<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended DECEMBER 31, 1997
--------------------------------------------------
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.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
973-884-4388
- --------------------------------------------------------------------------------
(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
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.
[X] Yes [_] 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 December 31, 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
- ------------------------------ ----
<S> <C>
Item 1.
Consolidated Statements of Operations
(Unaudited) for the Three Months and the Six Months
Ended December 31, 1997 and 1996 3
Consolidated Balance Sheets
at December 31, 1997 and June 30, 1997 4
Consolidated Statements of Cash Flow
(Unaudited) for the Six Months Ended
December 31, 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 8-10
PART 11 - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a
Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature
</TABLE>
<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Three Months For the Six Months For the Six Months
Ended Ended Ended Ended
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
------------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Original Equipment $765,754 $1,118,945 $1,256,335 $2,078,133
Rehabilitation, maintenance and
spare parts revenue $384,626 $219,833 $635,726 $587,587
------------------- -------------------- ----------------- ------------------
Total Revenue $1,150,380 $1,338,778 $1,892,061 $2,665,720
------------------- -------------------- ----------------- ------------------
Cost of Original Equipment $609,408 $700,815 $900,498 $1,372,040
Cost of rehabilitation, maintenance
and spare parts $214,827 $108,347 $ 377,651 $287,623
Selling, general and administrative
expenses $435,545 $315,008 $772,966 $510,939
Depreciation and Amortization
$55,948 $2,416 $102,111 $4,839
Debt conversion inducement
expenses $94,675 - $94,675 -
------------------- -------------------- ----------------- ------------------
Total Costs $1,410,403 $1,126,586 $2,247,901 $2,175,441
------------------- -------------------- ----------------- ------------------
Gain (Loss) from Operations ($260,023) $212,192 ($355,840) $490,279
Interest Income $9,595 $2,276 $ 64,431 $3,314
------------------- -------------------- ----------------- ------------------
Net Income (Loss) ($250,428) $214,468 ($291,409) $493,593
=================== ==================== ================== ==================
Weighted average number of
shares outstanding 10,000,000 5,245,576 10,000,000 5,245,576
=================== ==================== ================== ==================
Net Profit (Loss) per share ($0.03) $0.04 ($0.03) $0.09
=================== ==================== ================== ==================
</TABLE>
-3-
<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
Assets (Unaudited)
---------------- -------------
<S> <C> <C>
Current Assets:
Cash $218,868 $406,847
Contracts and accounts receivable, net of allowance
for doubtful accounts of $101,941 and $101,926 888,794 681,529
Advances to Sonic Environmental - 97,954
Deferred contract costs and unbilled revenue 113,934 275,273
Inventories 157,990 79,066
Income Tax Receivable 15,097 --
Other current assets 135,968 102,750
---------- ----------
$1,530,651 $1,643,419
Cash held in Trust - 69,229
Equipment and leasehold improvements,
at cost, net of accumulated depreciation 168,217 70,217
Deposits and prepaid costs - 362,811
Investment in unconsolidated subsidiaries 10,746 -
Patents, less accumulated amortization 1 -
Goodwill 1,834,265 -
Other assets 74,625 -
---------- ----------
Total Assets $3,618,505 $2,145,676
========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable - trade $866,222 $489,509
Accrued expenses 433,143 367,679
Income taxes payable - 12,703
Billings in excess of costs and estimated
earnings on uncompleted contracts 146,047 250,679
---------- ----------
1,445,412 1,120,570
Convertible debt - 724,375
---------- ----------
1,445,412 1,844,945
---------- ----------
Stockholders' Equity:
Common stock, par value $.10 per share, 1,000,000 666,497
30,000,000 shares authorized, 10,000,000
and 6,664,968 shares issued and outstanding
Capital in excess of par value 2,764,979 1,070,766
Currency translation adjustments 23,378 2,729
Accumulated deficit (1,615,264) (1,439,261)
---------- ----------
Total stockholders' equity 2,173,093 300,731
---------- ----------
Total Liabilities and Stockholders' Equity $ 3,618,505 $ 2,145,676
=========== ===========
</TABLE>
-4-
<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
for the six months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($291,409) $493,593
----------------- -----------------
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities
Depreciation and amortization 102,111 4,839
Debt Conversion Inducement expense 94,675 -
(Increase) decrease in:
Contracts and accounts receivable (207,265) (663,313)
Costs and estimated earnings in excess
billings on uncompleted contracts 161,339 (312,074)
Inventories (78,924) (57,152)
Other current assets (33,218) 5,122
Other assets (75,463) -
Investment in unconsolidated subsidiary (10,746) -
Increase (decrease) in:
Accounts payable - trade 376,713 (385,441)
Accrued expenses 65,464 -
Billings in excess of costs and estimate
earnings on uncompleted contracts (104,632) 523,305
----------------- -----------------
Total adjustments 290,054 (884,714)
----------------- -----------------
Net cash (used) provided by
operating activities (1,355) (391,121)
----------------- -----------------
Cash flows from investing activities:
Payments for acquisition of equipment and
leasehold improvements (98,106) (2,716)
Purchase of business, net of cash required (190,053) -
----------------- -----------------
Net cash (used) provided by investing (288,159) (2,716)
----------------- -----------------
Cash flows from financing activities
Proceeds from issuance of common stock 32,306 702,912
----------------- -----------------
Net cash provided (used) by financing activities 32,306 702,912
----------------- -----------------
Net increase (decrease) in cash (257,208) 309,075
Cash - beginning of period 476,076 137,406
----------------- -----------------
Cash - end of period $ 218,868 446,481
================= =================
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 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 and industrial
gas cooling/conditioning systems including liquid atomization technology, dust
suppression systems and ceramic heat exchanger 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 six month period ended December 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 1998. These consolidated 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.
