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, 1998
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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
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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 or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Melanie Lane, Unit 22A, East Hanover, NJ 07936
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(Address of principal executive offices) (Zip Code)
973-884-4388
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(Registrant's telephone number, including area code)
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.
[_] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN A
BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.
[_] Yes [X] 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, 1998, 10,000,000 shares of common stock were outstanding.
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
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Item 1.
Consolidated Statements of Operations
(Unaudited) for the Six Months and the Nine Months
Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets
at March 31, 1998 and June 30, 1997 4
Consolidated Statements of Cash Flow
(Unaudited) for the Nine Months Ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements
(Unaudited) 6-7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
PART 11 - 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
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations (US dollars)
(Unaudited)
For the Three Months For the Three Months For the Nine Months For the Nine Months
Ended March 31, 1998 Ended March 31, 1997 Ended March 31, 1998 Ended March 31, 1997
--------------------- --------------------- --------------------- ---------------------
Original equipment revenue $125,789 $475,569 $1,382,124 $2,553,702
Rehabilitation, maintenance and
spare parts revenue 341,882 323,009 977,608 910,596
--------- -------- ---------- ----------
Total Revenue 467,671 798,578 2,359,732 3,464,298
--------- -------- ---------- ----------
Cost of Original Equipment 116,901 335,210 1,017,399 1,707,250
Cost of rehabilitation, maintenance
and spare parts 216,255 208,737 593,906 496,360
Selling, general and administrative
expenses 448,401 261,022 1,117,470 771,925
Depreciation and Amortization 55,102 2,050 157,213 6,924
Debt conversion inducement expenses 0 0 94,675 0
--------- -------- ---------- ----------
Total Costs 836,659 807,019 2,980,663 2,982,460
--------- -------- ---------- ----------
Gain (Loss) from Operation (368,988) (8,441) (620,931) 481,838
Interest Income (Expense) 1,773 3,671 66,204 6,985
--------- -------- ---------- ----------
Net Income (Loss) ($367,215) ($4,769) ($554,727) $488,823
========= ======== ========== ==========
Weighted average number of
shares outstanding 10,000,000 6,207,614 c 9,678,167 5,714,614 c
========== ========= ========== ==========
Incremental shares using treasury
stock method 0 a 0 b 0 a 733,039 d
========== ========= ========== ==========
Basic EPS ($0.04) $0.00 ($0.06) $0.09
========== ========= ========== ==========
Diluted EPs ($0.04) $0.00 ($0.06) $0.08
========== ========= ========== ==========
a). No incremental shares related to options are included due to the loss in
the third Quarter and the year-to-date.
b). No incremental shares related to options and convertible debt are
included due to the loss in the third Quarter.
c). Turbotak shares are included at the conversion rate of one Turbotak
share to 4.230347 TurboSonic shares.
d). Includes convertible debt-to-equity and advances to be converted to
shares upon completion of the merger, which occurred August 27, 1997.
