creditor, who is also a director/shareholder,
under which the creditor converted approximately $3.4
million in long-term debt (including amounts due under
capital leases) to 1,000,000 shares of the Company's Series
A Preferred Stock (Note G).
NOTE J -- INCOME TAXES:
The provisions for income taxes for the years ended July 31
consist of:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Current $0 $0
Deferred 0 0
--------- ---------
Totals $0 $0
========= =========
</TABLE>
The reconciliation of expected income taxes using an
effective combined state and federal income tax rate of 37%
and actual income taxes for the years ended July 31 is as
follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Net earnings (loss) before income taxes $ 208,161 $(1,360,057)
Expected income tax expense (benefit) 77,020 (503,220)
Benefit of operating loss carryforward (89,932) 0
Effect of unused operating loss carryforward 0 386,560
Effect of non-deductible items:
Loss on extinguishment of debt and
related discount amortization 0 106,375
Meals and entertainment 4,572 6,908
Governmental assessments 8,340 3,377
------------- -----------
Totals $ 0 $ 0
============= ===========
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences for the
years ended July 31 consist of:
1994 1993
<S> <C> <C>
Depreciation $ 47,012 $ 48,535
Capitalized leases for book purposes 22,853 56,262
Inventory valuation 48,100 (193,706)
Warranty reserves (48,318) 23,941
Deferred gain 0 (11,535)
Other items, net (1,959) 544
Operating loss carryforward (used) (67,688) 75,959
----------- ----------
Totals $ 0 $ 0
=========== ==========
</TABLE>
<TABLE>
Tax effects of significant temporary differences represented
by deferred tax assets and deferred tax liabilities at July
31 are as follows:
<CAPTION>
Deferred tax assets: 1994 1993
<S> <C> <C>
Inventory valuation $209,000 $160,000
Warranty reserves 78,000 127,000
Other 32,000 33,000
Net operating loss carryforwards 3,028,000 3,186,000
--------- ---------
Total gross deferred tax asset 3,347,000 3,506,000
--------- ---------
Less valuation allowance (3,117,000) (3,206,000)
Net deferred tax asset 230,000 300,000
---------- ---------
Deferred tax liability:
Property and equipment 230,000 300,000
---------- ---------
Net deferred tax asset (liability)$ 0 $ 0
========= =========
</TABLE>
At July 31, 1994,the Company had the following
carryforwards for tax purposes:
Operating loss carryforwards expiring in 1997 - 2008 $8,185,000
General business credits expiring in 1995 - 2005 183,000
The amount of such loss carryforwards and other credits
available for utilization in any future year could be
limited in the event of a change in ownership as defined by
income tax laws.
NOTE K -- ADDITIONAL INFORMATION:
<TABLE>
Other accrued liabilities at July 31 consisted of:
<CAPTION>
1994 1993
<S> <C> <C>
Property and income taxes $117,719 $223,349
Accrued warranties 211,628 342,239
Other 144,213 213,425
-------- --------
Totals $473,560 $779,013
======== ========
</TABLE>
Cash Flow Information:
The Company paid cash for interest in the amount of $408,067
and $536,606 during 1994 and 1993, respectively. There was
no cash paid for income taxes during 1994 and 1993.
Non-cash Investing and Financing Activities:
During 1994 the Company converted $3,437,120 of related
party notes payable and capital lease obligations to
preferred stock. During 1993 the Company entered into a
lease for computer equipment with an unrelated party and
incurred a capital lease obligation of $42,425 (Notes G, H
and I).
NOTE L -- CONTINGENT LIABILITIES:
The Company is involved in various claims and other legal
actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the
Company's financial position or results of operations.
NOTE M -- PROFIT SHARING PLAN:
In 1985 the Company adopted a management profit sharing
plan. Participants in the plan receive payments based on
corporate and divisional operating income. For the year
ended July 31, 1994, $139,012 was charged to operations
under this plan. No provision was required for the year
ended July 31, 1993.
