<PAGE>
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 OCTOBER 31, 1997 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 7,108,821
- --------------------------------------------------------------------------------
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>
PUROFLOW INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
OCTOBER 31, JANUARY 31,
1997 1997
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 593,379 $ 164,415
Accounts receivable
Net of allowance for doubtful accounts of
$50,000 at October 31, 1997 and January 31, 1997 1,383,044 1,462,170
Inventories 1,467,068 1,398,561
Note receivable, current portion 4,190 40,889
Prepaid expenses and other current assets 52,611 57,595
------------ ------------
TOTAL CURRENT ASSETS 3,500,292 3,123,630
------------ ------------
PROPERTY & EQUIPMENT
Leasehold improvements 25,320 11,660
Machinery and equipment 3,422,932 2,988,092
Automobile 1,679 1,679
Tooling and dies 297,179 262,480
Construction in progress -0- 143,542
------------ ------------
3,747,110 3,407,453
Less accumulated depreciation
and amortization 2,665,779 2,452,888
------------ ------------
NET PROPERTY AND EQUIPMENT 1,081,331 954,565
------------ ------------
DEFERRED TAXES
OTHER ASSETS 269,750 16,750
------------ ------------
TOTAL ASSETS $4,851,373 $4,094,945
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ -0- $ 207,087
Accounts payable 352,419 212,397
Accrued expenses 601,471 186,395
------------ ------------
TOTAL CURRENT LIABILITIES 953,890 605,879
------------ ------------
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 - 7,108,821 shares
at October 31, 1997
shares at January 31, 1997 430,579 430,579
Additional paid-in capital 4,947,727 4,947,727
Accumulated deficit (1,480,823) (1,889,240)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,897,483 3,489,066
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,851,373 $4,094,945
------------ ------------
------------ ------------
See accompanying notes to the consolidated financial statements.
1
<PAGE>
PUROFLOW INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenue $ 2,018,380 $ 1,940,859 $ 6,619,971 $ 6,116,478
Cost of goods sold 1,367,510 1,392,384 4,767,972 4,185,499
-------------- -------------- -------------- --------------
Gross profit 650,870 548,475 1,851,999 1,930,979
Selling, general
and administrative expense 367,949 323,041 1,230,145 1,042,698
-------------- -------------- -------------- --------------
Operating income 282,921 225,434 621,854 888,281
Interest expense - (8,380) - (71,407)
Other income 6,275 6,042 12,905 6,042
Nonrecurring expense (369,394) (198,893) (369,394) (394,183)
-------------- -------------- -------------- --------------
Income from continuing
operations before taxes (80,198) 24,203 265,365 428,733
Provision for income taxes (42,452) 5,600 (143,052) 5,600
-------------- -------------- -------------- --------------
NET INCOME $ (37,746) $ 18,603 $ 408,417 $ 423,133
-------------- -------------- -------------- ---------------
-------------- -------------- -------------- --------------
Net income (loss) per common share:
Basic earnings per share $ -0- $ - $ 0.06 $ 0.08
Diluted earnings per share $ -0- $ - $ 0.06 $ 0.07
Weighted average number of shares 7,252,725 5,673,888 7,252,725 5,673,888
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
PUROFLOW INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 1996
------------ ------------
CASH AT BEGINNING OF PERIOD $ 164,415 $ -
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 408,418 423,133
Adjustments to reconcile net income to net cash -
provided by operating activities -
Depreciation and amortization 212,891 236,337
Provision for losses on accounts receivable 496 (20,000)
Inventory valuation allowance 56,591
Changes in operating assets and liabilities:
Accounts receivable 78,630 72,229
Inventories (125,098) (132,184)
Prepaid expenses and other current assets 4,984 (40,499)
Deferred taxes (253,000)
Accounts payable 140,023 93,870
Legal Accrual 265,828 -
Accrued expenses (57,841) (65,843)
------------ ------------
Net cash provided by operating activities 731,922 567,043
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (339,657) (168,746)
Payments received on notes receivable 36,699 51,503
------------ ------------
Net cash provided by investing activities (302,958) (117,243)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft - (59,363)
Net repayment under line of credit - (235,857)
Principal payments on long-term debt - (1,763,681)
Proceeds from sale of common stock - 1,772,900
------------ ------------
Net cash used in financing activities - (286,001)
------------ ------------
NET INCREASE IN CASH 428,964 163,799
CASH AT END OF PERIOD $ 593,379 $ 163,799
------------ ------------
------------ ------------
See accompanying notes to the consolidated financial statements.
