-----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, PbZCotAJHMtJL4LHj6aob+jaN0Dub5F9oXBt2gWoYOECqgi6Fhefvlj8y9b+2fAs PzRUTNAq26pakLE7jN1PQQ== 0000912057-95-011111.txt : 19951215 0000912057-95-011111.hdr.sgml : 19951215 ACCESSION NUMBER: 0000912057-95-011111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951214 SROS: NONE 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05622 FILM NUMBER: 95601570 BUSINESS ADDRESS: STREET 1: 16559 SATICOY STREET CITY: VAN NUYS STATE: CA ZIP: 91406 BUSINESS PHONE: 2134506461 MAIL ADDRESS: STREET 1: 1631 TENTH ST STREET 2: 1631 TENTH ST CITY: SANTA MONICA STATE: CA ZIP: 90404 FORMER COMPANY: FORMER CONFORMED NAME: ULTRA DYNAMICS CORP DATE OF NAME CHANGE: 19830522 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED OCTOBER 31, 1995 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 incorporation or organization) Identification No.) 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, $0.01 PAR VALUE 4,578,521 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 [ ] ITEM 1. FINANCIAL INFORMATION Puroflow Incorporated CONSOLIDATED BALANCE SHEET (Unaudited)
OCTOBER 31, 1995 JANUARY 31, 1995 ---------------- ---------------- ASSETS CURRENT ASSETS: Cash $ 36,998 $ 74,441 Accounts receivable Trade, net of allowance for doubtful accounts of $162,803 at October 31, 1995 and $204,469 at January 31, 1995 1,478,817 1,266,150 Advances to officers and employees 4,047 3,868 Inventories 1,418,995 1,746,237 Prepaid expenses and other 92,058 159,802 ---------------- ---------------- Total current assets 3,030,915 3,250,498 ---------------- ---------------- PROPERTY AND EQUIPMENT - NET 1,076,344 1,337,256 OTHER ASSETS 85,423 133,082 ---------------- ---------------- TOTAL ASSETS $4,192,682 $4,720,836 ---------------- ---------------- ---------------- ---------------- OCTOBER 31, 1995 JANUARY 31, 1995 ---------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ 290,993 $ 810,003 Accounts payable 921,841 655,485 Accrued expenses 212,300 211,343 Current portion of long-term debt 1,965,897 2,787,543 ---------------- ---------------- Total current liabilities 3,391,031 4,464,374 ---------------- ---------------- LONG-TERM DEBT 95,911 71,400 ---------------- ---------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, par value $.10 per share Authorized - 500,000 shares: Issue - None Common stock, par value $.01 per share Authorized - 12,000,000 shares: Outstanding 4,578,521 at October 31, 1995 and January 31, 1995 405,279 405,279 Additional paid in capital 3,230,127 3,230,127 Accumulated deficit (2,929,666) (3,450,344) ---------------- ---------------- TOTAL STOCKHOLDERS' EQUITY 705,740 185,062 ---------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,192,682 $4,720,836 ---------------- ---------------- ---------------- ----------------
See accompanying notes to the consolidated financial statements. 1 ITEM 1. FINANCIAL INFORMATION Puroflow Incorporated CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 31, OCTOBER 31, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- (restated) (restated) Net sales $2,471,605 $2,902,172 $6,953,234 $8,103,239 Cost of goods sold 1,740,438 2,269,676 4,867,397 6,795,705 ---------- ---------- ---------- ---------- Gross profit 731,167 632,496 2,085,837 1,307,534 Selling, general and administrative expense 387,744 483,162 1,331,067 1,437,872 ---------- ---------- ---------- ---------- Operating income/(loss) 343,423 149,334 754,770 (130,338) Other income and expense: Other income (expense) 845 (17,612) (1,677) (18,149) Interest expense (77,306) (85,205) (232,414) (241,031) ---------- ---------- ---------- ---------- Income (loss) from continuing operations before provision for income taxes: 266,962 46,517 520,679 (389,518) Provision for income taxes: -- -- -- -- ---------- ---------- ---------- ---------- Income (loss) from continuing operations: 266,962 46,517 520,679 (389,518) Loss from discontinued operations -- (132,353) -- (334,873) ---------- ---------- ---------- ---------- Net income (loss) $ 266,962 $ (85,836) $ 520,679 $ (724,391) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Continuing operations 0.06 0.01 0.11 (0.09) Discontinued operations -- (0.03) -- (0.07) ---------- ---------- ---------- ---------- Net income (loss) per common share $ 0.06 $ (0.02) $ 0.11 $ (0.16) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares 4,578,521 4,578,521 4,578,521 4,485,188
