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 December 31, 1999
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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 _________________________________________________
Commission File Number 0-21832
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TurboSonic Technologies, Inc.
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(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
incorporation or organization) Identification No.)
550 Parkside Drive, Suite A-14,
Waterloo, Ontario, Canada N2L 5V4
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(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 December 31, 1999 10,000,000 shares of common stock were outstanding.
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Form 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
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Item 1.
Consolidated statement of Operations
(Unaudited) for the Three Months and the Six Months
Ended December 31, 1999 and 1998 3
Consolidated Balance Sheets
At December 31, 1999 (Unaudited) and June 30, 1999 4
Consolidated Statements of Cash Flow
(Unaudited) for the Six Months Ended
December 31, 1999 and 1998 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
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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
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
US dollars (Unaudited)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------- ------------ ------------
Nozzle Systems revenue $ 913,443 $ 519,995 $ 1,595,019 $ 1,189,909
Scrubber Systems revenue 708,746 496,426 1,054,134 810,391
------------ ------------- ------------ ------------
Total Revenue 1,622,189 1,016,421 2,649,153 2,000,300
------------ ------------- ------------ ------------
Cost of Nozzle Systems 653,547 302,864 1,131,672 724,581
Cost of Scrubber Systems 513,051 312,581 740,466 526,583
------------ ------------- ------------ ------------
Total Cost of goods sold 1,166,598 615,445 1,872,138 1,251,164
------------ ------------- ------------ ------------
Gross Profit 455,591 400,976 777,015 749,136
Selling, general and
administrative expenses 326,153 298,400 663,666 594,196
Depreciation and amortization 47,695 49,253 95,954 97,179
------------ ------------- ------------ ------------
Total Expenses 373,848 347,653 759,620 691,375
------------ ------------- ------------ ------------
Gain (Loss) from Operations 81,743 53,323 17,395 57,761
Interest Income (Expense) (10,929) (6,440) (16,348) (9,507)
------------ ------------- ------------ ------------
Net Income before taxes 70,814 46,883 1,047 48,254
------------ ------------- ------------ ------------
Tax Provision 0 0 0 0
------------ ------------- ------------ ------------
Net Income $ 70,814 $ 46,883 $ 1,047 $ 48,254
============ ============= ============ ============
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 10,400,000 10,500,000 10,400,000
Basic EPS 0.007 0.005 0.000 0.005
Diluted EPS 0.007 0.005 0.000 0.005
-3-
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(US dollars)
December 31, 1999 June 30, 1999
----------------- -----------------
(Unaudited)
Assets
Current Assets:
Cash $ 379,939 $ 310,944
Contracts and accounts receivable, net of allowance
for doubtful accounts of $66,764 947,059 475,804
Deferred contract costs and unbilled revenue 482,769 106,275
Inventories 138,866 126,764
Income Tax Receivable 27,609 76,179
Other current assets 60,567 74,600
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Total current assets 2,036,809 1,170,566
Equipment and leasehold improvements,
at cost, net of accumulated depreciation 97,329 89,519
Patents, net of accumulated amortization 1 1
Goodwill, net of accumulated amortization 1,118,027 1,202,374
Other assets 20,779 20,414
----------- -----------
Total Assets $ 3,272,945 $ 2,482,874
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable & accrued expenses $ 704,537 $ 544,822
Billings in excess of costs and estimated
earnings on uncompleted contracts 748,488 143,529
----------- -----------
Total Current Liabilities 1,453,025 688,351
Accrued Expenses 94,172 113,206
Loans from Shareholders [Note 4] 272,820 266,964
Other Loans 19,574 0
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1,839,591 1,068,521
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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
Current translation of adjustments (2,982) (20,936)
Accumulated deficit (2,310,798) (2,311,845)
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Total Stockholders' Equity 1,433,354 1,414,353
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Total Liabilities and Stockholders' Equity $ 3,272,945 $ 2,482,874
=========== ===========
-4-
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the six months ended December 31, 1999 and 1998
US dollars (Unaudited)
December 31, 1999 December 31, 1998
----------------- -----------------
Cash flows from operating activities
Net Income $ 1,047 $ 48,254
Add (deduct) changes to operations not requiring
a current cash payment:
Depreciation and amortization 95,954 97,179
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97,001 145,433
