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 March 31, 2003
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:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after
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 March 31, 2003.
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 Nine Months
Ended March 31, 2003 and March 31, 2002 3
Consolidated Balance Sheet
At March 31, 2003 (Unaudited) and June 30, 2002 (Audited) 4
Consolidated Statement of Cash Flows
(Unaudited) for the Nine Months Ended
March 31, 2003 and March 31, 2002 5
Notes to Consolidated Financial Statements
(Unaudited) 6 - 9
Item 2.
Management's Discussion and Analysis of
Financial Conditions and Results of Operations 9 - 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 12
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 Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Nozzle systems revenue $ 749,566 $ 612,424 $ 2,120,521 $ 1,776,277
Scrubber systems revenue 752,374 82,261 2,812,038 1,585,616
------------ ------------ ------------ ------------
Total revenue 1,501,940 694,685 4,932,559 3,361,893
------------ ------------ ------------ ------------
Cost of nozzles systems 485,229 337,281 1,499,529 1,082,691
Cost of scrubber systems 589,293 131,827 2,274,923 1,489,273
------------ ------------ ------------ ------------
Total cost of goods sold 1,074,522 469,108 3,774,452 2,571,964
------------ ------------ ------------ ------------
Gross profit 427,418 225,577 1,158,107 789,929
------------ ------------ ------------ ------------
Selling, general and administrative
expenses 423,690 358,079 1,227,921 1,040,449
Stock-based compensation expense 1,823 3,115 5,935 4,849
Debt modification expense [note 3] -- 3,847 -- 33,028
Depreciation and amortization 9,431 8,930 27,514 27,130
------------ ------------ ------------ ------------
Total expenses 434,944 373,971 1,261,370 1,105,456
------------ ------------ ------------ ------------
Loss from operations (7,526) (148,394) (103,263) (315,527)
Interest income (expense)- net 1,944 (932) 3,574 194
------------ ------------ ------------ ------------
Loss before taxes (5,582) (149,326) (99,689) (315,333)
Provision for income taxes (16,082) (33,068) 13 (39,837)
------------ ------------ ------------ ------------
Net income (loss) $ 10,500 $ (116,258) $ (99,702) $ (275,496)
Other comprehensive income (loss): foreign
currency translation 76,949 (511) 27,846 (105,923)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 87,449 $ (116,769) $ (71,856) $ (381,419)
============ ============ ============ ============
Weighted average number of shares
outstanding 10,507,250 10,343,831 10,507,250 10,343,831
Incremental shares using treasury method
[note 6] 10,507,250 10,360,104 10,507,250 10,360,104
Basic EPS 0.001 (0.011) (0.009) (0.027)
Diluted EPS 0.001 (0.011) (0.009) (0.027)
3 -
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(US dollars)
March 31, 2003 June 30, 2002
(Unaudited) (Audited)
-------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 474,398 $ 840,665
Contracts and accounts receivable, net of allowance
for doubtful accounts of $45,628 and $44,357 [note 7] 1,533,341 1,202,300
Deferred contract costs and unbilled revenue [note 2] 128,635 75,262
Income taxes recoverable -- 14,571
Inventories 55,610 79,336
Other current assets 75,433 40,959
----------- -----------
Total current assets 2,267,417 2,253,093
Capital assets, at cost, net of accumulated depreciation 114,110 125,949
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 $ 3,200,100 $ 3,197,615
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 487,730 252,727
Accrued expenses 300,268 228,975
Billings in excess of costs and estimated
earnings on uncompleted contracts [note 2] 226,602 444,821
Income taxes payable 2,867 --
Obligations under capital leases, current portion 13,648 24,193
----------- -----------
Total Current Liabilities 1,031,115 950,716
Obligations under capital leases, long-term portion 6,087 18,080
----------- -----------
1,037,202 968,796
----------- -----------
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] 2,014,223 2,008,288
----------- -----------
4,364,044 4,358,109
Accumulated other comprehensive (loss) (49,683) (77,529)
Accumulated deficit (2,151,463) (2,051,761)
----------- -----------
Total stockholders' equity 2,162,898 2,228,819
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,200,100 $ 3,197,615
=========== ===========
4 -
TURBOSONIC TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the nine months ended March 31, 2003 and March 31, 2002
(US dollars) (Unaudited)
March 31, 2003 March 31, 2002
-------------- --------------
Cash flows from operating activities
Net (loss) $ (99,702) $ (275,496)
Add changes to operations not requiring
a current cash payment:
Stock-based compensation expense 5,935 4,849
Debt modification expense -- 33,028
Depreciation and amortization 27,514 27,130
--------- -----------
(66,253) (210,489)
--------- -----------
Changes in non-cash working capital balances related to operations:
(Increase) decrease in accounts receivable (284,138) 629,588
Decrease (increase) in inventories 24,918 (16,856)
