<PAGE>
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 APRIL 30, 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 Identification No.)
incorporation or organization
1631 TENTH STREET, SANTA MONICA, CALIFORNIA 90404
- - ------------------------------------------- -----------------------------------
(Address of executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 450-6461
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Shares Outstanding
- - ------------------------------------------- -----------------------------------
COMMON STOCK, $0.06-2/3 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 [ ]
<PAGE>
ITEM 1. FINANCIAL INFORMATION
PUROFLOW INCORPORATED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, 1995 January 31,1995
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 92,324 $ 74,441
Accounts receivable
Trade, net of allowance for doubtful
accounts of $195,521 at April 30, 1995
and $204,469 at January 31, 1995 1,076,375 1,266,150
Advances to officers and employees 5,267 3,868
Inventories 1,988,648 1,746,237
Prepaid expenses and other 73,941 159,802
---------------- ----------------
Total current assets 3,236,555 3,250,498
---------------- ----------------
PROPERTY AND EQUIPMENT - NET 1,243,490 1,337,256
OTHER ASSETS 114,378 133,082
---------------- ----------------
TOTAL ASSETS $ 4,594,423 $ 4,720,836
---------------- ----------------
---------------- ----------------
<CAPTION>
April 30, 1995 January 31, 1995
---------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 789,542 $ 810,003
Accounts payable 930,528 655,485
Accrued expenses 176,652 211,343
Current portion of long-term debt 2,492,731 2,787,543
---------------- ----------------
TOTAL CURRENT LIABILITIES 4,389,453 4,464,374
---------------- ----------------
LONG-TERM DEBT 61,048 71,400
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.10 per share
Authorized - 500,000 shares.
Issue - None
Common stock, par value $.06-2/3 per share
Authorized - 6,000,000 shares:
Outstanding 4,578,521 at April 30, 1995
and January 31, 1995 405,279 405,279
Additional paid in capital 3,230,127 3,230,127
Accumulated deficit (3,491,484) (3,450,344)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 143,922 185,062
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,594,423 $ 4,720,836
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to the consolidated financial statements.
1
<PAGE>
PUROFLOW INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Quarter Ended April 30,
1995 1994
--------------- ---------------
<S> <C> <C>
Net sales $ 2,010,243 $ 2,639,347
Cost of goods sold 1,460,886 2,733,412
--------------- ---------------
Gross profit / (loss) 549,357 (94,065)
Selling, general and administrative expense 503,709 395,236
--------------- ---------------
Operating income / (loss) 45,648 (489,301)
Other income and expense:
Other income 705 6,991
Interest expense (87,493) (72,491)
--------------- ---------------
Loss from continuing operations (41,140) (554,801)
Loss from discontinued operations - (75,894)
--------------- ---------------
Net loss $ (41,140) $ (630,695)
--------------- ---------------
--------------- ---------------
Continuing operations (0.01) (0.13)
Discontinued operations - (0.01)
--------------- ---------------
Net income (loss) per common share $ (0.01) $ (0.14)
--------------- ---------------
--------------- ---------------
Weighted average number of shares 4,578,521 4,368,521
</TABLE>
2
<PAGE>
PUROFLOW INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended April 30,
1995 1994
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (41,140) $ (630,695)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) continuing operations:
Depreciation and amortization 93,444 92,810
Provision for losses on accounts
receivable (8,949) 4,685
Changes in operating assets and
liabilities:
Accounts receivable 198,724 10,021
Inventories (242,411) 155,785
Prepaid expenses and other 94,464 (20,242)
Accounts payable and accrued
expenses 240,352 344,380
--------------- ---------------
Net cash provided by (used in)
operating activities 334,484 (43,256)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of property and
equipment 322 (12,088)
Other assets 10,101 (4,284)
--------------- ---------------
Net cash provided by (used in)
investing activities 10,423 (16,372)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line
of credit (20,461) 231,143
Borrowings (repayments) of long-term
debt (305,164) (170,641)
Advances to officers and employees (1,399) (2,423)
--------------- ---------------
Net cash provided by (used in)
financing activities (327,024) 58,079
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 17,883 (1,549)
CASH AT BEGINNING OF PERIOD 74,441 18,921
--------------- ---------------
CASH AT END OF PERIOD $ 92,324 $ 17,372
--------------- ---------------
--------------- ---------------
Supplemental disclosures of cash
flow information:
Interest paid $ 80,528 $ 72,830
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
PUROFLOW INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1995 AND JANUARY 31, 1995
(DOLLARS IN THOUSANDS)
NOTE A - BASIS OF PRESENTATION
The information presented for the three months ended April 30, 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 three months ended April 30, 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:
<TABLE>
<CAPTION>
APRIL 30, January 31,
1995 1995
------------- ---------------
<S> <C> <C>
Raw materials and purchased parts $ 879 $ 818
Work in process 528 503
Finished goods and assemblies 582 425
------------- ---------------
Total $ 1,989 $ 1,746
------------- ---------------
------------- ---------------
</TABLE>
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
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NOTE D - SUBSEQUENT EVENT
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. Accordingly, the receiver is
not obligated to pay liabilities that existed prior to his appointment;
however, the receiver may elect to pay certain of those liabilities subject
to the authorization of the Court. 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 June 15,
1995. The Company currently is negotiating an extension on this facility
with the bank. It is also exploring various other types of financing as
may be available and appropriate.
