SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-12195
________THERMWOOD CORPORATION_______
(Exact name of small business issuer 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)
Issuer's telephone number, including area code: (812) 937-4476
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date.
Class
Outstanding at October 31, 1999 Common Stock, no par value
985,045 Shares
Transitional Small Business Format (check one); Yes No X
PART I. FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
October 31
1999 1998
---------------------------
<S> <C> <C>
Sales
Machine sales $5,639,238 $5,097,403
Technical sales 1,427,603 1,349,210
---------- ----------
7,066,841 6,446,613
Less commissions 816,727 821,391
---------- ----------
Net sales 6,250,114 5,625,222
Cost of sales
Machine sales 2,984,458 2,618,678
Technical sales 604,676 617,156
---------- ----------
Total cost of sales 3,589,134 3,235,834
Gross profit 2,660,980 2,389,388
Research and development, marketing,
administrative and general expenses 1,925,146 1,928,098
---------- ----------
Operating income 735,834 461,290
---------- ----------
Other income (expense):
Interest expense (190,103) (56,921)
Other income (expense) (16,830) 6,352
---------- ----------
Other expense, net (206,933) (50,569)
Earnings before income taxes and
extraordinary loss 528,901 410,721
Income tax expense 210,000 192,026
---------- ----------
Earnings before extraordinary loss 318,901 218,695
Extraordinary loss on repurchase of
bonds, net of income tax benefit (30,728) 0
---------- --------
Net earnings $288,173 $218,695
========== ========
Earnings per share:
Basic $0.29 $0.15
Diluted $0.29 $0.15
Weighted average number of shares:
Basic 985,045 1,440,976
Diluted 1,007,553 1,481,327
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31 July 31
1999 1999
------------ ------------
Assets
Current assets
<S> <C> <C>
Cash $ 49,088 $ 80,941
Accounts receivable 2,704,538 1,902,865
Income taxes recoverable 135,457 135,457
Inventories 5,845,567 5,266,765
Deferred income taxes 655,000 655,000
Prepaid expenses 300,223 422,536
--------- ---------
Total current assets 9,689,873 8,463,564
--------- ---------
Property and equipment (net of
accumulated depreciation) 2,728,476 2,766,859
---------- ---------
Other assets
Patents, trademarks and other 141,158 145,608
Bond issuance costs net of
accumulated amortization 457,011 481,179
Deferred income taxes 325,000 325,000
----------- -----------
Total other assets 923,169 951,787
----------- -----------
Total assets $13,341,518 $12,182,210
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 1,853,587 $ 1,144,634
Accrued liabilities 1,116,792 943,756
Customer deposits 1,634,084 1,080,337
Current portion of long-term
liabilities 36,748 36,748
Note payable to bank 1,696,320 2,196,320
------------ ----------
Total current liabilities 6,337,531 5,401,795
------------ ----------
Long-term liabilities - less current portion
Capital lease obligations 65,210 70,777
Debentures payable net of
unamortized discount 2,854,150 2,913,184
------------ ----------
Total long-term liabilities 2,919,360 2,983,961
------------ ----------
Shareholders' equity
Common stock, no par value, 4,000,000
shares authorized, 985,045 shares
issued and outstanding at October 31,
1999 and July 31, 1999, respectively 7,953,077 7,953,077
Accumulated deficit (3,832,825) (4,120,998)
----------- -----------
4,120,252 3,832,079
Less subscriptions receivable 35,625 35,625
----------- -----------
Total shareholders' equity 4,084,627 3,796,454
----------- -----------
Total liabilities and shareholders'
equity $13,341,518 $12,182,210
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
October 31
1999 1998
-------------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net earnings $288,173 $218,695
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 229,228 104,707
Changes in operating assets
and liabilities:
Accounts receivable (801,673) (373,098)
Inventories (578,802) (271,803)
Prepaid expenses and other assets 122,313 (70,311)
Accounts payable and other
accrued expenses 881,989 433,515
Customer deposits 553,747 108,276
---------- ----------
Net cash provided by operating
activities 694,975 149,981
---------- ----------
Cash Flows From Investing
Activities:
Purchases of property and equipment (102,461) (80,244)
----------- -----------
Net cash used by investing activities (102,461) (80,244)
----------- -----------
Cash Flows From Financing
Activities:
Principal payments on notes payable,
lease obligations and long-term debt (505,567) (1,563)
Redemption of debentures (118,800) 0
----------- -----------
Net cash used by financing activities (624,367) (1,563)
Increase (decrease) in cash (31,853) 68,174
Cash, beginning of period 80,941 115,937
---------- ----------
Cash, end of period $ 49,088 $184,111
========= ==========
ADDITIONAL INFORMATION:
Interest paid $206,835 $ 54,588
============ ==========
Conversion of bonds payable, net $ 0 $ 64,391
of unamortized discount ============ ==========
See notes to condensed
consolidated financial statements.