NOTE N -- UNAUDITED INTERIM FINANCIAL INFORMATION:
The financial information as of April 30, 1995 and for the
nine-month periods ended April 30, 1995 and April 30, 1994
have not been examined by independent accountants but
include, in the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary
to present fairly the financial position, results of
operations and cash flows for the periods presented.
Operating results for the nine months ended April 30, 1995
are not necessarily indicative of the results that may be
expected for the year ending July 31, 1995.
The Company paid cash for interest in the amount of $200,438
and $321,644 for the nine-month periods ended April 30, 1995
and April 30, 1994, respectively, and paid cash for income
taxes in the amount of $2,500 during the nine-month period
ended April 30, 1995. During the nine-month period ended
April 30, 1995, the Company incurred a capital lease
obligation of $31,929.
There are no other notes related to the unaudited interim
financial statements since there are no other material
changes that would require additional disclosure from those
related to the audited financial statements.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in
connection with the issuance and distribution of the
securities being registered, other than underwriting
discounts and commissions:
<TABLE>
<CAPTION>
Purpose Amount
<S> <C>
Accounting Fees and Expenses. . . . . . . . . . .$ 10,000
Legal Fees and Expenses . . . . . . . . . . . . . ..15,000
Cost of Printing . . . . . . . . . . . . . . . . . 1,000
Miscellaneous . . . . . . . . . . . . . . . . . . . 4,000
TOTAL . . . . . . . . . . . . . . . . . . . . . $ 30,000
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
On November 18, 1993 the Company sold 1,000,000 shares of
its Series A Preferred Stock to Edgar Mulzer pursuant to the
exemption from the registration provisions of the Securities
Act of 1933 provided by Section 4 (2) thereof. Except as
set forth above, the Registrant has made no sale of its
securities within the past three years.
Item 27. Exhibits.
The following is a list of Exhibits to this
Registration Statement.
+++1.1 Proposed Form of Underwriting Agreement.
* 3.1 Articles of Incorporation of Registrant, as
amended through December 15, 1993.
3.11 Amendment to Articles of Incorporation of Registrant dated
December 16, 1993.
* 3.2 Restated and amended By-Laws of Registrant as
amended through October 21, 1992.
+++4.1 Form of Debenture
+++4.2 Form of Indenture
+++4.3 Form of Warrant.
+++4.4 Form of Warrant Agreement.
+++5 Opinion of Barry Feiner, Esq.
*10.1 Purchase option dated July 27, 1984 for building
located in Dale, Indiana.
*10.3 Form of Amended Authorized Dealer Agreement between
the Registrant and its dealers.
*10.4 Form of Amended Distributor Sales Agreement between
the Registrant and its distributors.
+++10.4a Copy of Dealer/Distribution Agreement between the
Registrant and Automation Associates,
Inc. dated May 21, 1985.
*10.5 Form of quotation and Purchase Agreement between the
Registrant and its customers.
*10.6 Form of Extended Parts Warranty Agreement Terms and
Conditions between the Registrant and its customers.
*10.7 Form of quotation and Lease Agreement between the
Registrant and its lessees.
*10.28 Lease Agreement between and among the Registrant
Contemporary Design, Inc. dated June 13, 1983
and related assignment and invoice between the
Registrant and Huntingburg Townhouse, Inc.
*10.29 Promissory Notes of the Registrant to The Dale State
Bank dated June 24, 1983 and October 13, 1983.
*10.30 Agreement between the Registrant and Edgar Mulzer
dated September 14, 1983.
*10.33 Research and Development Agreement between the
Registrant and Diversified Research Partners ("DRP")
dated December 30, 1983 including Appendix T.
*10.34 License-Option Agreement between the Registrant and
DRP dated December 30, 1983.
*10.35 Warrant Agreement between the Registrant and DRP
dated December 30, 1983.
**10.36a Line of Credit Agreement with the Dale State
Bank dated March 31, 1986.
*10.36b Registrant's Non-Qualified Stock Option Plan.
***10.37 Lease Agreement between the Registrant and Edgar
Mulzer dated February 13, 1987.
***10.38 Letter from Registrant to Seufert Realty Corp.
exercising Registrant's purchase option dated
February 12, 1987.