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(US dollars)
March 31, 1998
Assets (Unaudited) June 30, 1997
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Current Assets:
Cash $ 143,380 $ 406,847
Contracts and accounts receivable, net of allowance
for doubtful accounts of $101,941 and $101,926 453,017 681,529
Advances to Sonic Environmental 0 97,954
Deferred contract costs and unbilled revenue 89,180 275,273
Inventories 146,418 79,066
Income Tax Receivable 15,211 0
Other current assets 126,984 102,750
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Total current assets 974,190 1,643,419
Cash held in Trust 0 69,229
Equipment and leasehold improvements,
at cost, net of accumulated depreciation 169,191 70,217
Deposits and prepaid costs 0 362,811
Due to/from related parties 0
Investment in unconsolidated subsidiaries 10,746 0
Patents, less accumulated amortization 1 0
Goodwill 1,779,939 0
Other assets 75,463 0
----------- ----------
Total Assets $ 3,009,530 2,145,676
=========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable - trade $ 485,890 489,509
Accrued expenses 490,617 367,679
Income taxes payable 0 12,703
Billings in excess of costs and estimated
earnings on uncompleted contracts 118,498 250,679
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Total current liabilities 1,095,005 1,120,570
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Convertible debt 0 724,375
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1,095,005 1,844,945
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Stockholders' Equity:
Common stock, par value $.10 per share, 1,000,000 666,497
30,000,000 shares authorized, 10,000,000
and 6,664,968 shares issued and outstanding
Capital in excess of par value 2,889,234 1,070,766
Currency translation adjustments 18,922 2,729
Accumulated deficit (1,993,631) (1,439,261)
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Total stockholders' equity 1,914,525 300,731
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Total Liabilities and Stockholders' Equity $3,009,530 $2,145,676
=========== ==========
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
for the nine months ended March 31, 1998 and 1997
(U.S. dollars)
(Unaudited)
March 31, 1998 March 31, 1997
---------------- ---------------
Cash flows from operating activities
Net income (loss) ($554,727) $ 488,823
--------- -----------
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities
Depreciation and amortization 157,213 6,889
Debt Conversion Inducement expense 94,675 0
(Increase) decrease in:
Contracts and accounts receivable 228,512 (423,979)
Costs and estimated earnings in excess of 186,093 (187,348)
billings on uncompleted contracts
Inventories (67,352) (41,472)
Other current assets (24,234) 6,220
Other assets (75,463) 0
Investment in unconsolidated subsidiary (10,746) 0
Increase (decrease) in:
Accounts payable - trade (3,619) (567,452)
Accrued expenses 122,938 0
Billings in excess of costs and estimate (132,181) 148,257
earnings on uncompleted contracts
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Total adjustments 475,836 (1,058,885)
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Net cash (used) provided by
operating activities (78,891) (570,062)
--------- -----------
Cash flows from investing activities:
Payments for acquisition of equipment and
leasehold improvements (111,894) (4,555)
Purchase of business, net of cash required (174,217) 0
--------- -----------
Net cash (used) provided by investing (286,111) (4,555)
--------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock 32,306 761,929
New principal (payments) proceeds on note payable 0 0
--------- -----------
Net cash provided (used) by financing activities 32,306 761,929
--------- -----------
Net increase (decrease) in cash (332,696) 187,312
Cash - beginning of period 476,076 137,406
--------- -----------
Cash - end of period $ 143,380 $ 324,718
========= ===========
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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
Note 1. Basis of Presentation
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, dust
suppression systems and ceramic heat exchanger systems to ameliorate or abate
industrial environmental problems. Sonic Environmental Systems, Inc. (Sonic)
merged with Turbotak Technologies, Inc. (Turbotak) on August 27, 1997 pursuant
to a Plan of Reorganization that was approved by the Federal Bankruptcy Court on
July 3, 1997 (see Note 3).
The merger was treated for accounting purposes as a purchase by Turbotak of
Sonic in a reverse merger. Consequently, the accompanying consolidated
condensed 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, 1998 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 1998. 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 April 30, 1997.
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Note 2. Costs and Estimated Earnings on Uncompleted Contracts
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March 31, 1998 June 30, 1997
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Costs incurred on uncompleted contracts 2,480,475 1,592,455
Estimated earnings (loss) 899,894 822,185
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3,380,369 2,414,640
Less: billings to date 3,409,687 2,390,046
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Included in accompanying balance sheets
under the following captions: ( 29,318) 24,594
========== ==========
Cost and estimated earnings in excess of 89,180 275,273
billings on uncompleted contracts
Billings in excess of costs and estimated ( 118,498) (250,679)
earnings on uncompleted contracts
---------- ----------
( 29,318) 24,595
========== ==========
Note 3. Other Events
------------
On July 17, 1996, certain of Sonic's creditors instituted an involuntary
liquidation proceeding against Sonic under Chapter 7 of the Federal Bankruptcy
Code. On September 16, 1996, the Court converted this involuntary proceeding
into a voluntary Chapter 11 reorganization proceeding. Contemporaneously
therewith, Sonic entered into an agreement with Turbotak, a privately held
Canadian company engaged in the design, manufacture, and servicing of air
pollution control equipment, which, among other matters, provided for Turbotak's
acquisition of an approximately $940,000 secured and unsecured bank claim
against Sonic and its advance of $205,000 to Sonic for working capital. Such
agreement further provided that Sonic would propose a Chapter 11 Plan of
Reorganization which, among other matters, would provide for a merger of Sonic
and Turbotak and the acquisition by Turbotak's shareholders of a controlling
equity interest in the merged company, TurboSonic Technologies, Inc.
