10QSB 1 a10qsb.txt FORM 10-QSB 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 APRIL 30, 2000 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 7,399,091 ------------------------------------------------------------------------------- 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)
APRIL 30, JANUARY 31, 2000 2000 ------------------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash $ 15,909 $ 56,829 Accounts receivable Net of allowance for doubtful accounts of $20,809 at April 30, 2000 and $25,000 at January 31, 2000 1,784,048 1,589,322 Advances to Officers & Employees 3,350 4,100 Deferred Tax benefit, current 45,347 45,347 Inventories 1,635,534 1,741,088 Prepaid expenses and other current assets 113,130 107,464 ------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 3,597,318 3,544,150 ------------------------------------------------------------------------------------------------------------------------ PROPERTY & EQUIPMENT Leasehold improvements 61,253 59,229 Machinery and equipment 3,610,846 3,583,124 Tooling and dies 358,122 350,932 -------------------------------------------- 4,030,221 3,993,285 Less accumulated depreciation and amortization 3,191,941 3,145,251 ------------------------------------------------------------------------------------------------------------------------ NET PROPERTY AND EQUIPMENT 838,280 848,034 ------------------------------------------------------------------------------------------------------------------------ DEFERRED TAXES 678,980 678,980 OTHER ASSETS 395,860 392,227 ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 5,510,438 $ 5,463,391 ======================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of Credit 580,000 $ 500,000 Notes payable, current $ 60,000 $ 97,200 Accounts payable 482,402 428,554 Accrued expenses 145,358 325,029 ------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 1,267,760 1,350,783 ------------------------------------------------------------------------------------------------------------------------ Long-Term Debt 67,600 92,200 ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 1,335,360 1,442,983 ------------------------------------------------------------------------------------------------------------------------ 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 Outstanding 8,130,121 shares at January 31, 2000 and 7,399,091 at April 30, 2000 433,967 441,277 Additional paid-in capital 5,141,767 5,682,729 Accumulated deficit (1,361,737) (1,516,407) Less: Notes receivable from stockholders (6,000) (554,272) Treasury stock at cost (32,919) (32,919) ------------------------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 4,175,078 4,020,408 ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,510,438 $ 5,463,391 ========================================================================================================================
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PUROFLOW, INCORPORATED CONSOLIDATED STATEMENTS OF OPERATION (UNAUDITED) THREE MONTHS ENDED APRIL 30, 2000 1999 --------------------------------------------------------------------------------------------------- Net revenue $ 2,070,232 $ 2,070,363 Cost of goods sold 1,406,703 1,498,836 --------------------------------------------------------------------------------------------------- Gross profit 663,529 571,527 Selling, general and administrative expense 479,490 534,162 --------------------------------------------------------------------------------------------------- Operating income 184,039 37,365 Interest expense 13,953 4,224 Amortization Expense 13,116 11,013 Other income - 10,612 --------------------------------------------------------------------------------------------------- Income before taxes 156,970 32,740 Provision for income taxes 2,300 600 --------------------------------------------------------------------------------------------------- NET INCOME $ 154,670 $ 32,140 --------------------------------------------------------------------------------------------------- =================================================================================================== NET INCOME PER COMMON SHARE =================================================================================================== =================== ================== Basic earnings per share $ 0.020 $ 0.004 =================== ================== Diluted earnings per share $ 0.020 $ 0.004 =================== ==================
2 PUROFLOW, INCORPORATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30 2000 1999 ------------------------------------------------------------------------------------------------------ CASH AT BEGINNING OF PERIOD $ 56,829 $ 828,809 CASH FLOWS FROM OPERATING ACTIVITIES Net income 154,670 32,139 Adjustments to reconcile net income to net cash used by operating activities: - Depreciation and amortization 46,690 68,225 Amortization of Goodwill/Non-Compete 13,117 11,013 Provision for losses on accounts receivable (4,191) (2,000) Changes in operating assets and liabilities: Advances to Officers & Employees 750 2,907 Accounts receivable (190,535) (184,753) Other Receivables - 375,763 Inventories 105,554 (199,790) Prepaid expenses and other current assets (22,416) 29,583 Other Payable - (445,650) Accounts payable & Accrued expenses (125,823) (385,500) ------------------------------------------------------------------------------------------------------ Net cash used by operating activities (22,184) (698,063) ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (36,936) (51,825) ------------------------------------------------------------------------------------------------------ Net cash used by investing activities (36,936) (51,825) ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Long-term debt (61,800) (11,800) Advance on Credit Line 80,000 Notes Recevable from Stockholders - 100 ------------------------------------------------------------------------------------------------------ Net cash provided / (used) by financing activities 18,200 (11,700) ------------------------------------------------------------------------------------------------------ NET INCREASE / (DECREASE) IN CASH (40,920) (761,588) ====================================================================================================== CASH AT END OF PERIOD $ 15,909 $ 67,221 ====================================================================================================== -
