UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2002
Commission File Number 0-21832
TurboSonic Technologies, Inc.
(Exact name of small business issuer 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
(Issuer's telephone number, including area code)
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.
|_| Yes |_| No
The number of shares outstanding of the Issuer's Common Stock was 10,507,250 as
of December 31, 2002.
Transitional Small Business Disclosure Format (check one). Yes |_| No |X|
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 Six Months
Ended December 31, 2002 and December 31, 2001 3
Consolidated Balance Sheet
At December 31, 2002 (Unaudited) and June 30, 2002 (Audited) 4
Consolidated Statement of Cash Flows
(Unaudited) for the Six Months Ended
December 31, 2002 and December 31, 2001 5
Notes to Consolidated Financial Statements
(Unaudited) 6 - 8
Item 2
Management's Discussion and Analysis of
Financial Conditions and Results of Operations 8 - 11
Item 3
Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a
Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 12
2
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,
2002 2001 2002 2001
------------- ------------- ------------ ------------
Nozzle systems revenue $ 519,698 $ 418,945 $ 1,366,871 $ 1,167,053
Scrubber systems revenue 681,738 144,190 2,063,748 1,500,155
------------ ------------ ------------ ------------
Total revenue 1,201,436 563,135 3,430,619 2,667,208
------------ ------------ ------------ ------------
Cost of nozzles systems 388,202 221,179 1,016,548 726,232
Cost of scrubber systems 519,351 222,193 1,683,382 1,376,624
------------ ------------ ------------ ------------
Total cost of goods sold 907,553 443,372 2,669,930 2,102,856
------------ ------------ ------------ ------------
Gross profit 293,883 119,763 730,689 564,352
------------ ------------ ------------ ------------
Selling, general and
administrative expenses 451,274 350,232 804,231 682,370
Stock-based compensation expense 2,452 888 4,112 1,734
Debt modification expense [note 3] -- 10,531 -- 29,181
Depreciation and amortization 9,109 9,001 18,083 18,200
------------ ------------ ------------ ------------
Total expenses 462,835 370,652 826,426 731,485
------------ ------------ ------------ ------------
Loss from operations (168,952) (250,889) (95,737) (167,133)
Interest income (expense)- net 582 (3,251) 1,630 1,126
------------ ------------ ------------ ------------
Loss before taxes (168,370) (254,140) (94,107) (166,007)
Provision for income taxes (26,184) (50,829) 16,095 (6,769)
------------ ------------ ------------ ------------
Net loss $ (142,186) $ (203,311) $ (110,202) $ (159,238)
Other comprehensive income (loss):
foreign currency translation 9,679 (16,572) (49,103) (105,412)
------------ ------------ ------------ ------------
Comprehensive (loss) $ (132,507) $ (219,883) $ (159,305) $ (264,650)
============ ============ ============ ============
Weighted average number of
shares outstanding 10,507,250 10,263,898 10,507,250 10,263,898
Incremental shares using
treasury method [note 6] 10,507,250 10,307,966 10,507,250 10,307,966
Basic EPS (0.014) (0.020) (0.010) (0.016)
Diluted EPS (0.014) (0.020) (0.010) (0.015)
3
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(US dollars)
December 31, 2002 June 30, 2002
(Unaudited) (Audited)
----------- -----------
Assets
Current Assets:
Cash and cash equivalents $ 1,089,787 $ 840,665
Contracts and accounts receivable, net of allowance
for doubtful accounts of $42,632 and $44,357 [note 7] 901,135 1,202,300
Deferred contract costs and unbilled revenue [note 2] 69,185 75,262
Income taxes recoverable -- 14,571
Inventories 86,048 79,336
Other current assets 92,887 40,959
----------- -----------
Total current assets 2,239,042 2,253,093
Capital assets, at cost, net of accumulated depreciation 113,028 125,949
Patents, less accumulated amortization 1 1
Goodwill, net of accumulated amortization [note 4] 797,794 797,794
Other assets 20,778 20,778
----------- -----------
Total Assets $ 3,170,643 $ 3,197,615
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 655,975 252,727
Accrued expenses 248,666 228,975
Billings in excess of costs and estimated
earnings on uncompleted contracts [note 2] 164,868 444,821
Income taxes payable 1,662 --
Obligations under capital leases, current portion 19,171 24,193
----------- -----------
Total Current Liabilities 1,090,342 950,716
Obligations under capital leases, long-term portion 6,675 18,080
----------- -----------
1,097,017 968,796
----------- -----------
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
6,055,850 common shares [note 5] 50,725 50,725
