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, 2002
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
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, 2002, 10,507,250 shares of Common Stock were outstanding.
1 -
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, 2002 and March 31, 2001 3
Consolidated Balance Sheet
At March 31, 2002 (Unaudited) and June 30, 2001 (Audited) 4
Consolidated Statement of Cash Flows
(Unaudited) for the Nine Months Ended
March 31, 2002 and March 31, 2001 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
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
2 -
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,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Nozzle systems revenue $ 612,424 $ 989,237 $ 1,776,277 $ 2,187,125
Scrubber systems revenue 82,261 4,382,859 1,585,616 6,520,853
------------- ------------- ------------- -------------
Total revenue 694,685 5,372,096 3,361,893 8,707,978
------------- ------------- ------------- -------------
Cost of nozzles systems 337,281 643,205 1,082,691 1,268,293
Cost of scrubber systems 131,827 3,909,134 1,489,273 5,785,924
------------- ------------- ------------- -------------
Total cost of goods sold 469,108 4,552,339 2,571,964 7,054,217
------------- ------------- ------------- -------------
Gross profit 225,577 819,757 789,929 1,653,761
------------- ------------- ------------- -------------
Selling, general and administrative
expenses 358,079 422,813 1,040,449 1,130,574
Stock-based compensation expense 3,115 (5,089) 4,849 (16,790)
Debt modification expense 3,847 13,637 33,028 21,887
Depreciation and amortization [note 5] 8,930 49,134 27,130 147,726
------------- ------------- ------------- -------------
Total expenses 373,971 480,495 1,105,456 1,283,397
------------- ------------- ------------- -------------
(Loss) income from operations (148,394) 339,262 (315,527) 370,364
Interest (expense) income (932) (1,134) 194 (21,009)
------------- ------------- ------------- -------------
Net (loss) income before taxes (149,326) 338,128 (315,333) 349,355
Tax (recovery) (33,068) 0 (39,837) 0
------------- ------------- ------------- -------------
Net (loss) income $ (116,258) $ 338,128 (275,496) 349,355
Other comprehensive (loss):
foreign currency translation (511) (72,658) (105,923) (72,009)
------------- ------------- ------------- -------------
Comprehensive (loss) income $ (116,769) $ 265,470 $ (381,419) $ 277,346
============= ============= ============= =============
Weighted average number of shares
outstanding 10,507,250 10,000,000 10,507,250 10,000,000
Incremental shares using treasury method
[note 7] 10,507,250 10,127,046 10,507,250 10,170,960
Basic EPS (0.011) 0.034 (0.026) 0.035
Diluted EPS (0.011) 0.033 (0.026) 0.034
3 -
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(US dollars)
March 31, 2002 June 30, 2001
(Unaudited) (Audited)
-------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 729,898 $ 1,778,604
Contracts and accounts receivable, net of allowance
for doubtful accounts of $42,399 and $61,904 1,005,087 1,698,139
Deferred contract costs and unbilled revenue [note 2] 69,358 1,257,351
Income taxes recoverable 37,414 --
Inventories 95,062 78,790
Other current assets 51,784 32,574
----------- -----------
Total current assets 1,988,603 4,845,458
Equipment and leasehold improvements,
at cost, net of accumulated depreciation 113,011 115,427
Patents, less accumulated amortization 1 1
Goodwill, net of accumulated amortization [note 5] 797,774 797,794
Other assets 20,778 20,779
----------- -----------
Total Assets $ 2,920,167 $ 5,779,459
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Loans from shareholders - current [note 3] $ 62,727 $ 230,100
Accounts payable & accrued expenses 426,550 2,092,673
Billings in excess of costs and estimated
earnings on uncompleted contracts [note 2] 171,039 1,208,188
Income taxes payable -- 76,768
Obligations under capital leases, current portion 28,089 21,297
----------- -----------
Total Current Liabilities 688,405 3,629,026
Accrued expenses 19,054 38,066
Obligations under capital leases, long-term portion 7,926 33,902
----------- -----------
715,385 3,700,994
----------- -----------
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
5,792,608 common shares [note 6] 50,725 --
4,714,642 exchangeable shares 2,299,096 2,299,096
Additional paid - in capital [notes 3, 4 and 6] 2,006,635 1,549,624
----------- -----------
4,356,456 3,848,720
Accumulated other comprehensive (loss) (144,249) (38,326)
Accumulated deficit (2,007,425) (1,731,929)
----------- -----------
Total stockholders' equity 2,204,782 2,078,465
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,920,167 $ 5,779,459
=========== ===========
4 -
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the nine months ended March 31, 2002 and March 31, 2001
(US dollars) (Unaudited)
March 31, 2002 March 31, 2001
-------------- --------------
Cash flows from operating activities
