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 EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 1997
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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 to
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Commission File Number 0-21832
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TurboSonic Technologies, Inc.
formerly Sonic Environmental Systems, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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)
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(Former name, former address and formal fiscal year, if changed since last
report)
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 preceding 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 Section 12, 13 or 15(d) of the Securities
Exchange 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 January 31, 1997 9,847,370 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 Three Months and Nine Months
Ended January 31, 1997 and 1996 3
Consolidated Balance Sheets
at January 31, 1997 (Unaudited) and
April 30, 1996 4
Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended
January 31, 1997 and 1996 5
Notes to Consolidated Financial Statements
(Unaudited) 6 - 8
Item 2.
Management's Discussion and Analysis of
Financial Condition 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
2
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
January 31, 1996 January 31, 1997 January 31, 1996 January 31, 1997
---------------- ---------------- ---------------- ----------------
Original equipment revenue $ 901,926 $ 241,278 $ 1,754,465 $ 673,511
Rehabilitation, maintenance and spare parts
revenue 463,263 397,686 1,418,294 912,760
---------------- ---------------- ---------------- ----------------
Total revenue 1,365,189 638,964 3,172,759 1,586,271
---------------- ---------------- ---------------- ----------------
Cost of original equipment 713,681 106,147 1,316,615 383,308
Cost of rehabilitation, maintenance and spare parts 208,680 158,332 824,151 368,388
Loss on Cancellation of Contract - - 467,127 -
Selling, general and administrative expenses 746,848 212,267 2,449,390 866,720
---------------- ---------------- ---------------- ----------------
Total Costs 1,669,209 476,746 5,057,283 1,618,416
---------------- ---------------- ---------------- ----------------
Profit (Loss) from operations (304,020) 162,218 (1,884,524) (32,145)
Other income (expense) (42,170) 50 (83,763) 30,154
---------------- ---------------- ---------------- ----------------
Income (loss) before discontinued operations (346,190) 162,268 ($1,968,287) (1,991)
Discontinued operations:
Loss from operation of discontinued operations - (101,343) - (269,160)
---------------- ---------------- ---------------- ----------------
Net profit (loss) ($346,190) $ 60,925 ($1,968,287) ($271,151)
================ ================ ================ ===============
Weighted average number of shares outstanding 7,934,221 9,847,737 6,116,158 9,847,737
================ ================ ================ ===============
Net profit (loss) per share ($0.04) $0.01 ($0.32) ($0.03)
================ ================ ================ ===============
3
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1997 (Unaudited) and April 30, 1996 (Audited)
January 31, 1997 April 30, 1996
(Unaudited) (Audited)
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Assets
Current Assets:
Cash $ 198,208 $ 27,266
Contracts and accounts receivable, net of allowance
for doubtful accounts of $75,000 and $75,000 201,243 488,994
Costs and estimated earnings in excess of billings
on uncompleted contracts 212,249 85,996
Inventories 107,832 102,915
Other current assets 34,076 20,730
Net assets of discontinued operations 392,777 392,777
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Total current assets $ 1,146,385 $ 1,118,678
Equipment and leasehold improvements, at cost,
net of accumulated depreciation 105,050 227,408
Due from related parties 17,232 20,698
Investment in unconsolidated subsidiaries 10,746 10,746
Intangible assets, less accumulated amortization 700,639 770,073
Other assets 118,954 116,835
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Total Assets $ 2,099,006 $ 2,264,438
=================== ==============
Liabilities and stockholder's equity (deficit)
Current liabilities:
Note payable $ 996,996 $ 900,000
Current portion of capital lease obligation 5,298 6,605
Accounts payable - trade 1,756,786 1,742,861
Accrued expenses 565,862 562,557
Billings in excess of costs and estimated earnings on
uncompleted contracts 8,432 15,632
Provision for loss on disposal of discontinued operations 176,595 445,755
Total current liabilities 3,509,969 3,673,410
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Stockholder's equity (deficit):
Common stock, par value $.10 per share,
10,000,000 shares authorized, 9,847,737
shares issued and outstanding 984,737 984,737
Capital in excess of par value 9,688,122 9,688,122
Accumulated deficit (12,083,822) (12,081,831)
Total stockholder's equity (deficit) (1,410,963) (1,408,972)
