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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission File Number 0-29192
T/F PURIFINER, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 14-1708544
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3020 High Ridge Road, Suite 100,
Boynton Beach, Florida 33426
(Address of principal executive offices) (Zip Code)
(561) 547-9499
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
____________________
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares
outstanding of each of the issuer's classes of common equity, as of the
latest practicable date: August 5, 1997: 5,200,379.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
T/F Purifiner, Inc.
Condensed Balance Sheet
June 30, 1997
(Unaudited)
Assets
CURRENT ASSETS:
Cash and cash equivalents $ 2,048,413
Trade accounts receivable, net 176,189
Inventories 602,210
Prepaid expenses and other current assets, net 94,153
-----------
Total current assets 2,920,965
Property and equipment, net 334,936
Patents and trademarks, net 189,138
Costs in excess of net assets acquired, net 128,078
Other assets 44,246
-----------
$ 3,617,363
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 178,936
Accrued expenses 263,057
Customer deposits and other 150,637
Current portion of notes payable and capital lease obligations 39,583
Note payable to shareholder, net of discount of $112,667 1,887,333
Note payable to former shareholder 99,144
-----------
Total current liabilities 2,618,690
Note payable to former shareholder 303,297
Note payable and capital lease obligations 55,516
Deferred rent 8,890
Liability to equity investee 3,000
-----------
Total liabilities 2,989,393
Contingencies
Stockholders' Equity:
Common Stock, $.001 par value 5,146
Preferred Stock, $.001 par value --
Additional paid-in-capital 6,664,392
Unearned compensation (115,845)
Loans receivable (75,131)
Accumulated deficit (5,850,592)
-----------
627,970
-----------
$ 3,617,363
===========
See accompanying notes to condensed financial statements.
2
<PAGE>
T/F Purifiner, Inc.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30
--------------------------- ------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 412,670 $ 432,288 $ 841,297 $ 848,189
Cost of sales 225,531 236,222 493,869 508,551
----------- ----------- ----------- -----------
Gross profit 187,139 196,066 347,428 339,638
Operating expenses:
Selling 204,832 629,579 352,210 1,204,196
General and administrative 195,473 356,301 325,394 614,682
Deferred profit 7,490 (2,975) 19,440 (6,463)
----------- ----------- ----------- -----------
407,795 982,905 697,044 1,812,415
----------- ----------- ----------- -----------
Operating loss (220,656) (786,839) (349,616) (1,472,777)
Other income (expense):
Interest expense (8,528) (13,337) (17,399) (15,975)
Interest income -- 12,814 -- 29,060
----------- ----------- ----------- -----------
Net loss $ (229,184) $ (787,362) $ (367,015) $(1,459,692)
=========== =========== =========== ===========
Loss per common share $ (.08) $ (.15) $ (.13) $ (.28)
=========== =========== =========== ===========
Weighted average common
shares outstanding 3,033,775 5,145,879 2,913,388 5,139,442
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
T/F Purifiner, Inc.
Condensed Statements of Changes
in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-In- Unearned Loans Accumulated Stockholders'
Shares Amount Capital Compensation Receivable Deficit Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 5,097,080 $ 5,097 $ 6,323,505 $(123,114) $ -- $(4,390,900) $ 1,814,588
Cancellation of common stock (8,676) (9) (22,491) -- -- -- (22,500)
Exercise of stock options, net 57,475 58 119,529 -- (75,131) -- 44,456
Issuance of compensatory
stock options and warrants -- -- 123,849 (123,849) -- -- --
Amortization of unearned
compensation -- -- -- 131,118 -- -- 131,118
Issuance of Stock Purchase
Warrant -- -- 120,000 -- -- -- 120,000
Net loss -- -- -- -- -- (1,459,692) (1,459,692)
-------------------------------------------------------------------------------------------
Balance at June 30, 1997 5,145,879 $ 5,146 $ 6,664,392 $(115,845) $(75,131) $(5,850,592) $ 627,970
========== ======= =========== ========= ======== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
T/F Purifiner, Inc.