See accompanying notes to the consolidated financial statements. 2 Puroflow Incorporated CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 1994 ------------ ---------- (restated) Cash flows from operating activities: Net income (loss) $ 520,679 $(724,391) Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operations: Depreciation and amortization 305,758 277,296 Provision for losses on accounts receivable 80,788 31,757 Loss on sale of property and equipment 3,468 -- Changes in operating assets and liabilities: Accounts receivable (293,455) 55,651 Inventories 327,242 391,534 Prepaid expenses and other 67,744 (32,613) Accounts payable and accrued expenses 267,312 96,354 Other assets 47,659 -- ------------ ---------- Net cash (provided by) operating activities 1,327,195 95,588 ------------ ---------- Cash flows from investing activities: Purchases of property and equipment (61,714) (92,557) Proceeds from sale of property and equipment 13,400 -- Other assets -- 1,718 ------------ ---------- Net cash used in investing activities (48,314) (90,839) ------------ ---------- Cash flows from financing activities: Proceeds from sale of common stock $ -- $ 250,000 Net borrowings (repayments) under line of credit (519,010) 408,063 Net borrowings (repayments) of long-term debt (797,135) (541,346) Advances to officers and employees (179) (2,423) ------------ ---------- Net cash (used in) provided by financing activities (1,316,324) 114,294 ------------ ---------- Net (decrease) increase in cash (37,443) 119,043 Cash at beginning of period 74,441 18,921 ------------ ---------- Cash at end of period $ 36,998 $ 137,964 ------------ ---------- ------------ ---------- Supplemental disclosures of cash flow information: Interest paid in cash $ 232,414 $ 230,727
See accompanying notes to the consolidated financial statements. 3 PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 AND JANUARY 31, 1995 (DOLLARS IN THOUSANDS) NOTE A - BASIS OF PRESENTATION The information presented for the nine months ended October 31, 1995 and 1994 has not been audited by independent accountants, but includes all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for such periods. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's January 31, 1995 Annual Report on Form 10-K. The results of operations for the nine months ended October 31, 1995 are not necessarily indicative of the results to be expected for the year ended January 31, 1996. NOTE B - INVENTORIES Inventories consist of the following: OCTOBER 31, JANUARY 31, 1995 1995 ----------- ----------- Raw materials and purchased parts $ 667 $ 818 Work in process 403 503 Finished goods and assemblies 348 425 ------- ------- TOTAL $1,418 $1,746 ------- ------- ------- ------- NOTE C - NET INCOME PER SHARE The computation of net income (loss) per common share is based on the weighted average number of shares outstanding, including the effect of common stock equivalents (common stock options) when dilutive. 4 NOTE D - RECEIVERSHIP On May 1, 1995, the Company entered into a stipulation for the immediate appointment of a receiver. The appointment resulted from a lawsuit filed by the Company's bank due to the Company's default on its obligations under various credit agreements with the bank. The receiver has assumed jurisdiction over all of the Company's assets which are indefinitely in the possession of the receivership estate, and held by the receiver for the benefit of all creditors and shareholders. At present, the receiver is working with the Company's management in operating the business. The term of the Company's current credit facilities runs through December 31, 1995. The Company currently is also exploring various other types of financing as may be available and appropriate. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS) RESULTS OF OPERATIONS The Company's principal products consist of high performance filters and automotive airbag filters. The following table reflects the percentage relationship to net sales of certain items included in the Company's statement of operations for the quarters ended October 31, 1995 and 1994. QUARTER ENDED OCTOBER 31, 1995 1994 -------- -------- (restated) Net sales 100.0% 100.0% Cost and expenses: Costs of goods sold 70.4 78.2 Selling, general, and administrative 15.7 16.6 Interest expense - net 3.1 3.5 ----- ----- Income (loss) from continuing operations 10.8 1.7 Income (loss) from discontinued operations -0- (4.6) ----- ----- Net Income (loss) 10.8% (2.9)% ----- ----- ----- ----- Comparison of quarters ended October 31, 1995 and 1994. NET SALES Net sales were $2,472 for the quarter ended October 31, 1995 compared to $2,902 for the same period ended October 31, 1994. The decrease in sales of $430 was due primarily to the disposition of Ultra Dynamics, Decca Valves, and the Dynapore product line of Michigan Dynamics which was not reflected in sales in the quarter ended October 31, 1995. The Airbag product line showed a decrease of $558 resulting from customer supplied components which were deducted from the sales price. Net sales of Government and Aerospace Filtration Products increased by $765 which more than off-set the reduction of the Airbag division. COST OF SALES/GROSS PROFIT Gross profit as a percentage of net sales was 29.6% for the quarter ended October 31, 1995 as compared to 21% for the quarter ended October 31, 1994. The increased gross profit was due to consolidation of manufacturing facilities which increased productive capacity with a decrease in manufacturing overhead and personnel. 6 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense for the quarter ended October 31, 1995 decreased to $388 (15.7% of net sales), as compared to $483 (16.6% of net sales) for the quarter ended October 31, 1994. This decrease was primarily attributable to reductions in salary and commission. Interest expense decreased $8 for the quarter ended October 31, 1995 due primarily to a reduction in principal debt to Imperial Bank. The following table reflects the percentage relationship to net sales of certain items included in the Company's statement of operations for the nine months ended October 31, 1995 and 1994. NINE MONTHS ENDED OCTOBER 31, 1995 1994 -------- -------- (restated) Net sales 100.0% 100.0% Cost and expenses: Costs of goods sold 70.0 83.9 Selling, general, and administrative 19.1 17.7 Interest and other expense - net 3.3 3.2 ------- ------- Income from continuing operations before provision for income taxes 7.6 (4.8) Net loss from discontinued operations -0- (4.1) ------- ------- Net Income 7.6% (8.9)% ------- ------- ------- ------- COMPARISON OF NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994 Net sales for the nine months ended October 31, 1995 was $6,953 compared to $8,103 for the comparable period ended October 31, 1994. The decrease in sales of $1,150 was due primarily to the discontinuance of sales in Ultra Dynamics, Decca Valves and the Dynapore product line which accounted for $1,251 of the net sales decrease. The sales of Government and Aerospace Filtration increased $1,440 and Airbag Filter division sales were reduced by $1,277 resulting from customer supplied component material deducted from sales. The Company's gross profit as a percentage of net sales was 30% for the nine months ended October 31, 1995 compared to 16.1% for the nine months ended October 31, 1994. The increase in gross profit was due to a consolidation of manufacturing facilities in August 1995 resulting in increased production and reduction in manufacturing overhead and personnel. The start-up and engineering costs associated with the FAA parts manufactured approval product line was materially reduced in the current nine month period resulting from processing efficiencies and lead time of approvals. 7 Selling, General and Administrative expenses were $1,331 for the nine months ended October 31, 1995 compared to $1,437 in the comparable previous period. The reduction in this expense category was due to reduced selling and manufacturing costs, reduction in administrative payroll off-set by increased legal expenses due to Receivership. Interest expense decreased $9 for the nine month period due primarily to a reduction in principal bank loan. PROVISION FOR INCOME TAXES No provision for income taxes is necessary due to the Company's net operating loss carry forwards in excess of $3,440,000 federal as of January 31, 1995. LOSS FROM DISCONTINUED OPERATIONS The loss from discontinued operations reflect the results from operations of the Company's water purification products subsidiary which was sold on