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Total Liabilities and Stockholder's Equity $ 2,099,006 $ 2,264,438
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4
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Nine Months Ended January 31, 1997 and 1996
(Unaudited)
1997 1996
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Cash flows from operating activities
Net income (loss) ($271,151) ($1,968,287)
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Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities:
Depreciation and amortization 120,000 239,985
(Increase) decrease in:
Contracts and accounts receivable 287,751 121,538
Costs and estimated earnings in excess of billings on
uncompleted contracts (126,253) 295,391
Inventories (4,917) (191,831)
Other current assets (13,346) 1,934
Other assets (2,119) (10,429)
Due from related parties 3,466 22,778
Intangible assets - (12,862)
Increase (decrease) in:
Accounts payable - trade 13,925 169,048
Accrued expenses 3,305 39,305
Billings in excess of costs and estimated
earnings on uncompleted contracts (7,200) 88,241
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Total adjustments 274,612 763,098
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Net cash (used) provided by operating
operating activities 3,461 (1,205,189)
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Cash flows from investing activities:
Payments for acquisition of equipment - (15,000)
Cancellation of notes payable 71,792 -
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Net cash (used) provided by investing activities 71,792 (15,000)
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Cash flows from financing activities:
Proceeds from issuance of common stock - 1,038,250
New principal (payments) proceeds on note payable 96,996 278,308
Principal payments on capital lease obligation (1,307) (13,409)
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Net cash provided (used) by financing activities 95,689 1,303,149
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Net increase (decrease) in cash 170,942 82,960
Cash - beginning of period 27,266 232,509
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Cash - end of period $ 198,208 $ 315,469
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5
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1997
(Unaudited)
Note 1 Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in required by generally accepted accounting principles. In the opinion
of adjustments (consisting of normal recurring accruals) considered presentation
have been included. Operating results for the three periods ended January 31,
1997 are not necessarily indicative of expected for the year ending April 30,
1997. These consolidated statements should be read in conjunction with the
financial included in the Company's annual report on Form 10-K for the year
ended April 30, 1996.
Note 2. Costs and Estimated Earnings on Uncompleted Contracts
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January 31, 1997 April 30, 1996
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Costs incurred on uncompleted contracts $148,951 $ 74,590
Estimated earnings 65,985 107,039
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214,936 181,629
Less: billings to date (11,119) (111,265)
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$203,817 $ 70,364
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Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $212,249 $ 85,996
Billings in excess of costs and estimated
earnings on uncompleted contracts (8,432) (15,632)
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$203,817 $ 70,364
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6
Note 3. Other Events
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During the fiscal year 1997, the Company entered into certain
transactions and agreements involving Turbotak Technologies, Inc. ["Turbotak"],
a Canadian corporation, that resulted in the stockholders of Turbotak acquiring
a controlling interest in the Company subsequent to April 30, 1997.
On September 16, 1996, the Company consented to the entry of an order
for Relief under Chapter 11 of the United States Bankruptcy Code. On July 3,
1997 the Bankruptcy Court confirmed the Debtor's First Amended Plan of
Reorganization ["Plan"]. Subsequent to the approval, the Plan was modified and a
Combination Agreement was drawn up between the Company and Turbotak which was
approved by the stockholders of Turbotak on August 25, 1997.
Pursuant to the Plan and Combination Agreement, effective August 27,
1997, the transaction date, the Company amended its certificate of incorporation
to change its name to TurboSonic Technologies, Inc. ["TurboSonic"]. All existing
and outstanding stock, warrants and options of the Company were terminated and
cancelled. TurboSonic has authorized share capital of 30,000,000 common shares.
TurboSonic incorporated a subsidiary corporation [TurboSonic Canada] in the
Province of Ontario, Canada which was authorized to issue Class A and Class B
common shares. TurboSonic subscribed for 100% of TurboSonic Canada's Class A
shares in exchange for a nominal capital contribution.