4,451,400 exchangeable shares 2,299,096 2,299,096
Additional paid - in capital [notes 3, and 5] 2,012,400 2,008,288
----------- -----------
4,362,221 4,358,109
Accumulated other comprehensive (loss) (126,632) (77,529)
Accumulated deficit (2,161,963) (2,051,761)
----------- -----------
Total stockholders' equity 2,073,626 2,228,819
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,170,643 $ 3,197,615
=========== ===========
4
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the six months ended December 31, 2002 and December 31, 2001
(US dollars) (Unaudited)
December 31, 2002 December 31, 2001
----------------- -----------------
Cash flows from operating activities
Net (loss) $ (110,202) $ (159,238)
Add changes to operations not requiring
a current cash payment:
Stock-based compensation expense 4,112 1,734
Debt modification expense -- 29,181
Depreciation and amortization 18,083 18,200
----------- -----------
(88,007) (110,123)
----------- -----------
Changes in non-cash working capital balances
related to operations:
Decrease in accounts receivable 257,666 575,667
(Increase) decrease in inventories (7,265) 7,163
(Increase) in income tax recoverable -- (4,480)
Decrease in deferred contract costs
and unbilled revenue 3,499 1,032,310
(Increase) in other current assets (53,591) (35,626)
Increase (decrease) in accounts payable and
Accrued charges 439,021 (1,616,803)
(Decrease) in unearned revenue and
contract advances (264,043) (952,673)
Increase (decrease) in income taxes payable 15,908 (73,897)
----------- -----------
391,195 (1,068,339)
----------- -----------
Net cash provided by (applied to) operating activities 303,188 (1,178,462)
----------- -----------
Cash flows from investing activities:
Purchase of capital assets (9,754) (25,168)
----------- -----------
Net cash (applied to)investing activities (9,754) (25,168)
----------- -----------
Cash flows from financing activities
(Repayment) proceeds of capital leases (14,840) 2,010
(Repayment) of shareholder loans (189,470)
Proceeds from issuance of common shares [note 5] -- 502,904
----------- -----------
Net cash (applied to) provided by financing activities (14,840) 315,444
----------- -----------
Effect of exchange rate change on cash (29,472) (102,425)
----------- -----------
Net cash provided (applied) during the period 249,122 (990,611)
Cash - beginning of period 840,665 1,778,604
----------- -----------
Cash - end of period $ 1,089,787 $ 787,993
=========== ===========
5
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 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-QSB 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 (including normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month periods ended
December 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2003. 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, 2002.
Note. 2. Costs and Estimated Earnings on Uncompleted Contracts
December 31, 2002 June 30, 2002
----------------- -------------
Costs incurred on uncompleted contracts $ 9,623,376 $ 11,455,713
Estimated earnings 975,639 580,738
------------ ------------
10,599,015 12,036,451
Less: billings to date 10,694,698 12,406,010
------------ ------------
$ (95,683) $ (369,559)
============ ============
Included in accompanying balance sheets
under the following captions:
Deferred contract costs and unbilled revenue $ 69,185 $ 75,262
Billings in excess of costs and estimated
earnings on uncompleted contracts (164,868) (444,821)
------------ ------------
$ (95,683) $ (369,559)
============ ============
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, and by $140,000 to a total of
$317,000 during the year ended June 30, 2002. After review of the
subcontractor's status and an assessment of its own obligations under the
contract with its customer, management has deemed that no further increases are
necessary. 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, 2003.
6
Note 3. Warrants
The Company has in the past granted detachable warrants for 400,000 common
shares to debt holders as an inducement to advance funds to the Company. 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 was amortized over the remaining period to the original
maturity dates.
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 both sets of warrants are now stated to
be the earlier of the specified expiry date or 90 days after the date that the
common shares in the Company have closed at a trading price above $1.50 for 30
consecutive trading days. 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 were amortized using the interest
method over the new term of the debt.