3
<PAGE>
PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK PAID-IN EARNINGS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 PAR VALUE CAPITAL TOTAL
------------ -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance at January 31, 1997 $ 430,579 $ 4,947,727 $ (1,889,240) $ 3,489,066
Net income - - 408,417 408,417
------------ -------------- ---------------- --------------
Balance at October 31, 1997 $ 430,579 $ 4,947,727 $ (1,480,823) $ 3,897,483
------------ -------------- ---------------- --------------
------------ -------------- ---------------- --------------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
PUROFLOW INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1997, JANUARY 31, 1997, AND OCTOBER 31, 1996
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, 1997 (The "Form
10-K") 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:
OCTOBER 31, JANUARY 31,
1997 1997
-------------- -------------
Raw materials and purchased parts $ 800,222 $ 729,740
Work in process 371,933 247,868
Finished goods and assemblies 294,913 420,953
-------------- -------------
Totals $ 1,467,068 $ 1,398,561
-------------- -------------
-------------- -------------
NOTE 3 - STOCKHOLDERS EQUITY
On March 26, 1996, the Company entered into an agreement with an investment
banker to raise equity through a private placement offering. On July 24, 1996,
such offering was completed. The Company sold 2,530,000 shares of common stock
and received $1,742,900 of net proceeds, including $1,300 of interest. The
purchase price of the common stock was $.80 per share. From the gross proceeds,
the underwriter received $202,400 as a fee. The underwriter also received a 24
month option to purchase 177,100 common shares, at a price of $.80 per share.
Proceeds received by the Company are used to retire bank debt and other
pre-Receiver debt. The Company registered the securities on March 7, 1997.
5
<PAGE>
NOTE 4 - NET INCOME PER SHARE
Reconciliation of basic and diluted earnings per share:
PER-SHARE
INCOME SHARES AMOUNT
---------- --------- ---------
9 MONTHS ENDED OCTOBER 31, 1997
- -------------------------------
Basic earnings per share $ 408,417 7,108,821 $ .06
-----
-----
Effect of Diluted Securities
- ----------------------------
Stock options 143,904
---------- ---------
Diluted earnings per share $ 408,417 7,252,725 $ .06
---------- --------- -----
---------- --------- -----
9 MONTHS ENDED OCTOBER 31, 1996
- -------------------------------
Basic earnings per share $ 423,133 5,428,010 $ .08
-----
Effect of Diluted Securities
- ----------------------------
Stock Options 245,878
---------- ---------
Diluted earnings per share $ 423,133 5,673,888 $ .07
---------- --------- -----
---------- ---------
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 - CESSATION OF RECEIVERSHIP
On August 13, 1996, all bank debt owed by the Company was repaid. On August 22,
1996, the Receivership Estate was terminated by order of the Superior Court of
the State of California and control of the Company was returned to the Board of
Directors and Management.
The Company entered a new banking relationship and extended the agreement on
July 14, 1997 for one year. The Company obtained a $750,000 revolving credit
line. This credit line bears interest at the rate of prime plus 1%, per annum,
and is secured, primarily, by the Company's accounts receivable and inventories.
The Company also obtained a $300,000, non-revolving, equipment acquisition
credit line, which bears interest at the rate of prime plus 1.75%, per annum,
and is secured by all of the Company's assets. Both of these loans are
cross-collateralized. The terms of these loan agreements contain certain
restrictive covenants, including maintenance of minimum working capital, net
worth, and ratios of current assets to current liabilities and debt to net
worth.
