<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 JULY 31, 2000 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 (I.R.S. Employer Identification No.)
of 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 7,399,091
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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>
JULY 31, JANUARY 31,
2000 2000
------------------ -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 141,590 $ 56,829
Accounts receivable
Net of allowance for doubtful accounts of $10,000 at
July 31, 2000 and $25,000 at January 31, 2000 1,526,586 1,589,322
Advances to Officers & Employees 3,050 4,100
Inventories 1,839,317 1,741,088
Deferred tax benefit 51,547 45,347
Prepaid expenses and other current assets 112,649 107,464
------------------ -------------------
TOTAL CURRENT ASSETS 3,674,739 3,544,150
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PROPERTY & EQUIPMENT
Leasehold improvements 61,253 59,229
Machinery and equipment 3,613,421 3,583,124
Tooling and dies 368,462 350,932
------------------ -------------------
4,043,136 3,993,285
Less accumulated depreciation
and amortization 3,238,711 3,145,251
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NET PROPERTY AND EQUIPMENT 804,425 848,034
DEFERRED TAXES 678,980 678,980
OTHER ASSETS 382,742 392,227
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TOTAL ASSETS $ 5,540,886 $ 5,463,391
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 530,000 $ 500,000
Notes payable, current 60,000 97,200
Accounts payable 555,956 428,554
Accrued expenses 159,827 325,029
------------------ -------------------
TOTAL CURRENT LIABILITIES 1,305,783 1,350,783
Long-Term Debt 55,800 92,200
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TOTAL LIABILITIES 1,361,583 1,442,983
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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
Outstanding 8,130,121 shares at January 31, 2000
and 7,399,091 at July 31, 2000 433,967 441,277
Additional paid-in capital 5,141,767 5,682,729
Accumulated deficit (1,357,512) (1,516,407)
Less:
Notes receivable from stockholders (6,000) (554,272)
Treasury stock at cost (32,919) (32,919)
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TOTAL STOCKHOLDERS' EQUITY 4,179,303 4,020,408
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,540,886 $ 5,463,391
================== ===================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
PUROFLOW INCORPORATED
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
2000 1999 2000 1999
------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Net revenue $ 2,049,881 $ 1,729,193 $ 4,120,113 $3,799,556
Cost of goods sold 1,462,748 1,342,446 2,869,451 2,841,283
------------------ ------------------ ------------------ ----------------
Gross profit 587,133 386,747 1,250,662 958,273
Selling, general
and administrative expense 552,627 688,994 1,032,117 1,223,156
------------------ ------------------ ------------------ ----------------
Operating income 34,506 (302,247) 218,545 (264,883)
Interest expense (16,794) (3,995) (30,747) (8,219)
Other income 629 7,711 629 18,323
Amortization goodwill/non-compete (13,116) (11,013) (26,232) (22,026)
Loss from write-off of
obsolete equipmen - (106,067) - (106,067)
------------------ ------------------ ------------------ ----------------
Income/Loss before taxes 5,225 (415,611) 162,195 (382,872)
Provision for income taxes 1,000 1,296 3,300 1,896
------------------ ------------------ ------------------ ----------------
NET INCOME/(LOSS) $ 4,225 $ (416,907) $ 158,895 $ (384,767)
================== ================== ================== ================
NET INCOME (LOSS) PER COMMON SHARE
Basic earnings per share $ 0.02 $ (0.05) $ 0.02 $ (0.05)
================== ================== ================== ================
Diluted earnings per share $ 0.02 $ (0.05) $ 0.02 $ (0.05)
================== ================== ================== ================
Weighted average number of shares
Basic 7,399,091 8,108,123 7,642,816 8,108,123
====================================================================================
Diluted 7,478,806 8,108,123 7,727,457 8,108,123
====================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PUROFLOW INCORPORATED
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JULY 31 2000 1999
------------------ ------------------
<S> <C> <C>
CASH AT BEGINNING OF PERIOD $ 56,829 $ 828,809
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 158,895 (384,767)
Adjustments to reconcile net income(loss) to net cash
provided(used) by operating activities:
Depreciation and amortization 93,460 131,916
Amotization of Goodwill/Non-compete 26,233 22,026
Provision for losses on accounts receivable (15,000) 3,000
Write-Off of obsolete equipment - 106,067
Changes in operating assets and liabilities:
Advances to Officers & Employees 1,050 2,907
Accounts receivable 77,736 246,991
Other receivables - 375,763
Inventories (98,229) (390,882)
Prepaid expenses and other current assets (21,933) 9,656
Deferred tax benefit (6,200) (3,600)
Other payable - (445,650)
Accounts payable & accrued expenses (37,800) (534,379)
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Net cash provided(used) by operating activities 178,212 (860,952)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (49,851) (69,567)
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Net cash used in investing activities (49,851) (69,567)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options - 14,100
Long-Term Debt (73,600) (23,472)
Advance on credit line 30,000 35,000
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Net cash provided(used) by financing activities (43,600) 25,628
NET INCREASE (DECREASE) IN CASH 84,761 (904,891)
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CASH AT END OF PERIOD $ 141,590 $ (76,082)
================== ==================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
FROM
COMMON ADDITIONAL ACCUMULATED STOCKHOLDER
STOCK PAID-IN DEFICIT AND TREASURY
PAR VALUE CAPITAL TOTAL STOCK TOTAL
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<S> <C> <C> <C> <C> <C>
