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, 2001
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
TurboSonic Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1949528
(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
(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, 2001,
10,000,000 shares of Common Stock were outstanding.
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Form 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1
Consolidated statement of Operations
(Unaudited) for the Three Months and Nine Months
Ended March 31, 2001 and March 31, 2000 3
Consolidated Balance Sheets
At March 31, 2001 (Unaudited) and June 30, 2000 (Audited) 4
Consolidated Statements of Cash Flow
(Unaudited) for the Nine Months Ended
March 31, 2001 and March 31, 2000 5
Notes to Consolidated Financial Statements
(Unaudited) 6 - 7
Item 2.
Management's Discussion and Analysis of
Financial Conditions and Results of Operations 8 - 9
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a 10
Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
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TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
US dollars (Unaudited)
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,
--------- --------- --------- ---------
2001 2000 2001 2000
----- ---- ------------- ----
Nozzle Systems revenue $ 989,237 $ 946,642 $ 2,187,125 $ 2,542,220
Scrubber Systems revenue 4,382,859 970,844 6,520,853 2,024,419
------------ ------------ ------------ ------------
Total Revenue 5,372,096 1,917,486 8,707,978 4,566,639
------------ ------------ ------------ ------------
Cost of Nozzle Systems 643,205 569,342 1,268,293 1,698,325
Cost of Scrubber Systems 3,909,134 806,195 5,785,924 1,549,350
------------ ------------ ------------ ------------
Total Cost of goods sold 4,552,339 1,375,537 7,054,217 3,247,675
------------ ------------ ------------ ------------
Gross Profit 819,757 541,949 1,653,761 1,318,964
Selling, general and administrative
expenses 422,813 409,179 1,130,574 1,072,845
Stock-based compensation (recovery) (5,089) 0 (16,790) 0
Debt modification expense 13,637 0 21,887 0
Depreciation and amortization 49,134 47,895 147,726 143,849
------------ ------------ ------------ ------------
Total Expenses 480,495 457,074 1,283,397 1,216,694
------------ ------------ ------------ ------------
Income from operations 339,262 84,875 370,364 102,270
Interest (expense) (1,134) (9,679) (21,009) (26,027)
------------ ------------ ------------ ------------
Net income before taxes 338,128 75,196 349,355 76,243
------------ ------------ ------------ ------------
Tax Provision 0 0 0 0
------------ ------------ ------------ ------------
Net income $ 338,128 $ 75,196 $ 349,355 $ 76,243
Other comprehensive income: foreign
currency translation (72,658) (14,769) (72,009) 3,185
------------ ------------ ------------ ------------
Comprehensive income $ 265,470 $ 60,427 $ 277,346 $ 79,428
============ ============ ============ ============
Weighted average number of shares
outstanding 10,000,000 10,000,000 10,000,000 10,000,000
Incremental shares using treasury method 10,127,046 10,124,708 10,170,960 10,041,570
Basic EPS 0.034 0.007 0.035 0.008
Diluted EPS 0.033 0.007 0.034 0.008
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TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(US dollars)
March 31, 2001 June 30, 2000_
-------------- ---------------
(Unaudited) (Audited)
----------- ---------
Assets
Current Assets:
Cash $ 3,127,952 $ 407,784
Contracts and accounts receivable, net of allowance
for doubtful accounts of $61,904 and $61,904 758,772 972,911
Deferred contract costs and unbilled revenue 407,743 647,214
Inventories 118,237 105,729
Income tax receivable 2,577 25,239
Other current assets 52,096 52,947
----------- -----------
Total current assets 4,467,377 2,211,824
Equipment and leasehold improvements,
at cost, net of accumulated depreciation 115,700 142,595
Patents, less accumulated amortization 1 1
Goodwill, net of accumulated amortization 910,727 1,024,577
Other assets 20,779 20,779
----------- -----------
Total Assets $ 5,514,584 $ 3,399,776
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Loans from shareholders - current [Note 3] $ 158,223 $ 0
Accounts payable & accrued expenses 1,722,556 760,938
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,687,856 797,549
Obligations under capital leases, current portion 20,455 21,778
----------- -----------
Total Current Liabilities 3,589,090 1,580,265
Accrued expenses 46,591 75,140
Loans from shareholders [Note 3] 44,400 268,103
Obligations under capital leases, long-term portion 38,710 60,332
----------- -----------
3,718,791 1,983,840
----------- -----------
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 [Notes 3 & 4] 1,550,549 1,492,099
----------- -----------
3,849,645 3,791,195
Accumulated other comprehensive income (122,302) (50,293)
Accumulated deficit (1,931,550) (2,324,966)
----------- -----------
Total stockholders' equity 1,795,793 1,415,936
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,514,584 $ 3,399,776
=========== ===========
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TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the nine months ended March 31, 2001 and March 31, 2000
(US dollars) (Unaudited)
March 31, 2001 March 31,2000
Cash flows from operating activities
Net income $ 349,355 $ 76,243
Add changes to operations not requiring
a current cash payment:
Stock-based compensation recovery (16,790) 0
Debt modification expense 21,887 0
Depreciation and amortization 147,726 149,658
----------- -----------
502,178 225,901
----------- -----------
Changes in non-cash working capital balances
Related to operations:
Decrease (increase) in accounts receivable 168,004 (238,374)
(Increase) decrease in inventories (13,847) 6,205
Decrease in income tax recoverable 22,264 48,669
Decrease (increase) in deferred contract costs
and unbilled revenue 214,067 (582,144)
(Increase) decrease in other current assets (2,075) 15,005
(Increase) in other assets 0 (364)
Increase in accounts payable and
accrued charges 962,002 170,388
Increase in unearned revenue and
contract advances 974,646 499,671
----------- -----------
2,325,061 (80,944)
----------- -----------
Net cash provided by operating activities 2,827,239 144,957
----------- -----------
Cash flows from investing activities:
Repayment of capital leases (18,691) 0
Purchase of capital assets (6,972) (6,427)
----------- -----------
Net cash (applied to)investing activities (25,663) (6,427)
----------- -----------
Effect of exchange rate change on cash (81,408) 7,418
----------- -----------
Net cash provided during the period 2,720,168 145,948
Cash - beginning of period 407,784 310,944
----------- -----------
Cash - end of period $ 3,127,952 $ 456,892
=========== ===========
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(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.
