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 March 31, 2000
------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
----------------------------
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 of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
550 Parkside Drive, Suite A-14,
Waterloo, Ontario, Canada N2L 5V4
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
519-885-5513
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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.
[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 the 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 March 31, 2000 10,000,000
shares of common stock were outstanding.
<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Form 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1.
Consolidated statement of Operations
(Unaudited) for the Three Months and the Nine Months
Ended March 31, 2000 and March 31, 1999 3
Consolidated Balance Sheets
At March 31, 2000 (Unaudited) and June 30, 1999 (Audited) 4
Consolidated Statements of Cash Flow
(Unaudited) for the Nine Months Ended
March 31, 2000 and March 31, 1999 5
Notes to Consolidated Financial Statements
(Unaudited) 6 - 8
ITEM 2.
Management's Discussion and Analysis of
Financial Conditions 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 11
<PAGE>
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
US dollars (Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
March 31, March 31, March 31, March 31,
------------- ------------- ------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nozzle Systems revenue $ 946,642 $ 696,064 $ 2,542,220 $ 1,884,373
Scrubber Systems revenue 970,844 347,306 2,024,419 1,179,471
----------- ------------ ------------- ------------
Total Revenue 1,917,486 1,043,370 4,566,639 3,063,844
----------- ------------ ------------- ------------
Cost of Nozzle Systems 569,342 415,616 1,698,325 1,135,302
Cost of Scrubber Systems 806,195 197,046 1,549,350 728,528
----------- ------------ ------------- ------------
Total Cost of goods sold 1,375,537 612,662 3,247,675 1,863,830
----------- ------------ ------------- ------------
Gross Profit 541,949 430,708 1,318,964 1,200,014
Selling, general and administrative
expenses 409,179 374,000 1,072,845 988,365
Depreciation and amortization 47,895 48,973 143,849 146,152
----------- ------------ ------------- ------------
Total Expenses 457,074 422,973 1,216,694 1,134,517
----------- ------------ ------------- ------------
Income from Operations 84,875 7,735 102,270 65,497
Interest (Expense) (9,679) (4,528) (26,027) (14,034)
----------- ------------ ------------- ------------
Net Income before taxes 75,196 3,207 76,243 51,463
----------- ------------ ------------- ------------
Tax Provision 0 0 0 0
----------- ------------ ------------- ------------
Net Income $ 75,196 $ 3,207 $ 76,243 $ 51,463
=========== ============ ============= ============
Weighted average number of shares
outstanding 10,000,000 10,000,000 10,000,000 10,000,000
Incremental shares using
treasury method 10,500,000 10,500,000 10,500,000 10,500,000
Basic EPS 0.008 0.000 0.008 0.005
Diluted EPS 0.007 0.000 0.007 0.005
</TABLE>
- 3 -
<PAGE>
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(US dollars)
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- ---------------
(Unaudited) (Audited)
Assets -------------- --------------
Current Assets:
<S> <C> <C>
Cash $ 456,892 $ 310,944
Contracts and accounts receivable, net of allowance
for doubtful accounts of $66,764 714,178 475,804
Deferred contract costs and unbilled revenue 688,419 106,275
Inventories 120,559 126,764
Income Tax Receivable 27,510 76,179
Other current assets
59,594 74,599
--------------- --------------
Total current assets 2,067,152 1,170,565
Equipment and leasehold improvements,
at cost, net of accumulated depreciation 88,382 89,519
Patents, less accumulated amortization 1 1
Goodwill, net of accumulated amortization 1,080,387 1,202,374
Other assets 20,778 20,415
--------------- ---------------
Total Assets $ 3,256,700 $ 2,482,874
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable & accrued expenses $ 743,760 $ 544,822
Billings in excess of costs and estimated
earnings on uncompleted contracts 643,200 143,529
--------------- ---------------
Total Current Liabilities 1,386,960 688,351
Accrued Expenses 84,656 113,206
Loans from Shareholders [Note 4] 272,773 266,964
Other Loans 18,528 0
--------------- --------------
1,762,917 1,068,521
--------------- --------------
Stockholders' Equity:
Authorized Share Capital
21,800,000 common shares par value $0.10 per share
8,200,000 exchangeable common shares par value
$0.10 per share
Issued Share Capital
1,800,000 common shares - -
8,200,000 exchangeable shares
2,299,096 2,299,096
Additional paid - in capital [Note 4] 1,448,038 1,448,038
--------------- --------------
3,747,134 3,747,134
Currency translation adjustments (17,751) (20,936)
Accumulated deficit (2,235,600) (2,311,845)
--------------- --------------
Total stockholders' equity 1,493,783 1,414,353
