<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES ACT OF
1934
For the quarterly period ended SEPTEMBER 30, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
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Commission File Number 0-21832
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TURBOSONIC TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-1949528
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Melanie Lane, Unit 22A, East Hanover, NJ 07936
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(Address of principal executive offices) (Zip Code)
973-884-4388
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(Registrant's telephone number, including area code)
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 proceeding 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN A BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of September 30, 1997 10,000,000 shares of common stock were outstanding.
<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1.
Consolidated Statements of Operation
(Unaudited) for the Three Months
Ended September 30, 1997 and 1996 3
Consolidated Balance Sheets
at September 30,1997 (Unaudited)
and June 30, 1997 4
Consolidated Statements of Cash Flow
(Unaudited) for the Three Months Ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements
(Unaudited) 6-7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a
Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 12
</TABLE>
<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1997 September 30, 1996
------------------ -----------------
<S> <C> <C>
Original equipment revenue $ 490,581 $ 959,188
Rehabilitation, maintenance and spare
parts revenue 232,627 367,754
----------------- -----------------
Total revenue 723,208 1,326,941
----------------- -----------------
Cost of original equipment 291,090 671,225
Cost of rehabilitation, maintenance and
spare parts 149,617 179,276
Selling, general and administrative 384,684 198,354
expenses ----------------- -----------------
Total Costs 825,390 1,048,855
----------------- -----------------
Gain (Loss) from operations (102,182) 278,087
Interest income (expense) 54,835 1,038
----------------- -----------------
Net income (loss) ($47,347) $ 279,124
================= ===============
Weighted average number of shares 10,000,000 5,245,576
outstanding
Net profit (loss) per share ($0.00) $0.05
================= ===============
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
Assets ------------- -----------
Current Assets:
<S> <C> <C>
Cash $ 680,940 $ 406,847
Cash held in trust 0 69,229
Contracts and accounts receivable,
net of allowance for doubtful
accounts of $101,941 and $101,926 522,077 779,483
Costs and estimated earnings in
excess of billings on uncompleted
contracts 306,583 275,273
Inventories 155,473 79,066
Other current assets 102,144 102,750
------------ ----------
1,767,217 1,712,648
Equipment and leasehold
improvements, at cost, net of
accumulated depreciation 166,596 70,218
Reorganization costs 0 362,811
Investment in unconsolidated 10,746 0
subsidiaries
Patents, less accumulated amortization 1 0
Goodwill 1,786,243 0
Other Assets 89,436 0
------------ ----------
Total Assets $ 3,820,239 $ 2,145,677
============ ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade $ 675,160 $ 489,509
Accrued expenses 530,950 367,679
Income taxes payable 0 12,703
Billings in excess of costs and
estimated earnings on 290,385 250,679
uncompleted contracts ------------ ----------
1,496,495 1,120,570
Convertible debt 0 724,375
------------ ----------
1,496,495 1,844,945
------------ ----------
Stockholders' equity
Common stock, par value $.10 per 1,000,000 666,499
share, 30,000,000 shares authorized,
10,000,000 and 6,664,988 shares
issued and outstanding
Capital in excess of par value 2,456,055 716,157
Currency translation adjustment 3,040 0
Accumulated deficit (1,129,271) (1,081,924)
------------ ----------
Total stockholder's equity 2,329,826 300,732
------------ ----------
Total Liabilities and Stockholders' $ 3,820,239 $ 2,145,677
Equity ============ ==========
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1997 September 30,1996
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($47,347) $ 281,929
----------------- ----------------
Adjustments to reconcile net income
(loss) to net cash (used) provided by
operating activities
Depreciation and amortization 46,163 2,423
Deferred registration costs 0 0
(Increase) decrease in
Contracts and accounts receivable 257,406 (746,279)
Costs and estimated earnings in (31,310) (187,574)
excess of
billings on uncompleted contracts
Inventories (76,407) (57,544)
Other current assets 606 4,844
Deferred costs 0 0
Other assets (89,428) 0
Due from related parties (10,746) 0
Intangible assets/Goodwill 0 0
Increase (decrease) in
Accounts payable - trade 185,651 (192,620)
Accrued Expenses 163,271 0
Billings in excess of costs and 39,506 504,551
estimated ----------------- ----------------
earnings on uncompleted contracts
Total adjustments 484,712 (672,199)
----------------- ----------------
Net cash (used) provided by
operating 437,365 (390,270)
activities ----------------- ----------------
Cash flows from investing activities
Payments for acquisition of equipment (27,345)
and (73,669) 0
leasehold improvements
Purchase of business, net of cash (164,070) 0
required ----------------- ----------------
Net cash (used) provided by (265,084) 0
investing activities ----------------- ----------------
Cash flows from financing activities
Proceeds from issuance of common stock 32,583 488,843
New principal (payments) proceeds on 0 0
not ----------------- ----------------
payable
Net cash provided (used) by 32,583 488,843
financing ----------------- ----------------
activities
Net increase (decrease) in cash 204,864 98,573
Cash - beginning of period 476,076 137,406
----------------- ----------------
Cash - end of period $ 680,940 $ 235,979
================= ================
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
Note 1. Basis of Presentation
---------------------
TurboSonic Technologies, Inc., formerly known as Sonic Environmental
Systems, Inc. and its subsidiaries (collectively the "Company"), directly
and through subsidiaries, designs and markets integrated pollution control
systems to ameliorate or abate industrial environmental problems. Sonic
Environmental Systems, Inc. (Sonic) merged with Turbotak Technologies, Inc.