The Plan of Reorganization was confirmed by the Court on July 3, 1997 following
requisite creditor approval. The Plan provided for the extinguishment of all
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 or 82% would be owned by
Turbotak's present shareholders, and 1,255,700 shares or approximately 12.6%
would be issued to Sonic's existing shareholders on a pro-rata basis. The
balance of 10,000,000 shares would be issued to Sonic's creditors and others as
described in the Plan of Reorganization. Consummation of the consolidation,
which also extinguished Turbotak's claims against Sonic, took place on August
27, 1997.
The persons from whom the Company acquired its ceramic heat exchanger patent
rights and technology commenced an adversary proceeding in the Court against the
Company to rescind the transfer of such rights and for damages. Although such
litigation sought to terminate the Company's right to utilize these patent
rights and technology, the Plan provided that any monetary claims arising out of
such litigation were to be treated as unsecured claims and are to be discharged
as provided in the Plan.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Three Months Ended March 31, 1998
Compared with Three Months Ended March 31, 1997
Original equipment revenue decreased $349,780 (73.5%) to $125,789 for the
three month period ended March 31, 1998 from $475,569 for the corresponding
1997 period. This decrease was primarily due to the receipt in the 1997 period,
not repeated in the current period, of revenue from a large contract with
International Paper to provide an air pollution control system. The Company
believes that such decrease was also attributable to the reluctance of companies
in the forest products and pulp and paper industries to purchase air pollution
control equipment until the U.S. government adopted the new "cluster" rules
relating to air pollution amelioration. These rules were enacted in November
1997. As a consequence of such enactment, the Company anticipates that
purchases of its air pollution equipment should modestly increase over the next
12 to 18 months.
Rehabilitation, maintenance and spare parts revenue increased by $18,873
(5.9%) to $341,882 for the three month period ended March 31, 1998 as contrasted
with $323,009 for the corresponding 1997 period. This increase was due to
increased nozzle and scrubber shipments.
Cost of original equipment decreased by $213,309 (65.1%) to $116,901 for
the three month period ended March 31, 1998 as contrasted with $335,210 for the
corresponding 1997 period. Expressed as a percentage of original equipment
revenue, cost of original equipment was 92.9% for the three month period ended
March 31, 1998 and 70.5% for the same period of 1997. This increase was
primarily due to unforeseen cost increases on a foreign project.
Cost of rehabilitation, maintenance and spare parts increased by $7,518
(3.6%) to $216,255 for the three month period ended March 31, 1998 as compared
to $208,737 for the corresponding 1997 period. Expressed as a percentage of
rehabilitation, maintenance and spare parts revenue, such cost was 63.3% for the
three month period ended March 31, 1998 and 64.6% for the same period in 1997.
This increase is primarily attributable to increased revenues.
Selling, general and administrative expenses increased by $187,379 (71.8%)
for the three month period ended March 31, 1998 to $448,401 as contrasted with
$261,022 for the corresponding 1997 period. Expressed as a percentage of total
revenue, selling, general and administrative expenses were 95.9% for the three
month period ended March 31, 1998 and 32.7% for the same period in 1997. This
increase was due to additional overhead expenses of approximately $167,000
attributable to Sonic, as well as the cost of producing new sales brochures and
increased sales travel expenses. Amortization of goodwill created as a result of
the merger of the Company and Sonic (the "Merger") amounted to $45,510.
Interest income decreased $1,898 to $1,773 for the three month period
ended March 31, 1998 as compared to $3,671 for the corresponding 1997 period.
This decrease was attributable to a reduced cash position, resulting from
decreased sales volume and less favourable payment terms.
