10QSB 1 a2059360z10qsb.txt 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, 2001 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)
JULY 31, JANUARY 31, 2001 2001 ------------------ ------------------- ASSETS CURRENT ASSETS Cash $ 52,482 $ 8,250 Accounts receivable Net of allowance for doubtful accounts of $23,621 at July 31, 2001 and $25,000 at January 31, 2001 1,534,859 1,701,442 Advances to Officers & Employees 2,840 3,125 Deferred tax benefit 136,528 136,528 Inventories 1,998,752 2,016,792 Prepaid expenses and other current assets 81,436 114,068 ------------------ ------------------- TOTAL CURRENT ASSETS 3,806,897 3,980,205 ------------------ ------------------- PROPERTY & EQUIPMENT Leasehold improvements 62,834 62,834 Machinery and equipment 3,639,756 3,622,541 Tooling and dies 392,267 376,307 ------------------ ------------------- 4,094,857 4,061,682 Less accumulated depreciation and amortization 3,463,266 3,366,441 ------------------ ------------------- NET PROPERTY AND EQUIPMENT 631,591 695,241 ------------------ ------------------- DEFERRED TAXES 590,165 590,165 OTHER ASSETS 327,624 339,762 ------------------ ------------------- TOTAL ASSETS $ 5,356,277 $ 5,605,373 ================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of credit $ 535,000 $ 544,000 Notes payable, current 48,000 48,000 Bank overdraft - 34,698 Accounts payable 324,771 506,207 Accrued expenses 269,785 429,986 ------------------ ------------------- TOTAL CURRENT LIABILITIES 1,177,556 1,562,891 Long-Term Debt 12,000 44,200 ------------------ ------------------- TOTAL LIABILITIES 1,189,556 1,607,091 ------------------ ------------------- 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 7,399,091 shares at January 31, 2001 and at July 31, 2001 433,967 433,967 Additional paid-in capital 5,141,767 5,141,767 Accumulated deficit (1,370,094) (1,538,533) Less: Notes receivable from stockholders (6,000) (6,000) Treasury stock at cost (32,919) (32,919) ------------------ ------------------- TOTAL STOCKHOLDERS' EQUITY 4,166,721 3,998,282 ------------------ ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,356,277 $ 5,605,373 ================== ===================
See accompanying notes to the consolidated financial statements 2 PUROFLOW INCORPORATED Consolidated Statements of Operations (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31 2001 2000 2001 2000 --------------- --------------- --------------- ------------- Net revenue $ 1,819,529 $ 1,869,232 $ 4,022,147 $3,712,475 Cost of goods sold 1,215,873 1,291,208 2,869,618 2,529,013 --------------- --------------- --------------- ------------- Gross profit 603,656 578,024 1,152,529 1,183,462 Selling, general and administrative expense 484,610 472,442 922,824 898,996 --------------- --------------- --------------- ------------- Operating income 119,046 105,582 229,705 284,466 Interest expense (11,935) (16,794) (27,950) (30,747) Other income 45 629 1,999 629 Amortization goodwill/non-compete (15,108) (13,116) (28,888) (26,232) --------------- --------------- --------------- ------------- Income before taxes from continuing operations 92,048 76,301 174,866 228,116 Provision for income taxes 3,897 1,000 6,427 3,300 --------------- --------------- --------------- ------------- Income from continuing operations $ 88,151 $ 75,301 $ 168,439 $ 224,816 Loss from discontinued operations $ - $ (71,076) $ - $ (65,921) --------------- --------------- --------------- ------------- Net Income $ 88,151 $ 4,225 $ 168,439 $ 158,895 --------------- --------------- --------------- ------------- Net income(Loss) per common share Basic earnings per share $ 0.01 $ - $ 0.02 $ 0.02 =============== =============== =============== ============= Diluted earnings per share $ 0.01 $ - $ 0.02 $ 0.02 =============== =============== =============== ============= Weighted average number of shares Basic 7,399,091 7,399,091 7,399,091 7,642,816 ======================================================================== Diluted 7,417,350 7,478,806 7,417,202 7,727,457 ========================================================================
See accompanying notes to the consolidated financial statements 3 PUROFLOW INCORPORATED Statements of Consolidated Cash Flows (Unaudited)
For the six months ended July 31 2001 2000 ------------------ ------------------ CASH AT BEGINNING OF PERIOD $ 8,250 $ 56,829 CASH FLOWS FROM OPERATING ACTIVITIES Net income 168,439 158,895 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 96,825 93,460 Amortization of Goodwill/Non-compete 28,888 26,233 Provision for losses on accounts receivable 10,696 (15,000) Changes in operating assets and liabilities: Advances to Officers & Employees 285 1,050 Accounts receivable 155,887 77,736 Inventories 18,040 (98,229) Prepaid expenses and other current assets 15,882 (21,933) Deferred tax benefit - (6,200) Accounts payable & accrued expenses (341,637) (37,800) ------------------ ------------------ Net cash provided by operating activities 153,305 178,212 ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (33,175) (49,851) ------------------ ------------------ Net cash used in investing activities (33,175) (49,851) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft (34,698) - Payments on long term debt (32,200) (73,600) Advances(Payments) on credit line (9,000) 30,000 ------------------ ------------------ Net cash used by financing activities (75,898) (43,600) NET INCREASE IN CASH 44,232 84,761 ------------------ ------------------ CASH AT END OF PERIOD $ 52,482 $ 141,590 ================== ==================
