<PAGE>
UNITED STATES 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 EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1996
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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 to
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Commission File Number 0 - 21832
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TurboSonic Technologies, Inc.
formerly Sonic Environmental Systems, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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)
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(Former name, former address and formal fiscal year, if changed since last
report)
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 (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.
[X]Yes [ ] 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. [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 July 31, 1996 9,847,370 shares of common stock were outstanding.
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
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Item 1.
Consolidated Statements of Operations
(Unaudited) for the Three Months
Ended July 31, 1996 and 1995 1
Consolidated Balance Sheets
at July 31, 1996 (Unaudited) and
April 30, 1996 2
Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended
July 31, 1996 and 1995 3
Notes to Consolidated Financial Statements
(Unaudited) 4 - 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6 - 7
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a
Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signature
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
July 31, 1996 July 31, 1995
--------------- -------------
<S> <C> <C>
Original equipment revenue $ 217,798 $ 265,588
Rehabilitation, maintenance and spare parts revenue 264,930 567,206
--------------- -------------
Total revenue 482,728 832,794
--------------- -------------
Cost of original equipment 125,949 300,018
Cost of rehabilitation, maintenance and spare parts 99,160 414,791
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Total cost of goods sold 225,109 714,809
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Gross Profit 257,619 117,985
Selling, general and administrative expenses 355,952 847,466
--------------- -------------
(Loss from Operations) (98,333) (729,481)
Other income (expense) 5,788 (21,088)
--------------- -------------
Loss before discontinued operations (92,545) ($750,569)
Discontinued Operations:
Loss from operation of discontinued operations (92,316) -
--------------- -------------
Net (loss) ($184,861) ($750,569)
=============== =============
Weighted average number of shares outstanding 9,847,737 5,199,689
=============== =============
Net (loss) per share ($0.02) ($0.14)
=============== =============
</TABLE>
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31, 1996 April 30, 1996
(Unaudited) (Audited)
--------------- --------------
Assets
Current Assets
<S> <C> <C>
Cash $ 31,143 $ 27,266
Contracts and accounts receivable, net of allowance
for doubtful accounts of $75,000 and $75,000 217,652 488,994
Costs and estimated earnings in excess of billings
on uncompleted contracts 165,344 85,996
Inventories 103,199 102,915
Other current assets 43,896 20,730
Net assets of discontinued operations 392,777 392,777
--------------- --------------
Total current assets 954,011 1,118,678
Equipment and leasehold improvements, at cost,
net of accumulated depreciation 137,050 227,408
Due from related parties 17,231 20,698
Investment in unconsolidated subsidiaries 10,746 10,746
Intangible assets, less accumulated amortization 748,639 770,073
Other assets 120,855 116,835
--------------- --------------
Total Assets 1,988,532 $ 2,264,438
=============== ==============
Liabilities and Stockholder's Equity (Deficit)
Current liabilities
Notes payable $ 791,996 $ 900,000
Current portion of capital lease obligation 5,298 6,605
Accounts payable - trade 1,699,421 1,742,861
Accrued expenses 621,835 562,557
Billings in excess of costs and estimated earnings on
uncompleted contracts 18,060 15,632
Provision for loss on disposal of discontinued operations 353,439 445,755
Total current liabilities 3,490,049 3,673,410
--------------- --------------
Stockholder's equity (deficit)
Common stock, par value $.10 per share,
30,000,000 shares authorized and 9,847,370
shares issued and outstanding 984,737 984,737
Additional paid in capital 9,688,122 9,688,122
Accumulated deficit (12,174,376) (12,081,831)
Total stockholder's equity (deficit) (1,501,517) (1,408,972)
--------------- --------------
Total Liabilities and Stockholder's Equity $ 1,988,532 $ 2,264,438
=============== ==============
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Three Months Ended July 31,
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---------- --------
Cash flows from operating activities
Net income (loss) ($184,861) ($750,569)
----------- --------
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities:
Depreciation and amortization 40,000 79,400
(Increase) decrease in:
Contracts and accounts receivable 271,342 204,866
Costs and estimated earnings in excess of billings on
uncompleted contracts (79,348) (8,334)
Inventories (284) (18,984)
Other current assets (23,166) (17,613)
Other assets (4,020) (450)
Due from related parties 3,467 16,672
Increase (decrease) in:
Accounts payable - trade (43,440) (79,002)
Accrued expenses 59,278 (115,468)
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,428 147,673
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Total adjustments 226,257 208,760
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Net cash (used) provided by operating
operating activities 41,396 (541,809)
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Cash flows from investing activities:
Cancellation of notes payable 71,792 -
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Net cash (used) provided by investing activities 71,792 -
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Cash flows from financing activities:
New principal (payments) proceeds on note payable (108,004) 358,551
Principal payments on capital lease obligation (1,307) (4,347)
----------- --------
Net cash provided (used) by financing activities (109,311) 354,204
----------- --------
Net increase (decrease) in cash 3,877 (187,605)
Cash - beginning of period 27,266 232,509
----------- --------
Cash - end of period 31,143 $ 44,904
=========== ========
</TABLE>
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 31, 1996
(Unaudited)
Note 1 Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to From 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 July 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending April Company's annual report on Form 10-K for the year ended April 30,
1996.