Condensed Statements of Cash Flows
Six Months ended June 30, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
--------- -----------
<S> <C> <C>
Operating activities $(367,015) $(1,459,692)
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 6,117 20,283
Issuances of compensatory options and warrants -- 131,118
Cancellation of common stock -- (10,000)
Depreciation and amortization of property and equipment 15,120 35,037
Changes in operating assets and liabilities:
Trade accounts receivable, net (37,160) (49,383)
Inventories (47,094) (161,971)
Prepaid expenses and other current assets (24,916) (40,141)
Other assets (19,153) (1,588)
Accounts payable - trade (30,621) (135,298)
Accrued expenses 192,244 185,980
Customer deposits and other 85,475 (104,988)
Accrued interest and other payables - related parties (41,570) --
Deferred rent (990) (4,500)
--------- -----------
Net cash used in operating activities (269,563) (1,595,143)
Investing activities
Patents and trademarks (118,807) (42,368)
Purchases of property and equipment (32,880) (148,656)
Acquisition of DB Filters (1,275) --
Decrease in other assets -- 11,100
Decrease in note receivable from shareholder/officer -- 200,000
Increase in note receivable from shareholder/officer -- (200,000)
--------- -----------
Net cash used in investing activities (152,962) (179,924)
Financing activities
Increase in deferred issuance and financing costs (63,952) (65,857)
Proceeds from issuances of Common Stock and
exercise of stock options, net 574,689 1,073,550
Collection of subscription receivables 7,000 --
Proceeds from notes payable 25,000 20,200
Payment on notes payable and capital lease obligations (32,878) (13,437)
Proceeds from shareholder loans 9,000 2,000,000
Payment on shareholder loans (44,213) --
Payment on former shareholder loans -- (99,585)
Borrowing from investee -- --
Repayment to investee (33,105) (20,351)
--------- -----------
Net cash provided by financing activities 441,541 2,894,520
--------- -----------
Increase in cash and cash equivalents 19,016 1,119,453
Cash and cash equivalents at beginning of period 31,732 928,960
--------- -----------
Cash and cash equivalents at end of period $ 50,748 $ 2,048,413
========= ===========
</TABLE>
During 1997, the Company entered into capital lease obligations in the amount of
approximately $49,000.
See accompanying notes to condensed financial statements.
5
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION AND COMPANY
The unaudited condensed financial statements as of June 30, 1997 and for the
three and six month periods ended June 30, 1996 and 1997 are unaudited and, in
the opinion of management, include all adjustments (consisting only of normal
and recurring adjustments) necessary for a fair presentation of financial
position and results of operations for these interim periods. Such interim
financial statements have been prepared on the basis of presentation as more
fully described in the Company's annual financial statements and should be read
in conjunction with the Company's audited financial statements which are
included in the Company's Form 10-KSB. The results of operations for the six
month period ended June 30, 1997 are not necessarily indicative of the results
to be expected for the entire year.
The Company has incurred recurring losses from operations since inception, which
has resulted in continuing cash flow difficulties and the continuing need for
additional financing. These factors raise substantial doubt about the Company's
ability to continue as a going concern. In order to continue as a going concern,
the Company must obtain additional financing, which it is endeavoring to do
through the issuance of additional securities.
However, there is no assurance that the Company can complete its proposed
issuances or that it can obtain adequate additional financing from other sources
or that profitable operations can be sustained. The inability to obtain
additional financing when needed, would have a material adverse effect on the
Company, including requiring the Company to curtail or cease its operations. The
financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts that might be necessary as a result of
the above uncertainty.
At June 30, 1997, deferred issuance costs of approximately $28,000, included in
other assets, represent costs incurred by the Company in connection with the
Company's planned issuances of securities. Such costs will be charged directly
against the net proceeds of the related offering if it is successfully completed
or will be expensed if the offering is abandoned. At June 30, 1997 other current
assets includes approximately $36,000 of deferred financing costs, net, which
represent costs associated with obtaining QIP debt financing (Note 5)and are
being amortized to interest expense over six months.
2. INVENTORIES
At June 30, 1997, inventories consist of the following:
Raw materials $443,101
Finished goods 146,214
Supplies 12,895
--------
$602,210
========
6
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
(Unaudited)
3. CONTINGENCIES
During 1995, the Company commenced a patent infringement case against a
competitor which is expected to go to trial in November 1997. The competitor
subsequently asserted certain counterclaims against the Company and certain of
its employees. The ultimate outcome of these counterclaims cannot currently be
determined at this time but the Company believes it has meritorious defenses and
will eventually prevail in these actions.
In April 1996, the Company became a party to an action filed by a former
independent contractor claiming certain commissions and other damages due him
pursuant to an agreement. Pursuant to the agreement, as adjudicated by the
Court, the Company will resolve this case through arbitration and, although the
ultimate outcome of this matter cannot be determined at this time, the Company,
upon advice of counsel, believes it has meritorious defenses and will eventually
prevail in this matter.
