<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, 2000 COMMISSION FILE NUMBER 0-5622
--------------------------------------------------------------------------------
PUROFLOW INCORPORATED
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1947195
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (IRS Employer identification No.)
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 [ ]
<PAGE>
PUROFLOW INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
2000 2000
----------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 5,088 $ 56,829
Accounts receivable,
net of allowance for doubtful accounts of $15,000 at
October 31, 2000 and $25,000 at January 31, 2000 1,750,062 1,589,322
Advances to Officers & Employees 3,200 4,100
Inventories 2,105,338 1,741,088
Deferred tax benefit 41,547 45,347
Prepaid expenses and other current assets 91,762 107,464
----------- -----------
TOTAL CURRENT ASSETS $ 3,996,997 $ 3,544,150
----------- -----------
PROPERTY & EQUIPMENT
Leasehold improvements
62,834 59,229
Machinery and equipment 3,616,636 3,583,124
Tooling and dies 376,307 350,932
----------- -----------
4,055,777 3,993,285
Less accumulated depreciation
and amortization 3,300,206 3,145,251
----------- -----------
NET PROPERTY AND EQUIPMENT $ 755,571 $ 848,034
----------- -----------
DEFERRED TAXES 678,980 678,980
OTHER ASSETS 369,628 392,227
----------- -----------
TOTAL ASSETS $ 5,801,176 $ 5,463,391
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 544,000 $ 500,000
Notes payable, current 60,000 97,200
Accounts payable 748,163 428,554
Accrued expenses 179,288 325,029
----------- -----------
TOTAL CURRENT LIABILITIES 1,531,451 1,350,783
----------- -----------
Long-Term Debt
44,000 92,200
----------- -----------
TOTAL LIABILITIES $ 1,575,451 $ 1,442,983
----------- -----------
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 - 7,399,091 shares at
October 31, 2000 and 8,130,121 at January 31, 2000 433,967 441,277
Additional paid-in capital 5,141,767 5,682,729
Accumulated deficit (1,311,090) (1,516,407)
Less:
Notes Receivable from Stockholders (6,000) (554,272)
Treasury Stock (48,500 Shares) at Cost (32,919) (32,919)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,225,725 4,020,408
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,801,176 $ 5,463,391
=========== ===========
</TABLE>
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,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 1,961,697 $ 1,768,123 $ 6,081,810 $ 5,567,679
Cost of goods sold 1,355,308 1,298,603 4,224,759 4,139,885
----------- ----------- ----------- -----------
Gross profit 606,389 469,520 1,857,051 1,427,794
Selling, general
and administrative expense 519,800 541,304 1,551,917 1,632,026
----------- ----------- ----------- -----------
Operating income 86,589 (71,784) 305,134 (204,232)
Interest expense (16,487) (5,635) (47,234) (13,854)
Other income 36 8,811 665 27,134
Goodwill/Non-Compete (13,116) (14,513) (39,348) (36,539)
Non-Recurring Legal Expenses (223,880) (356,314)
Gain/(Loss) from Sale of P & E (106,067)
--------------------------------------------------------
Income from continuing
operations before taxes 57,022 (307,001) 219,217 (689,872)
Provision for income taxes 10,600 13,900 1,896
--------------------------------------------------------
NET INCOME $ 46,422 $ (307,001) $ 205,317 $ (691,768)
=========== =========== =========== ===========
Net income (loss) per common share
Basic earnings per share $ 0.01 (0.04) 0.03 (0.09)
=========== =========== =========== ===========
Diluted earnings per share $ 0.01 (0.04) 0.03 (0.09)
=========== =========== =========== ===========
Weighted average number of shares
Basic 7,399,091 8,123,721 7,561,526 8,113,322
=========== =========== =========== ===========
Diluted 7,483,757 8,123,721 7,646,789 8,113,322
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the Consolidated Statements.
2
<PAGE>
PUROFLOW INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 31, 2000 1999
--------- ---------
<S> <C> <C>
CASH AT BEGINNING OF PERIOD $ 56,829 $ 828,809
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 205,317 (691,768)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 154,955 181,901
Amortization of Goodwill/Non-compete 39,348 6,539
Provision for losses on accounts receivable 22,617 3,000
Write-off of obsolete equipment -0- 106,067
Changes in operating assets and liabilities:
Advances to Officers & Employees 900 2,907
Accounts receivable (183,357) 220,915
Other receivables -0- 375,763
Inventories (364,249) (364,131)
Prepaid expenses and other current assets (1,048) 63,104
Deferred tax benefit 3,800 (3,600)
Other payable (445,650)
Accounts payable & accrued expenses 173,868 (421,933)
--------- ---------
Net cash provided (used) by operating activities 52,151 (966,886)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (62,492) (110,990)
--------- ---------
Net cash provided (used) by investing activities (62,492) (110,990)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options 14,100
Payment of long term debt (85,400) (36,223)
Advance on credit line 44,000 280,000
--------- ---------
Net cash provided (used) by financing activities (41,400) 257,877
--------- ---------
NET INCREASE (DECREASE) IN CASH (51,741) (819,999)
--------- ---------
CASH AT END OF PERIOD $ 5,088 $ 8,810
========= =========
SUPPLEMENTARY DISCLOSURE OF CASH PAID
DURING THE PERIOD FOR:
Interest $ 47,234 $ 13,854
========= =========
Income Taxes $ 4,800 $ 1,200
========= =========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
3
<PAGE>
PUROFLOW INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
FROM
COMMON ADDITIONAL ACCUMULATED STOCKHOLDERS
STOCK PAID-IN DEFICIT AND TREASURY
PAR VALUE CAPITAL TOTAL STOCK TOTAL
----------- ----------- ----------- ----------- -----------
<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 sock options for 8,800 shares
at $.25 per share $ 88 $ 2,112 $ 2,200
Net Loss $ (848,377) $ (848,377)
----------- ----------- ----------- ----------- -----------
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
----------- ----------- ----------- ----------- -----------
Balance at April 30, 2000 $ 433,967 $ 5,141,767 $(1,361,737) $ (38,919) $ 4,175,078
Net Income $ 4,225 $ 4,225
----------- ----------- ----------- ----------- -----------
Balance at July 31, 2000 $ 433,967 $ 5,141,767 $(1,357,512) $ (38,919) $ 4,179,303
Net Income $ 46,422 $ 46,422
----------- ----------- ----------- ----------- -----------
Balance at October 31, 2000 $ 433,967 $ 5,141,767 $(1,311,090) $ (38,919) $ 4,225,725
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
4
<PAGE>
PUROFLOW INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 2000, JANUARY 31, 2000, AND OCTOBER 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>
OCTOBER 31, JANUARY 31,
2000 2000
----------- -----------
<S> <C> <C>
Raw materials and purchased parts $ 1,359,846 $ 1,038,359
Work in process 346,511 267,968
Finished goods and assemblies 398,981 434,761
----------- -----------
Totals $ 2,105,338 $ 1,741,088
=========== ===========
</TABLE>
NOTE 3 - STOCKHOLDERS' EQUITY
On February 17, 2000 the Board entered into 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.