6
<PAGE>
NOTE 6 - INCOME TAXES
Income tax benefits recognized represents the benefit of income tax loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, the Company had cash available of $593,379, compared to
$164,415 on January 31, 1997, was free of bank debt and it had a current ratio
of 3.67 to 1 at October 31, 1997, compared to 5.16 to 1 on January 31, 1997.
OPERATING ACTIVITIES
Operations provided $731,922 of cash flow in nine months ended October 31, 1997
versus $567,043 in the nine months ended October 31, 1996. The higher cash flow
from operations was due primarily to deferred tax credits.
INVESTING ACTIVITIES
The Company invested $239,657 in new capital equipment in the current quarter
predominantly for equipment for a new type of airbag filter.
FINANCING ACTIVITIES
The Company has unused revolving credit line of $750,000 which bears interest at
the rate of prime plus 1% per annum, secured by the Company's accounts
receivable and inventory. The Company also has a non-revolving equipment
acquisition loan of $300,000 which bears interest at prime rate plus 1.75% per
annum. The Company is in compliance with all covenants under its loan agreement
with the Bank.
RESULTS OF OPERATIONS FOR QUARTER ENDED OCTOBER 31, 1997
REVENUES
Sales were $2,018,380 in 1997, compared to $1,940,859 in 1996, representing an
increase of $77,521 or 4.0%, due primarily to increased shipments of high
performance filters.
GROSS PROFIT
Gross profit as a percentage of sales was 31.3% in October 1997, compared to
28.3% in October 1996, representing higher margins on precision filters on the
PMA Program offset to some extent by increased cost of material and labor in
producing airbag filters and increased charges for R&D on a new type of airbag
filter.
7
<PAGE>
OPERATING INCOME
Operating income was $282,981 in October 1997 compared to $225,434 in October
1996 with higher margin in high performance filter offset by the lower margins
on airbag filters and the impact of the cost of new product development.
INTEREST CHARGES
Interest on bank loans were $36,102 in 1996 and completely eliminated in 1997.
INCOME TAXES
A tax benefit of $143,052 was recognized as a result of income tax loss
carryforwards.
PART ll - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. The attorney for Reliable Metallurgical Processes Incorporated and the
attorneys representing the Registrant are in the process of negotiating a
settlement to the outstanding litigation.
2. Jerome Pearlman D.B.A. J&F Enterprises and J&F Management Incorporated
settled the outstanding litigation previously reported in the 10-Q as of
July 31, 1997.
3. The litigation between Memtec America Corporation and the Registrant
commenced on December 19, 1995 is now in the discovery stage, based upon
motions filed by attorneys for the Registrant.
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.
8
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K filed July 21, 1997 on extension of bank agreement for one
year.
Form 8-K filed October 10, 1997 reporting resignation of Leo Unger as
Director.
Form 8-K filed October 22, 1997, reporting the receipt of two major
contracts aggregation in excess of $4.8 million and aggregate backlog
of $10.6 highest in the history of the Company.
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
December 9, 1997 By: /s/ Michael H. Figoff
--------------------------------------
Michael H. Figoff
President/Chief Executive Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 593,379
<SECURITIES> 0
<RECEIVABLES> 1,433,044
<ALLOWANCES> 50,000
<INVENTORY> 1,467,068
<CURRENT-ASSETS> 3,500,292
<PP&E> 3,747,110
<DEPRECIATION> 2,665,779
<TOTAL-ASSETS> 4,851,373
<CURRENT-LIABILITIES> 953,890
<BONDS> 0
0
0
<COMMON> 5,378,306
<OTHER-SE> (1,480,823)
<TOTAL-LIABILITY-AND-EQUITY> 4,851,873
<SALES> 6,619,971
<TOTAL-REVENUES> 6,619,971
<CGS> 4,767,972
<TOTAL-COSTS> 5,998,117
<OTHER-EXPENSES> 363,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 265,365
<INCOME-TAX> (143,052)
<INCOME-CONTINUING> 408,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 408,417
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