-6-
<PAGE>
Note 2. Costs and Estimated Earnings on Uncompleted Contracts
------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
----------------- -------------
<S> <C> <C>
Costs incurred on uncompleted contracts 2,578,522 1,592,455
Estimated earnings (loss) 1,051,488 822,185
----------------- -------------
3,630,010 2,414,640
Less: billings to 3,662,123 2,390,046
----------------- -------------
Included in accompanying balance sheets
under the following captions: ( 32,113) 24,594
================== ===============
Cost and estimated earnings in excess of 113,934 275,273
billings on uncompleted contracts
Billings in excess of costs and estimated (146,047) (250,679)
earnings on uncompleted contracts
----------------- -------------
( 32,113) 24,595
================= =============
</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 December 31, 1997
Compared with Three Months Ended December 31, 1996
Original equipment revenue decreased by $353,191 (31.6%) to $765,754
for the three month period ended December 31, 1997 from $1,118,945 for the same
period in 1996. The decrease in revenues for the three month period ended
December 31, 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
increase their purchases of air pollution equipment.
Rehabilitation, maintenance and spare parts revenue increased by
$164,793 (75.0%) to $384,626 for the three month period ended December 31, 1997
from $219,833 for the same period in 1996. The increase was due to one large
spare parts order for a project shipped in the second calendar quarter of 1997
and increased nozzle and scrubber shipments over the same period in 1996.
Cost of original equipment decreased by $91,407 (13.1%) to $609,408 for
the three month period ended December 31, 1997 from $700,815 the same period of
1996. As a percentage of original equipment revenue, cost of original equipment
was 79.6% for the three month period ended December 31, 1997 and 62.6% for the
same period of 1996. The increase in the percentage of cost of original
equipment revenue was due to a product mix shift with the inclusion of larger
jobs which include low margin components in the current year.
Cost of rehabilitation, maintenance and spare parts increased by
$106,480 (98.3%) to $214,827 for the three month period ended December 31, 1997
from $108,347 for the same period in 1996. As a percentage of rehabilitation,
maintenance and spare parts revenue, the cost was 55.9% for the three month
period ended December 31, 1997 and 49.3% for the same period in 1996. The
increase in costs are due primarily to the increase in sales volume. The high
percentage to revenue in the current period is due to a shift to sales of lower
margin components than experienced in 1996. The Company anticipates that this
change in product mix will continue.
Selling, general and administrative expenses increased $120,537 (38.3%)
to $435,545 for the three month period ended December 31, 1997 from $315,008 for
the same period in 1996. As a percentage of total revenue, selling, general and
administrative expenses were 37.9% for the three month period ended December 31,
1997 and 23.5% for the same period in 1996. The increase in overhead expenses
was due to the addition of overhead expenses attributed to Sonic of
approximately $150,000 which included approximately $14,500 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 $49,262. A debt conversion
inducement expense has been recorded in the current quarter with regard to the
conversion of the CVF debenture to Turbotak common shares.
Interest income increased $7,319 to $9,595 for the three month period
ended December 31, 1997 from $2,276 for the same period in 1996. The increase
was due to the approximate $4,000 interest received in addition to income tax
refunds received for prior years from the Canadian government.
