<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 EXCHANGE
ACT OF 1934
For the quarterly period ended October 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 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)
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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 October 31, 1996 9,847,370 shares of common stock were outstanding.
<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
------------------------------ ----
Item 1.
Consolidated Statements of Operations
(Unaudited) for the Three Months and Six Months
Ended October 31, 1996 and 1995 3
Consolidated Balance Sheets
at October 31, 1996 (Unaudited) and
April 30, 1996 4
Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended
October 31, 1996 and 1995 5
Notes to Consolidated Financial Statements
(Unaudited) 6 - 8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 10
PART II - 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
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
October 31, 1995 October 31, 1996 October 31, 1995 October 31, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Original equipment revenue $ 586,951 $ 214,435 $ 852,539 $ 432, 233
Rehabilitation, maintenance and spare parts revenue 387,825 250,144 955,031 515,074
---------------- ---------------- ---------------- ----------------
Total revenue 974,776 464,579 1,807,570 947,307
---------------- ---------------- ---------------- ----------------
Cost of original equipment 302,916 151,212 602,934 277,161
Cost of rehabilitation, maintenance and spare parts 200,680 110,896 615,471 210,056
Loss on Cancellation of Contract 467,127 - 467,127 -
Selling, general and administrative expenses 855,076 298,501 1,702,542 654,453
---------------- ---------------- ---------------- ----------------
Total Costs 1,825,799 560,609 3,388,074 1,141,670
---------------- ---------------- ---------------- ----------------
(Loss from Operations)
(851,023) (96,030) (1,580,504) (194,363)
Other income (expense) (20,505) 24,316 (41,593) 30,104
---------------- ---------------- ---------------- ----------------
(Loss) before discontinued operations (871,528) (71,714) (1,622,097) (164,259)
Discontinued operations:
Loss from operations of discontinued operations - (75,501) - (167,817)
---------------- ---------------- ---------------- ----------------
Net (loss) ($871,528) ($147,215) ($1,622,097) ($332,076)
================ ================ ================ ================
Weighted average number of shares outstanding 5,214,435 9,847,737 5,207,022 9,847,737
================ ================ ================ ================
Net (loss) per share ($0.17) ($0.01) ($0.31) ($0.03)
================ ================ ================ ================
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1996 (Unaudited) and April 30, 1996 (Audited)
<TABLE>
<CAPTION>
October 31, 1996 April 30, 1996
(Unaudited) (Audited)
---------------- --------------
<S> <C> <C>
Assets
Current Assets
Cash $ 83,154 $ 27,266
Contracts and accounts receivable, net of allowance
for doubtful accounts of $75,000 and $75,000 247,191 488,994
Costs and estimated earnings in excess of billings
on uncompleted contracts 277,344 85,996
Inventories 105,325 102,915
Other current assets 36,069 20,730
Net assets of discontinued operations 392,777 392,777
---------------- --------------
Total current assets 1,141,860 $ 1,118,678
Equipment and leasehold improvements, at cost,
net of accumulated depreciation 121,050 227,408
Due from related parties 17,231 20,698
Investment in unconsolidated subsidiaries 10,746 10,746
Intangible assets, less accumulated amortization 724,639 770,073
Other assets 118,356 116,835
---------------- --------------
Total Assets 2,133,882 $ 2,264,438
================ ==============
Liabilities and Stockholder's Equity (deficit)
Current liabilities
Note payable $ 946,996 $ 900,000
Current portion of capital lease obligation 5,298 6,605
Accounts payable - trade 1,768,022 1,742,861
Accrued expenses 600,792 562,557
Provisions for loss on disposal of discontinued operations 277,938 15,632
Billings in excess of costs and estimated earnings on
uncompleted contracts 108,067 445,755
Total current liabilities 3,707,113 3,673,410
---------------- --------------
Stockholder's equity (deficit)
Common stock, par value $.10 per share,
10,000,000 shares authorized, 9,847,370 shares
issued and outstanding 984,737 984,737
Capital in excess of par value 9,688,122 9,688,122
Accumulated deficit (12,246,090) (12,081,831)
---------------- --------------
Total stockholder's equity (deficit) (1,573,231) (1,408,972)
---------------- --------------
Total Liabilities and Stockholder's Equity $ 2,133,882 $ 2,264,438
================ ==============
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Nine Months Ended October 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($332,076) ( $1,622,097)
------------- ------------
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities
Depreciation and amortization 80,000 160,084
(Increase) decrease in:
Contracts and accounts receivable 241,803 (25,959)
Costs and estimated earnings in excess of billings on
uncompleted contracts (191,348) 624,938
Inventories (2,410) (171,086)
Other current assets (15,339) (32,721)
Other assets (1,520) (12,620)
Due from related parties 3,466 13,407
Intangible assets - (12,862)
Increase (decrease) in:
Accounts payable - trade 25,161 76,847
Accrued expenses 38,235 (97,879)
Billings in excess of costs and estimated
earnings on uncompleted contracts 92,435 141,370
------------- ------------
Total adjustments 270,483 663,519
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Net cash (used) provided by operating
operating activities (61,593) (958,578)
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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 -
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock subscriptions - 1,038,250
New principal (payments) proceeds on note payable 46,996 308,551
Principal payments on capital lease obligation (1,307) (8,831)
------------- ------------
Net cash provided (used) by financing activities 45,689 1,337,970
------------- ------------
Net increase (decrease) in cash 55,888 379,392
Cash - beginning of period 27,266 232,509
------------- ------------
Cash - end of period $ 83,154 $ 611,901
============= ============
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 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 and six month periods ended
October 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending April 30, 1997. 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-K for
the year ended April 30, 1996.