--------------- --------------
Total Liabilities and Stockholders' Equity $ 3,256,700 $ 2,482,874
=============== ==============
</TABLE>
- 4 -
<PAGE>
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the nine months ended March 31, 2000 and March 31, 1999
(US dollars) (Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 76,243 $ 51,463
Add (deduct) changes to operations not requiring a current cash payment:
Depreciation and amortization 149,658 146,152
---------------- ---------------
225,901 197,615
---------------- ---------------
Changes in non-cash working capital balances Related to operations:
(Increase) in accounts receivable (238,374) (311,229)
Decrease in income tax recoverable 48,669 245
Decrease in inventories 6,205 10,451
(Increase) in deferred contract costs
and unbilled revenue (582,144) (60,935)
Decrease in other current assets 15,005 17,210
(Increase) in other assets (364) 0
Increase in accounts payable and
accrued charges 170,388 (23,788)
Increase in unearned revenue and
contract advances 499,671 13,418
----------------
(80,944) (354,628)
---------------- ---------------
Net cash provided by (applied to) operating activities 144,957 (157,013)
---------------- ---------------
Cash flows from investing activities:
Purchase of fixed assets (6,427) (11,650)
---------------- ---------------
Net cash (applied to) investing activities (6,427) (11,650)
---------------- ---------------
Cash flows from financing activities:
Shareholders loans 0 198,847
---------------- ---------------
Net cash provided by financing activities 0 198,847
---------------- ---------------
Effect of exchange rate change on cash 7,418 3,843
----------------
Net cash provided during year 145,948 34,027
Cash - beginning of period 310,944 69,277
---------------- ---------------
Cash - end of period 456,892 103,304
================ ===============
</TABLE>
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<PAGE>
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
Note 1.
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 and
dust suppression systems to ameliorate or abate industrial environmental
problems. Sonic Environmental Systems, Inc. (Sonic) was consolidated with
Turbotak Technologies, Inc. (Turbotak) on August 27, 1997 (the
"Consolidation") pursuant to a Plan of Reorganization that was approved by the
Federal Bankruptcy Court on July 3, 1997 (see Note 3).
The Consolidation was treated for accounting purposes as a purchase by Turbotak
of Sonic in a reverse acquisition. Consequently, the accompanying consolidated
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 nine month period ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 2000. 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 June 30, 1999.
- 6 -
<PAGE>
Note 2. Costs and Estimated Earnings on Uncompleted Contracts
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 2,962,144 $ 1,339,702
Estimated earnings 1,155,314 518,467
------------- ------------
4,117,458 1,858,169
Less: billings to date 4,072,239 1,895,423
------------- ------------
45,219 (37,254)
============= ============
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts 688,419 106,275
Billings in excess of costs and estimated
earnings on uncompleted contracts
(643,200) (143,529)
------------- ------------
45,219 (37,254)
============= ============
</TABLE>
Note 3. Other Events
Contemporaneously with the Company's filing on September 16, 1996 of a voluntary
Chapter 11 reorganization proceeding under the Federal Bankruptcy Code, the
Company entered into an agreement with Turbotak Technologies, Inc. ("Turbotak"),
a privately held Canadian company engaged in the design, manufacture, and
servicing of air pollution control equipment, which, among other matters,
proposed a Chapter 11 reorganization plan which would provide for a merger of
the Company and Turbotak. The Company's plan of reorganization (hereinafter
referred to as the "Plan") was confirmed by the Bankruptcy Court on July 3, 1997
following requisite creditor approval. The Plan provided for the extinguishments
of all of the 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 (82%) would be
owned by Turbotak's shareholders, and 1,255,700 shares or approximately 12.6%
would be issued to the existing shareholders on a pro-rata basis. The balance of
such 10,000,000 shares would be issued to the Company's existing creditors and
others as described in the Plan. Consummation of the Consolidation took place on
August 27, 1997 and resulted in the Company's subsequent discharge from its
Chapter 11 Proceeding. Reference is made to the Company's Current Report on Form
8-K dated July 29, 1997 and the several exhibits thereto for more detailed
information about the Consolidation.
- 7 -
<PAGE>
Note 4. Loans from Shareholders
An officer and director of the Company, together with another shareholder of the
Company, lent an aggregate of Canadian $200,000 (representing $129,400 at the
exchange rate of $0.647 at such date) to the Company on October 21, 1998.
