SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
________________________________________________________________________
Quarterly Report Pursuant To Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For quarter ended January 31, 1998 Commission file number 0-12195
THERMWOOD CORPORATION
______________________________________________________________________________
(Exact name of Registrant as specified in its charter)
INDIANA 35-1169185
_________________________________ _______________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 436, Dale, Indiana 47523
______________________________ _______________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 812-937-4476
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Common Stock, no par value, 1,430,109 shares outstanding as of January 31, 1998.
<TABLE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Item 1.
Three Months Ended Six Months Ended
January 31 January 31
1998 1997 1998 1997
--------------------- -------------------
Sales
<S> <C> <C> <C> <C>
Machine sales $4,900,718 $3,728,765 $9,467,688 $7,151,875
Technical sales 889,847 854,607 1,859,598 1,685,470
--------- ---------- ---------- ---------
5,790,565 4,583,372 11,327,286 8,837,345
Less commissions 737,053 541,014 1,469,080 1,050,082
--------- ---------- ---------- ---------
Net Sales 5,053,512 4,042,358 9,858,206 7,787,263
Cost of Sales
Machine sales 2,696,518 1,914,538 4,894,515 3,774,674
Technical sales 506,910 420,028 1,070,755 870,773
--------- --------- --------- ---------
Total Cost of Sales 3,203,428 2,334,566 5,965,270 4,645,447
--------- --------- --------- ---------
Gross Profit 1,850,084 1,707,792 3,892,936 3,141,816
Research and development,
marketing, administrative and
general expenses 1,395,246 1,131,639 2,863,620 2,085,051
--------- --------- --------- ---------
Operating income 454,838 576,153 1,029,316 1,056,765
--------- --------- --------- ---------
Other income (expense):
Interest expense (61,814) (26,392) (87,259) (53,296)
Other (7,393) 7,641 1,238 1,671
--------- --------- --------- --------
Other expense, net (69,207) (18,751) (86,021) (51,625)
--------- --------- --------- --------
Earnings before income taxes 385,631 557,402 943,295 1,005,140
Income tax expense 171,742 233,913 374,367 393,054
--------- --------- --------- ---------
Net earnings $213,889 $323,489 $568,928 $612,086
========= ========= ========= =========
Net earnings applicable to common shareholders:
Earnings per common and common equivalent share:
Basic $0.15 $0.19 $0.37 $0.35
Diluted $0.14 $0.18 $0.35 $0.34
Weighted average number of shares
Basic 1,416,576 1,309,709 1,416,576 1,309,709
Diluted 1,519,139 1,493,639 1,519,139 1,498,639
See notes to consolidated financial statements.
</TABLE>
<TABLE>
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Item 1. (Continued)
January 31 July 31
1998 1997
Assets ---------- -----------
Current Assets
<S> <C> <C>
Cash $ 70,625 $ 512,480
Accounts receivable 2,207,207 1,802,569
Inventories 5,704,474 4,618,001
Deferred income taxes 1,676,000 1,676,000
Prepaid expenses 404,617 372,287
---------- ----------
Total Current Assets 10,062,923 8,981,337
---------- ----------
Property and Equipment (net of
accumulated depreciation) 1,812,984 1,824,005
Other Assets
Patents, trademarks and other 134,766 141,691
Deferred income taxes 326,000 326,000
---------- ----------
Total Other Assets 460,766 467,691
----------- -----------
Total Assets $12,336,673 $11,273,033
=========== ===========
Liabilites and Shareholders' Equity
Current Liabilities
Accounts payable 1,261,421 1,375,005
Accrued liabilities 970,293 1,225,157
Accrued income taxes 740,000 386,000
Customer deposits 1,330,250 907,110
Current portion of long-term liabilities 19,435 7,755
--------- ---------
Total Current Liabilities 4,321,399 3,901,027
--------- ---------
Long-term Liabilities, less current portion
Capital lease obligations 4,684 5,918
Note payable to bank 2,646,319 0
Bonds payable, net of unamortized discount 169,125 278,775
--------- --------
Total Long-term Liabilities 2,820,128 284,693
--------- --------
Shareholders' Equity
Preferred Stock, no par value, 2,000,000
shares authorized,1,000,000 shares issued and
738,000 shares outstanding at July 31, 1997 0 2,546,320
Common stock, no par value, 20,000,000
shares authorized, authorizedauthorized,
1,309,709 shares in 1997 and 1,430,109 shares
in 1998 issued and outstanding 10,736,215 10,599,285
Accumulated deficit (5,507,869) (6,033,542)
---------- -----------
5,228,346 7,112,063
Less subscriptions receivable 33,200 24,750
---------- ---------
Total Shareholders' Equity 5,195,146 7,087,313
----------- -----------
Total Liabilities and Shareholders' Equity $12,336,673 $11,273,033
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Item 1. (Continued)
Six Months
Ended January 31
1998 1997
Cash Flows From Operating Activities: -------- --------
<S> <C> <C>
Net earnings $568,928 $612,086
Adjustments to reconcile net earnings to net cash
Provided by operating activities:
Depreciation and amortization 173,554 141,042
Amortization of bond discount 1,227 8,643
Changes in operating assets and liabilities:
Accounts receivable (404,638) (225,179)
Inventories (1,086,473) (778,640)
Prepaid expenses and other assets (33,630) 415,471
Accounts payable and other accrued expenses (14,448) 134,876
Customer deposits 423,140 328,003
----------- ---------
Net cash provided (used) by operating activities (372,340) 636,302
----------- ---------
Cash Flows From Investing Activities:
Purchases of patents, property and
equipment (146,575) (119,163)
----------- ---------
Net cash used by investing activities (146,575) (119,163)
----------- ---------
Cash Flows From Financing Activities:
Principal payments on lease obligations (1,234) (3,023)
Note payable at bank 2,646,320 0
Redemption of preferred stock (2,546,320) (263,840)
Proceeds from subscriptions receivable 21,550 3,375
Payment of dividends on preferred stock (43,256) (149,450)
------------ ---------
Net cash provided (used) by financing
activities 77,060 (412,938)
------------ ---------
Increase (decrease) in cash (441,855) 104,201
Cash at beginning of period 512,480 18,995
------------ ---------
Cash at end of period $70,625 $123,196
============ =========
ADDITIONAL INFORMATION
Interest paid $72,088 $53,296
============ =========
Conversion of bonds payable, net of
unamortized discount $108,351 $10,000
============ =========
Subscriptions receivable for common stock issued $30,000 $0
============ =========
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
Note A - Basis of Presentation
_______________________
The unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form l0-Q and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements have not been
examined by independent accountants but include, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the consolidated financial position, results of operations and
cash flows for the periods presented. These financial statements should be
read in conjunction with the Company's consolidated financial statements
included on Form 10-K for the year ended July 31, 1997 and Form 10-Q for the
quarter ended January 31, 1997.
Operating results for the interim periods are not necessarily indicative of
the results that may be expected for the year ended July 31, 1998.
Certain amounts presented in prior years' financial statements have been
reclassified to conform to the current year presentation.
Note B - Inventories
________________
Inventories are priced at the lower of cost (first-in, first-out method) or
market.
<TABLE>
January 31 July 31
Components of inventory: 1998 1997
---------- ----------
<S> <C> <C>
Raw material $2,517,343 $2,802,040
Work in process 2,362,888 1,171,284
Finished goods 824,243 644,477
---------- ----------
Total $5,704,474 $4,618,001
========== ==========
</TABLE>
Note C - Earnings per Share
____________________________
Effective January 31, 1998, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standard No. 128, Earnings Per Share (FAS 128). FAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
for public entities. Adoption of this standard did not have a material impact
on the company's earnings per share in 1998 or 1997.
Earnings per share for the three-month and six-month periods ended January 31,
1998 and 1997 were determined as follows:
Six-Months Ended Six-Months Ended
January 31 January 31
1987 1997 1998 1997
Income -------- --------- -------- --------
Net earnings $213,889 $323,489 $568,928 $612,086
Less preferred stock dividends 0 73,092 43,256 149,450
Basic earnings available 213,889 250,397 525,672 462,636
-------- -------- -------- --------
Interest and amortization of
Convertible debt, net of taxes 4,536 19,308 9,606 39,022
Diluted earnings available to
common shareholders $218,425 $250,397 $535,278 $501,658
Shares ======== ======== ======== ========
Weighted-average shares
available - Basic 1,416,576 1,309,709 1,416,576 1,309,709
Convertible bonds 36,200 150,600 36,200 150,600
Dilutive common stock
options 66,363 38,330 66,363 38,330
Weighted average shares
available - Diluted 1,519,139 1,498,639 1,519,139 1,498,639
Basic earnings per share $0.15 $0.19 $0.37 $0.35
Diluted earnings per share $0.14 $0.18 $0.35 $0.34
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net sales for the quarter ended January 31, 1998 were $5,053,512, an increase
of approximately 25% compared to second quarter net sales in fiscal 1997 and
an increase of approximately 5% from the first quarter of fiscal year 1998.
Net sales for the six months of the current fiscal year were $9,858,206, an
increase of $2,070,943, or approximately 27%, from last year's six-month
period.
Gross profit for the current quarter was $1,850,084 an increase of 8% over the
second quarter last year and a decrease of 9% from the first quarter of 1998.
Gross profit for the six months ended January 31, 1998 was an increase of
approximately $751,120, or 24%, over the same period for fiscal year 1997.
Gross profit margin as a percentage of net sales was 37% for the quarter ended
January 31, 1998 compared to 43% for the first quarter of fiscal 1998 and 42%
during the second quarter of fiscal year 1997 and decreased from 40% to 39%
for the six-month periods ended January 31, 1997 and 1998, respectively.