See accompanying notes to the consolidated financial statements 4 PUROFLOW INCORPORATED AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity (Unaudited)
NOTES RECEIVABLE FROM COMMON ADDITIONAL ACCUMULATED STOCKHOLDERS STOCK PAID-IN DEFICIT AND TREASURY TOTAL PAR VALUE CAPITAL TOTAL STOCK ------------- ------------- --------------- --------------- ---------------- Balance at January 31, 2000 $ 441,277 $ 5,682,729 $ (1,516,407) $ (587,191) $ 4,020,408 Reversal of Notes Receivable on Stock Purchase and retirement of shares $ (7,310) $ (540,962) $ 548,272 $ - Net Loss $ (22,126) $ (22,126) ------------- ------------- --------------- --------------- ---------------- Balance at January 31, 2001 $ 433,967 $ 5,141,767 $ (1,538,533) $ (38,919) $ 3,998,282 Net Income $ 80,288 $ 80,288 ------------- ------------- --------------- --------------- ---------------- Balance at April 30, 2001 $ 433,967 $ 5,141,767 $ (1,458,245) $ (38,919) $ 4,078,570 ------------- ------------- --------------- --------------- ---------------- Net Income $ 88,151 $ 88,151 ------------- ------------- --------------- --------------- ---------------- Balance at July 31, 2001 $ 433,967 $ 5,141,767 $ (1,370,094) $ (38,919) $ 4,166,721 ============= ============= =============== =============== ================
See accompanying notes to the consolidated financial statements 5 PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. (UNAUDITED) JULY 31, 2001, JANUARY 31, 2001, AND JULY 31, 2000 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, 2001 (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 financial 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, 2001 NOTE 2 - INVENTORIES Inventories consist of the following:
JULY 31, JANUARY 31, 2001 2001 -------------------------------- Raw materials and purchased 1,302,216 1,263,199 parts Work in process 354,258 394,580 Finished goods and assemblies 342,278 359,013 -------------------------------- Totals $1,998,752 $2,016,792 ================================
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. 6 NOTE 4 - NET INCOME PER SHARE Reconciliation of basic and diluted earnings per share:
----------- ---------- --------- INCOME SHARES PER-SHARE AMOUNT ----------- ---------- --------- 6 MONTHS ENDED JULY 31, 2001 Basic earnings per share $ 168,439 7,399,091 $ .02 ===== EFFECT OF DILUTIVE SECURITIES Stock options 18,111 ---------- -------- Diluted earnings per share $ 168,439 7,417,202 $ .02 ========== ========= ===== 6 MONTHS ENDED JULY 31, 2000 Basic earnings per share $ 158,895 7,642,816 $ .02 ====== EFFECT OF DILUTIVE SECURITIES Stock Options 84,641 ---------- --------- Diluted earnings per share $ 158,895 7,727,457 $ .02 ========== ========= ======
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. NOTE 5 - LINE OF CREDIT The Company has a $1,000,000 revolving credit line maturing on December 17, 2001. 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 $535,000 as of July 31, 2001. NOTE 6 - INCOME TAXES The company complies with Financial Accounting Standards No. 109, Accounting for Income Taxes. The Company will use loss carryforwards to offset future federal income tax liability. NOTE 7 - DISCONTINUED OPERATIONS As of January 31, 2001 the Company elected a shutdown of its International Division, and all operations have been classified under loss from discontinued operations in fiscal years 2001 and 2000. The Company has provided a reserve for its estimated loss on the International Division during the phase-out period which expects will end on or about November 30, 2001. The provision was $211,000 of which $69,000 remains and is included in accrued expenses. 7 LIQUIDITY AND CAPITAL RESOURCES At July 31, 2001 and January 31, 2001, the Company had $52,482 and $8,250 respectively available in cash. The current ratio was 3.23 to 1 at July 31, 2001 compared to 2.55 to 1 at January 31, 2001. The Company maintains a revolving credit line of $1,000,000, of which $465,000 was available to fund operations at July 31, 2001. OPERATING ACTIVITIES Cash flow from operations for the six months ended July 31, 2001 was increased by $153,305 as compared to an increase of $178,212 for the six months ended July 31, 2000. INVESTING ACTIVITIES During the first two quarters, the Company invested $33,175 for tooling and machinery in support of new PMA products as well as upgrading computer equipment. FINANCING ACTIVITIES The Company's revolving credit line of $1,000,000 bears an interest rate of prime plus 0.25% per annum and is secured by the Company's accounts receivable and inventory of which $535,000 was outstanding at July 31, 2001. The Company obtained a loan of $236,000 for the purposes of paying a non-recurring judgment and the purchase of a blueprint copier. At July 31, 2001, the balance of this note was $60,000 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 is amortized 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 excess of $500,000 up to a maximum of $800,000 in the year ended January 31, 2000. The liability totaled $125,609 and was recorded as additional goodwill.