5
<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>
9 MONTHS ENDED OCTOBER 31, 2000
Basic earnings per share $ 205,317 7,561,526 $ .03
======
EFFECT OF DILUTIVE SECURITIES
Stock options 85,263
---------
Diluted earnings per share $ 205,317 7,646,789 $ .03
========= ========= ======
9 MONTHS ENDED OCTOBER 31, 1999
Basic earnings per share $(691,768) 8,113,322 $ (.09)
======
EFFECT OF DILUTED SECURITIES
Stock Options -0-
--------- ---------
Diluted earnings per share $(691,768) 8,113,322 $ (.09)
========= ========= ======
</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 $544,000
as of October 31, 2000.
6
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, the Company had cash available of $5,088, compared to
$56,829 on January 31, 2000. It had a current ratio of 2.61 to 1 at October 31,
2000, compared to 2.62 to 1 on January 31, 2000. The company has a $1,000,000
line of credit, with $456,000 available financing at October 31, to fund
operations.
OPERATING ACTIVITIES
Cash Flow from Operations for the nine months ended October 31, 2000 increased
by $52,151 compared to a decrease of ($966,886) for the nine months ended
October 31, 1999.
INVESTING ACTIVITIES
The Company invested $62,492 in new capital equipment in the first three
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 $544,000 is outstanding at October 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 October 31,
2000 the balance of this note is $104,000.
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 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 9 MONTHS @ 9 MONTHS @
NET SALES OCTOBER 31, 2000 OCTOBER 31, 1999
----------------------------------------------
<S> <C> <C>
Filtration $5,311,451 $4,763,107
International 449,998 264,164
Testing & Repairs 320,361 540,408
---------- ----------
Total $6,081,810 $5,567,679
========== ==========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
OPERATING INCOME 9 MONTHS END 9 MONTHS END
OCTOBER 31, 2000 OCTOBER 31, 1999
----------------------------------------------
<S> <C> <C>
Filtration $ 507,575 $ (339,568)
International (146,798) (16,085)
Testing & Repairs (55,643) 151,421
---------- ----------
Total $ 305,134 $ (204,232)
========== ==========
</TABLE>
RESULTS OF OPERATIONS FOR QUARTER ENDED OCTOBER 31, 2000
REVENUES
Sales were $1,961,697 for the three months ended October 31, 2000 compared to
$1,768,123 for the same period in 1999. a 10.9% increase of $193,574 due
primarily to an increased sales of aerospace products and international sales
with an offset by a decrease in airbag sales and QCCC.
GROSS PROFIT
Gross profit as a percentage of sales was 30.9% for the three months ended
October 31, 2000, compared to 26.5% 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 26.5% for the three months ended October 31, 2000 compared
to 30.6% for the same period last year. The reduction 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 October 31, 2000 was $86,589, an
operating margin of 4.4% compared to a loss of $71,784, an operating margin of
negative 4.1%. See the explanation under S,G & A and Gross Profit above.
INTEREST CHARGES
Interest expenses for the three months ended October 31, 2000 was $16,487
compared to $5,635 for the same period in 1999.
8
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDING OCTOBER 31, 2000
REVENUE
Sales were $6,081,810 for the nine months ended October 31, 2000 compared to
$5,567,679 in 1999, a 9.2% increase of $514,131.
GROSS PROFIT
Gross profit as a percentage of sales was 30.5% in October 2000, compared to
25.6% in October 1999, an increase of 4.9% 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 25.5% for the nine months ended October 31, 2000 compared
to 29.3% for the same period last year.
OPERATING INCOME
Operating Income for the nine months ended October 31, 2000 was $305,134, an
operating margin of 5% compared to a loss of $204,232, an operating margin of
negative 3.7%.
INTEREST CHARGES
Interest expense for the nine months ended October 31, 2000 was $47,234 compared
to $13,854 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 incident 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.
9
<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
December 11, 2000 By: /s/ Michael H. Figoff
-----------------------------------------
Michael H. Figoff
President/Chief Executive Officer
10