Note 4. 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 as at July 1, 2001 and an annual
impairment test as at April 1, 2002, to identify if there is any impairment to
the goodwill using a fair value methodology by reporting unit. The Company has
concluded that there was no impairment as at July 1, 2001 and April 1, 2002. The
next annual impairment test will be conducted as at April 1, 2003, unless there
is an earlier indication of impairment.
Note 5. 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 investment agreement also provides for
the joint marketing of certain products.
During the first two quarters of fiscal 2003, there were no options exercised by
employees, directors or advisers. During the first quarter of fiscal 2002, 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 at that time.
At the annual shareholders meeting held December 10, 2002, the 2003 Stock Plan
was approved by the shareholders. Under the terms of the 2003 Stock Plan,
500,000 shares of common stock will be available for delivery in settlement of
awards. No award of options under the 2003 Stock Plan has been granted.
Note 6. Earnings (Loss) Per Share
Basic net income per share is calculated based on the weighted average shares of
common stock outstanding during the period. Diluted net income per share is
calculated based on the
7
weighted average shares of common stock outstanding, plus the dilutive effect of
stock options and warrants outstanding, calculated using the treasury stock
method. There was no dilution in the first and second quarters of fiscal 2003 as
the average market price was below the trigger prices for each of the groups of
options and warrants listed.
Diluted Earnings Per Share Computation:
Three Months Three Months Six Months Six Months
ended ended ended ended
As at December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001
----------------- ----------------- ----------------- -----------------
Weighted average common shares 10,507,250 10,263,898 10,507,250 10,263,898
- - Incremental shares from assumed
conversion of employee stock options -- 32,123 -- 32,123
- - Incremental shares from assumed
conversion of director stock options -- 11,945 -- 11,945
- - Incremental shares from assumed
conversion of warrants (shareholder loans) -- -- -- --
-------------------------------------------------------------------------
Adjusted weighted average shares 10,507,250 10,307,966 10,507,250 10,307,966
=========================================================================
Note 7. Contingency
A customer has refused to pay a holdback of $400,000 that TurboSonic asserts is
due under the terms of the contract for the supply and installation of a wet
electrostatic precipitator ("WESP"). In addition, the customer has submitted
backcharges to the Company in an amount that approximates the outstanding
balance.
Based upon its technical review, performance of the WESP and legal advice, the
Company believes the customer's refusal to pay the holdback is not legally
supportable and that the backcharges are without merit. Accordingly, the Company
is in the process of requesting mediation under the terms of the Conflict
Resolution clause in the contract in order to recover the amount receivable and
to dispute the backcharges. Should the outcome of this mediation not be
acceptable, either party has the option of commencing legal proceedings. If
mediation does not result in payment of the account receivable, the Company
intends to commence litigation to recover the amount owed under the contract. At
the date of these financial statements, the outcome of this matter is not
determinable. No provision has been made in the accompanying financial
statements against the amount receivable or for the backcharges.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Three Months ended December 31, 2002
Compared with Three Months ended December 31, 2001
Nozzle systems revenue increased by $100,753 (24.1%) to $519,698 for the
three-month period ended December 31, 2002 from $418,945 for the same period in
fiscal 2002. The increase is primarily the result of greater sales of spare
parts, and in particular, ceramic inserts for spray dry systems.
Scrubber system revenue increased by $537,548 (373%) to $681,738 for the three
month period ended December 31, 2002 from $144,190 for the same period one year
earlier. Increased revenue for wet electrostatic precipitator ("WESP") systems
in the current quarter have resulted in this positive increment.
Cost of nozzle systems increased by $167,023 (75.5%) to $388,202 for the three
months ended December 31, 2002 from $221,179 for the same period in fiscal 2002.
As a percentage of nozzle systems revenue, the cost of nozzle systems was 74.7%
for the three month period
8
ended December 31, 2002 and 52.8% for the same period in fiscal 2002. The lower
margins of the ceramic insert orders compared to our normal spare parts orders
together with a provision for cost overruns on a specific project are
responsible for the increased nozzle system costs, together with the increased
sales volume discussed above.