***10.39 Letter from Edgar Mulzer to the Registrant
offering to purchase premises dated February 6, 1987.
***10.40 Letter from the Registrant to Edgar Mulzer
accepting such offer dated February 13, 1987.
***10.41 Lease Agreement between Edgar Mulzer, as lessor,
and the Registrant, as lessee, dated February 13, 1987.
***10.42 Land Contract between Edgar Mulzer and the
Registrant dated February 13, 1987
+10.43 Lease Agreement between the Huntingburg Townhouses,
Inc. and the Registrant dated March 27, 1989.
++10.44 Lease Agreements between the Huntingburg Townhouses,
Inc. and the Registrant dated December 18, 1990.
+++10.45 Term Loan Note dated September 25, 1992 executed
by the registrant in favor of the Dale State Bank.
+++10.46 Agreement between the Registrant and Edgar Mulzer
dated October 23, 1992 relating to a Loan Agreement.
+++10.47 Agreement between the Registrant and Edgar Mulzer
dated October 23, 1992 relating to a Premises Lease.
+++10.48 Agreement between the Registrant and Huntingburg
Townhouses, Inc. dated October 23, 1992 relating to
certain equipment leases.
+++10.49 Form of 12% Convertible Subordinated Promissory
Note.
+++10.50 Agreement between the Registrant and King Radio
Corporation dated January 29, 1993.
24.1 Consent of KPMG Peat Marwick LLP, included herein.
+++24.3 Consent of Barry Feiner, Esq.
(contained in the Opinion filed as Exhibit 5 hereto).
+++28.1 Chapter 37 of the Indiana Business Corporation Law.
* Incorporated by reference to the Registrant's
registration statement filed under the Securities Act of
1993 on Form S-18, No. 2-87641.
** Incorporated by reference to the Registrant's Form 10-K
for the year ended July 31, 1986.
*** Incorporated by reference to the Registrant's Form 8-K
dated February 13,, 1987.
+ Incorporated by reference to the Registrant's Form 10-K
for the year ended July 31, 1989.
++ Incorporated by reference to the Registrant's Form 10-K
for the year ended July 31, 1991.
+++ Previously filed with this registration statement.
LIST OF CONSENT REQUIRED BY RULES 436 AND 438
The consent of Barry Feiner to the reference to him in the
Prospectus constituting a part of this Registration
Statement and to the use of his opinion as an exhibit to
this Registration Statement is included in his opinion
(filed as Exhibit 5 hereto).
The consent of KPMG Peat Marwick LLP, independent certified
public accountants, is included herein.
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Thermwood Corporation:
We consent to the use of our report included herein and to
the reference to our firm under the heading "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Indianapolis, Indiana
June 30, 1995
SIGNATURES
In accordance with the requirement of the Securities Act of
1933, the registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for
filing on Form SB-2 and authorized this Post-Effective
Amendment No. 1 to this registration statement to be signed
on its behalf by the undersigned, in the Town of Dale,
State of Indiana on June 30, 1995.
THERMWOOD CORPORATION
By: s/Kenneth J. Susnjara
Kenneth J. Susnjara, Chairman
In accordance with the requirements of the Securities Act of
1933, this Post-Effective Amendment No. 1 to this
registration statement was signed by the following persons
in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Name Position Date
<S> <C> <C>
s/ Kenneth J. Susnjara Chairman, President June 30, 1995
Kenneth J. Susnjara and Director(and
Principal Executive
Officer)
s/ Rebecca F. Fuller Treasurer,(Principal June 30, 1995
Rebecca F. Fuller Financial and Accounting
Officer)
s/ Linda S. Susnjara Secretary and Director June 30, 1995
Linda S. Susnjara
s/ Peter N. Lalos Director June 30, 1995
Peter N. Lalos
s/ Edgar Mulzer Director June 30, 1995
Edgar Mulzer
s/ Lee Ray Olinger Director June 30, 1995
Lee Ray Olinger
</TABLE>
ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION
Provided by: JOSEPH H. HOGSETT
SECRETARY OF STATE OF INDIANA
302 W. WASHINGTON ST. RM. E018
"INDIANAPOLIS, IN 46204"
TELEPHONE: (317) 232-6576
Indiana Code 23-1-38-1 et. seg.