In January 1997, a patent holder filed an action against the Company for non
payment of approximately $21,000 of unpaid royalties claimed by him and seeking
a permanent injunction against the Company's manufacturing and selling of the
covered Purifiner products. The Company has filed an answer to this case and is
proceeding to discovery and the case is scheduled to go to trial in October
1997. Although the Company believes it has meritorious defenses against the
monetary amounts alleged by the licensor patent owner, it has agreed to pay the
patent holder such alleged unpaid royalties, which amount relates primarily to
the timing of the royalty payment and legal fees regarding defending certain
patents pending of the licensor. The Company, upon advice of counsel, does not
believe the license holder will be in a position to obtain an injunction against
the Company's manufacturing and selling of the Purifiner products. The Company
believes that the licensor patent holder initiated litigation in order to
extract a favorable settlement.
In late 1996 and subsequently, TF Systems, Inc.'s former law firm claimed that
it was due approximately $313,000 in legal fees related primarily to obtaining
the manufacturing and marketing rights to the Purifiner for TF Systems, Inc.
("TFS") and the Company. TFS was awaiting the judgment of an appellate court
which, if adjudicated in TFS's favor, would have provided TFS with sufficient
funds to pay such legal fees and other possible legal fee claims from other
attorneys aggregating approximately $72,000 at June 30, 1997. On February 26,
1997, the appellate court ruled against TFS and, accordingly, the funds
discussed above are not currently available to TFS to satisfy such claims. T/F
Purifiner, Inc. did not assume these obligations as part of its purchase of TFS
and management believes such amounts are not the responsibility of T/F
Purifiner, Inc. On June 24, 1997, TFS's former law firm filed a complaint
7
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
(Unaudited)
3. CONTINGENCIES (CONTINUED)
against the Company, TFS, Richard C. Ford, individually and an inactive company
controlled by Richard C. Ford demanding payment of approximately $313,000 of
legal fees and costs, plus interest and attorney fees. The ultimate outcome of
this litigation and other claims against the Company cannot be determined at
this time. No liability has been recorded for these claims in the accompanying
balance sheet.
4. JOINT VENTURE
Effective January 1, 1996, the Company entered into a joint venture agreement
whereby such venture, TF Purifiner Ltd. ("Ltd"), will sell and distribute the
Company's product in Europe, the Middle East and certain African countries. The
Company has an approximate 45% interest in Ltd's operations (50% voting
interest) and is accounting for Ltd using the equity method. The Company is not
required to fund Ltd and will sell product to Ltd until such time as Ltd decides
to exercise its rights under the agreement to manufacture the Company's
products. Ltd was initially capitalized with approximately $88,000 provided by
one of its shareholders. Through June 30, 1997, Ltd advanced the Company
approximately $115,000, to be used to fund certain patent and trademark filings
for the venture's exclusive territory. At June 30, 1997, approximately $3,000
remained unexpended. For the three and six months ended June 30, 1997 and 1996,
the Company had sales of approximately $21,000 and $42,000 in 1997,
respectively, and $75,000, and $242,000 in 1996, respectively, to Ltd at
negotiated prices. At June 30, 1997 and 1996, approximately $11,000 and $19,000
has been deferred as unrealized intercompany profit related to the inventory
sold to Ltd which is included in Ltd's inventory at June 30, 1997 and 1996,
respectively.
At June 30, 1997 and 1996 summarized financial information of Ltd is as follows:
1996 1997
---- ----
Total assets $360,000 $514,000
Total liabilities 569,000 1,264,000 (1)
Capital deficiency (209,000) (750,000)
Total revenues 127,000 202,000
Gross profit 46,000 78,000
Net loss (137,000) (253,000)
(1) Includes approximately $1,137,000 of loans due to one of Ltd's foreign
shareholders, collateralized by substantially all the tangible assets of Ltd.
8
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
(Unaudited)
5. NOTE PAYABLE
On June 19, 1997, the Company and members of the Ford Family and Taylor Family
entered into a Securities Purchase Agreement with Quantum Industrial Partners
LDC ("QIP") ("the Agreement"). Pursuant to the Agreement, the Company issued QIP
a $2,000,000 non-interest bearing promissory note due December 19, 1997 and
received gross proceeds of $2,000,000. This note is subject to mandatory
prepayment prior to its due date upon the Company's consummation of a public
offering of either debt or equity securities. As long as this note is
outstanding, the Company cannot, without the consent of QIP, declare or pay any
dividends, purchase, redeem or acquire any of its Common Stock or retire its
existing indebtedness other than required periodic payments.
Additionally, the Company issued a Common Stock Purchase Warrant to QIP for the
purchase of 500,000 shares of the Company's Common Stock, exercisable at $2.75
per share and expiring on December 31, 2000. These warrants have been assigned a
value of $120,000 and, accordingly, such amount has been credited to additional
paid in capital and the $2,000,000 note payable has been recorded net of a
$120,000 discount which is being amortized to interest expense over six months.
