-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HDPfC/sWpZ/bMxNrIGtxkiYVjQE5+wF5s+H8azU+xfVWaSa8940vDJeYsc4bUEdr XU+442JRmxPIt37Ln/UvcA== 0001047469-99-035361.txt : 19990913 0001047469-99-035361.hdr.sgml : 19990913 ACCESSION NUMBER: 0001047469-99-035361 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990910 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUROFLOW INC CENTRAL INDEX KEY: 0000100591 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 131947195 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-05622 FILM NUMBER: 99709335 BUSINESS ADDRESS: STREET 1: 16559 SATICOY STREET CITY: VAN NUYS STATE: CA ZIP: 91406 BUSINESS PHONE: 8187561388 MAIL ADDRESS: STREET 1: 16559 SATICOY STREET CITY: VAN NUYS STATE: CA ZIP: 91406 FORMER COMPANY: FORMER CONFORMED NAME: ULTRA DYNAMICS CORP DATE OF NAME CHANGE: 19830522 10QSB 1 10QSB 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 QUARTER ENDED JULY 31, 1999 COMMISSION FILE NUMBER 0-5622 - ------------------------------------------------------------------------------- PUROFLOW INCORPORATED - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-1947195 (State or other jurisdiction of (I.R.S. Employer identification No.) incorporation or organization) - ------------------------------------------------------------------------------- 16559 Saticoy Street, Van Nuys, California 91406-1739 (Address of executive offices) (ZIP Code) - ------------------------------------------------------------------------------- Registrant's telephone number, including area code: (818) 756-1388 Securities registered pursuant to Section 12(g) of the Act: Common Stock Shares outstanding Common Stock, $.01 Par Value 8,123,721 - -------------------------------------------------------------------------------- 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. Yes [X] No [ ] PUROFLOW INCORPORATED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JULY 31, JANUARY 31, 1999 1999 ------------------ ------------------- ASSETS CURRENT ASSETS Cash $ - $ 828,809 Accounts receivable Net of allowance for doubtful accounts of $25,000 at July 31, 1999 and $22,000 at January 31, 1999 1,123,263 1,373,254 Accounts Receivable, other - 375,763 Advances to Officers & Employees - 2,907 Inventories 1,953,821 1,562,939 Deferred tax benefit 48,947 45,347 Prepaid expenses and other current assets 82,022 91,677 ------------------ ------------------- TOTAL CURRENT ASSETS 3,208,053 4,280,696 ------------------ ------------------- PROPERTY & EQUIPMENT Leasehold improvements 57,379 55,954 Machinery and equipment 3,536,104 3,808,188 Automobile - 1,679 Tooling and dies 341,387 327,411 Construction in progress - - ------------------ ------------------- 3,934,870 4,193,232 Less accumulated depreciation and amortization 2,992,440 3,082,386 ------------------ ------------------- NET PROPERTY AND EQUIPMENT 942,430 1,110,846 ------------------ ------------------- DEFERRED TAXES 747,978 747,980 OTHER ASSETS 365,397 340,423 ------------------ ------------------- TOTAL ASSETS $ 5,263,858 $ 6,479,945 ================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank Overdraft $ 76,082 $ - Line of credit 35,000 - Notes payable, current 110,000 97,200 Accounts payable 315,285 465,678 Accrued expenses 142,576 477,335 Payable for acquired company - 447,875 ------------------ ------------------- TOTAL CURRENT LIABILITIES 678,943 1,488,088 ------------------ ------------------- Long-Term Debt 103,000 139,400 ------------------ ------------------- TOTAL LIABILITIES 781,943 1,627,488 ------------------ ------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, par value $.10 per share authorized - 500,000 shares issued none Common stock, par value $.01 per share authorized - 12,000,000 shares issued and outstanding - 8,123,721 shares 441,213 440,979 Additional paid-in capital 5,681,193 5,667,327 Accumulated deficit (1,052,799) (668,030) Less: Notes receivable from stockholders (554,773) (554,900) Treasury stock at cost (32,919) (32,919) ------------------ ------------------- TOTAL STOCKHOLDERS' EQUITY 4,481,915 4,852,457 ------------------ ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,263,858 $ 6,479,945 ================== ===================