November 9, 1994 and the Company's valve products subsidiary which was sold on June 15, 1995. LIQUIDITY AND CAPITAL RESOURCES As of October 31, 1995, working capital was $(360) versus $(1,214) at January 31, 1995. The Company's current ratio was .09 at October 31, 1995 and 0.7 at January 31, 1995. The Company's debt at October 31, 1995 was $2,062 consisting of notes payable to the Company's bank totaling $1,219, loans from its stockholders of $69, capitalized lease obligations of $41 and notes payable to vendors of $733. Principal under the Company's term loans accrues interest at the bank's prime rate plus 3.5% (at October 31, 1995) and is secured by accounts receivable, inventories, equipment purchased with the loan proceeds and all other unencumbered assets of the Company. In addition, the Company has a revolving line of credit with its bank under which it may borrow up to the lesser of $1,200 or 65% of eligible accounts receivable. Outstanding balances accrue interest at the bank's prime rate plus 3.5% (12.25% at October 31, 1995). This line is collateralized by the Company's accounts receivable, inventories and a first priority interest in all unencumbered assets. The Company had an outstanding balance of $290 under this agreement at October 31, 1995. There are no additional borrowings available under the line of credit. The terms of the credit agreements contain certain restrictive covenants. Previously, the Company was in default of various loan covenants; as a result, on May 1, 1995, the Company entered into a stipulation for the immediate appointment of a receiver. The receiver, in concert with the current management, continue to operate the Company. The Company will continue to negotiate with the bank to obtain extensions of its line of credit and term loans which expire December 31, 1995. The Company may seek additional equity which could have a dilutive effect on the Company's current shareholders. 8 The Company's continuation as a going concern is dependent upon its ability to obtain ongoing long-term financing, generate sufficient cash flow to meet its obligations on a timely basis and continue its current profitable operations. The Company continues to take steps to reduce its operating expenses. Management believes changes to date have substantially contributed in the Company's return to profitable operation. There can be no assurances, however, that the Company will be able to successfully maintain its profitable operations, obtain long-term financing arrangements or generate sufficient cash flow to meet its future obligations on a timely basis. In the event the Company is unable to do so, the Company may be forced to pursue other options, including reorganization under applicable laws. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1) Puroflow Incorporated vs. George Solymar. Registrant seeks recovery of $46,000 plus interest from 1989 for conversion of Corporate funds by defendant for personal obligations. George Solymar commenced an action for alleged breach of an oral agreement of employment, alleging oral continuance of a written contract dated back to 1969. There is no merit to the claim, nor do the Registrant's records support the defendant's claim. Both actions have been consolidated for trial in September, 1995. 2) Joseph B. Jasso and Martha Jasso commenced action against Puroflow Incorporated and all Members of the Board for breach of an employment contract. The Board of Directors authorized the Registrant to crossclaim for breach of fiduciary duties, misfeasance and malfeasance as a former Director and Chief Executive Officer. 3) DSS Company vs. Ultra Dynamics Corporation, a wholly owned subsidiary, for breach of alleged purchase order of $30,000. Ultra Dynamics claims it does not owe plaintiff any sums because the plaintiff changed the terms of the warranty which were not acceptable to the defendant, and the purchase order was not accepted by the defendant. Plaintiff alleges damages of $15,000 in discovery proceedings. Registrant believes that there is no merit to this action, and that it will ultimately be dismissed. 