(Turbotak) on August 27, 1997 pursuant to a Plan of Reorganization that was
approved by the Federal Bankruptcy Court on July 3, 1997 (see Note 3)
The merger was treated for accounting purposes as a purchase by Turbotak of
Sonic in a reverse merger. Consequently, the accompanying consolidated
condensed financial statements include the accounts of Turbotak and its
majority-owned subsidiaries. The accounts of Sonic were included with
Turbotak's accounts effective September 1, 1997 and incorporated all
adjustments related to the Plan of Reorganization.
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulations S-X. Accordingly, these financial statements
do not include all of the information and footnotes required by generally
accepted accounting principles. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three month period ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending June 30, 1998.
These consolidated condensed financial statements should be read in
conjunction with the financial statements and footnotes thereto included in
the Company's annual report on form 10-KSB for the year ended April 30,
1996.
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<PAGE>
Note 2. Costs and Estimated Earnings on Uncompleted Contracts
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<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------ --------------
<S> <C> <C>
Cost incurred on uncompleted contracts 1,803,259 1,592,455
Estimated earnings 908,409 822,185
----------------- ------------
2,711,668 2,414,640
Less: billings to date 2,695,470 2,390,046
----------------- ------------
Included in accompanying balance sheets
under the following captions: 16,198 24,594
=============== ============
Costs and estimated earnings in excess 306,583 275,273
of billings on uncompleted contracts
Billings in excess of costs and
estimatedearnings on uncompleted 290,385 (250,679)
contracts ----------------- ------------
16,198 24,594
=============== ============
</TABLE>
Note 3. Other Events
On July 17, 1996, certain of Sonic's creditors instituted an involuntary
liquidation proceeding against Sonic under Chapter 7 of the Federal
Bankruptcy Code. On September 16, 1996, the Court converted this
involuntary proceeding into a voluntary Chapter 11 reorganization
proceeding. Contemporaneously therewith, Sonic entered into an agreement
with Turbotak, a privately held Canadian company engaged in the design,
manufacture, and servicing of air pollution control equipment, which, among
other matters, provided for Turbotak's acquisition of an approximately
$940,000 secured and unsecured bank claim against Sonic and its advance of
$205,000 to Sonic for working capital. Such agreement further provided that
Sonic would propose a Chapter 11 Plan of Reorganization which, among other
matters, would provide for a merger of Sonic and Turbotak and the
acquisition by Turbotak's shareholders of a controlling equity interest in
the merged company, TurboSonic Technologies, Inc.
The Plan of Reorganization was confirmed by the Court on July 3, 1997
following requisite creditor approval. The Plan provided for the
extinguishment of all outstanding shares of the Company's common stock, as
well as all outstanding warrants and options to purchase the Company's
common stock. The Plan further provided that the Company consolidate with
Turbotak to form a company to be called TurboSonic Technologies, Inc. which
would have 10,000,000 shares of common stock outstanding, of which
8,200,000 shares or 82% would be owned by Turbotak's present shareholders,
and 1,255,700 shares or approximately 12.6% would be issued to Sonic's
existing shareholders on a pro-rata basis. The balance of 10,000,000 shares
would be issued to Sonic's creditors and others as described in the Plan of
Reorganization. Consummation of the consolidation, which also extinguished
Turbotak's claims against Sonic, took place on August 27, 1997.
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Three Months Ended September 30, 1997
Compared with Three Months Ended September 30, 1996
Original equipment revenue decreased by $468,607 (48.9%) to $490,581
for the three month period ended September 30, 1997 from $959,188 for the
same period in 1996. The decrease in revenues for the three month period
ended September 30, 1997 was primarily due to the fact that in the 1996
period the Company had revenue from a large contract with International
Paper to provide an air pollution control system. The Company believes that
revenues decreased in the 1997 period because companies in the forest
products and pulp and paper industries were delaying their purchases of air
pollution control equipment until the U.S. government adopted the new
"cluster" rules relating to air pollution. These rules were signed into law
in November 1997 so the Company expects that these industries, a major
source of the Company's business, will resume purchasing air pollution
equipment.
Rehabilitation, maintenance and spare parts revenue decreased by
$135,127 (36.7%) to $232,627 for the three month period ended September 30,
1997 from $367,754 for the same period in 1996. The decrease was due to one
large sale which was included in the 1996 period.