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulations S-X. Accordingly, these financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month and nine month periods ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2001. 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/A for
the year ended June 30, 2000.
Note. 2. Costs and Estimated Earnings on Uncompleted Contracts
March 31,2001 June 30, 2000
Costs incurred on uncompleted contracts $ 7,313,018 $ 3,087,601
Estimated earnings 1,391,018 1,070,693
----------- -----------
8,704,036 4,158,294
Less: billings to date 9,984,149 4,308,629
----------- -----------
$(1,280,113) $ (150,335)
=========== ===========
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 407,743 $ 647,214
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,687,856) (797,549)
----------- -----------
$(1,280,113) $ (150,335)
=========== ===========
Note 3. Loans from Shareholders
An officer and director of the Company, together with another shareholder of the
Company, lent an aggregate of $CDN200,000 (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 $CDN100,000 (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 NASD Electronic 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.
- 6 -
On July 10, 2000, officers, directors and shareholders agreed to extend the
maturity dates of their respective loans by an additional year. Accordingly, the
due dates are October 21, 2001, January 4, 2002 and April 9, 2002. As a result
of the extended maturity dates, two of the loans are classified as non-current
liabilities in the accompanying financial statements. As an inducement to extend
the maturity dates of the loans, the Company has modified the exercise price of
the above warrants as follows: for three years after the initial date of the
respective loan at an exercise price of $0.50 per share, for a period of two
years following the initial three year period at an exercise price of $0.75 per
share and for an additional period of one year at an exercise price of $1.00.
Additionally, a further 400,000 warrants were granted in the aggregate to the
lenders, at an exercise price of $0.5625 per share, commencing on the first day
of the extension of their loan for a period of two years. The expiry terms and
periods of the warrants have been modified to state the warrants expire 90 days
after the Company has notified the warrant holders in writing that the Company's
shares have closed at a trading price above $1.50 for 30 consecutive trading
days on the NASDAQ over-the-counter Bulletin Board. In accordance with EITF
96-19, the modification of the term of the shareholder loan was not considered
to result in a substantially different debt instrument. The new warrants and the
modification of existing warrants were recorded at fair value as debt
modification costs ($75,240) when the warrants were issued in October 2000 and
are being amortized using the interest method over the new term of the debt.
Note 4. 2000 Stock Option Plan
The Company had concluded, subsequent to the end of fiscal 2000, that its 2000
Stock Option Plan should be accounted for as a variable plan in accordance with
FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option
or Award Plans. The Company's amended financial statements for fiscal 2000 and
Q1 of fiscal 2001, together with the financial statements for Q2 of fiscal 2001
reflect the accounting for the variable stock options plan. The Q3 fiscal 2001
financial statements include a stock-based compensation recovery of $5,089.
During the third quarter of fiscal 2001, the 2000 Stock Option Plan was amended.
As a result of the amendment, the plan will be accounted for as a non-variable
plan form the date of amendment in accordance with FIN 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans.
- 7 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Three Months ended March 31, 2001
Compared with Three Months ended March 31, 2000
Nozzle systems revenue increased by $42,595 (4.5%) to $989,237 for the three
month period ended March 31, 2001 from $946,642 for the same period in 2000. The
commencement of new orders for the supply of cooling towers and systems for
evaporative gas cooling systems is primarily responsible for the increase in
nozzle system revenues.
Scrubber system revenue increased by $3,412,015 (351.4%) to $4,382,859 for the
three month period ended March 31, 2001 from $970,844 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. The increase
in scrubber system revenues is primarily due to the recognition during this
period of a portion of the revenue from the $6.5 million sales of a Wet
Electrostatic Precipitator, the Company's largest sale to date.