Another officer and director and another shareholder each lent Canadian $100,000
(representing $65,490 and $66,620 at the exchange rate of $0.6549 and $0.6662 at
the date of their respective loans) to the Company on January 4, 1999 and April
9, 1999, respectively. All of these loans are repayable two years from the date
of the loan, bear interest at 10% per annum and are collateralized by a lien
upon and security interest in substantially all of the Company's assets. As an
inducement to advance these sums to the Company, the lenders were granted
detachable warrants to purchase an aggregate of 400,000 common shares of the
Company at an initial exercise price of $0.50 through October 31, 2000,
increasing to $0.75 thereafter through October 31, 2002 and to $1.00 thereafter
through October 31, 2003, respectively. The warrants, whose initial exercise
price was greater than the market price of the Company's common shares on the
date such warrants were granted, expire on the earlier of October 31, 2003 or 30
days after the Company's shares have closed at a price per share above $1.50 for
10 consecutive trading days on the NASDAQ over-the-counter Bulletin Board. In
accordance with APB 14, a portion of the proceeds of the debt securities issued
with detachable stock purchase warrants, which is allocated as the fair-value of
the warrants, has been accounted for as paid-in capital. The related discount on
the debt securities will be amortized over the remaining period to maturity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Three Months ended March 31, 2000
Compared with Three Months ended March 31, 1999
Nozzle systems revenue increased by $250,578 (36.0%) to $946,642 for the three
month period ended March 31, 2000 from $696,064 for the same period in 1999.
Increased volume in evaporative cooling system opportunities, including cooling
towers, has contributed to the increased revenue reported.
Scrubber system revenue increased by $623,538 (179.5%) to $970,844 for the three
month period ended March 31, 2000 from $347,306 for the same period one year
earlier. An increase in the number of scrubber/WESP projects being processed has
led to the increased revenue recorded for the period.
Cost of nozzle systems increased by $153,726 (37.0%) to $569,342 for the three
months ended March 31, 2000 from $415,616 for the same period in 1999. As a
percentage of nozzle systems revenue, the cost of nozzle systems was 60.1% for
the three month period ended March 31, 2000 and 59.7% for the same period in
1999. The increased nozzle system costs is the result of the increased sales
volume discussed above.
Cost of scrubber systems increased by $609,149 (309.1%) to $806,195 for the
three month period ended March 31, 2000 from $197,046 for the same period one
year earlier. As a percentage of scrubber systems revenue, the cost of scrubber
systems was 83.0% versus 56.7% for the same period in 1999. The increased
scrubber system costs is the result of the increased sales volume discussed
above. The increased percent to sales is the result of favourable variances in
1999 on a number of completed scrubber projects, not duplicated in 2000,
together with lower margins on the larger projects in progress in the current
fiscal period.
Selling, general and administrative expenses increased $35,179 (9.4%) to
$409,179 for the three month period ended March 31, 2000 from $374,000 for the
same period in 1998. As a percentage of total revenue, selling, general and
administrative expenses were 21.3% for the quarter ended March 31, 2000 and
35.9% for the same period in 1999. This decrease in percent to revenue is the
result of the increased volume of revenue for the current period.
Amortization of goodwill, which was created as the result of the merger with
Sonic Environmental Systems, Inc., amounted to $39,099 in the current quarter.
- 8 -
<PAGE>
Nine Months ended March 31, 2000
Compared to Nine Months ended March 31, 1999
Nozzle systems revenue increased by $657,847 (34.9%) to $2,542,220 for the nine
month period ended March 31, 2000 compared to $1,884,373 for the same period in
1999. Increased evaporative cooling system opportunities, including cooling
towers, has contributed to the increased revenue recorded in the current period.
Scrubber system revenue increased by $844,948 (71.6%) to $2,024,419 for the nine
months ended March 31, 2000 from $1,179,471 for the nine months ended March 31,
1999. An increase in the number of scrubber/WESP projects in progress accounts
for the greater revenue volume recorded in the current quarter.
Cost of nozzle systems increased by $563,023 (49.6%) to $1,698,325 for the nine
month period ended March 31, 2000 compared to $1,135,302 for the same period in
1999. As a percentage of nozzle system revenue, the cost of nozzle systems was
66.8% for the nine months ended March 31, 2000 and 60.3% for 1999. The increased
nozzle system cost is the result of the increased revenue volume discussed
above. The increased percent to revenue is the result of a combination of lower
than average margin on one of the large nozzle systems and favourable variances
on a number of projects completed in 1999 and not duplicated in 2000.
