\<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 APRIL 30, 1998 COMMISSION FILE NUMBER 0-5622
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PUROFLOW INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 13-1947195
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(State or other jurisdiction of (I.R.S. Employer identification
incorporation or organization)
16559 SATICOY STREET, VAN NUYS, CALIFORNIA 91406-1739
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(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
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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)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 355,472 $ 361,523
Accounts receivable
Net of allowance for doubtful accounts of
$26,000 at April 30, 1998 and
$23,523 at January 31, 1997 1,655,001 1,602,267
Advances to Officers & Employees 4,182 -
Inventories 1,715,290 1,566,865
Note receivable, current portion -
Prepaid expenses and other current assets 51,894 76,331
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TOTAL CURRENT ASSETS 3,781,839 3,606,986
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PROPERTY & EQUIPMENT
Leasehold improvements 29,218 26,980
Machinery and equipment 3,511,989 3,491,625
Automobile 1,679 1,679
Tooling and dies 306,124 303,399
Construction in progress 46,155 44,977
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3,895,165 3,868,660
Less accumulated depreciation
and amortization 2,823,821 2,750,092
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NET PROPERTY AND EQUIPMENT 1,071,344 1,118,568
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---------- ----------
DEFERRED TAXES 355,000 304,000
OTHER ASSETS 16,750 16,750
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TOTAL ASSETS $5,224,933 $5,046,304
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---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 228,034 $ 168,034
Accounts payable 410,834 467,131
Accrued expenses 243,455 430,112
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TOTAL CURRENT LIABILITIES 882,323 1,065,277
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Long-Term Debt 176,000
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TOTAL LIABILITIES 176,000 -
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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 April 30, 1998
shares at January 31, 1997 430,579 430,579
Additional paid-in capital 4,947,727 4,947,727
Accumulated deficit (1,211,696) (1,397,279)
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TOTAL STOCKHOLDERS' EQUITY 4,166,610 3,981,027
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,224,933 $5,046,304
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</TABLE>
See accompanying notes to the consolidated financial statements.
1
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PUROFLOW INCORPORATED
CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
1998 1997
<S> <C> <C>
Net revenue $2,096,284 $2,349,632
Cost of goods sold 1,493,582 1,737,016
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Gross profit 602,702 612,616
Selling, general
and administrative expense 470,457 412,769
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Operating income 132,245 199,847
Interest expense 1,074 -
Non recurring expense - -
Other income 3,411 2,349
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Income before taxes 134,582 202,196
Provision for income taxes (51,000) (51,000)
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NET INCOME $ 185,582 $ 253,196
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NET INCOME PER COMMON SHARE
Basic earnings per share $ 0.026 $ 0.04
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Diluted earnings per share $ 0.026 $ 0.03
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</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
PUROFLOW INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED APRIL 30, 1998 1997
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<S> <C> <C>
CASH AT BEGINNING OF PERIOD $ 361,523 $ 164,415
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 185,583 253,196
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 73,729 65,007
Provision for losses on accounts receivable 2,477 -
Inventory valuation allowance - (25,300)
Changes in operating assets and liabilities:
Advances to Officers & Employees (3,682)
Accounts receivable (55,711) (172,538)
Inventories (148,425) (21,703)
Prepaid expenses and other current assets 24,436 (17,479)
Deferred taxes (51,000) (51,000)
Accounts payable (63,411) 97,738
Accrued expenses (179,543) (30,388)
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Net cash provided by operating activities (215,547) 97,533
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (26,504) (93,905)
Payments received on notes receivable - 11,965
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Net cash provided by investing activities (26,504) (81,940)
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CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft - -
Net repayment under line of credit - -
Principal new long-term debt 236,000 -
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Net cash used in financing activities 236,000 -
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NET INCREASE (DECREASE) IN CASH (6,051) 15,593
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CASH AT END OF PERIOD $355,472 $180,008
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</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
FOR THE THREE MONTHS ENDED STOCK PAID-IN RETAINED
APRIL 30, 1998 PAR VALUE CAPITAL EARNINGS TOTAL
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<S> <C> <C> <C> <C>
Balance at January 31, 1998 $430,579 $4,947,727 $(1,397,279) $3,981,027
Net income - - 185,583 185,583
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Balance at April 30, 1998 $430,579 $4,947,727 $(1,211,696) $4,166,610
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</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
PUROFLOW INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(UNAUDITED)
APRIL 30, 1998, JANUARY 31, 1998, AND APRIL 30, 1997
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-KSB for the fiscal year ended January 31,
1998 (The "Form 10-KSB") 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:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1998
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<S> <C> <C>
Raw materials and purchased parts $ 845,147 $ 766,222
Work in process 536,749 472,656
Finished goods and assemblies 333,394 327,987
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Totals $1,715,290 $1,566,865
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</TABLE>
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 were
used to retire bank debt and other pre-Receiver debt. The Company registered
the securities on March 7, 1997.