3 PUROFLOW INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NOTES RECEIVABLE FROM COMMON ADDITIONAL ACCUMULATED STOCKHOLDER STOCK PAID-IN DEFICIT AND TREASURY PAR VALUE CAPITAL TOTAL STOCK TOTAL ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 31, 1999 $ 440,979 $ 5,667,327 $ (668,030) $ (587,819) $ 4,852,457 Payment of note receivable $ 628 $ 628 Exercise of stock options for 9,000 shares at $.50 per share $ 90 $ 4,410 $ 4,500 Exercise of stock options for 12,000 shares at $.75 per share $ 120 $ 8,880 $ 9,000 Exercise of stock options for 8,800 shares at $.25 per share $ 88 $ 2,112 $ 2,200 Net Loss $ (848,377) $ (848,377) -------------------------------------------------------------------------------- Balance at January 31, 2000 $ 441,277 $ 5,682,729 $(1,516,407) $ (587,191) $ 4,020,408 Adjustment to notes receivable $ (7,310) $ (540,962) $ 548,272 $ - Net Income $ 154,670 $ 154,670 -------------------------------------------------------------------------------- Balance at April 30, 2000 $ 433,967 $ 5,141,767 $(1,361,737) $ (38,919) $ 4,175,078 ================================================================================
4 PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. (UNAUDITED) APRIL 30, 2000, JANUARY 31, 2000, AND APRIL 30, 1999 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-K for the fiscal year ended January 31, 2000 (The "Form 10-KSB") and is presented for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments that 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. The consolidated financials statements and notes thereto should be read in conjunction with management's discussion and analysis of financial condition and results of operations, contained in the Company's annual report on Form 10-KSB for the year ended January 31, 2000 NOTE 2 - INVENTORIES Inventories consist of the following: APRIL 30, JANUARY 31, 1998 2000 ----------------- ------------------ Raw materials and purchased parts 1,114,805 1,038,359 Work in process 243,329 267,968 Finished goods and assemblies 327,400 434,761 ----------------- ------------------ Totals $1,635,534 $1,741,088 ================= ================== NOTE 3 - STOCKHOLDERS EQUITY On February 17, 2000 the Board announced a plan to retire 920,000 shares of its common stock, from shares issued August 24, 1998 in return for cancellation of notes received by the company from employees and board members. The company received and retired 731,030 shares of common stock. 5 NOTE 4 - NET INCOME PER SHARE Reconciliation of basic and diluted earnings per share:
--------- ----------- ---------- PER-SHARE INCOME SHARES AMOUNT ----------- ---------- --------- 3 MONTHS ENDED APRIL 30, 2000 ----------------------------- Basic earnings per share $ 154,670 7,886,396 $ .02 --------- EFFECT OF DILUTIVE SECURITIES Stock options 90,339 Diluted earnings per share $ 154,670 7,976,735 $ .02 ----------- ---------- --------- 3 MONTHS ENDED APRIL 30, 1999 ----------------------------- Basic earnings per share $ 32,140 8,100,321 $ .004 --------- EFFECT OF DILUTIVE SECURITIES Stock Options 137,007 Diluted earnings per share $ 32,140 8,237,328 $ .004 ----------- ---------- ---------
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 liabilities and debt to net worth. There is an open balance of $580,000 as of April 30, 2000. NOTE 6 - INCOME TAXES The company complies with Financial Accounting Standards No. 109, Accounting for Income Taxes. 6 LIQUIDITY AND CAPITAL RESOURCES At April 30, 2000, the Company had cash available of $15,909, compared to $56,829 on January 31, 2000. It had a current ratio of 2.84 to 1 at April 30, 2000, compared to 2.62 to 1 on January 31, 2000. OPERATING ACTIVITIES Cash Flow from Operations for the three months ended April 30, 2000 was reduced by $22,184 compared to an decrease of $698,063 for the three months ended April 30,1999. INVESTING ACTIVITIES The Company invested $36,936 in new capital equipment in the current quarter predominantly for tooling and machinery in support of new PMA products. FINANCING ACTIVITIES The Company has 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 of which $580,000 is outstanding at April 30, 2000. 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 Blue print copier now reduced to $127,600 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 over its term of 3 years. In addition to the purchase price, the agreement included 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. The liability totaled $125,609 and was recorded as additional goodwill. SEGMENT REPORTING
NET SALES APRIL 30, 2000 APRIL 30, 1999 -------------- -------------- Aerospace $ 1,378,171 $ 1,218,094 Puroflow International 226,989 23,714 QCCC 136,692 177,877 Airbags 328,380 650,678 -------------- -------------- $ 2,070,232 $ 2,070,363 -------------- --------------
7 OPERATING INCOME Aerospace $ 157,865 $ (19,338) Puroflow International 5,218 (13,435) QCCC 4,755 39,966 Airbags 16,201 30,172 -------------- -------------- $ 184,039 $ 37,365 ============== ==============
RESULTS OF OPERATIONS FOR QUARTER ENDED APRIL 30, 2000 REVENUES Sales were $2,070,232 for the three months ended April 30, 2000 compared to $2,070,363 in 1999. GROSS PROFIT Gross profit as a percentage of sales was 32% in April 2000, compared to 27.6% in April 1999, an increase of 4.4% representing higher margins on precision filters on the PMA Program as well as increase manufacturing efficiencies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Operating income was $184,039 in April 2000 compared to $37,365 in April 1999, a increase of $146,674 due to reduced legal and outside services, the settlement of a proxy fight, and a reduction in administrative personnel. INTEREST CHARGES Interest on the bank loan was $3,480 and $10,483 on the credit line as of April 30, 2000. PART II - OTHER INFORMATION ITEM 1. PENDING LEGAL PROCEEDINGS. 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. ITEM 2. CHANGES IN SECURITIES None. 8 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 None. 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 June 13, 2000 By: /s/ Michael H. Figoff ------------------------------------- Michael H. Figoff President/Chief Executive Officer 9