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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, automotive
airbag filters and fluid control valves. 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 April 30, 1995 and 1994.
<TABLE>
<CAPTION>
Quarter Ended April 30,
1995 1994
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost and expenses:
Cost of goods sold 72.7 103.5
Selling, general, and
administrative 25.0 15.0
Interest expense - net 4.3 2.5
------------ ------------
Income (loss) from continuing (2.0) (21.0)
operations
Income (loss) from discontinued
operations (2.9)
------------ ------------
Net loss (2.0)% (23.9)%
------------ ------------
------------ ------------
</TABLE>
Comparison of quarters ended April 30, 1995 and 1994.
NET SALES
Net sales were $2,010 for the quarter ended April 30, 1995. This was a decrease
of $629 23.8% over net sales of $2,639 for the quarter ending April 30, 1994.
High performance filters and fluid control valves increased by $82 due primarily
to the increase in emphasis on customer follow-up and customer service. Airbag
filters declined by $711 as is a result of the airbag customer providing
materials required for the production of the airbag filters. This resulted in a
decrease to the sales price of the filter.
COST OF SALES/GROSS PROFIT
Gross profit (loss) as a percentage of net sales was 27.3% for the first quarter
ended April 30, 1995 as compared to (3.5)% for the first quarter ending April
30, 1994. The increase is a direct result of the Company's success in reducing
the production costs and increase the productivity of the manufacturing process.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the quarter ended April 30, 1995
increased to $504 (25.0% of net sales), as compared to $395 (15.0% of net sales)
for the quarter ending April 30, 1994. This increase was primarily attributable
to legal and other professional fees.
6
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OTHER INCOME AND EXPENSE
Interest expense increased $15 for the quarter ending April 30, 1995 as compared
to the quarter ending April 30, 1994. This is due to the increased interest
rates, partially offset by a reduction of the Company's interest bearing debt.
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.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1995, working capital was $(1,153) versus $(1,214) at January
31, 1995. The Company's current ratio was 0.7 both at April 30, 1995 and
January 31, 1995.
The Company's debt at April 30, 1995 was $3,343 consisting of notes payable to
the Company's bank totaling $2,399, loans from its stockholders of $71,
capitalized lease obligations of $44 and notes payable to vendors of $829.
Principal under the Company's term loans accrues interest at the bank's prime
rate plus 2.5% (11.5% at April 30, 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 lessor of $1,200 or 65% of eligible accounts
receivable. Outstanding balances accrue interest at the bank's prime rate plus
3.5% (12.5% at April 30, 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 $790 under this
agreement at April 30, 1995. There are no additional borrowings available under
the line of credit.
The terms of the credit agreements contain certain restrictive covenants.
Currently, the Company is 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 appointment was based upon the default of the
Company on its obligations under these agreements with its bank. The receiver
has assumed jurisdiction over substantially all of the assets of the Company.
The receiver continues to operate the Company with the assistance of existing
management.
The Company is currently negotiating with its bank to obtain extensions of its
line of credit and term loans which expire June 15, 1995. The bank is currently
evaluating the Company, and management believes that an extension will be
obtained until such time where other financing can be arranged; however, no
assurances to this effect can be given. The Company also needs to obtain
additional working capital and may seek additional equity which could have a
dilutive effect on the Company's current shareholders.
The Company's continuation as a going concern is dependent upon its ability to
obtain an adequate long-term financing arrangement, generate sufficient cash
flow to meet its obligations on a timely basis and ultimately to return to
profitable operations. The absence of the foregoing raises substantial doubt
about the Company's ability to continue as a going concern. The Company
continues to take steps to reduce its operating expenses. Management believes
such changes will result in the Company positioning itself to increase sales and
7
<PAGE>
improve its results of operations. There can be no assurances; however, that the
Company will be able to successfully improve its results of operations, obtain
long-term financing arrangements or generate sufficient cash flow to meet its
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 L. 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
does the Registrant's records support the defendants claim. Both
action 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 cross-claim 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.
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.
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, although Registrant
and Judgment Creditor have conducted negotiations for an orderly
liquidation of the judgement.
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.
8
<PAGE>
The Company is not a party to any other material pending suits or
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.
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 a 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 the assets of the business of
the registrant by leaving existing Directors and Officers in
possession, but subject to the supervision and order of the Court.
9
<PAGE>
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
By /s/ Winston Mar
------------------------------------------------
Winston Mar
Chief Financial Officer
Date: June 13, 1995
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> APR-30-1995
<CASH> 92,324
<SECURITIES> 0
<RECEIVABLES> 1,271,896
<ALLOWANCES> 195,521
<INVENTORY> 1,988,648
<CURRENT-ASSETS> 3,236,555
<PP&E> 3,358,408
<DEPRECIATION> 2,114,918
<TOTAL-ASSETS> 4,594,423
<CURRENT-LIABILITIES> 4,389,453
<BONDS> 0
<COMMON> 3,635,406
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,594,423
<SALES> 2,010,243
<TOTAL-REVENUES> 2,010,243
<CGS> 1,460,886
<TOTAL-COSTS> 1,460,886
<OTHER-EXPENSES> 503,709
<LOSS-PROVISION> 29,606
<INTEREST-EXPENSE> 87,493
<INCOME-PRETAX> (41,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (41,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,140)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