Cost of nozzle systems increased by $73,683 (13.0%) to $643,205 for the three
months ended March 31, 2001 from $569,342 for the same period in 2000. As a
percentage of nozzle systems revenue, the cost of nozzle systems was 65.0% for
the three month period ended March 31, 2001 and 60.1% for the same period in
2000. The increased nozzle system costs is the result of the increased sales
volume discussed above. The decreased ratio to sales variance in the current
quarter over that of last year is the result of the sale of more cooling towers
and systems in this period, which typically produce lower margins than other
components of the evaporative gas cooling system.
Cost of scrubber systems increased by $3,102,939 (384.9%) to $3,909,134 for the
three month period ended March 31, 2001 from $806,195 for the same period one
year earlier. As a percentage of scrubber systems revenue, the cost of scrubber
systems was 89.2% versus 83.0% for the same period in 2000. The increased
scrubber system costs is the result of the increased sales volume discussed
above. The increased percent to sales is the result of lower margins
percentage-wise on the larger projects in progress in the current fiscal period.
Selling, general and administrative expenses increased $13,634 (3.3%) to
$422,813 for the three month period ended March 31, 2001 from $409,179 for the
same period in 2000. As a percentage of total revenue, selling, general and
administrative expenses were 7.9% for the quarter ended March 31, 2001 and 21.3%
for the same period in 2000. This decrease in percent to revenue is the direct
result of the increased volume of revenue for the current period. Also included
in total expenses were the stock-based compensation recovery ($5,089)[note 4]
and debt modification ($13,637) expense [note 3].
Nine Months ended March 31, 2001
Compared with Nine Months ended March 31, 2000
Nozzle systems revenue decreased by $355,095 (14.0%) to $2,187,125 for the nine
month period ended March 31, 2001 from $2,542,220 for the same period in 2000.
The supply of fewer cooling towers/systems in evaporative gas cooling systems is
primarily responsible for the decrease in nozzle system revenues.
Scrubber system revenue increased by $4,496,434 (222.1%) to $6,520,853 for the
nine month period ended March 31, 2001 from $2,024,419 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. The increase
in scrubber system revenues is primarily due to the recognition during this
period of a portion of the revenue from the $6.5 million sales of a Wet
Electrostatic Precipitator.
Cost of nozzle systems decreased by $430,032 (25.3%) to $1,268,293 for the nine
months ended March 31, 2001 from $1,698,325 for the same period in 2000. As a
percentage of nozzle systems revenue, the cost of nozzle systems was 58.0% for
the nine month period ended March 31, 2001 and 66.8% for the same period in
2000. The decreased nozzle system costs is the result of the decreased sales
volume discussed above. The improved ratio to sales variance in the current
quarter over that of last year is the result of the sale of fewer cooling towers
in this period, which typically produce lower margins than other components of
the evaporative gas cooling system.
Cost of scrubber systems increased by $4,236,574 (273.4%) to $5,785,924 for the
nine month period ended March 31, 2001 from $1,549,350 for the same period one
year earlier. As a percentage of scrubber systems revenue, the cost of scrubber
systems was 88.7% versus 76.5% for the same period in 2000. The increased
scrubber system costs is the result of the increased sales volume discussed
above. The increased percent to sales is the result of lower margins on the
larger projects in progress in the current fiscal period.
Selling, general and administrative expenses increased $57,729 (5.4%) to
$1,130,574 for the nine month period ended March 31, 2001 from $1,072,845 for
the same period in 2000. As a
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percentage of total revenue, selling, general and administrative expenses were
13.0% for the nine months ended March 31, 2001 and 23.5% for the same period in
2000. The increased costs are the result of the upgraded marketing program,
which commenced in the third quarter of fiscal 2000. The decrease in percent to
revenue is the direct result of the increased volume of revenue for the current
period. Also included in the total expenses were the stock-based compensation
recovery ($16,790)[note 4] and debt modification ($21,887) expenses [note 3].
Liquidity and Capital Resources
The Company had a positive cash flow from operating activities of $2,827,239 for
the nine month period ended March 31, 2001 as compared to positive cash flow of
$144,957 for the same period in 2000, an increase in cash flow of $2,682,282.
At March 31, 2001, the Company had working capital of $878,287, as compared to
working capital as at June 30, 2000 of $631,559, a increase of $246,728. The
Company's current ratio (current assets divided by current liabilities) was 1.24
and 1.40 as at March 31, 2001 and June 30, 2000, 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 March 31, 2001 and June 30, 2000, "Billings in excess of
costs and estimated earnings on uncompleted contracts" exceeded "Deferred
contract costs and unbilled revenue" by $1,280,113 and $150,335 respectively.
The Company's backlog as at March 31, 2001 was approximately $4,800,000, of
which the Company believes all but $650,000 will be shipped prior to the end of
the current fiscal year. The Company believes that the projected cash generated
from operations, together with the loans from shareholders (see Note 3) will be
sufficient to meet its cash needs through the end of the fiscal year ended June
30, 2001.
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.
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Part II - Other Information
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Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. (a) None
(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 9, 2001
TURBOSONIC TECHNOLOGIES, INC.
By: /s/ PATRICK J. FORDE
----------------------------
Patrick J. Forde, President,
Secretary and Treasurer
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