Net income (loss) $ (275,496) $ 349,355
Add changes to operations not requiring
a current cash payment:
Stock-based compensation expense 4,849 (16,790)
Debt modification expense 33,028 21,887
Depreciation and amortization 27,130 147,726
----------- -----------
(210,489) 502,178
----------- -----------
Changes in non-cash working capital balances related to operations:
Decrease in accounts receivable 629,588 168,004
(Increase) in inventories (16,856) (13,847)
(Increase) decrease in income tax recoverable (33,120) 22,264
Decrease in deferred contract costs
and unbilled revenue 1,137,274 214,067
(Increase) in other current assets (19,693) (2,075)
(Decrease) increase in accounts payable and
accrued charges (1,618,032) 962,002
(Decrease) increase in unearned revenue and
contract advances (988,710) 974,646
(Decrease) in income taxes payable (78,116) --
----------- -----------
(987,665) 2,325,061
----------- -----------
Net cash (applied to) provided by operating
activities (1,198,154) 2,827,239
----------- -----------
Cash flows from investing activities:
Purchase of capital assets (30,272) (6,972)
----------- -----------
Net cash (applied to)investing activities (30,272) (6,972)
----------- -----------
Cash flows from financing activities
(Repayment) of capital leases (6,943) (18,691)
(Repayment) of shareholder loans (189,470) --
Proceeds from issuance of common shares [note 6] 502,904 --
----------- -----------
Net cash provided by (applied to) financing activities 306,491 (18,691)
----------- -----------
Effect of exchange rate change on cash (126,771) (81,408)
----------- -----------
Net cash (applied) provided during the period (1,048,706) 2,720,168
Cash - beginning of period 1,778,604 407,784
----------- -----------
Cash - end of period $ 729,898 $ 3,127,952
=========== ===========
5 -
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002
(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 period ended March 31, 2002, and
the nine month period ended March 31, 2002 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2002. 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, 2001.
Note. 2. Costs and Estimated Earnings on Uncompleted Contracts
March 31,2002 June 30, 2001
------------- -------------
Costs incurred on uncompleted contracts $ 12,984,283 $ 11,394,645
Estimated earnings 1,235,531 1,489,467
------------ ------------
14,219,814 12,884,112
Less: billings to date 14,321,495 12,834,949
------------ ------------
$ (101,681) $ 49,163
============ ============
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 69,358 $ 1,257,351
Billings in excess of costs and estimated
earnings on uncompleted contracts (171,039) (1,208,188)
------------ ------------
$ (101,681) $ 49,163
============ ============
As the result of the financial difficulties experienced by one of the Company's
subcontractors that became known during the first quarter of fiscal 2002 and its
subsequent assignment of assets for the benefit of creditors, the estimated
completion costs for a project were revised upward by $177,000 in the financial
statements for the year ended June 30, 2001. The estimated completion costs were
increased for the six-month period ended December 31, 2001 by $140,000 to
$317,000. No further increases are deemed necessary at the end of the third
quarter of fiscal 2002. Management has based this estimate on information
available about the subcontractor's status and an assessment of its own
obligations under the contract with its customer. Due to uncertainties related
to obligations of the subcontractor that the Company will assume, the estimate
of additional costs that the Company could ultimately incur could differ
materially in the near term from the estimated costs. Recovery, in whole or
part, of these increased costs may be possible through the liquidation of the
assets of the subcontractor. The liquidation process may not be completed in the
fiscal period ended June 30, 2002.
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
6 -
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 on terms that were
subsequently modified as disclosed below. 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 discounts on the debt securities
were amortized over the remaining period to maturity.
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 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.
In October 2001, in December 2001 and in April 2002, the loans by the two
directors and officers and the two shareholders mentioned above were repaid in
full.
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
the first quarter of fiscal 2001, together with the financial statements for the
second quarter of fiscal 2001 reflect the accounting for the variable stock
option plans. The financial statements for the first nine months of fiscal 2002
include a stock-based compensation expense of $4,849.
During the third quarter of fiscal 2001, the 2000 Stock Option Plan was amended.