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Changes in non-cash working capital balances
Related to operations:
Decrease (increase) in accounts receivable (471,255) 54,816
(Increase) decrease in income tax recoverable 48,570 1,245
Decrease (increase) in inventories (12,102) 13,687
Decrease (increase) in deferred contract costs
and unbilled revenue (376,494) (138,666)
Decrease (increase) in other current assets 14,032 19,169
Decrease (increase) in other assets (364) 0
Decrease (increase) in accounts payable and
accrued charges 140,681 (34,089)
Increase (decrease) in unearned revenue and
contract advances 604,959 (13,798)
(51,973) (97,636)
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Net cash provided by (applied to) operating activities 45,028 47,797
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Cash flows from investing activities:
Purchase of fixed assets (19,417) (11,650)
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Net cash (applied to) provided by investing activities (19,417) (11,650)
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Cash flows from financing activities:
Shareholder loans 5,286 130,783
Other loans 19,574 0
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Net cash provided (used) by financing activities 25,430 130,783
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Effect of exchange rate change on cash 17,954 (904)
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Net cash (applied) provided during year 68,995 166,026
Cash - beginning of period 310,944 69,277
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Cash - end of period 379,939 235,303
========= =========
-5-
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
(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
Regulation 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 six month period ended December 31, 1999 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-
Note. 2 Costs and Estimated Earnings on Uncompleted Contracts
December 31, 1999 June 30, 1999
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Costs incurred on uncompleted contracts $ 2,215,074 $ 1,339,702
Estimated earnings 1,023,349 518,467
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3,238,423 1,858,169
Less: billings to date 3,504,142 1,895,423
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(265,719) (37,254)
============ ============
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts 482,769 106,275
Billings in excess of costs and estimated
earnings on uncompleted contracts (748,488) (143,529)
------------ ------------
(265,719) (37,254)
============ ============
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-
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 December 31, 1999
Compared with Three Months ended December 31, 1998
Nozzle systems revenue increased by $393,448 (75.7%) to $913,443 for the three
month period ended December 31, 1999 from $519,995 for the same period in 1998.
Increased volume in evaporative cooling system opportunities, including cooling
towers, has contributed to the increased revenue volume reported.
Scrubber system revenue increased by $212,320 (42.8%) to $708,746 for the three
month period ended December 31, 1999 from $496,426 for the same period one year
earlier. An increase in the number of scrubber/WESP projects being processed
has led to the increased revenue volume recorded for the period.
Overall, the revenue achieved for the three month period ended December 31, 1999
is the highest on record for any three month period in the Company's history.
Nozzle systems gross profit increased by $42,765 (19.7%) to $259,896 for the
three month period ended December 31, 1999 from $217,131 for the same period in
1998. As a percentage of nozzle system revenue, the nozzle systems gross profit
was 28.4%, down from the 41.8% achieved in 1998. The increased gross profit is
largely the result of the increased revenue volume. The decreased percent to
revenue is the result of 1) lower than average gross margin on one large nozzle
system in the current year due to the Company's strategic decision to seek entry
into a particular industrial market and to confirm the capability of its
technology, and 2) favorable variances on a number of projects completed in 1998
that are not duplicated in the current year.
Gross profit for scrubber systems increased $11,850 (6.4%) to $195,695 for the
three month period ended December 31, 1999 from $183,845 for the corresponding
period in 1998. As a percent of scrubber system revenue, the scrubber system
gross profit was 27.6%, down from 37.0% recorded in the same period in 1998. The
increased gross profit is largely the result of the increased revenue volume.
The decreased percent to revenue is the result of 1) lower than average gross
margin on one large scrubber system in the current year due to the Company's
strategic decision to introduce its Wet Electrostatic Precipitator (WESP)/
scrubber combination product into a new industrial market and to demonstrate its
technical expertise, and 2) favorable variances recorded on a number of projects
completed in 1998 that have not been duplicated in the current year.