</TABLE>
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS:
Note A - Basis of Presentation
_________________________
The unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form l0-QSB 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 condensed financial position and the results of operations
for the periods presented. These financial statements should be read
in conjunction with the Company's consolidated financial statements
included on Form 10-KSB for the year ended July 31, 1999 and Form 10-
QSB for the quarter ended October 31, 1998.
Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the year ending
July 31, 2000.
Note B - Inventories
_________________
Inventories are priced at the lower of cost (first-in, first-out
method) or market.
<TABLE>
October 31 July 31
Components of 1999 1999
inventory: ----------- -----------
<S> <C> <C>
Finished goods $1,031,933 $ 937,662
Work in process 1,396,793 1,112,684
Raw materials 3,416,841 3,216,418
----------- ----------
Total $5,845,567 $5,266,765
=========== ==========
</TABLE>
Note C - Reclassifications
________________________
Certain amounts presented in the prior year condensed consolidated
financial statements have been reclassified to conform to the current
year presentation.
Note D - Earnings per Share
______________________________
Earnings per share for each of the three-month periods ended October
31 were determined as follows:
<TABLE>
1999 1998
Basic Diluted Basic Diluted
Earnings: -------------------- ----------------------
<S> <C> <C> <C> <C>
Earnings before
extraordinary loss $318,901 $318,901 $218,695 $218,695
Add interest expense on
convertible debentures 0 3,300 0 3,840
Add amortization of discount
on debentures and issuance costs 0 619 0 1,495
Income tax effects of earnings
adjustments 0 (1,568) 0 (2,134)
--------- --------- --------- ---------
Earnings available to common
shareholders $318,901 $321,252 $218,695 $221,896
Extraordinary loss, net of
tax benefit (30,728) (30,728) 0 0
-------- ---------- --------- ---------
Net earnings available to
common shareholders $288,173 $290,524 $218,695 $221,896
======== ========== ========= ===========
Shares:
Outstanding 985,045 985,045 1,440,976 1,440,976
Incremental shares related
to dilutive stock options 0 508 0 17,751
Incremental shares related to
convertible bonds 0 22,000 0 22,600
-------- --------- --------- ---------
Total weighted-average shares 985,045 1,007,553 1,440,976 1,481,327
======== ========= ========= =========
Earnings per share:
Income before extra-
ordinary earnings $0.32 $0.32 $0.15 $0.15
Extraordinary loss, net of
income taxes (0.03) (0.03) 0 0
-------- --------- ---------- ----------
Net earnings $0.29 $0.29 $0.15 $0.15
======== ========= ========== ==========
</TABLE>
Item 2. Management's Discussion and Analysis
Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995, including, without limitation, statements
containing the words "believes," "anticipates," "expects," and words
of similar import. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the
actual results, financial condition, performance or achievements of
the Company and its subsidiaries to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements. Certain of these factors are
discussed in more detail elsewhere herein and in the Company's Annual
Report on form 10-KSB, including, without limitation, the sections:
"Description of Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Given these
uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements. The Company disclaims any obligation
to update any such forward-looking statements to reflect future events
or developments.
Results of Operations
Net sales for the quarter ended October 31, 1999 were $6,250,113, an
increase of 11% over the same quarter of the previous year. Gross
profit for the current quarter was $2,660,980, an increase of 11% over
the first quarter last year. Cost of sales as a percentage of net
sales was 57.43%, approximately the same as the first quarter of last year.
Research and development, marketing, administrative and general
expenses were $1,925,146 compared with $1,928,098 for the first
quarter of fiscal 1999. Operating profit was $735,834 compared to
$461,290 for the same period in fiscal year 1999. The 60% increase in
operating profit was a result of higher sales and lower marketing expenses.
Interest expense in the first quarter of fiscal year 2000 was
$190,103, an increase of approximately $133,000 from last year. This
higher level is due to interest on 12% subordinated debentures that
were exchanged for stock in April, 1999. The subordinated debentures
were discounted to yeild an effective interest rate of 22%. Earnings
before income taxes in the first quarter of fiscal year 2000 were
$528,901 compared to $410,721 in the first quarter of fiscal year
1999, or an increase of approximately 29%. Federal income taxes were
accrued in the amount of $210,000, lowering earnings to a net of
$318,901 compared to $218,695 in the first quarter of fiscal 1999.