As a result of the amendment, the plan is accounted for as a non-variable plan
from the date of amendment in accordance with FIN 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans.
Note 5. Goodwill
Effective July 1, 2001, the Company early adopted SFAS No. 142, Goodwill and
Intangible Assets. Under SFAS No.142, goodwill is no longer amortized but is
subject to an annual impairment review (or more frequently if deemed
appropriate). Since the adoption of SFAS No. 142 at July 1, 2001, the Company
has completed the transitional impairment test to identify if there is any
impairment to the goodwill as at July 1, 2001 using a fair value methodology.
The Company has concluded that there was no impairment as at July 1, 2001. An
annual impairment test will be completed during the fourth quarter, as of April
1, 2002. As required by SFAS No.142, the results for the prior year's quarter
have not been restated. A reconciliation of net income as if SFAS No.142 has
been adopted is presented below for the three month and nine-month periods ended
March 31, 2002 and 2001:
7 -
Three Months ended March 31, Nine Months ended March 31
2002 2001 2002 2001
-----------------------------------------------------------
Reported net income (loss) $ (116,258) $ 338,128 $ (275,496) $ 349,355
Add-back goodwill amortization -- $ 37,953 -- $ 113,859
-----------------------------------------------------------
Adjusted net income (loss) $ (116,258) $ 376,081 $ (275,496) $ 463,214
===========================================================
Basic earnings per share
Reported earnings (loss) per share (0.011) 0.034 (0.026) 0.035
Goodwill amortization -- 0.004 -- 0.011
-----------------------------------------------------------
Adjusted earnings (loss) per share (0.011) 0.038 (0.026) 0.046
===========================================================
Diluted earnings per share
Reported earnings (loss) per share (0.011) 0.033 (0.026) 0.034
Goodwill amortization -- 0.004 -- 0.011
-----------------------------------------------------------
Adjusted earnings (loss) per share (0.011) 0.037 (0.026) 0.045
===========================================================
Note 6. Share Capital
On August 7, 2001, the Company announced that it had entered into an agreement
to form a strategic alliance with Hamon Research-Cottrell, Inc. As part of the
agreement, Hamon Research-Cottrell acquired directly from the Company 500,000
shares of TurboSonic common stock, representing an approximately 4.7% equity
interest at $1.00 U.S. per share. Amounts of $50,000 and $450,000 were added to
Common Shares and Additional Paid-in Capital as the result of this transaction.
Certain of TurboSonic's shareholders, including officers and directors, granted
options to Hamon Research-Cottrell to acquire control of TurboSonic from these
shareholders at prices ranging from $1.80 to $2.50 per share. These options are
exercisable only in the event that Hamon Research-Cottrell initiates a tender
offer for TurboSonic's common stock. The agreement also provides for the joint
marketing of certain products.
During the first quarter 7,250 options were exercised by employees, resulting in
the issuance of 7,250 common shares. An amount of $2,904 was added to share
capital.
Note 7. Earnings (Loss) Per Share
Basic net income (loss) per share is calculated based on the weighted average
shares of common stock outstanding during the period. Diluted net income (loss)
per share is calculated based on the weighted average shares of common stock
outstanding, plus the dilutive effect of stock options and warrants outstanding,
calculated using the treasury stock method. For the three months ended March 31,
2002, and the nine months ended March 31, 2002, stock options and warrants
outstanding would have been anti-dilutive, and accordingly, approximately 16,273
common equivalent shares and 55,712 common equivalent shares respectively, were
excluded from the computation of dilutive net loss per share.
Diluted Earnings Per Share Computation:
Three Months Three Months Nine Months Nine Months
ended March 31, ended March 31, ended March 31, ended March 31,
As at 2002 2001 2002 2001
---------------------------------------------------------------------
Weighted average common shares 10,507,250 10,000,000 10,507,250 10,000,000
Incremental shares from assumed conversion of
employee stock options -- 71,950 -- 39,064
Incremental shares from assumed conversion of
director stock options -- 32,410 -- 21,360
Incremental shares from assumed conversion of
warrants (shareholder loans) -- 22,687 -- 110,536
---------------------------------------------------------------------
Adjusted weighted average shares 10,507,250 10,127,047 10,507,250 10,170,960
=====================================================================
8 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Three Months ended March 31, 2002
Compared with Three Months ended March 31, 2001
Nozzle systems revenue decreased by $376,813 (38.1%) to $612,424 for the
three-month period ended March 31, 2002 from $989,237 for the same period in
fiscal 2001. The delay in placement of orders, as the result of the current
recessional climate, for the supply of cooling towers and systems for
evaporative gas cooling systems is primarily responsible for the decrease in
nozzle system revenues.