5
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NOTE 4 - NET INCOME PER SHARE
Reconciliation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
AMOUNT
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<S> <C> <C> <C>
3 MONTHS ENDED APRIL 30, 1998
Basic earnings per share $185,582 7,108,821 $.03
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EFFECT OF DILUTED SECURITIES
Stock options 92,253
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Diluted earnings per share $185,582 7,200,874 $.026
-------- --------- -----
-------- --------- -----
3 MONTHS ENDED APRIL 30, 1997
Basic earnings per share $253,196 7,108,821 $.04
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EFFECT OF DILUTED SECURITIES
Stock Options 151,628
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Diluted earnings per share $253,196 7,260,449 $.026
-------- --------- -----
-------- --------- -----
</TABLE>
Basic earnings per share are 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.
Additionally, the Company entered a new banking relationship. The Company
obtained a $750,000 revolving credit line. This credit line bears interest
at the rate of prime plus 1.5%, 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.
NOTE 6 - INCOME TAXES
Income tax benefits recognized represents the benefit of income tax loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, the Company had cash available of $355,472, compared to
$361,523 on January 31, 1998. It had a current ratio of 5.29 to 1 at April 30,
1998, compared to 4.2 to 1 on January 31, 1998.
6
<PAGE>
OPERATING ACTIVITIES
Cash Flow from Operations for the three months ended April 30,1998 was
reduced by $215,547 compared to an increase of $97,533 for the three months
ended April 30,1997.
INVESTING ACTIVITIES
The Company invested $26,504 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 1.5% 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. The Company obtained a loan of $236,000 to pay the
non-recurring judgment against it as well as purchase a necessary blueprint
copier.
RESULTS OF OPERATIONS FOR QUARTER ENDED APRIL 30, 1998
REVENUES
Sales were $2,096,254 for the three months ended April 30,1998 compared to
$2,349,632 in 1997. This represents a decrease of $253,334 or 10.78% due
primarily to a reduction of 23.4% in the sale of airbags, a result of the
slow ramp-up in the new model non-azide airbag for the driver and passenger
side impact filters.
GROSS PROFIT
Gross profit as a percentage of sales was 29% in April 1998, compared to 26%
in April 1997, representing an increase of 3% representing higher margins on
precision filters on the PMA Program as well as increased manufacturing
efficiencies.
OPERATING INCOME
Operating income was $132,245 in April 1998 compared to $199,847 in April
1997, a decrease of $67,602 due to the lower margins on airbag filters, the
impact of the cost of new product development as well as increased marketing
costs.
INTEREST CHARGES
Interest on the bank loan was $1,074 as of April 30, 1998.
INCOME TAXES
A tax benefit of $51,000 was recognized as a result of income tax loss
carryforwards.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. PENDING LEGAL PROCEEDINGS
1) Memtec America Corporation obtained a confession of judgment from the
Circuit Court of Baltimore County, Maryland, on December 19,1995 against
the Company for approximately $220,000, based upon the execution of a
promissory note by a former chief executive of the Company, which note
was executed in exchange for goods and services delivered by the
Plaintiff. The Company disputes that any amounts are due under the note
as a result of Company's right of set-off. The judgment was obtained
without due notice to the Company. The Receiver retained counsel in
Baltimore, Maryland, for the purpose of setting aside the confession of
judgment and to assert a number of counter-claims against Memtec America
Corporation. The confession of judgment was vacated by order of the
Circuit Court of Baltimore County on June 24,1996. The Company filed an
amended counter-claim and third party complaint on August 12, 1996
against Memtec America Corporation and four employees of the Company now
employed by Memtec America Corporation. The counter-claim against the
four former employees was dismissed for jurisdictional purposes. The
Company now is in the process of securing positive depositions from key
witnesses to support the amended counter-claim, and management believes
the Company will recover a reasonable award and legal fees. Although the
Company cannot determine the potential liability which may result from
the foregoing, it believes it will prevail in its defenses, and does not
expect that such litigation will have a material adverse effect on its
financial position or results of operation.
At January 31,1998, an accrual in the amount of approximately $256,000 had
been recorded for judgments against the Company for lawsuits that have
concluded.
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.
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.
8
<PAGE>
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
May 20, 1998 By: /s/ Michael H. Figoff
---------------------------------------
Michael H. Figoff
President/Chief Executive Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 355,472
<SECURITIES> 0
<RECEIVABLES> 1,681,001
<ALLOWANCES> 26,000
<INVENTORY> 1,715,290
<CURRENT-ASSETS> 3,781,839
<PP&E> 3,895,165
<DEPRECIATION> 2,823,821
<TOTAL-ASSETS> 5,224,933
<CURRENT-LIABILITIES> 882,323
<BONDS> 0
0
0
<COMMON> 5,378,306
<OTHER-SE> (1,211,696)
<TOTAL-LIABILITY-AND-EQUITY> 5,224,933
<SALES> 2,096,284
<TOTAL-REVENUES> 2,096,284
<CGS> 1,493,582
<TOTAL-COSTS> 1,964,039
<OTHER-EXPENSES> (3,411)
<LOSS-PROVISION> 2,477
<INTEREST-EXPENSE> 1,074
<INCOME-PRETAX> 134,582
<INCOME-TAX> (51,000)
<INCOME-CONTINUING> 185,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,582
<EPS-PRIMARY> .026
<EPS-DILUTED> .026
</TABLE>