Research and development, marketing and administrative expenses were
$1,395,246 during the second quarter of fiscal 1998 compared to $1,131,639 for
the second quarter of fiscal 1997, an increase of 23%. Expenses decreased 5%
from the first quarter of fiscal 1998 due primarily to decreased R & D
expenses. Expenses increased 37% from the six months ended January 31, 1997
primarily due to hiring of additional salaried personnel and higher costs for
shows, advertising, and public corporation expense. Operating expenses as a
percentage of sales were 28% for the second quarters of fiscal 1998 and 1997
compared to $1,468,373, or 31% for the first quarter of fiscal 1998.
Approximately half of the increase of 37% for the six months was due to
increased expenses in Europe.
Interest expense in the second quarter of fiscal year 1998 was $61,814, an
increase of approximately $35,000 from the same quarter last year and the
first quarter of fiscal year 1998. This increase was due to the loan from a
bank for the repurchase of the preferred stock and for expansion of production
facilities. For the six-month period ended January 31, 1998, interest expense
was $87,259 compared to $53,296 for the same period of fiscal year 1997, an
increase of approximately 64% due primarily to interest on the bank loan. The
remaining balance of debentures is approximately $169,000, net of unamortized
discount, at January 31, 1998. Interest expense on the debentures was
approximately $17,000 for the six-month period ended January 31, 1998 compared
to approximately $53,000 for the same period of fiscal 1997.
Liquidity and Capital Resources
At January 31, 1998 the Company's working capital was $5,741,524 compared to
$5,080,310 at July 31, 1997. This increase was due primarily to increases in
inventory. The Company is now purchasing bulk quantities of raw materials in
order to produce many components which were previously purchased already
machined, thus increasing work-in-process inventory. Increased inventories
were the result of a slower turnover rate because of the processing time for
work -in-process inventories.
Backlog increased to approximately $3,830,000 during the second fiscal quarter
ended January 31, 1998 from $3,200,000 at the end of the preceding quarter but
decreased approximately $250,000 from July 31, 1997. Accounts receivable also
increased approximately $400,000 from July 31, 1997 because of higher sales
levels. Management anticipates that orders will continue in this range;
however, no assurances can be made to this effect.
Shareholders' equity decreased from $7,087,313 at July 31, 1997 to $5,195,146
for the six month period ended January 31, 1998. A total of 24,000 shares of
common stock at a price of $5 per share were issued upon conversion of 12%
debentures during the six months ended January 31, 1998 for an increase to
shareholders' equity in the amount of $106,926, net of discount and issuance
costs. In the first six months of fiscal 1997, 2,000 shares were added to
common stock at a net amount of $8,716.
The Company has repurchased the balance of 738,000 shares of preferred stock
for $2,546,320 for the six months ended January 31, 1998 and entered into a
line of credit with a bank in the amount $3.5 million. This transaction
enabled the Company to take clear title to its land and building which were
connected to a lease agreement with the related party who held the preferred
stock. This then enabled the Company to proceed with an expansion of its
production facilities of 20,000 square feet. For the same period in fiscal
year 1997, the Company redeemed 38,000 shares of the preferred stock at $3.40.
THERMWOOD CORPORATION
FORM 10Q
1/31/98
PART II. OTHER INFORMATION;
ITEM 1. LEGAL PROCEEDINGS:
None.
ITEM 2. CHANGES IN SECURITIES:
On December 18, 1997 the Board of Directors approved a 5-for-1 reverse split
of the Company's common shares effective at the beginning of trading on
January 5, 1998. One new common share was issued for every five held by
shareholders of record on January 5, 1998. After giving effect to the reverse
split, the Company had 1,430,109 common shares outstanding at January 5, 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
a. None.
b. Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
a. An annual meeting of shareholders was held in Dale, Indiana on December
11, 1997.
b.All nominees for directors as listed on the Company's proxy statement dated
November 18, 1997 were elected.
c. Matters voted on by shareholders:
(1.) Election of directors:
Votes Votes
For Against Abstain
_________ _______ _______
Kenneth J. Susnjara 6,491,958 32,500 0
Linda S. Susnjara 6,491,958 32,500 0
Edgar Mulzer 6,490,958 33,500 0
Peter N. Lalos 6,491,258 33,500 0
Lee Ray Olinger 6,490,458 34,000 0
(2.) Ratification of KPMG Peat Marwick LLP as the Company's independent
auditors:
Votes for 6,511,158; Votes against 7,700; Abstain 5,600
ITEM 5. OTHER INFORMATION:
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibits. None.
b. Reports on Form 8-K. None were filed during the quarter.
SIGNATURES
____________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THERMWOOD CORPORATION
__________________________
(Registrant)
Date March 5, 1998
By /s/ Kenneth J.Susnjara_________________________________________
Kenneth J. Susnjara
President (Principal Executive Officer)
Date March 5 1998
By_/s/ Rebecca F. Fuller_________________________________________
Rebecca F. Fuller
Treasurer (Principal Financial Officer)
<TABLE> <S> <C>
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</TABLE>