Also on August 27, 1997, the stockholders of Turbotak exchanged their
shares for TurboSonic Canada's Class B shares, which were distributed to each
stockholder of Turbotak on a pro rata basis. As a result of this exchange,
Turbotak became a wholly-owned subsidiary of TurboSonic Canada. The Class B
shares of TurboSonic Canada are exchangeable, at the election of the holders of
such shares, into an equivalent number of such shares of TurboSonic.
The exchangeable shares of TurboSonic Canada represent approximately
82% of the outstanding shares of TurboSonic. Approximately 13% of the shares of
TurboSonic were issued to the existing stockholders of the Company and the
balance were issued in accordance with the Plan to unsecured creditors and other
identified interests.
Turbotak acquired a note payable to the Company's bank which amounted
to $940,000 at April 30, 1997 including accrued interest. In accordance with the
Plan, the note payable was extinguished. In fiscal 1997, Turbotak advanced
$100,000 to the Company on a non-interest bearing basis. This amount was not
extinguished.
7
In accordance with the terms of the Plan, accounts payable in the
amount of approximately $1,713,000 were extinguished. This amount is net of the
promissory note of $100,000 and the cash held in trust of $100,000 which was
assigned to the creditors' committee. The unsecured creditors, as consideration
for the extinguishment of debt, received approximately 5% of the outstanding
shares of TurboSonic.
Management believes that the reorganization will enable the Company to
continue to operate as a viable entity. Consequently, these consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
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Three Months Ended January 31, 1997
Compared with Three Months Ended January 31, 1996
Original equipment revenue decreased by $660,648 (73%) to $241,278 for
the three month period ended January 31, 1997 from $901,926 for the same period
in 1996. Revenue from long-term contracts is recognized using the percentage of
completion method of accounting where estimates of costs to complete and the
extent of progress toward completion are reasonably dependable. For those
contracts, however, that utilize a new technology or require filtration of a
material with which the Company has not had previous experience, the completed
contract method is used. No revenues or costs were recognized under the
completed contract method during the three months ended January 31, 1997 and
1996. Management believes that such decrease is primarily attributable to the
reluctance of both existing and potential customers to purchase the Company's
products and systems given the uncertainty during fiscal 1997 of the Company's
emergence from its then pending Chapter 11 reorganization proceeding under the
Federal Bankruptcy Code.
Rehabilitation, maintenance and spare parts revenue decreased by
$65,577 (14%) to $397,686 for the three month period ended January 31, 1997 from
$463,263 for the same period in 1996. This decrease was due to a general
decrease in sales of spare parts.
Cost of original equipment decreased by $607,534 (85%) to $106,147 for
the three month period ended January 31, 1997 from $713,681 for the same period
in 1996. As a percentage of original equipment revenue, cost of original
equipment was 44 % for the three month period ended January 31, 1997 and 79.1%
for the same period in 1996. The improvement in the percentage of cost of
original equipment revenue was due to the fact that the 1996 period included
revenues and costs related to a contract which had a very low gross margin.
8
Selling, general and administration expenses decreased by $534,581
(72%) to $212,267 for the three month period ended January 31, 1997 from
$746,848 for the same period in 1996. Due to the Company's substantial and
ongoing losses over the last several years and its decision to convert to a
voluntary Chapter 11 reorganization proceeding under the Federal Bankruptcy
Code, the Company further reduced selling, general and administrative expenses
by laying off additional personnel and by not incurring any expenses unless they
were absolutely necessary to keep the Company functioning during the
reorganization period.
Nine Months Ended January 31, 1997
Compared with the Nine Months Ended January 31, 1996
Original equipment revenue decreased by $1,080,954 (62%) to $673,511
for the nine months ended January 31, 1997 from 1,754,465 for the same period in
1996. Management believes that such decrease is primarily attributable to the
reluctance of both existing and potential customers to purchase the Company's
products and systems given the uncertainty during fiscal 1997 of the Company's
emergence from its then pending Chapter 11 reorganization proceeding under the
Federal Bankruptcy Code.