FILING FEE $30.00
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF:
THERMWOOD CORPORATION
The undersigned officers of THERMWOOD CORPORATION
(hereinafter referred to as the "Corporation") existing
pursuant to the provisions of:
(Indicate appropriate act)
X Indiana Business Corporation Law
Indiana Professional Corporation Act of 1983
as amended (hereinafter referred to as the "Act"), desiring
to give notice of corporate action effectuating amendment of
certain provisions of its Articles of Incorporation, certify
the following facts:
ARTICLE I Amendment(s)
SECTION 1 The date of incorporation of the corporation is
December 22, 1969
SECTION 2 The name of the corporation following this
amendment to the Articles of Incorporation is:
THERMWOOD CORPORATION
SECTION 3 The exact text of Article(s) V, Section 2 of the
Articles of Incorporation is now as follows:
Section 2. Terms. The capital stock of the Corporation
shall consist of 20,000,000 shares of common stock without
par value and 2,000,000 shares of preferred stock without
par value. The common stock of the Corporation shall be
of one class and each share of common stock shall be
entitled to one (1) vote at all meetings of the shareholders
of the Corporation. The preferred stock of the Corporation
shall be non-voting. Other terms and conditions of the
preferred stock of the Corporation shall be determined and
stated by the Board of directors of the Corporation prior to
the issuance thereof in and by a resolution authorizing the
issuance of such shares. The Corporation, in the discretion
and upon resolution of the Board of Directors, may at any
time and from time to time issue and dispose of any of the
authorized and unissued shares of stock of the Corporation
and may create optional rights to purchase or subscribe for
shares of stock of the Corporation. Such stock may be issued
and disposed of for such kind and amount of consideration and
to such persons, firms and corporations, and such optional
rights may be created, and warrants or other evidence of such
rights issued, on such terms, at such prices and in such
manner as may be determined by resolution adopted by the
Board of Directors, subject to any provisions of law then
applicable. The Corporation, in the discretion and upon
resolution of the Board of Directors, may at any time and
from time to time repurchase any of the securities of the
Corporation. Such securities may be repurchased for such
kind and amount of consideration and from such persons, firms
and corporations, on such terms and conditions, at such
prices and in such manner as may be determined by the Board
of Directors, subject to any provisions of law then
applicable.
SECTION 4. Date of each amendment's adoption: December 16,
1993
ARTICLE II Manner of Adoption and Vote
Section 1. Action by Directors:
The Board of Directors of the Corporation duly
adopted a resolution proposing to amend the terms and
provisions of Article V, Section 2 of the Articles of
Incorporation and directing a meeting of the Shareholders, to
be held on December 16, 1993, allowing such Shareholders to
vote on the proposed amendment. The resolution was adopted
by Vote of the Board of Directors at a meeting held on
August 19, 1993 at which a quorum of such Board was present.
Section 2 Action by Shareholders::
The Shareholders of the Corporation entitled to
vote in respect of the Articles of Amendment adopted the
proposed amendment. The amendment was adopted by Vote of
such Shareholders during the meeting called by the Board of
Directors. The result of such vote is as follows:
TOTAL
SHAREHOLDERS ENTITLED TO VOTE: 5, 149,546
SHAREHOLDERS VOTED IN FAVOR: 2, 685,926
SHAREHOLDERS VOTED AGAINST: 2,900
SECTION 3 Compliance with Legal Requirements.
The manner of the adoption of the Articles
of Amendment and the vote by which they
were adopted constitute full legal
compliance with the provisions of the Act,
the Articles of Incorporation, and the
by-laws of the Corporation.
I hereby verify subject to the penalties of perjury that the
statements contained are true this 18 day of August, 1994.
Current Officer's Signature
Officer's Name Printed
/s/ Linda S. Susnjara
Linda S. Susnjara
Officer's Title
Secretary