1 PUROFLOW INCORPORATED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, 1999 1998 1999 1998 ------------------- ---------------- ---------------- ---------------- Net revenue $ 1,729,193 $ 2,209,044 $ 3,799,556 $ 4,305,328 Cost of goods sold 1,342,446 1,505,788 2,841,282 2,999,370 ------------------- ---------------- ---------------- ---------------- Gross profit 386,747 703,256 958,274 1,305,958 Selling, general and administrative expense 688,994 604,511 1,223,156 1,074,968 ------------------- ---------------- ---------------- ---------------- Operating income (302,247) 98,745 (264,882) 230,990 Interest expense (3,995) (6,105) (8,219) (7,179) Other income 7,711 2,812 18,323 6,223 Amortization goodwill/non-compete (11,013) - (22,026) - Loss from write-off of obsolete equipment (106,067) - (106,067) - ------------------- ---------------- ---------------- ---------------- Income/loss before taxes (415,611) 95,452 (382,871) 230,034 Provision for income taxes 1,296 (46,650) 1,896 (97,650) ------------------- ---------------- ---------------- ---------------- NET INCOME $ (416,907) $ 142,102 $ (384,767) $ 327,684 =================== ================ ================ ================ Net income (loss) per common share: Basic earnings per share $ (0.05) $ 0.02 $ (0.05) $ 0.05 Diluted earnings per share $ (0.05) $ 0.02 $ (0.05) $ 0.05 Weighted average number of shares 8,108,123 7,215,764 8,108,123 7,215,764
2 PUROFLOW INCORPORATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JULY 31 1999 1998 ------------------ ----------------- CASH AT BEGINNING OF PERIOD $ 828,809 $ 361,523 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (384,767) 327,683 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 153,942 163,458 Provision for losses on accounts receivable 3,000 2,748 Write-off of obsolete equipment 106,067 - Changes in operating assets and liabilities: Advances to Officers & Employees 2,907 (2,482) Accounts receivable 246,991 (71,208) Other receivables 375,763 - Inventories (390,882) (258,509) Prepaid expenses and other current assets 9,656 16,070 Deferred tax benefit (3,600) (4,350) Deferred taxes - (102,000) Other payable (445,650) - Accounts payable & accrued expenses (534,377) (229,543) ------------------ ----------------- Net cash used in operating activities (860,952) (158,133) ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (69,567) (80,185) ------------------ ----------------- Net cash used in investing activities (69,567) (80,185) ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of options 14,100 - Current portion long term debt (23,600) 60,000 Advance on credit line 35,000 - Principal new long term debt 128 160,700 ------------------ ----------------- Net cash used in financing activities 25,628 220,700 ------------------ ----------------- NET DECREASE IN CASH (904,891) (17,618) ------------------ ----------------- CASH AT END OF PERIOD $ (76,082) $ 343,905 ================== =================
3 PUROFLOW INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NOTES RECEIVABLE FROM COMMON ADDITIONAL STOCKHOLDER STOCK PAID-IN RETAINED AND TREASURY PAR VALUE CAPITAL EARNINGS STOCK TOTAL ---------------- ---------------- ----------------- ---------------- ---------------- FOR THE SIX MONTHS ENDED JULY 31, 1999 Balance at January 31, 1999 $ 440,979 $ 5,667,327 $ (668,030) $ (587,819) $ 4,852,457 Receivable Payment - - - 127 127 Exercise options for 2,400 shares @ $.25 per share 24 576 - - 600 Exercise options for 9,000 shares @ $.50 per share 90 4,410 - - 4,500 Exercise options for 12,000 shares @ $.75 per share 120 8,880 - - 9,000 Net income - - (384,767) - (384,767) ---------------- ---------------- ----------------- ---------------- ---------------- Balance at July 31, 1999 $ 441,213 $ 5,681,193 $ 1,052,797 $ (587,692) $ 4,481,917 ================ ================ ================= ================ ================
4 PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 31, 1999, JANUARY 31, 1999, AND JULY 31, 1998 NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION The consolidated balance sheet at the end of the preceding fiscal year has been derived from the audited consolidated balance sheet contained in the Company's annual report on Form 10-KSB for the fiscal year ended January 31, 1999 (The "Form 10-KSB") and is presented for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and changes in financial positions for all periods presented have been made. The results of operations for interim periods are not necessarily indicative of the operating results for the full year. Footnote disclosures normally included in financial statements prepared in accordance with the generally accepted accounting principles have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission. NOTE 2 - INVENTORIES Inventories consist of the following:
JULY 31, JANUARY 31, 1999 1999 ------------------ ------------------ Raw materials and purchased parts $ 1,213,130 $ 918,559 Work in process 367,166 307,444 Finished goods and assemblies 373,525 336,936 ------------------ ------------------ Totals $ 1,953,821 $ 1,562,939 ================== ==================
NOTE 3 - STOCKHOLDERS EQUITY On August 24, 1998, the Company issued an 8-K Report stating that the Board of Directors has authorized the issuance of 1,000,000 shares of common stock for sale to directors, officers and employees. The Company sold 940,000 shares of this common stock and received proceeds of $705,000 divided between $147,000 in cash and $558,000 in notes receivables. During the 3-month period from August 1, 1998 through October 31, 1998, the Company purchased 48,500 shares of common stock for a total cost of $32,919 from the open market and is presently holding them as treasury stock. 5 NOTE 4 - NET INCOME PER SHARE Reconciliation of basic and diluted earnings per share:
INCOME SHARES PER-SHARE AMOUNT ---------------------- ---------------------- ------------------- 6 MONTHS ENDED JULY 31, 1999 Basic earnings per share (loss) $ (384,767) 8,103,123 $ (.05) =================== EFFECT OF DILUTED SECURITIES Stock options -0- ---------------------- ---------------------- Diluted earnings per share $ (384,767) 8,103,123 $ (.05) ====================== ====================== =================== 6 MONTHS ENDED JULY 31, 1998 Basic earnings per share $ 327,684 7,108,621 $ .05 =================== EFFECT OF DILUTED SECURITIES Stock Options 103,331 ---------------------- ---------------------- Diluted earnings per share $ 327,684 7,211,952 $ .05 ====================== ====================== ===================
Basic earnings per share is based on the weighted average number of shares outstanding. Diluted earnings per share include the effect of common stock equivalents when dilutive. EARNINGS PER SHARE In the first quarter of the year ended January 31, 1999, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), which supersedes Accounting Principles Board Opinion No. 15. Under FAS 128, earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock. Prior period amounts have been restated, where appropriate to conform to the requirements of FAS 128. NOTE 5 - LINE OF CREDIT The Company has a $1,000,000 revolving credit line maturing on June 5, 2000. This credit line bears interest at the rate of prime plus 0.25% per annum, and is secured primarily by the Company's accounts receivable and inventories. The terms of this loan agreement contains certain restrictive covenants, including maintenance of minimum working capital, net worth, and ratios of current assets to current liabilities and debt to net worth. There is no outstanding balance under this line on January 31, 1999 and an open balance of $35,000 as of July 31, 1999. 6 NOTE 6 - INCOME TAXES Income tax benefits recognized represents the benefit of income tax loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES At July 31, 1999, the Company had cash overdraft of $(76,082), compared to $828,809 on January 31, 1999. It had a current ratio of 5.15 to 1 at July 31, 1999, compared to 2.87 to 1 on January 31, 1999. OPERATING ACTIVITIES Cash flow from Operations for the six months ended July 31, 1999 was reduced by $1,163,907 compared to a decrease of $158,133 for the six months ended July 31, 1998. The reduction in cash available resulted from the acquisition of QCCC, a reduction in accrued expenses and accounts payable, and write-off of $327,929 for disposal of machinery and equipment, of which $106,067 represents obsolete filter equipment. INVESTING ACTIVITIES The Company invested $69,567 in new capital equipment in the current quarter predominantly for equipment for a new type of airbag filter. FINANCING ACTIVITIES The Company has an unused revolving credit line of $1,000,000 which bears interest at the rate of prime plus 0.25% per annum, secured by the Company's accounts receivable and inventory. The Company is in compliance with all covenants under its loan agreement with the Bank. The Company obtained a loan of $236,000 to pay non-recurring judgment against it as well as purchase a necessary blueprint copier, now reduced to $163,000. BUSINESS ACQUISITION On January 31, 1999, the Company acquired Quality Controlled Cleaning Corporation ("QCCC") for $550,630 including all costs of the acquisition. QCCC is a precision cleaning and repair company located in Commerce, California. The Company's acquisition