Selling, general and administrative expenses increased $27,753 to $326,153 for
the three month period ended December 31, 1999 from $298,400 for the same period
in 1998. As a percentage of total revenue, selling, general and administrative
expenses were 20.1% for the quarter ended December 31, 1999 and 29.4% for the
same period in 1998. This decrease in percent to revenue is the result of the
increased volume of revenue for the current period.
-8-
Amortization of goodwill, which was created as the result of the merger with
Sonic Environmental Systems, Inc., amounted to $47,695 in the current quarter.
Six Months ended December 31, 1999
Compared to Six Months ended December 31, 1998
Nozzle systems revenue increased by $405,110 (34.0%) to $1,595,019 for the six
month period ended December 31, 1999 compared to $1,189,909 for the same period
in 1998. Increased volume of evaporative cooling system opportunities,
including cooling towers, has contributed to the increased revenue recorded in
the current period.
Scrubber system revenue increased by $243,743 (30.1%) to $1,054,134 for the six
months ended December 31, 1999 from $810,391 for the six months ended December
31, 1998. An increase in the number of scrubber/WESP projects in progress
accounts for the greater revenue volume recorded in the current quarter.
Overall, the revenue achieved for the six month period ended December 31, 1999
is the highest on record for any six month period in the Company's history.
Nozzle systems gross profit decreased by $1,981 (0.4%) to $463,347 for the six
month period ended December 31, 1999 from $465,328 for the same period in 1998.
As a percentage of nozzle system revenue, the nozzle systems gross profit was
29.0%, down from the 39.1% achieved in 1998. The decreased gross margin and
percent to revenue are the result of 1) lower than average gross margin on the
large nozzle system in the current year due to the Company's strategic decision
to seek entry into a particular industrial market and to confirm the capability
of its technology, and 2) favorable variances on a number of projects completed
in 1998 that are not duplicated in the current year.
Gross profit for the scrubber systems increased $29,860 (10.5%) to $313,668 for
the six month period ended December 31, 1999 from $283,808 for the corresponding
period in 1998. As a percent of scrubber system revenue, the scrubber system
gross profit was 29.8% down from 35.0% recorded in the same period in 1998. The
increased gross profit is largely the result of the increased revenue volume.
The decreased percent to revenue is the result of the increased revenue volume.
The decreased percent to revenue is the result of favorable variances recorded
on a number of projects completed in 1998 that have not been duplicated in the
current year.
Selling, general and administrative expenses increased $69,520 to $663,666 for
the six month period ended December 31, 1999 compared to $594,146 for the same
period in 1998. As a percent of total revenue, selling, general and
administrative expenses were 25.1% compared with 29.7% for the same period in
1998.
Amortization of goodwill, which was created as the result of the merger with
Sonic Environmental Systems, Inc., amounted to $95,954 in the six months ended
December 31, 1999.
Liquidity and Capital Resources
The Company had a positive cash flow from operating activities of $45,028 for
the six month period ended December 31, 1999 as compared to positive cash flow
of $47,797 for the same period in 1998, a decrease in cash flow of $2,769.
At December 31, 1999, the Company had working capital of $583,784, as compared
to working capital as at June 30, 1999 of $482,214, an increase of $101,570. The
company's current ratio (current assets divided by current liabilities) was 1.40
and 1.70 as at December 31, 1999 and June 30, 1999, respectively.
-9-
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 December 31, 1999 and June 30, 1999, "Unearned revenue and
contract advances" exceeded "Deferred costs and unbilled revenue" by $265,719
and $37,254 respectively, thereby negatively effecting 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 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 December 31, 1999 was approximately $1,476,000, all
of which the Company believes 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
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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-
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) Exhibits;
27 Financial Data Schedule
(b) Reports on Form 8-K;
None
Signature
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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: February 7, 2000
TURBOSONIC TECHNOLOGIES, INC.
by: /s/ PATRICK FORDE
-----------------------
Patrick Forde, Treasurer and
Principal Financial and
Accounting Officer