Nine Months Ended March 31, 1998
Compared with Nine Months Ended March 31, 1997
Original equipment revenue decreased $1,171,578 (45.9%) to $1,383,124 from
$2,553,702
8
in the corresponding 1997 period. This decrease was primarily due to the non-
recurrent receipt in the 1997 period of revenue from International Paper,
discussed above.
Rehabilitation, maintenance and spare parts revenue increased $67,012
(7.4%) to $977,608 for the nine month period ended March 31, 1998 as contrasted
with $910,596 for the corresponding 1997 period. This increase resulted from
increased shipments of both nozzle and scrubber spare parts.
Cost of original equipment for the nine month period ended March 31, 1998
decreased by $689,851 (40.4%) to $1,017,399 as contrasted with $1,707,250 for
the corresponding 1997 period. Expressed as a percentage of original equipment
revenue, cost of original equipment was 73.6% for the current nine month period
and 66.9% for the same period in 1997. This increase was due to unforeseen
costs on two projects and a product mix shift with the inclusion of larger jobs
which included low margin components in the current year-to-date figures.
Cost of rehabilitation, maintenance and spare parts increased by $97,546
(19.7%) to $593,906 for the nine months ended March 31, 1998 as compared to
$496,360 for the corresponding 1997 period. Expressed as a percentage of
rehabilitation, maintenance and spare parts revenue, such cost was 60.8% for
the nine months ended March 31, 1998 and 54.5% for the same period in 1997.
This increase was largely the result of increased revenues. Included in the
current revenue totals are a number of orders for components that typically
command a lower margin than experienced in the 1997 period.
Selling, general and administrative expenses increased by $345,545 for the
nine month period ended March 31, 1998 to $1,117,470 as contrasted with $771,925
for the corresponding 1997 period. Expressed as a percentage of total revenue,
selling, general and administrative expenses were 47.4% for the current nine
month period and 22.3% for the same period in 1997. This increase was due to
the addition of Sonic expenses of approximately $425,000, which included $28,000
related to the Merger, as well as $94,675 of inducement expense attributable to
the conversion of certain Company debentures into equity in the current period.
Amortization of goodwill created by the Merger amounted to $134,614.
Interest income increased $59,219 to $66,206 for the nine months ended
March 31, 1998 from $6,985 in the comparable 1997 period. This increase was
attributable to interest earned upon the proceeds from a private placement of
equity, discussed below, that were held in escrow pending completion of the
Merger.
Liquidity and Capital Resources
- -------------------------------
The Company had a negative cash flow from operating activities of $78,891
for the nine month period ended March 31, 1998 as compared to a negative cash
flow of $570,062 for the same period in 1997, a decrease of $491,171.
By June 1997, the Company completed a private placement of 172,948 shares
of common stock at a price of $3.46 per share for an aggregate consideration of
$598,400. $434,625 of the funds raised were held in escrow pending the
completion of the Merger. These funds are now available for general corporate
use and will be used for working capital. Additional funds were raised through
the exercise of options held by directors and employees.
At March 31, 1998, the Company had negative working capital of $120,815 as
compared to positive working capital of $522,849 at June 30, 1997, a decrease of
$643,664. The Company's
9
current ratio (current assets divided by current liabilities) was .89 and 1.47
at March 1998 and June 30, 1997, 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, 1997, "Costs and estimated earnings in excess of
billings on uncompleted contracts" exceeded "Billing in excess of costs and
estimated earnings on uncompleted contracts" by $24,595, thereby negatively
effecting working capital. At March 31, 1998, "Billings in excess of costs and
estimated earnings on uncompleted contracts" were less than "Costs and estimated
earnings in excess of billings on uncompleted contracts" by $29,318, thereby
positively effecting working capital.
The Company's backlog at March 31, 1998 was approximately $246,118, all but
approximately $25,000 of which the Company believes will be shipped prior to the
end of the current fiscal year. The Company believes that projected cash
generated from operations and the proceeds from the above mentioned private
placement will be sufficient to meet its cash needs through June 30, 1998.
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: May 22, 1998
TURBOSONIC TECHNOLOGIES, INC.
by: /s/ PATRICK FORDE
----------------------
Patrick Forde, Treasurer
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