resulted in goodwill of approximately $274,000 and a non-compete agreement of $50,000. The goodwill will amortize over 10 years and the non-compete agreement over its term of 3 years. In addition to the purchase price, the agreement includes a contingent payment of 50% of net sales in the year ending January 31, 2000, in excess of $500,000 up to a maximum of $800,000. If the full amount of the contingency is realized, the liability would total $150,000 and would be recorded as additional goodwill. RESULTS OF OPERATIONS FOR QUARTER ENDED JULY 31, 1999 REVENUES Sales were $1,729,193 for the six months ended July 31,1999 compared to $2,209,044 in 1998, a 22% decrease of $479,851. Sales of airbag filters decreased $152,535 for the comparable period due to the slow ramp-up of the new model non-azide airbag, a decrease in shipments for technical aftermarket filters of $595,587 offset by our new QCCC operation, revenue of $185,263 and shipments of $83,008 for International Sales. 7 GROSS PROFIT Gross profit as a percentage of sales was 22.4% in July 1999, compared to 31.8% in July 1998, representing a decrease of 9.4% representing lower margins on airbag filters and aerospace filters with a reduction in government sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The increase in selling, general and administrative expenses for the three months ended July 31, 1999 and for the six months ended July 31, 1999 of $84,483, and $148,188, respectively, is attributed to the legal costs incurred to legal proceedings set forth in detail in Part II, Item 1 (2). OPERATING INCOME Operating loss was $302,247 in July 1999 compared to operating income of $98,745 in July 1998, a decrease of $400,992 due to the lower margins on airbag filters as a result of the slow ramp-up of the new model non-azide airbag filter for the driver and passenger-side impact filter and substantial decrease in sales volume and product mix. INTEREST CHARGES Interest on the bank loan was $3,995 as of July 31,1999, and $6,105 at July 31, 1998. INCOME TAXES A tax benefit of $51,000 was recognized as a result of income tax loss carryforwards. PART II - OTHER INFORMATION ITEM 1. PENDING LEGAL PROCEEDINGS 1. The Company reported the conclusion of litigation with Memtec America Corporation in February 1999 and the award of damages reported in its Form 10 KSB filing for the fiscal year ended January 31, 1999. 2. The Company reports the commencing of a lawsuit by Steel Partners II L.P. against the Company and its four directors on May 3, 1999 in the U.S. District Court for the District of Delaware seeking to rescind or enjoin the Private Placement of 940,000 shares of common stock purchased by the directors, officers and employees of the Company. The purpose of the lawsuit is calculated to obtain control of the Board of Directors and to sell the assets of Puroflow. Steel Partners II L.P. owns 16.6% of the issued and outstanding shares of the Registrant. The Company has retained counsel in Delaware to vigorously contest the action, for the lawsuit is without merit and seeks to intimidate the Board of Directors. The Company has retained counsel in the State of California to commence an action in the Supreme Court of the State of California, County of Los Angeles, to seek compensatory and punitive damages and injunctive relief for interference with prospective economic advantage of the Company's business. The Company is not party, nor are its properties subject to, any material pending proceedings other than ordinary routine litigation incidental to the Company's business and the matters described above. 8 ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULT UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K On January 31, 1999, the Registrant acquired Quality Controlled Cleaning Corporation representing 100% of the issued and outstanding shares (see Business Acquisition above). SIGNATURE Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed and on its behalf by the undersigned thereto, duly authorized. PUROFLOW INCORPORATED September 10, 1999 /s/ Michael H. Figoff --------------------------------- Michael H. Figoff President/Chief Executive Officer 9 EX-27 2 EXHIBIT 27
5 6-MOS JAN-31-1999 MAY-01-1999 JUL-31-1999 0 0 1,148,263 25,000 1,953,821 3,208,053 3,934,870 2,992,440 5,263,858 678,943 103,000 0 0 5,534,714 (1,052,799) 5,263,858 3,799,556 3,799,556 2,841,282 4,064,438 87,744 3,000 30,245 (382,871) 1,896 (384,767) 0 0 0 (384,767) (.05) (.05)
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