Cost of scrubber systems increased by $297,158 (133.7%) to $519,351 for the
three month period ended December 31, 2002 from $222,193 for the same period one
year earlier. As a percentage of scrubber systems revenue, the cost of scrubber
systems was 76.2% versus 154.1% for the same period in fiscal 2002. The 154.1%
cost to revenue ratio in fiscal 2002 was the result of the increased project
costs on a specific scrubber, as discussed in Note 2 of the Financial
Statements.
Selling, general and administrative expenses increased $101,042 (28.9%) to
$451,274 for the three month period ended December 31, 2002 from $350,232 for
the same period in fiscal 2002. The variance is the result of increases in sales
travel expense, costs associated with our annual report and annual meeting and
insurance premiums. As a percentage of total revenue, selling, general and
administrative expenses were 37.6% for the quarter ended December 31, 2002 and
62.2% for the same period a year earlier. Also included in total expenses was
stock-based compensation expense ($2,542) for the three-month period ended
December 31, 2002, and $888 for the same period in fiscal 2002.
The loss before tax decreased $85,770 to $168,370 from the loss before taxes of
$254,140 for the same period in fiscal 2002. Income tax recovery of $26,184 was
recorded in the three month period ended December 31, 2002 compared to $50,289
tax recovery in the same period one year ago. The ratio of income tax recovery
to loss before tax for both periods is lower than would normally be expected as
the result of losses incurred in the US operations that are not available for
income tax offset for the Canadian operations.
An "other comprehensive income" of $9,679 was recorded for the three months
ended December 31, 2002, as compared to "other comprehensive loss" of $16,572
for the same period in fiscal 2002. The "other comprehensive loss and income" in
the comparative quarters was the result of the fluctuation 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.
Six Months ended December 31, 2002
Compared with Six Months ended December 31, 2001
Nozzle systems revenue increased by $199,818 (17.1%) to $1,366,871 for the
six-month period ended December 31, 2002 from $1,167,053 for the same period in
fiscal 2002. The increase is the result of greater sales of spare parts, and in
particular, ceramic inserts for spray dry systems, together with a large
semi-dry scrubbing system recently installed.
Scrubber system revenue increased by $563,593 (37.6%) to $2,063,748 for the six
month period ended December 31, 2002 from $1,500,155 for the same period one
year earlier. Increased revenue for wet electrostatic precipitator ("WESP")
systems in the current fiscal year have resulted in this positive increment.
Cost of nozzle systems increased by $290,316 (40.0%) to $1,016,548 for the six
months ended December 31, 2002 from $726,232 for the same period in fiscal 2002.
As a percentage of nozzle systems revenue, the cost of nozzle systems was 74.4%
for the six month period ended December 31, 2002 and 62.2% for the same period
in fiscal 2002. The lower margins of the ceramic insert orders compared to our
normal spare parts orders together with a provision for cost overruns on a
specific project are responsible for the increased nozzle system costs, together
with the increased sales volume discussed above.
Cost of scrubber systems increased by $306,758 (22.3%) to $1,683,382 for the six
month period ended December 31, 2002 from $1,376,624 for the same period one
year earlier. As a percentage of scrubber systems revenue, the cost of scrubber
systems was 81.6% versus 91.8% for the same period in fiscal 2002. The 91.8%
cost to revenue ratio in fiscal 2002 was the result of the increased project
costs on a specific scrubber, as discussed in Note 2 of the Financial
Statements.
9
Selling, general and administrative expenses increased $121,861 (17.9%) to
$804,231 for the six month period ended December 31, 2002 from $682,370 for the
same period in fiscal 2002. The variance is the result of increases in sales
travel expense, costs associated with our annual report and annual meeting, and
insurance premiums. As a percentage of total revenue, selling, general and
administrative expenses were 23.4% for the quarter ended December 31, 2002 and
25.6% for the same period a year earlier. Also included in total expenses was
stock-based compensation expense ($4,112) for the six-month period ended
December 31, 2002, and $1,734 for the same period in fiscal 2002.