Cost of original equipment decreased by $380,135 (56.6%) to $291,090
for the three month period ended September 30, 1997 from $671,225 for the
same period in 1996. As a percentage of original equipment revenue, cost of
original equipment was 59.3% for the three month period ended September 30,
1997 and 70% for the same period in 1996. The improvement in the percentage
of cost of original equipment revenue was due to the fact that the 1996
period included a high percentage of engineering costs allocated to the
International Paper contract.
Cost of rehabilitation, maintenance and spare parts decreased by
$29,659 (16.5%) to $149,617 for the three month period ended September 30,
1997 from $179,276 for the same period in 1996. As a percentage of
rehabilitation, maintenance and spare parts revenue, the cost was 64.3% for
the three month period ended September 30,1997 and 48.7% for the same
period in 1996. The low percentage in the 1996 period was due to the fact
that the large job referred to above had an unusually high margin.
Furthermore, the product mix has been changing to larger jobs which include
low margin components that are sold in conjunction with the Company's
products. The Company anticipates that this change in product mix will
continue in the future.
- 8 -
<PAGE>
Selling, general and administrative expenses increased by $186,330
(93.9%) to $384,684 for the three month period ended September 30, 1997
from $198,354 for the same period in 1996. As a percentage of total
revenue, selling, general and administrative expenses were 53.2% for the
three month period ended September 30, 1997 and 14.9% for the same period
in 1996. The increase in overhead expenses was partly due to the addition
of overhead expenses attributed to Sonic of approximately $75,000 which
included approximately $13,500 of expenses related to the merger of the two
companies. Amortization of goodwill which was created as a result of the
merger with Sonic amounted to $39,844.
Interest income increased $53,797 to $54,835 for the three month
period ended September 30, 1997 from $1,038 for the same period in 1996.
The increase was due to the fact that the proceeds from a private placement
of the Company's common stock was placed in escrow pending the completion
of the merger with Sonic thereby earning interest income during the period
held in escrow.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company had a positive cash flow from operating activities of
$437,365 for the three month period ended September 30, 1997 as compared to
a negative cash flow of $390,270 for the same period in 1996, an increase
of $827,635.
By June 1997, the Company completed a private placement of 172,948
shares of common stock at a price of $3.46 per share for an aggregate
consideration of $598,300. $434,625 of the funds raised were held in
escrow pending the completion of the merger with Sonic. These funds are now
available for general corporate use and will be used for working capital.
At September 30, 1997, the Company had working capital of $270,722 as
compared to $592,078 at June 30, 1997, a decrease in working capital of
$321,356. The Company's current ratio (current assets divided by current
liabilities) was 1.18 and 1.53 at September 30, 1997 and June 30, 1997,
respectively.
The Company's contracts typically provide for progress payments based
upon the achievement of performance milestones or the passage of time. The
Company's contracts often provide for the Company's customers to retain a
portion of the contract price until the achievement of performance
guarantees has been demonstrated. The Company attempts to have its progress
billings exceed its costs and estimated earnings on uncompleted contracts;
however, it is possible, at any point in time, that costs and estimated
earnings can exceed progress billings on uncompleted contracts, which would
negatively impact cash flow and working capital. At September 30, 1997 and
June 30, 1997, "Costs and estimated earnings in excess of billings on
uncompleted contracts" exceeded "Billings in excess of costs and estimated
earnings on uncompleted contracts" by $16,198 and $24,594, respectively,
thereby negatively effecting working capital.
- 9 -
<PAGE>
The Company's backlog at September 30, 1997 was approximately
$1,135,000, all of which the Company believes will be shipped prior to the
end of the current fiscal year. The Company believes that projected cash
generated from operations and the proceeds from the above mentioned private
placement will be sufficient to meet its cash needs through the end of the
fiscal year ended June 30, 1998.
- 10 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. None
Item 2. See Note 3 above; Reference is also made to Registrant's Current
Report on Form 8-K dated July 29, 1997
Item 3. None
Item 4. None
Item 5. None
Item 6. (a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K;
Items 3 and 7; Unaudited Balance Sheet as at April 30, 1997;
July 29, 1997
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<PAGE>
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 hereunto duly authorized.
TURBOSONIC TECHNOLOGIES, INC.
by: /s/ PATRICK FORDE
_________________________
Patrick Forde, Treasurer
DATED: November 25, 1997
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 680,940
<SECURITIES> 0
<RECEIVABLES> 624,018
<ALLOWANCES> 101,941
<INVENTORY> 155,473
<CURRENT-ASSETS> 1,767,217
<PP&E> 166,596
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,820,239
<CURRENT-LIABILITIES> 1,496,495
<BONDS> 0
0
0
<COMMON> 3,456,055
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,820,239
<SALES> 723,208
<TOTAL-REVENUES> 723,208
<CGS> 440,707
<TOTAL-COSTS> 825,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (54,835)
<INCOME-PRETAX> (47,347)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,347)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