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)
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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
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Balance at April 30, 2000 $ 433,967 $ 5,141,767 $(1,361,737) $ (38,919) $ 4,175,078
Net Income $ 4,225 $ 4,225
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Balance at July 31, 2000 $ 433,967 $ 5,141,767 $(1,357,512) $ (38,919) $ 4,179,303
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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PUROFLOW INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(UNAUDITED)
JULY 31, 2000, JANUARY 31, 2000, AND JULY 31, 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:
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
2000 2000
---------------------- -----------------------
<S> <C> <C>
Raw materials and purchased parts 1,143,345 1,038,359
Work in process 345,127 267,968
Finished goods and assemblies 350,845 434,761
====================== =======================
Totals $1,839,317 $1,741,088
====================== =======================
</TABLE>
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
<PAGE>
NOTE 4 - NET INCOME PER SHARE
Reconciliation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
PER-SHARE
INCOME SHARES AMOUNT
----------- --------- ----------
<S> <C> <C> <C>
6 MONTHS ENDED JULY 31, 2000
Basic earnings per share $ 158,895 7,642,816 $ .02
==========
EFFECT OF DILUTIVE SECURITIES
Stock options 84,641
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Diluted earnings per share $ 158,895 7,727,457 $ .02
=========== ========= ==========
6 MONTHS ENDED JULY 31, 1999
Basic earnings per share $ (384,767) 8,108,123 $(.05)
==========
EFFECT OF DILUTIVE SECURITIES
Stock Options 0
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Diluted earnings per share $ (384,767) 8,108,123 $(.05)
=========== ========= ==========
</TABLE>
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 December 15,
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 $530,000
as of July 31, 2000.
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 income
tax liability.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company had cash available of $141,590, compared to
$56,829 on January 31, 2000. It had a current ratio of 2.81 to 1 at July 31,
2000, compared to 2.62 to 1 on January 31, 2000.
OPERATING ACTIVITIES
Cash Flow from Operations for the six months ended July 31, 2000 was increased
by $178,212 compared to a decrease of $860,952 for the six months ended July
31,1999.
INVESTING ACTIVITIES
The Company invested $49,851 in new capital equipment in the first two quarters
predominantly for tooling and machinery in support of new PMA products.
FINANCING ACTIVITIES
The Company has a 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 $530,000 is outstanding at July 31, 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. At July 31, 2000
the balance of this note is $115,800.
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 being 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.
<TABLE>
<CAPTION>
SEGMENT REPORTING 6 MONTHS @ 6 MONTHS @
NET SALES JULY 31, 2000 JULY 31, 1999
------------- -------------
<S> <C> <C>
Filtration $ 3,499,652 $ 3,329,695
International 407,638 106,722
Testing & Repairs 212,823 363,139
------------ -------------
Total $ 4,120,113 $ 3,799,556
------------ -------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
6 MONTHS @ 6 MONTHS @
OPERATING INCOME JULY 31, 2000 JULY 31, 1999
------------- -------------
<S> <C> <C>
Filtration $ 326,567 $ (310,406)
International (67,065) (28,476)
Testing & Repairs (40,957) 73,999
------------ ------------
$ 218,545 $ (264,883)
============ ============
</TABLE>
RESULTS OF OPERATIONS FOR QUARTER ENDED JULY 31, 2000
REVENUES
Sales were $2,049,881 for the three months ended July 31, 2000 compared to
$1,729,193 for the same period in 1999, an 18.5% increase of $320,688 due
primarily to an increased sales of aerospace products with an offset by a
decrease in airbag sales and QCCC volume.
GROSS PROFIT
Gross profit as a percentage of sales was 28.6% for the three months ended July
31, 2000 compared to 22.3% for the same period in 1999 representing higher
margins of precision filters for the PMA program and increased manufacturing
efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
S,G & A expenses were 26.9% for the three months ended July 31, 2000 compared to
39.8% for the same period last year. The reduction of S.G & A expenses was due
to reduced legal and outside services incurred as a result of a proxy contest
and reduction in administrative expenses.
OPERATING INCOME
Operating income for the three months ended July 31, 2000 was $34,500 or 1.6%
compared to a loss of $302,247 a 19 % increase for the prior year. See the
explanation under S,G & A above.
INTEREST CHARGES
Interest expense for the three months ended July 31, 2000 was $16,794 compared
to $3,995 for the same period in 1999.
9
<PAGE>
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JULY 31, 2000.
REVENUE
Sales were $4,120,113 for the six months ended July 31, 2000 compared to
$3,799,556 in 1999, a 8.4% increase of $320,557.
GROSS PROFIT
Gross profit as a percentage of sales was 30.3% in July 2000, compared to 25.2%
in July 1999, an increase of 5.1% representing higher margins on precision
filters on the PMA Program as well as manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
S,G & A expenses were 25% for the six months ended July 31, 2000 compared to
32.2% for the same period last year.
OPERATING INCOME
Operating Income for the six months ended July 31, 2000 was $218,545 or 5.3%
compared to a loss of $264,883 a 12.7% increase for the prior year.
INTEREST CHARGES
Interest expense for the six months ended July 31, 2000 was $30,747 compared to
$8,219 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE>
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, 2000 By: /s/ MICHAEL H. FIGOFF
------------------------------------------
Michael H. Figoff
President/Chief Executive Officer
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