Scrubber system revenue decreased by $4,300,598 (98.1%) to $82,261 for the three
month period ended March 31, 2002 from $4,382,859 for the same period one year
earlier. Non-replacement in the current quarter of the large scrubber system
orders in progress during the comparative three-month period contributed to the
sales decrease noted above. The reduction of scrubber system revenue is also the
result of postponed order placements due to the current recession in the US.
Cost of nozzle systems decreased by $305,924 (47.6%) to $337,281 for the three
months ended March 31, 2002 from $643,205 for the same period in fiscal 2001. As
a percentage of nozzle systems revenue, the cost of nozzle systems was 55.1% for
the three month period ended March 31, 2002 and 65.0% for the same period in
fiscal 2001. The decreased nozzle system costs is the result of the decreased
sales volume discussed above.
Cost of scrubber systems decreased by $3,777,307 (96.6%) to $131,827 for the
three month period ended March 31, 2002 from $3,909,134 for the same period one
year earlier. The decreased scrubber system costs is the result of the decreased
sales volume discussed above. As a percentage of scrubber systems revenue, the
cost of scrubber systems was 160.3% versus 89.2% for the same period in fiscal
2001. The increased percent to revenue is the result of the underabsorption of
engineering expenses in the current quarter due to the reduced number of
scrubber projects, that did not occur in the three month period ended March 31,
2001
Selling, general and administrative expenses decreased $64,734 (15.3%) to
$358,079 for the three month period ended March 31, 2002 from $422,813 for the
same period in fiscal 2001. As a percentage of total revenue, selling, general
and administrative expenses were 51.6% for the quarter ended March 31, 2002 and
7.9% for the same period a year earlier. This increase in percent to revenue is
the direct result of the decreased volume of revenue for the current period.
Also included in total expenses were the stock-based compensation expense
($3,115) [note 4] and debt modification ($3,847) expense [note 3].
Net income before tax decreased $487,454 to a net loss of $149,326 from the net
income before taxes of $338,128 for the same period in fiscal 2001. Income tax
recovery of $33,068 was recorded in the three month period ended March 31, 2002
compared to no tax expense in the same period one year ago. An "other
comprehensive loss" of $511 was recorded for the three months ended March 31,
2002, as compared to "other comprehensive loss" of $72,658 for the same period
in fiscal 2001. The "other comprehensive loss" in the comparative quarters was
the result of the decrease in the value of the Canadian dollar opposite the US
dollar in the two fiscal periods, and the resulting changes in our balance sheet
relative to Canadian dollar-denominated accounts.
Nine Months ended March 31, 2002
Compared with Nine Months ended March 31, 2001
Nozzle systems revenue decreased by $410,848 (18.8%) to $1,776,277 for the
nine-month period ended March 31, 2002 from $2,187,125 for the same period in
fiscal 2001. The delay in placement of orders, as the result of the current
recessional climate, for the supply of cooling towers and systems for
evaporative gas cooling systems is primarily responsible for the decrease in
nozzle system revenues.
Scrubber system revenue decreased by $4,935,237 (75.7%) to $1,585,616 for the
nine-month period ended March 31, 2002 from $6,520,853 for the same period one
year earlier. Non-replacement in the current period of the large scrubber system
orders in progress during the comparative nine-month period in fiscal 2001
contributed to the sales decrease noted above.
9 -
The reduction of scrubber system revenue is also the result of postponed order
placements due to the current recession in the US.
Cost of nozzle systems decreased by $185,602 (14.6%) to $1,082,691 for the nine
months ended March 31, 2002 from $1,268,293 for the same period in fiscal 2001.
As a percentage of nozzle systems revenue, the cost of nozzle systems was 61.0%
for the nine month period ended March 31, 2002 and 58.0% for the same period in
fiscal 2001. The increased ratio to sales variance in the current period over
that of last year is the result of the sale of more cooling towers in this
period, which typically produce lower margins than other components of the
evaporative gas cooling system.