Note 2. Costs and Estimated Earnings on Uncompleted Contracts
-----------------------------------------------------
<TABLE>
<CAPTION>
October 31, 1996 April 30, 1996
---------------- --------------
<S> <C> <C>
Cost incurred on uncompleted contracts $ 135,298 $ 74,590
Estimated earnings (loss) 93,714 107,039
---------------- --------------
229,012 181,629
Less billings to date (59,735) (111,265)
---------------- --------------
$ 169,277 $ 70,364
================ ==============
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 277,344 $ 85,996
Billings in excess of costs and estimated
earnings on uncompleted contracts (108,067) (15,632)
---------------- --------------
$ 169,277 $ 70,364
================ ==============
</TABLE>
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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.
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<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 October 31, 1996
Compared with Three Months Ended October 31, 1995
Original equipment revenue decreased by $372,516 (63%) to $214,435 for the
three month period ended October 31, 1996 from $586,951 for the same period in
1995. Management believes that such decrease is primarily attributable to the
reluctance of both existing and potential customers to purchase the Company's
products and systems given the uncertainty during fiscal 1997 of the Company's
emergence from its then pending Chapter 11 reorganization proceeding under the
Federal Bankruptcy Code.
Rehabilitation, maintenance and spare parts revenue decreased by $137,681
(35%) to
$250,144 for the three month period ended October 31, 1996 from $387,825 for the
same period in 1995. This decrease was due to a general decrease in sales of
spare parts.
Cost of original equipment decreased by $151,704 (50%) to $151,212 for the
three month period ended October 31, 1996 from $302,916 for the same period in
1995. As a percentage of original equipment revenue, cost of original equipment
was 70.5% for the three month period ended October 31, 1996 and 51.6% for the
same period in 1995. The increase in the percentage of original equipment
revenue was due to the decrease in sales volume in the 1996 period relative to
fixed and semi-fixed costs absorbed in the cost of original equipment.
Selling, general and administration expenses decreased by $556,575 (65%)
to $298,501 for the three month period ended October 31, 1996 from $855,076 for
the same period in 1995. Due to the Company's substantial and ongoing losses
over the last several years and its decision to convert a voluntary Chapter 11
reorganization proceeding under the Federal Bankruptcy Code, 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 to keep the Company functioning during the reorganization period.
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<PAGE>
Six Months Ended October 31, 1996
Compared with the Six Months Ended
October 31, 1995
Original equipment revenue decreased by $420,306 (49%) to $432,233 for the
six months ended October 31, 1996 from $852,539 for the same period in 1995.
Management believes that such decrease is primarily attributable to the
reluctance of both existing and potential customers to purchase the Company's
products and systems given the uncertainty during fiscal 1997 of the Company's
emergence from its then pending Chapter 11 reorganization proceeding under the
Federal Bankruptcy Code.
Rehabilitation, maintenance, and spare parts revenue decreased $439,957
(46%) to $515,074 for the six months ended October 31, 1996 from $955,031 for
the same period in 1995. Approximately $250,000 of the decrease was attributable
to a service contract for a major oil company in the 1995 period. Spare parts
revenues also decreased during the six month period ended October 31, 1996.
Cost of original equipment decreased by $325,773 (54%) to $277,161 for the
six month period ended October 31, 1996 from $602,934 for the same period in
1995. As a percentage of original equipment revenue, cost of original equipment
was 64% for the six month period ended October 31, 1996 and 70.7% for the same
period in 1995.
Selling, general and administrative expenses decreased by $1,048,089 (62%)
to $654,453 for the six month period ended October 31, 1996 from $1,702,542 for
the same period in 1995. Due to the Company's substantial and ongoing losses
over the last several years and its decision to convert to a voluntary Chapter
11 reorganization proceeding under the Federal Bankruptcy Code, 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 to keep the Company functioning during the reorganization
period.
Liquidity and Capital Resources
The Company had a negative cash flow from operating activities of $61,593
for the six month period ended October 31, 1996 as compared to a negative cash
flow of $958,578 for the six month period ended October 31, 1995, a decrease of
$896,985.
At October 31, 1996, the Company had negative working capital of
$2,565,253 as compared to $2,554,732 at April 30, 1996, an increase in negative
working capital of $10,521. The Company's current ratio (current assets divided
by current liabilities) was .31 and .30 at October 31, 1996 and April 30, 1996,
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
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<PAGE>
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 October 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 $169,277 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).
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<PAGE>
Part II - Other Information
- ---------------------------
Item 1. Chapter 7 Bankruptcy Case filed in July 1996 subsequently
converted to a Chapter 11 Bankruptcy Proceeding
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. None
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<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
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 83,154
<SECURITIES> 0
<RECEIVABLES> 322,191
<ALLOWANCES> 75,000
<INVENTORY> 105,325
<CURRENT-ASSETS> 1,141,860
<PP&E> 121,050
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,133,882
<CURRENT-LIABILITIES> 3,707,113
<BONDS> 0
0
0
<COMMON> 10,672,859
<OTHER-SE> (12,246,090)
<TOTAL-LIABILITY-AND-EQUITY> 2,133,882
<SALES> 464,579
<TOTAL-REVENUES> 464,579
<CGS> 262,108
<TOTAL-COSTS> 560,609
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (71,714)
<DISCONTINUED> (75,501)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147,215)
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