The Company has also agreed to register securities of QIP under certain
circumstances.
6. COMMON STOCK
During the six months ended June 30, 1997, 57,475 shares of Common Stock were
issued pursuant to the exercise of options at exercise prices ranging from $2.00
to $6.00 per share. As of June 30, 1997, the Company had received $44,456 in net
cash proceeds and was owed $75,131, substantially all from current or former
employees, related to the cashless exercise of these options.
7. STOCK OPTIONS AND WARRANTS
During the six months ended June 30, 1997, the Company granted 397,500 options
(30,000 of which were subsequently cancelled) to purchase Common Stock to
various employees at exercise prices ranging from $7.50 to $10.00 and 60,000
options (40,000 of which were subsequently cancelled) to consultants at exercise
prices ranging from $9.00 to $9.50 per share. Additionally, during this period,
the Company granted 10,000 warrants to various consultants which are exercisable
at $9.50 per share and expire on January 27, 1999.
9
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
(Unaudited)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
During the six months ended June 30, 1997, the Company expensed approximately
$131,000 related to compensatory stock options and warrants to various
consultants and the Board of Advisors using the Black-Scholes Option Pricing
Model.
8. RELATED PARTY TRANSACTION
In January 1997, as amended, the Company loaned Richard C. Ford, its then
President and principal shareholder, $200,000 bearing interest at 10% per annum
and due in June 1997, secured by 40,000 shares of the Company's Common Stock
owned by Mr. Ford. On June 19, 1997, Mr. Ford repaid the entire principal and
accrued interest on this loan in the amount of $209,078.
9. SUBSEQUENT EVENTS
On July 17, 1997, the Board of Directors authorized an increase in the number of
shares of the Company's Common Stock which may be granted pursuant to the
Company's 1996 Stock Option Plan from 1,625,000 shares to 2.2 million shares.
Subsequent to June 30, 1997, 54,500 stock options were exercised by consultants
at an exercise price of $2 per share for which the Company received $106,000 and
a $3,000 note receivable.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Form 10-KSB.
Other than historical and factual statements, the matters and items discussed in
this Quarterly Report on Form 10-QSB are forward-looking statements that involve
risks and uncertainties. Actual results of the Company may differ materially
from the results discussed in the forward-looking statements. Certain factors
that could contribute to such differences are discussed with the forward-looking
statements throughout this report.
GENERAL
The Company was formed in 1987, and commenced limited operations in 1991 when it
obtained worldwide manufacturing and marketing rights to the Purifiner(R)
products. The growth in the Company is primarily due to the increasing
acceptance of the Company's products by the marketplace. This acceptance is the
result of various factors, including the increased credibility of the product as
a result of its commercial relationship with well-known entities and the growing
desire of users to reduce maintenance costs, extend engine life and preserve the
environment.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items reflected in the Company's statements of
operations.
Percentage of Revenues
----------------------
Six Months
Ended June 30,
1996 1997
---- ----
Net sales 100% 100%
Operating costs and expenses:
Cost of sales (59) (60)
Selling expenses (42) (142)
General and administrative expenses (39) (72)
Other (2) -
------ ------
Total operating costs and expenses (142) (274)
------ ------
Operating loss ( 42)% (174)%
======= ======
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales increased by 1% from $841,297 in 1996 to $848,189 in
1997. This minimal increase was primarily attributable to the effect of the
Company's price reductions implemented in the last quarter of 1996. During 1996,
the Company had approximately $242,000 of sales to Ltd, the Company's joint
venture formed in 1996 compared to approximately $42,000 in 1997. Approximately,
$11,000 of intercompany profit on these sales to Ltd have been deferred at June
30, 1997.
Effective October 15, 1996, the Company implemented a new product pricing
strategy to reduce the Company's selling prices to enable end users to obtain a
significantly improved return on investment. The Company believed this new
strategy would promote the sale of the Company's products and result in
increased long-term revenues from unit and replacement filter sales and also
provide the Company with the ability to reduce its product costs, primarily
through 1) volume purchase discounts, 2) utilization of excess fixed
manufacturing capacity and 3) improved production processes. If the Company does
not realize these cost savings, its gross margin will be adversely effected.
Cost of Sales. Cost of sales increased by 3.2% from $493,869 in 1996 to
$508,551 in 1997. The Company's gross margin decreased from 41.3% to 40.0%,
substantially all due to the significant price reductions implemented in 1996
and cost increases to the product incurred primarily for improvements offset by
the reduction of sales made to Ltd. at substantially lower sales prices than the
Company's exclusive international distributor pricing. To the extent additional
sales are made by the Company to Ltd., the Company's aggregate gross margin will
be adversely affected.