SEGMENT REPORTING 6 MONTHS @ 6 MONTHS @ NET SALES JULY 31, 2001 JULY 31, 2000 ------------- ------------- Filtration $ 3,953,855 $ 3,499,651 Contract Services 68,292 212,824 ------------ ------------ Total $ 4,022,147 $ 3,712,475 ------------ ------------
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6 MONTHS @ 6 MONTHS @ OPERATING INCOME JULY 31, 2001 JULY 31, 2000 ------------- ------------- Filtration $ 334,504 $ 325,423 Contract Services (104,799) (40,957) --------- --------- $ 229,705 $ 284,466 ============ ==============
RESULTS OF OPERATIONS FOR QUARTER ENDED JULY 31, 2001 REVENUES Sales were $1,819,529 for the three months ended July 31, 2001 compared to $1,869,232 for the same period in 2000, a 2.6% decrease of $49,703 due primarily to a decrease of contract services, offset by an increase in sales of filtration products. GROSS PROFIT Gross profit as a percentage of sales was 33.2% for the three months ended July 31, 2001 compared to 30.9% for the same period in 2000, representing higher margins for filtration products as a result of continued manufacturing efficiencies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES S, G & A expenses as a percentage of sales was 26.6% for the three months ended July 31, 2001 compared to 25.3% for the same period last year, a marginal difference due to modest increases in rent and general insurance. OPERATING INCOME Operating income for the three months ended July 31, 2001 was $119,046 or 6.5% compared to $105,582, an operating margin of 5.7% for the same period in 2000. INTEREST CHARGES Interest expense for the three months ended July 31, 2001 was $11,935 compared to $16,794 for the three months ended July 31, 2000. 9 RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JULY 31, 2001 REVENUE Sales were $4,022,147 for the six months ended July 31, 2001 compared to $3,712,475 in 2000, an 8.3 % increase of $309,672. GROSS PROFIT Gross profit as a percentage of sales was 28.7% in July 2001 compared to 31.9% in July 2000, a decrease of 3.2%. Lower margins for the six month period are attributed to product mix. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES S,G & A expenses were 22.9% for the six months ended July 31, 2001 compared to 24.2% for the same period last year. OPERATING INCOME Operating Income for the six months ended July 31, 2000 was $229,705 or 5.7% compared to $284,466 or 7.7%, a 2% decrease from the prior year. INTEREST CHARGES Interest expense for the six months ended July 31, 2001 was $27,950 compared to $30,747 for the same period last year. 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. ITEM 3. DEFAULT UPON SENIOR SECURITIES None. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 28, 2001 the annual shareholders meeting was held in Van Nuys, California. During this meeting a new Board of Directors was elected overwhelmingly and three other proposals were voted and passed. The newly elected board members are Travis Bradford, Chairman of the Board, Robert A. Smith, Vice-Chairman of the Board, Warren Lichtenstein, Michael H. Figoff, Glen Kassan, Joshua Schechter, and Dr. Tracy Pugmire. The other three proposals voted on are as follows: 1) Proposal 2 for the 2001 Stock Option Plan was passed as follows: Number of shares in favor 3,224,050 Number of shares opposed 912,150 Number of shares abstained 46,050
2) Proposal 3 for approval of a 15 to 1 reverse stock split was passed as follows: Number of shares in favor 5,617,556 Number of shares opposed 1,134,550 Number of shares abstained 220,400
3) Proposal 4 for approval of appointment of Rose, Snyder and Jacobs as the Company's independent auditors for the following year was passed as follows: Number of shares in favor 6,700,106 Number of shares opposed 49,950 Number of shares abstained 5,850
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 Sept. 14, 2001 By: /s/ Michael H. Figoff ------------------------------------------- Michael H. Figoff President/Chief Executive Officer 11