Cost of scrubber systems decreased by $4,296,651 (74.3%) to $1,489,273 for the
nine month period ended March 31, 2002 from $5,785,924 for the same period one
year earlier. The decreased scrubber system costs is the result of the decreased
sales volume discussed above. As a percentage of scrubber systems revenue, the
cost of scrubber systems was 93.9% versus 88.7% for the same period in fiscal
2001. The increased percent to revenue is the result of the recognition in the
previous quarter of increased project costs on a specific scrubber project as
discussed in Note 2 and the underabsorption of engineering expenses due to a
reduced number of scrubber projects, which did not occur in the comparative nine
month period ended March 31, 2002.
Selling, general and administrative expenses decreased $90,125 (8.0%) to
$1,040,449 for the nine month period ended March 31, 2002 from $1,130,574 for
the same period in fiscal 2001. As a percentage of total revenue, selling,
general and administrative expenses were 31.0% for the fiscal period ended March
31, 2002 and 13.0% for the same period a year earlier. This increase in percent
to revenue is the direct result of the decreased volume of revenue for the
current period. Also included in total expenses were the stock-based
compensation expense ($4,849)[note 4] and debt modification ($33,028) expense
[note 3].
Net income before tax decreased $664,688 to a net loss of $315,333 from the net
income before taxes of $349,355 for the same period in fiscal 2001. An "other
comprehensive loss" of $105,923 was recorded for the nine months ended March 31,
2002, as compared to "other comprehensive loss" of $72,009 for the same period
in fiscal 2001. The "other comprehensive loss" in the current period was the
result of the decrease in the value of the Canadian dollar opposite the US
dollar from June 30, 2001 to March 31, 2002, and the resulting changes in our
balance sheet relative to Canadian-denominated accounts.
Liquidity and Capital Resources
The Company had a negative cash flow from operating activities of $1,198,154 for
the nine-month period ended March 31, 2002 as compared to positive cash flow of
$2,827,239 for the same period in fiscal 2001, a decrease in cash flow of
$4,025,393. The negative cash flow for the period ended March 31, 2002 is
primarily the result of the completion of the large Norske Skog WESP during the
current period and the subsequent payment of related accounts payable. Norske
Skog currently is maintaining a holdback of $375,000, which will be released
upon successful completion of the WESP performance tests. The final performance
tests have been delayed pending modifications by Norske Skog to bring the inlet
operating conditions for the WESP to within contract specifications on a
continuing basis. The Company believes that successful WESP performance tests
will be completed by the first quarter of fiscal 2003.
Cash flows from financing activities included proceeds from the sale of common
shares [note 5] to Hamon Research-Cottrell for $500,000.
At March 31, 2002, the Company had working capital of $1,300,198, as compared to
working capital as at June 30, 2001 of $1,216,432, an increase of $83,766. The
Company's current ratio (current assets divided by current liabilities) was 2.89
and 1.34 as at March 31, 2002 and June 30, 2001, 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, 2002, "Billings in excess of costs and estimated
earnings on uncompleted contracts" exceeded "Deferred contract costs and
unbilled revenue" by $101,681, thereby negatively impacting cash flow. At June
30, 2001, "Deferred contract costs and unbilled revenue" exceeded "Billings in
excess of costs and estimated earnings on uncompleted
10 -
contracts" by $49,163. The large decrease in both categories from June 30, 2001
to March 31, 2002 [note 2] is the direct result of the completion of the Norske
Skog Canada WESP in the current period.
The Company's backlog as at March 31, 2002 was approximately $425,000, of which
the Company believes all will be shipped prior to the end of the current fiscal
year. The Company believes that the projected cash generated from operations,
together with current cash reserves will be sufficient to meet its cash needs
through the coming year.
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
Item 1. None
Item 2. None
Item 3. None
Item 4. Submission of Matters to a Vote of Security Holders
(a) December 13, 2001 - Annual Meeting
(b) Election of Officers:
Name For Against
Edward F. Spink 7,807,501 9,510
Patrick J. Forde 7,807,501 9,510
Richard H. Hurd 7,807,501 9,510
Dr. Donald R. Spink 7,807,494 9,510
Jonathan R. Lagarenne 7,807,501 9,510
(c) Ratification of Selection of Ernst & Young LLP as Independent
Auditors
For Against Abstention
7,502,129 9,639 305,243
Item 5. None
Item 6. (a) None
(b) 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 13, 2002
TURBOSONIC TECHNOLOGIES, INC.
By: /s/ PATRICK J. FORDE
----------------------------------
Patrick J. Forde, President,
Secretary and Treasurer
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