The loss before tax decreased $71,900 to $94,107 from the loss before taxes of
$166,007 for the same period in fiscal 2002. Income tax expense of $16,095 was
recorded in the six month period ended December 31, 2002 compared to $6,769 tax
recovery in the same period one year ago. The ratio of income tax recovery and
expense to the loss before tax for both periods is skewed from that would
normally be expected as the result of losses incurred in the US operations that
are not available for income tax offset for the Canadian operations.
An "other comprehensive loss" of $49,103 was recorded for the six months ended
December 31, 2002, as compared to "other comprehensive loss" of $105,412 for the
same period in fiscal 2002. The "other comprehensive loss and income" in the
comparative quarters was the result of the fluctuation 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.
Liquidity and Capital Resources
The Company had a positive cash flow from operating activities of $303,188 for
the six-month period ended December 31, 2002 as compared to negative cash flow
of $1,178,462 for the same period in fiscal 2002. The positive cash flow for the
period ended December 31, 2002 is primarily the result of decreases in accounts
receivable due to the decreased revenue volume in the second quarter, and
increases in accounts payable with the shipment of several projects near the end
of the quarter. The negative cash flow in the prior period was the result of the
completion of the large WESP contract with the subsequent payment of related
accounts payable.
A customer has refused to pay $400,000 that TurboSonic asserts is due under the
terms of the contract. In addition, the customer has submitted backcharges to
the Company in an amount that approximates the outstanding balance. [see note 7
to the Consolidated Financial Statements]
At December 31, 2002, the Company had working capital of $1,148,700, as compared
to working capital as at June 30, 2002 of $1,302,377, a decrease of $153,677.
The Company's current ratio (current assets divided by current liabilities) was
2.05 and 2.37 as at December 31, 2002 and June 30, 2002, 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 December 31, 2002, "Billings in excess of costs and
estimated earnings on uncompleted contracts" exceeded "Deferred contract costs
and unbilled revenue" by $95,683, thereby favourably impacting cash flow. At
June 30, 2002, "Billings in excess of costs and estimated earnings on
uncompleted contracts" also exceeded "Deferred contract costs and unbilled
revenue" by $369,559. The variances are the result of favourable terms of
payment with our current mix of contracts in progress.
The Company's backlog as at December 31, 2002 was approximately $1,010,000, 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.
10
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.
Item 3. Controls and Procedures.
Within the 90 days prior to the date of this report, under the supervision and
with the participation of management, including the Company's Chief Executive
Officer and Chief Financial Officer, the Company has evaluated the effectiveness
of the design and operation of its disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the its periodic SEC filings. There
have been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.
11
Part II - Other Information
Item 1. None
Item 2. None
Item 3. None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held December 10, 2002.
The voting results of the meeting were as follows:
1) Election of Officers:
Name For Against
Edward F. Spink 6,781,439 11,617
Patrick J. Forde 6,781,439 11,617
Richard H. Hurd 6,772,351 20,705
Dr. Donald R. Spink 6,781,412 11,644
Jonathan R. Lagarenne 6,781,439 11,617
Frederick G. Berlet 6,781,412 11,644
Sean J. McNamara 6,781,439 11,617
James R. Thompson 6,781,439 11,617
2) Approve the TurboSonic Technologies, Inc. 2003 Stock Plan:
For Against Abstention
6,621,228 150,879 20,949
3) Ratification of Selection of Ernst & Young as Independent
Auditors:
For Against Abstention
6,784,957 4,514 3,585
Item 5. None
Item 6. (a) None
(b) On September 30, 2002, the Company filed a current report on
Form 8-K, dated September 25, 2002, reporting Item 9 -
Regulation FD Disclosure.
On December 13, 2002, the Company filed a current report on
Form 8-K, dated December 12, 2002, reporting Item 5 - Other
Events.
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, thereunto duly authorized.
Dated: February 12, 2003
TURBOSONIC TECHNOLOGIES, INC.
By: /s/ PATRICK J. FORDE
-------------------------------------
Patrick J. Forde, President,
Secretary and Treasurer
12
Certifications I, Edward F. Spink, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of TurboSonic
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ EDWARD F. SPINK
------------------------------
Edward F. Spink
Chief Executive Officer
13
I, Patrick J. Forde, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of TurboSonic
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ PATRICK J. FORDE
--------------------------------
Patrick J. Forde
Chief Financial Officer
14