Note 2. Costs and Estimated Earnings on Uncompleted Contracts
-----------------------------------------------------
July 31, 1996 April 30, 1996
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Cost incurred on uncompleted contracts $128,754 $ 74,590
Estimated earnings 111,861 107,039
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240,615 181,629
Less billings to date (93,331) (111,265)
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$147,284 $ 70,364
============== ===============
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $165,344 $ 85,996
Billings in excess of costs and estimated
earnings on uncompleted contracts (18,060) (15,632)
-------------- ---------------
$147,284 $ 70,364
============== ===============
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<PAGE>
Note 3. Other Events
------------
During the fiscal year 1997, the Company entered into certain
transactions and agreements involving Turbotak Technologies, Inc. ["Turbotak"],
a Canadian corporation, that resulted in the stockholders of Turbotak acquiring
a controlling interest in the Company subsequent to April 30, 1997.
On September 16, 1996, the Company consented to the entry of an order
for Relief under Chapter 11 of the United States Bankruptcy Code. On July 3,
1997 the Bankruptcy Court confirmed the Debtor's First Amended Plan of
Reorganization ["Plan"]. Subsequent to the approval, the Plan was modified and a
Combination Agreement was drawn up between the Company and Turbotak which was
approved by the stockholders of Turbotak on August 25, 1997.
Pursuant to the Plan and Combination Agreement, effective August 27,
1997, the transaction date, the Company amended its certificate of incorporation
to change its name to TurboSonic Technologies, Inc. ["TurboSonic"]. All existing
and outstanding stock, warrants and options of the Company were terminated and
cancelled. TurboSonic has authorized share capital of 30,000,000 common shares.
TurboSonic incorporated a subsidiary corporation [TurboSonic Canada] in the
Province of Ontario, Canada which was authorized to issue Class A and Class B
common shares. TurboSonic subscribed for 100% of TurboSonic Canada's Class A
shares in exchange for a nominal capital contribution.
Also on August 27, 1997, the stockholders of Turbotak exchanged their
shares for TurboSonic Canada's Class B shares, which were distributed to each
stockholder of Turbotak on a pro rata basis. As a result of this exchange,
Turbotak became a wholly-owned subsidiary of TurboSonic Canada. The Class B
shares of TurboSonic Canada are exchangeable, at the election of the holders of
such shares, into an equivalent number of such shares of TurboSonic.
The exchangeable shares of TurboSonic Canada represent approximately
82% of the outstanding shares of TurboSonic. Approximately 13% of the shares of
TurboSonic were issued to the existing stockholders of the Company and the
balance were issued in accordance with the Plan to unsecured creditors and other
identified interests.
Turbotak acquired a note payable to the Company's bank which amounted
to $940,000 at April 30, 1997 including accrued interest. In accordance with the
Plan, the note payable was extinguished. In fiscal 1997, Turbotak advanced
$100,000 to the Company on a non-interest bearing basis. This amount was not
extinguished.
In accordance with the terms of the Plan, accounts payable in the
amount of approximately $1,713,000 were extinguished. This amount is net of the
promissory note of $100,000 and the cash held in trust of $100,000 which was
assigned to the creditors' committee. The unsecured creditors, as consideration
for the extinguishment of debt, received approximately 5% of the outstanding
shares of TurboSonic.
- 7 -
<PAGE>
Management believes that the reorganization will enable the Company to
continue to operate as a viable entity. Consequently, these consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Three Months Ended July 31, 1996
Compared with Three Months Ended July 31, 1995
Original equipment revenue decreased by $47,790 (18%) to $217,798 for the
three month period ended July 31, 1996 from $265,588 for the same period in
1995. Revenue from long-term contracts is recognized using the percentage of
completion method of accounting where estimates of costs to complete and the
extent of progress toward completion are reasonably dependable. For those
contracts, however, that utilize a new technology or require filtration of a
material with which the Company has not had previous experience, the completed
contract method is used. No revenue or costs were recognized under the
completed contract method during the three months ended July 31, 1996 and 1995.