Income was further reduced by an extraordinary loss of $30,728, net of
taxes. This was due to the repurchase of debentures with a face value
of $165,000 at a cost of $118,800.
Liquidity and Capital Resources
At October 31, 1999 the Company's working capital was $3,352,342
compared to $3,061,769 at July 31, 1999. This increase was due to
cash generated from operations in excess of payments on notes payable
of $500,000. Current backlog is approximately $3,192,000 compared
with $5,059,000 backlog at July 31, 1999. The decrease is due to a
slowing of orders in the first quarter and shipment of much of the
backlog which existed at July 31, 1999.
Shareholders' equity increased from $3,796,454 at July 31, 1999 to
$4,084,627 in the three-month period ended October 31, 1999 due
entirely to net earnings.
Year 2000 Issues
Our failure to adequately prepare our computers and software to be
year 2000 compliant could disrupt our business and materially and
adversely affect our operations. Many currently installed computer
systems and software products use two digits rather than four to
define the applicable year. In other words, date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to track inventory, issue purchase orders, write checks or
engage in similar normal business activities.
During the fiscal year ended July 31, 1998, we began a risk evaluation
of potential Year 2000 issues and formed a Year 2000 Committee which
consists of the Chief Executive Officer, Vice-President of
Engineering, Information Systems Manager and two other employees. The
Committee's purpose is to assess all risks, analyze current systems,
including all information technology and non-information technology
systems, coordinate upgrades and replacements and report the current
and projected status of all known Year 2000 compliance issues.
During the assessment phase, we identified computer-related systems
and software with potential Year 2000 problems. In the first quarter
of fiscal 1999, we began corresponding with the vendors that had not
supplied Year 2000 statements, requesting the Year 2000 compliance
status of their products. Responses received to date from vendors
have not indicated any Year 2000 problems. We have identified
alternative vendors should our current vendors fail to perform due to
Year 2000 problems; however, use of some of these vendors would be
inconvenient and could be costly. Moreover, we have not contacted
these alternate vendors to determine whether they are Year 2000
compliant.
As a precaution, we plan to stock additional inventory from our non-
U.S. vendors prior to the beginning of the year 2000.
One mission-critical system, the inventory shop floor control
software, was not Year 2000 compliant. This software tracked incoming
orders, inventory levels, material requirements planning, shop floor
control, labor tracking, shipping and administrative and financial
tracking functions. We have purchased a new system that is Year 2000
compliant and, in our judgment, superior to the system we were using.
The new system was installed during the fourth quarter of fiscal year
1999. Upgrades to all of the non-mission critical systems have been
completed as of July 31, 1999.
We estimate that the replacement or remedial costs for our Year 2000
compliance issues have been less than $150,000 and consist of
software and hardware upgrades that include new features which are
combined with Year 2000 corrections. The majority of these costs have
been expensed as incurred or capitalized and depreciated, as
appropriate, during fiscal year 1999.
We have tested the machine control systems and related computer
software which we sell and we believe that such equipment is Year 2000
compliant.
We estimate that the worst case Year 2000 issue scenario would occur
if the new inventory shop floor control software is not Year 2000
compliant. At that point, we would look to alternate vendors. We
believe that there are a number of alternate vendors that claim to
have Year 2000 compliant software. In the event that we are unable to
integrate Year 2000 compliant software from any of these vendors, we
would be forced to hire additional staff and return to manual methods
of tracking inventory and purchasing raw materials. We believe that
we could implement this contingency plan within a short period of
time. However, until such time as this contingency plan took effect,
our ability to manufacture could be materially disrupted. In
addition, during the time that we were required to operate under this
plan, our results of operations would be adversely affected primarily
due to the resulting increased administrative expense, and higher raw
materials inventory levels that would be needed to assure that we
would have sufficient raw materials to avoid disruption of production.
THERMWOOD CORPORATION
FORM 10-QSB
October 31, 1999
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and use of proceeds
None.
Item 3. Defaults Upon Senior Securities
a. None.
b. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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 December 1, 1999 By__/s/ Kenneth J. Susnjara
____________________________
Kenneth J. Susnjara
President (Principal Executive Officer)
Date December 1, 1999 By___/s/ Rebecca F. Fuller
____________________________
Rebecca F. Fuller
Treasurer (Principal Financial Officer)