-8-
<PAGE>
Six Months Ended December 31, 1997
Compared with Six Month Ended December 31, 1996
Original equipment revenue decreased $821,798 (39.6%) to $1,256,335
from $2,078,133 in the previous year. The decrease in revenues for the six month
period ended December 31, 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.
Rehabilitation, maintenance and spare parts revenue increased $48,139
(8.2%) to $635,726 for the six month period ended December 31, 1997 from
$587,587 for the same period a year earlier. The increase is the result of
increased shipment of both nozzle and scrubber spare parts in the period.
Cost of original equipment for the same period in 1996 ,decreased by
$471,542 (34.4%) to $900,498 for the six month period ended December 31, 1997
from $1,372,040. As a percentage of original equipment revenue, cost of original
equipment was 71.7% for the current six month period versus 66.0% for the same
period in 1996. The increase in the percentage of cost of original equipment
revenue was due to a product mix shift with the inclusion of larger jobs which
include low margin components in the current year-to-date figures.
Cost of rehabilitation, maintenance and spare parts increased by
$90,028 (31.3%) to $377,651 for the six months ended December 31, 1997 from
$287,623 for the same period in 1996. As a percentage of rehabilitation,
maintenance and spare parts revenue cost was 59.4% for the six months ended
December 31, 1997 and 49.0% in 1996. The increased costs are largely the result
of the increased revenue recorded. Included in the current revenue totals are a
number of orders for components that typically command a lower margin than
experienced in 1996.
Selling, general and administrative expenses increased by $262,027 for
the six month period ended December 31, 1997 to $772,966 from $510,939 in the
prior year. As a percentage of total revenue, selling, general and
administrative expenses were 40.9% for the current six month period and 19.2%
for the same period in 1996. The increase in overhead expenses was due to the
addition of Sonic expenses of approximately $270,000 which included $28,000
related to the merger of the two companies. Also impacting on the current totals
is a debt inducement charge totaling $94,675 regarding the conversion of the CVF
debenture to equity in the period. Amortization of the goodwill created by the
merger totaled $89,102.
Interest Income increased $61,117 to $64,431 for the six months ended
December 31, 1997 from $3,314 in the same period in 1996. The increase was due
to interest earned from proceeds from a private placement held in escrow pending
completion of the merger with Sonic.
Liquidity and Capital Resources
- -------------------------------
The Company had a negative cash flow from operating activities of
$1,355 for the six month period ended December 31, 1997 as compared to a
negative cash flow of $391,121 for the same period in 1996, an increase of
$389,766.
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 December 31, 1997, the Company had working capital of $85,239 as
compared to $522,849 at June 30, 1997, a decrease in working capital of
$437,610. The Company's current ratio (current assets divided by current
liabilities) was 1.06 and 1.47 at December 31, 1997 and June 30, 1997,
respectively.
-9-
<PAGE>
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 June 30, 1997, "Costs and estimated earnings in
excess of billings on uncompleted contracts" exceeded "Billing in excess of
costs and estimated earnings on uncompleted contracts" by $24,594, thereby
negatively effecting working capital. At December 31, 1997, "Billings in excess
of costs and estimated earnings on uncompleted contracts" exceeded "Costs and
estimated earnings in excess of billings on uncompleted contracts" by $32,113,
thereby favorably effecting working capital.
The Company's backlog at December 31, 1997 was approximately $215,682,
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 of April 30, 1997;
July 29, 1997
Signature
---------
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.
DATED: February 13, 1998
TURBOSONIC TECHNOLOGIES, INC.
by: /s/ PATRICK FORDE
----------------------
Patrick Forde, Treasurer
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-01-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 218,868
<SECURITIES> 0
<RECEIVABLES> 888,794
<ALLOWANCES> 0
<INVENTORY> 157,990
<CURRENT-ASSETS> 1,530,651
<PP&E> 168,217
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,618,505
<CURRENT-LIABILITIES> 1,445,412
<BONDS> 0
0
0
<COMMON> 1,000,000
<OTHER-SE> 1,173,093
<TOTAL-LIABILITY-AND-EQUITY> 3,618,505
<SALES> 1,892,061
<TOTAL-REVENUES> 1,892,061
<CGS> 1,278,149
<TOTAL-COSTS> 2,247,901
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (355,840)
<INTEREST-EXPENSE> 64,431
<INCOME-PRETAX> 291,409
<INCOME-TAX> 0
<INCOME-CONTINUING> 291,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,409)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