Cost of scrubber systems increased by $820,822 (112.7%) to $1,549,350 for the
nine month period ended March 31, 2000 from $728,528 in 1999. As a percentage of
scrubber systems revenue, the cost of scrubber systems was 76.5% for the current
period versus 61.8% in 1999. The increased scrubber system cost is the result of
the increased revenue volume discussed above. The increased percent to revenue
for the 1999 period is the result of favourable variances on a number of
projects completed in 1998 and not repeated in 1999, in addition to lower
margins on the large projects currently in progress.
Selling, general and administrative expenses increased $84,480 (8.6%) to
$1,072,845 for the nine month period ended March 31, 2000 compared to $988,365
for the same period in 1999. As a percent of total revenue, selling, general and
administrative expenses were 23.5% compared with 32.3% for the same period in
1999.
Amortization of goodwill, which was created as the result of the merger with
Sonic Environmental Systems, Inc., amounted to $117,443 in the nine months ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a positive cash flow from operating activities of $144,957 for
the nine month period ended March 31, 2000 as compared to negative cash flow of
$157,013 for the same period in 1999, an increase in cash flow of $296,161.
At March 31, 2000, the Company had working capital of $680,192, as compared to
working capital as at June 30, 1999 of $482,214, an increase of $198,068. The
company's current ratio (current assets divided by current liabilities) was 1.49
and 1.70 as at March 31, 2000 and June 30, 1999, 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 June 30, 1999, "Unearned revenue and contract advances"
exceeded "Deferred costs and unbilled revenue" by $37,254, thereby negatively
affecting working capital. At March 31, 2000, "Deferred costs and unbilled
revenue" exceeded "Unearned revenue and contract advances" by $45,219, thereby
positively affecting working capital.
As a result of the loss from operations incurred in the year ended June 30,
1998, the Company depleted its cash resources and had a working capital
deficiency as at June 30, 1998 of $138,435. As a consequence of such deficiency,
Donald R. Spink, Sr. and Patrick J. Forde, officers and directors
- 9 -
<PAGE>
of the Company, together with two shareholders of the Company, lent an aggregate
of Canadian $400,000 (representing $261,510 at the exchange rate at the date of
each loan) to the Company (see Note 4 - Loans from Shareholders). These lenders
have indicated their intention to provide financial support to the Company, if
required, to meet working capital needs during the next year.
The Company's backlog as at March 31, 2000 was approximately $1,967,000, of
which the Company believes $1,250,000 will be shipped prior to the end of the
current fiscal year. The Company believes that the projected cash generated from
operations and the proceeds from the above mentioned financing will be
sufficient to meet its cash needs through the end of the fiscal year ended June
30, 2000.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company does not engage in trading market risk sensitive instruments and
does not purchase hedging instruments or "other than trading" instruments that
are likely to expose the Company to market risk, whether interest rate, foreign
currency exchange, commodity price or equity prices risk. The Company has
purchased no options and entered into no swaps. The Company has no bank
borrowing facility which could subject it to the risk of interest rate
fluctuations.
YEAR 2000 STATUS
Although the Company believes that it has adequately addressed the Year 2000
issue, having experienced no failures or disruptions in either its internal
operating systems or its products and systems or in those of its third party
vendors or suppliers either on or after January 1, 2000, it is possible that
future failures or disruptions stemming from Year 2000 issues may yet result in
the Company's inability to process transactions, send invoices, accept customer
orders or timely provide customers with products and services.
- 10 -
<PAGE>
Part II - Other Information
- ---------------------------
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. (a) Exhibits;
27 Financial Data Schedule
(b) Reports on Form 8-K;
None
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: May 3, 2000
TURBOSONIC TECHNOLOGIES, INC.
By: /s/ PATRICK J. FORDE
-----------------------------
Patrick J. Forde, President,
Secretary and Treasurer
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000900393
<NAME> TurboSonic Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 456,892
<SECURITIES> 0
<RECEIVABLES> 780,942
<ALLOWANCES> 66,764
<INVENTORY> 120,559
<CURRENT-ASSETS> 2,067,152
<PP&E> 88,382
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,256,700
<CURRENT-LIABILITIES> 1,386,960
<BONDS> 0
0
0
<COMMON> 3,747,134
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,256,700
<SALES> 4,566,639
<TOTAL-REVENUES> 4,566,639
<CGS> 3,247,675
<TOTAL-COSTS> 4,464,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,027
<INCOME-PRETAX> 76,243
<INCOME-TAX> 0
<INCOME-CONTINUING> 76,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,243
<EPS-BASIC> 0.008
<EPS-DILUTED> 0.007
</TABLE>