(Increase) in income tax recoverable -- (33,120)
(Increase) decrease in deferred contract costs
and unbilled revenue (48,270) 1,137,274
(Increase) in other current assets (31,974) (19,693)
Increase (decrease) in accounts payable and
accrued charges 279,165 (1,618,032)
(Decrease) in unearned revenue and
contract advances (220,375) (988,710)
Increase (decrease) in income taxes payable 16,882 (78,116)
--------- -----------
(263,792) (987,665)
--------- -----------
Net cash (applied to) operating activities (330,045) (1,198,154)
--------- -----------
Cash flows from investing activities:
Purchase of capital assets (5,740) (30,272)
--------- -----------
Net cash (applied to)investing activities (5,740) (30,272)
--------- -----------
Cash flows from financing activities
(Repayment) of capital leases (22,742) (6,943)
(Repayment) of shareholder loans (189,470)
Proceeds from issuance of common shares [note 5] -- 502,904
--------- -----------
Net cash (applied to) provided by financing activities (22,742) 306,491
--------- -----------
Effect of exchange rate change on cash (7,740) (126,771)
--------- -----------
Net cash (applied) during the period (366,267) (1,048,706)
Cash - beginning of period 840,665 1,778,604
--------- -----------
Cash - end of period $ 474,398 $ 729,898
========= ===========
5 -
TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(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
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 (including normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and nine-month periods ended
March 31, 2003 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.
The Company accounts for option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issues to Employees and SFAS No. 123 Accounting for
Stock-Based Compensation. Pro forma information regarding net income and
earnings per share is required by SFAS No. 123 and has been determined as if the
Company had accounted for its employee, director and adviser stock options under
the fair value method of that statement. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing model.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
Three Months Three Months Nine Months Nine Months
ended March 31, ended March 31, ended March 31, ended March 31,
2003 2002 2003 2002
-----------------------------------------------------------------------
Net income (loss) $ 10,500 $(116,258) $ (99,702) $(275,496)
Stock-based compensation expense under APB No.25 1,823 3,115 5,935 4,849
Stock-based compensation expense under SFAS No.123 (7,023) (5,385) (21,069) (17,196)
-----------------------------------------------------------------
Pro forma income (loss) $ 5,300 $(118,258) $(114,836) $(287,843)
=================================================================
Pro forma income per share:
Basic 0.001 (0.011) (0.011) (0.027)
Diluted 0.001 (0.011) (0.011) (0.027)
In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to
Others" ("FIN 45"), which requires elaborating on the disclosures that must be
made by a guarantor in financial statements about its obligations under certain
types of guarantees. It also requires that a guarantor recognize, at the time of
inception of certain types of guarantees, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The disclosure requirements of
FIN 45 are effective for financial statements issued after December 15, 2002,
and have been applied in the presentation of the accompanying consolidated
financial statement. The recognition requirements of FIN 45 are applicable for
guarantees issued or modified after December 31, 2002.
In accordance with FIN 45, the Company is required to make the following
disclosure regarding product warranties:
6 -
As part of the normal sale of scrubber and nozzle systems, the Company has
provided its customers with product warranties. The warranties generally extend
for twelve months from the date of start-up or eighteen months after shipment to
the customer. The following summarizes the accrual of product warranties that is
recorded as part of other accrued liabilities in the accompanying consolidated
balance sheet as at March 31, 2003:
Three Months ended Nine Months ended
March 31, 2003 March 31, 2003
------------------ -----------------
Opening balance $54,304 $ 58,385
Payments made during the period 2,795 (3,859)
Warranty provision made during the period 1,267 3,840
------- --------
Closing balance $58,366 $ 58,366
======= ========
Note. 2. Costs and Estimated Earnings on Uncompleted Contracts
March 31, 2003 June 30, 2002
-------------- -------------
Costs incurred on uncompleted contracts $ 11,072,383 $ 11,455,713
Estimated earnings 809,782 580,738
------------ ------------
11,882,165 12,036,451
Less: billings to date 11,980,132 12,406,010
------------ ------------
$ (97,967) $ (369,559)
============ ============
Included in accompanying balance sheets
under the following captions:
Deferred contract costs and unbilled revenue $ 128,635 $ 75,262
Billings in excess of costs and estimated
earnings on uncompleted contracts (226,602) (444,821)
------------ ------------
$ (97,967) $ (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.