Rehabilitation, maintenance, and spare parts revenue decreased
$505,534 (36%) to $912,760 for the nine months ended January 31, 1997 from
$1,418,294 for the same period in 1996. Approximately $250,000 of the decrease
was attributable to a service contract for a major oil company included in the
1996 period. Spare parts revenues also decreased during the nine month period
ended January 31, 1997.
Cost of original equipment decreased by $933,307 (71%) to $383,308 for
the nine month period ended January 31, 1997 from $1,316,615 for the same period
in 1996. As a percentage of original equipment revenue, cost of original
equipment was 57% for the nine month period ended January 31, 1997 and 75% for
the same period in 1996. The improvement in the percentage of cost of original
equipment revenue was due to the fact that the 1996 period included revenues and
costs related to a contract which had very low gross margin.
Selling, general and administrative expenses decreased by $1,582,670
(65%) to $866,720 for the nine month period ended January 31, 1997 from
$2,449,390 for the same period in 1996. Due to the Company's substantial and
ongoing losses over the last several years and its decision to convert to a
voluntary Chapter 11 reorganization proceeding under the Federal Bankruptcy
Code, the Company further reduced selling, general and administrative expenses
by laying off additional personnel and by not incurring any expenses unless they
were absolutely necessary to keep the Company functioning during the
reorganization period.
Liquidity and Capital Resources
The Company had a positive cash flow from operating activities of
$3,461 for the nine month period ended January 31, 1997 as compared to a
negative cash flow of $1,205,189 for the nine month period ended January 31,
1996, an increase of $1,208,650.
9
At January 31, 1997, the Company had negative working capital of
$2,363,584 as compared to $2,554,732 at April 30, 1996, a decrease in negative
working capital of $191,148. The Company's current ratio (current
assets divided by current liabilities) was .33 and .30 at January 31, 1997 and
April 30, 1996, 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 January 31, 1997 and April 30, 1996, "Costs and
estimated earnings in excess of billings on uncompleted contracts" exceeded
"Billings in excess of costs and estimated earnings on uncompleted contracts" by
$203,817 and $70,364, respectively, thereby negatively effecting working
capital.
Original equipment revenue continues to be impacted negatively by
delays related to permitting problems and enforcement of existing environmental
regulations. The Company believes that these conditions will continue to
adversely impact its domestic sales for the proximate future.
The Company's $1,000,000 Revolving Credit Agreement ("Agreement") with
a bank expired in September 1995. The bank agreed in October 1995 to extend the
credit agreement until June 30, 1996, but the Company's right to repay and
reborrow hereunder was terminated and principal amounts repaid could not be
reborrowed. The Company made a principal payment to the bank in October 1995 of
$50,000 and further agreed to make monthly principal payments of $10,000 through
March 1996 and monthly principal payments of $20,000 for the months of April,
May and June of 1996. The bank hereupon waived all other default provisions in
the agreement. The Company made payments through March 1996 but was unable to
make the agreed upon subsequent payments. Subsequent to April 30, 1996, Turbotak
purchased the bank's creditor position. Upon the Effective Date, the Note was
extinguished.
Due to the substantial and ongoing losses experienced by the Company,
the Company, on September 16, 1996, converted an involuntary Chapter 7
Bankruptcy case initiated against it by certain of its creditors in July 1996 to
a voluntary Chapter 11 reorganization proceeding under the Federal Bankruptcy
Code. On September 3, 1996, the Company signed an agreement with Turbotak which
contemplated a merger of the two companies. A plan of reorganization, calling
for a consolidation of the Company and Turbotak, was filed with the Bankruptcy
court by the Company in March 1997 and, in an amended and modified form, was
approved by the Court in July 1997. Such consolidation and the resulting
acquisition by Turbotak's shareholders of an approximately 82% equity interest
in the Company was consummated on August 27, 1997. (See Note 3 - Other Events)
Part II - Other Information
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Item 1. Chapter 7 Bankruptcy case initiated July 1996 and then
converted to a Chapter 11 Bankruptcy Proceeding on September
16, 1996.
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. None
10
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: March 5, 1999
TURBOSONIC TECHNOLOGIES, INC.
by:/s/ Patrick J. Forde
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Patrick J. Forde
Treasurer and Principal Financial and Accounting Officer
11