Rehabilitation, maintenance and spare parts revenue decreased by $302,276
(53%) to $264,930 for the three month period ended July 31, 1996 from $567,206
for the same period in 1995. This decrease was due to a service contract for
approximately $183,000 from a major oil company that was included in the 1995
period and a general decrease in sales of spare parts caused by the Company's
financial problems.
Cost of original equipment decreased by $174,069 (58%) to $125,949 for the
three month period ended July 31, 1996 from $300,018 for the same period in
1995. As a percentage of original equipment revenue, cost of original equipment
was 58% for the three month period ended July 31, 1996 and 113% for the same
period in 1995. The improvement in the percentage of cost of original equipment
revenue was due to significant cost overruns on one of the Company's air
pollution control contracts in the 1995 period.
Selling, general and administration expenses decreased by $491,514 (58%)
to $355,952 for the three month period ended July 31, 1996 from $847,466 for the
same period in 1995. Due to the Company's substantial and ongoing losses over
the last several years, the Company further reduced selling, general and
administrative expenses by laying off additional personnel and by not incurring
any expenses unless they were absolutely necessary.
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<PAGE>
Liquidity and Capital Resources
The Company had a positive cash flow from operating activities of $41,396
for the three month period ended July 31, 1996 as compared to a negative cash
flow of $541,809 for the three month period ended July 31, 1995, an increase of
$583,205.
At July 31, 1996, the Company had negative working capital of $2,536,038
as compared to $2,554,732 at April 30, 1995, an decrease in negative working
capital of $18,694. The Company's current ratio (current assets divided by
current liabilities) was .27 and .30 at July 31, 1996 and April 30, 1995,
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 July 31, 1996 and April 30, 1995, "Costs and estimated
earnings in excess of billings on uncompleted contracts" exceeded "Billings in
excess of costs and estimated earnings on uncompleted contracts" by $147,284 and
$70,364, respectively, thereby negatively effecting working capital.
Original equipment revenue continues to be impacted negatively by delays
related to permitting problems and enforcement of existing environmental
regulations. The Company believes that these conditions will continue to
adversely impact its domestic sales for the proximate future.
The Company's $1,000,000 Revolving Credit Agreement ("Agreement") with a
bank expired in September 1995. The bank agreed in October 1995 to extend the
credit agreement until June 30, 1996, but the Company's right to repay and
reborrow hereunder was terminated and principal amounts repaid could not be
reborrowed. The Company made a principal payment to the bank in October 1995 of
$50,000 and further agreed to make monthly principal payments of $10,000 through
March 1996 and monthly principal payments of $20,000 for the months of April,
May and June of 1996. The bank hereupon waived all other default provisions in
the agreement. The Company made payments through March 1996 but was unable to
make the agreed upon subsequent payments. Subsequent to April 30, 1996,
Turbotak purchased the bank's creditor position. Upon the Effective Date, the
Note was extinguished.
Due to the substantial and ongoing losses experienced by the Company, the
Company, on September 16, 1996, converted an involuntary Chapter 7 Bankruptcy
case initiated against it by certain of its creditors in July 1996 to a
voluntary Chapter 11 reorganization proceeding under the Federal Bankruptcy
Code. On September 3, 1996, the Company signed an agreement with Turbotak which
contemplated a merger of the two companies. A plan of reorganization, calling
for a consolidation of the Company and Turbotak, was filed with the Bankruptcy
court by the Company in March 1997 and, in an amended and modified form, was
approved by the Court in July 1997. Such consolidation and the resulting
acquisition by Turbotak's shareholders of an approximately 82% equity interest
in the Company was consummated on August 27, 1997 (see Note 3 - Other Events).
- 9 -
<PAGE>
Part II - Other Information
- ---------------------------
Item 1. Chapter 7 Bankruptcy Case initiated July 1996
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. None
- 10 -
<PAGE>
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: March 5, 1999
TURBOSONIC TECHNOLOGIES, INC.
by: /s/ Patrick J. Forde
--------------------
Patrick J. Forde
Treasurer and Principal Financial and Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 31,143
<SECURITIES> 0
<RECEIVABLES> 292,652
<ALLOWANCES> 75,000
<INVENTORY> 103,199
<CURRENT-ASSETS> 954,011
<PP&E> 137,050
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,988,532
<CURRENT-LIABILITIES> 3,490,049
<BONDS> 0
0
0
<COMMON> 10,672,859
<OTHER-SE> (12,174,366)
<TOTAL-LIABILITY-AND-EQUITY> 1,988,532
<SALES> 482,728
<TOTAL-REVENUES> 482,728
<CGS> 225,109
<TOTAL-COSTS> 581,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (92,545)
<DISCONTINUED> (93,316)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (184,861)
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