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.
7 -
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.
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 three quarters of fiscal 2003, there were no stock 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. No award of stock options under the 2003 Stock
Plan has been granted.
Note 6. Earnings Per Share
Basic earnings per share is calculated based on the weighted average shares of
common stock outstanding during the period. Diluted earnings per share is
calculated based on the weighted average shares of common stock outstanding,
plus the dilutive effect of stock options and warrants outstanding, calculated
using the treasury stock method. There was no dilution in the three and nine
months ended March 31, 2003 as the average market price was below the trigger
prices for each of the groups of options and warrants listed.
8 -
Diluted Earnings Per Share Computation:
Three Months Three Months Nine Months Nine Months
ended March 31, ended March 31, ended March 31, ended March 31,
As at 2003 2002 2003 2002
-----------------------------------------------------------------------
Weighted average common shares 10,507,250 10,343,831 10,507,250 10,343,831
- - Incremental shares from assumed conversion of
employee stock options -- 11,862 -- 11,862
- - Incremental shares from assumed conversion of
director stock options -- 4,411 -- 4,411
---------------------------------------------------------------------
Adjusted weighted average shares 10,507,250 10,360,104 10,507,250 10,360,104
=====================================================================
Note 7. Contingency
As previously reported, a customer refused to pay a holdback of $400,000 that
was owed to TurboSonic under the terms of a contract for the supply and
installation of a wet electrostatic precipitator ("WESP"). In addition, the
customer submitted backcharges to the Company in an amount that approximates the
outstanding balance.
Based upon its technical review, the performance of the WESP and legal advice,
the Company believes that the customer's refusal to pay the holdback is not
legally supportable and that the backcharges claimed are without merit. The
customer has offered an amount in excess of the $400,000 to settle the holdback,
backcharge claims made by both parties, and assistance the Company provided to
the customer. The Company is currently assessing this offer and expects to
resolve the matter in the near future.
9 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Three Months ended March 31, 2003 Compared with Three Months ended March 31,
2002
Nozzle systems revenue increased by $137,142 (22.4%) to $749,566 for the
three-month period ended March 31, 2003 from $612,424 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, together with
increased system orders.
Scrubber system revenue increased by $670,113 (815%) to $752,374 for the three
month period ended March 31, 2003 from $82,261 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 $147,948 (43.9%) to $485,229 for the three
months ended March 31, 2003 from $337,281 for the same period in fiscal 2002. As
a percentage of nozzle systems revenue, the cost of nozzle systems was 64.7% for
the three month period ended March 31, 2003 and 55.1% for the same period in
fiscal 2002. The lower margins of the ceramic insert orders compared to our
normal spare parts orders, the lower margins of nozzle system 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 $457,466 (347%) to $589,293 for the three
month period ended March 31, 2003 from $131,827 for the same period one year
earlier. As a percentage of scrubber systems revenue, the cost of scrubber
systems was 78.3% versus 160.3% for the same period in fiscal 2002. The 160.3%
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 $65,611 (18.3%) to
$423,690 for the three month period ended March 31, 2003 from $358,079 for the
same period in fiscal 2002. The variance is the result of increases in sales
travel expense, additional sales personnel and insurance premiums. As a
percentage of total revenue, selling, general and administrative expenses were
28.2% for the quarter ended March 31, 2003 and 51.6% for the same period a year
earlier. Also included in total expenses was $1,823 of stock-based compensation
expense for the three-month period ended March 31, 2003, and $3,115 for the same
period in fiscal 2002.
The loss before tax decreased $143,744 to $5,582 from the loss before taxes of
$149,326 for the same period in fiscal 2002. Income tax recovery of $16,082 was
recorded in the three month period ended March 31, 2003 compared to $33,068 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 $76,949 was recorded for the three months
ended March 31, 2003, as compared to "other comprehensive loss" of $511 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.