4) Cynthia Meals vs. M. Rowena Willis, et al. represents a civil action commenced in Court of Common Pleas of Chester County, Pennsylvania for unspecified damages resulting from improper maintenance of a treatment system for drinking water. Ultra Dynamics Corporation is included as one of six codefendants as a supplier of the equipment to a codefendant distributor. Ultra Dynamics has filed a cross complaint against all codefendants and plaintiff. Registrant believed that there is absolutely no merit to this action against Ultra, and the action will ultimately be dismissed on motion. 9 5) Registrant previously reported the award of a judgment in favor of Micro-Numerics, Inc. for $34,398.26 plus interest and costs. The Judgment Creditor has made a total levy of $43,939.56 for the unpaid judgment which remains unsatisfied. 6) Imperial Bank commenced an action against Puroflow Incorporated for breach of the loan and security agreements, due to alleged default of certain loan covenants. This caused a Receiver to be installed. 7) Tenth and Colorado Associates, Ltd. commenced action against Puroflow Incorporated for unlawful detainer related to Puroflow's occupation of a building located in Santa Monica which previously housed Registrants Airbag and Michigan Dynamics operations. Registrant vacated and the action was converted to a breach of lease action. Registrant believes that it has valid legal defenses to this claim, and that it will ultimately be dismissed. 8) Reliable Metallurgical Processes Inc. commenced an action against Puroflow Corporation and Michigan Dynamics Inc. in September, 1995 in Los Angeles County Superior Court for breach of contract, open account, and anticipatory breach. The Receiver, on behalf of the Defendants, will vigorously oppose the action, and he believes the Registrants have valid legal defenses to this action including damages for failure to properly perform the alleged Contract, ultra vires acts in consummation of original Agreement, and breach of fiduciary obligation by a former Director and Officer of Registrant who were also Officers and Directors of the Plaintiff. The Company is not a party to any other material pending suits of legal actions, and is not aware of any material claims that are threatened. 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. 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Form 8-K filed March 13, 1995: On or about March 3, 1995, Joseph B. Jasso, former President and C.E.O. of the Registrant commenced an action in the Superior Court of the State of California, County of Los Angeles for breach of Employment Contract and other allegations against the Registrant and all members of the Board of Directors. The Company intends to vigorously oppose this action on the grounds of violation of his fiduciary obligations as a Director and Chief Executive Officer to Stockholders and Management of the Company. Form 8-K filed May 12, 1995: Registrant and its wholly subsidiaries have entered into a stipulation effective May 1, 1995 with Imperial Bank under its collateral loan security agreement for the appointment of a Receiver. Michael D. Myers was appointed Receiver on May 1, 1995 pursuant to the order of the Honorable Diane Wayne, Judge of the Superior Court of the State of California for the County of Los Angeles, Case No. BC126904 to assume jurisdiction over substantially all of the assets of Registrant's business but subject to the supervision and order of the Court. Form 8-K filed November 22, 1995: Registrant reported that the Board of Directors and Michael D. Myers, Receiver for Imperial Bank approved the appointment of Rose, Snyder & Jacobs, CPA, as independent auditors for fiscal year ending January 31, 1996, replacing Deloitte & Touche L.L.P. Deloitte & Touche has not advised the Registrant that there have been any disagreements on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure of any reportable events. SIGNATURES 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 BY /S/ MICHAEL H. FIGOFF -------------------------------------- MICHAEL H. FIGOFF PRESIDENT/CHIEF EXECUTIVE OFFICER BY /S/ JAMES F. DUNCAN --------------------------------------- JAMES F. DUNCAN, CPA, MBA CONTROLLER December 12, 1995 11 EX-27 2 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3 MONTHS AND 9 MONTHS ENDED 10-31-95 OF PUROFLOW INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-31-1996 FEB-01-1995 OCT-31-1995 0 0 0 0 0 0 0 0 0 0 0 3,635 0 0 (2,929) 0 0 6,953 6,198 0 0 0 0 0 0 521 0 0 0 521 .11 .11
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