Nine Months ended March 31, 2003 Compared with Nine Months ended March 31, 2002
Nozzle systems revenue increased by $344,244 (19.4%) to $2,120,521 for the
nine-month period ended March 31, 2003 from $1,776,277 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 installed during the first two quarters.
Scrubber system revenue increased by $1,226,422 (77.4%) to $2,812,038 for the
nine month period ended March 31, 2003 from $1,585,616 for the same period one
year earlier. Increased
10 -
revenue for wet electrostatic precipitator ("WESP") systems in the current
fiscal year have resulted in this positive increment.
Cost of nozzle systems increased by $416,838 (38.5%) to $1,499,529 for the nine
months ended March 31, 2003 from $1,082,691 for the same period in fiscal 2002.
As a percentage of nozzle systems revenue, the cost of nozzle systems was 70.7%
for the nine month period ended March 31, 2003 and 61.0% 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 $785,650 (52.8%) to $2,274,923 for the
nine month period ended March 31, 2003 from $1,489,273 for the same period one
year earlier. As a percentage of scrubber systems revenue, the cost of scrubber
systems was 80.9% versus 93.9% for the same period in fiscal 2002. The 93.9%
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 $187,472 (18.0%) to
$1,227,921 for the nine month period ended March 31, 2003 from $1,040,449 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,
additional sales personnel and insurance premiums. As a percentage of total
revenue, selling, general and administrative expenses were 24.9% for the
nine-month period ended March 31, 2003 and 31.0% for the same period a year
earlier. Also included in total expenses was stock-based compensation expense
($5,935) for the nine-month period ended March 31, 2003, and $4,849 for the same
period in fiscal 2002.
The loss before tax decreased $215,644 to $99,689 from the loss before taxes of
$315,333 for the same period in fiscal 2002. Income tax expense of $13 was
recorded in the nine-month period ended March 31, 2003 compared to $39,837 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 income" of $27,846 was recorded for the nine months
ended March 31, 2003, as compared to "other comprehensive loss" of $105,923 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 negative cash flow from operating activities of $330,045 for
the nine-month period ended March 31, 2003 as compared to negative cash flow of
$1,198,154 for the same period in fiscal 2002. The negative cash flow for the
period ended March 31, 2003 is primarily the result of increases in accounts
receivable due to the increased revenue volume in the third 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 March 31, 2003, the Company had working capital of $1,236,302, as compared to
working capital as at June 30, 2002 of $1,302,377, a decrease of $66,075. The
Company's current ratio (current assets divided by current liabilities) was 2.20
and 2.37 as at March 31, 2003 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
11 -
billings exceed its costs and estimated earnings on uncompleted contracts;
however, it is possible, at any point in time, that costs and estimated earnings
can exceed progress billings on uncompleted contracts, which would negatively
impact cash flow and working capital. At March 31, 2003, "Billings in excess of
costs and estimated earnings on uncompleted contracts" exceeded "Deferred
contract costs and unbilled revenue" by $97,967, 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 March 31, 2003 was approximately $760,000, of which
the Company believes 90% will be shipped prior to the end of the current fiscal
year. The Company believes that the projected cash generated from operations,
together with current cash reserves will be sufficient to meet its cash needs
through the coming year.
Quantitative and Qualitative Information About Market Risk
The Company does not engage in trading market risk sensitive instruments and
does not purchase hedging instruments or "other than trading" instruments that
are likely to expose the Company to market risk, whether interest rate, foreign
currency exchange, commodity price or equity prices risk. The Company has
purchased no options and entered into no swaps. The Company has no bank
borrowing facility, which could subject it to the risk of interest rate
fluctuations.
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.
12 -
Part II - Other Information
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. (a) None
(b) On February 13, 2003, the Company filed a current report on
Form 8-K, dated February 13, 2003, reporting Item 9 -
Regulation FD Disclosure.
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: May 12, 2003
TURBOSONIC TECHNOLOGIES, INC.
By: /s/ PATRICK J. FORDE
----------------------------
Patrick J. Forde, President,
Secretary and Treasurer
13 -
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: May 12, 2003
/s/ EDWARD F. SPINK
-------------------
Edward F. Spink
Chief Executive Officer
14 -
Certifications
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: May 12, 2003
/s/ PATRICK J. FORDE
--------------------
Patrick J. Forde
Chief Financial Officer
15 -