Selling Expenses. Selling expenses increased by 242% from $352,210 in 1996
to $1,204,196 in 1997. The primary reasons for this increase were the increases
in other selling expenses such as salaries for new personnel, compensatory stock
options and warrants, commissions, office and related expenses, brochures and
catalogs, advertising, product evaluation expenses, travel and trade show
expenses in 1997 versus 1996. As a percentage of revenues, selling expenses
increased from 42% in 1996 to 142% in 1997.
Commencing in late 1996, but primarily in 1997, the Company began
implementing a product evaluation program, whereby it would supply Purifiners,
replacement filters and installation services at no cost to certain potential
customers or to assist its distributors potential customers, to evaluate the
effectiveness of the Purifiner. The costs related to this evaluation program has
been charged to selling expenses and no revenues have been recognized. To the
extent these evaluations are not successful or the Company is unable to
consummate these potential sales, the Company's future revenues will be
adversely effected.
General and Administrative Expenses. General and administrative expenses
increased by 89% from $325,394 in 1996 to $614,682 in 1997 and, as a percent of
revenues, increased from 39% to 72%. This dollar increase was generally due to
12
<PAGE>
the increased level of business activity, specifically including increases in
personnel, consultants, compensatory stock options and warrants, travel, and
professional fees.
Operating Loss. As a result of the foregoing, the Company's operating loss
increased from $349,616 in 1996 to $1,472,777 in 1997.
Interest Expense and Income. Interest expense decreased by 8.2% from
$17,399 for 1996 to $15,975 for 1997. This change resulted from a decrease in
average short and long term borrowings outstanding in 1997 versus the comparable
period for 1996. The Company anticipates its interest expense to increase over
the next six months as a result of its recent financing from QIP. Interest
income increased to 29,060 in 1997 as a result of investing idle cash balances
and interest earned on notes receivable from its former president, which note
was repaid in June 1997.
Net Loss. As a result of the foregoing, the Company's net loss increased
from $367,015 for 1996 to $1,459,692 for 1997.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's capital requirements in connection with its
business activities have been and will continue to be significant. To fund its
activities, the Company has been dependent upon available cash generated from
operations, the proceeds of sales of its securities to investors and
stockholders, and other loans, including its most recent short term borrowing
from QIP. The Company's 1996 auditors report included an explanatory paragraph
which stated that because the Company has sustained recurring operating losses
and negative cash flows from operating activities, these factors raise
substantial doubt about the Company's ability to continue as a going concern.
At June 30, 1997, the Company had working capital of $302,275 and its
current ratio (current assets to current liabilities) was 1.1 to 1, as compared
with working capital of $1,727,933 and a current ratio of 3.1 to 1 at December
31, 1996. At June 30, 1997, the Company had $2,048,413 of cash and cash
equivalents. Outstanding short-term debt from lenders and shareholders was
$2,026,060 at June 30, 1997 and included a former shareholder loan of $99,144
due to the Estate of Willard Taylor, on January 31, 1998 and $1,887,333 net of a
discount of $112,667, due QIP on December 19, 1997. The proceeds from the QIP
loan shall be used solely for general operating expenses and to hire additional
marketing employees for the Company. The balance of long term debt was $358,813
at June 30, 1997, and included a former shareholder loan of $303,297 due to the
Estate of Willard Taylor.
At June 30, 1997, the Company owed approximately $462,000 in current
liabilities to various trade and other unrelated creditors. These creditors
continue to provide services to the Company; however, there can be no assurance
that they will continue to do so in the future while all or a portion of such
amounts remains outstanding. The Company has made certain payments and intends
to use a portion of existing funds and future financings to repay the amounts
due to creditors.
13
<PAGE>
Consistent with industry practices, the Company may accept product returns
or provide other credits in the event that a distributor holds excess inventory
of the Company's products. The Company's sales are made on credit terms which
vary significantly depending on the nature of the sale. In addition, the Company
does not hold collateral to secure payment from its United States and Canadian
distributors. Therefore, a default in payment by one or more of the Company's
United States and Canadian distributors or customers could adversely affect the
Company's business, results of operations and financial condition. The Company
believes it has established sufficient reserves to accurately reflect the amount
or likelihood of product returns or credits and uncollectible receivables.
However, there can be no assurance that actual returns and uncollectible
receivables will not exceed the Company's reserves. Any significant increase in
product returns or uncollected accounts receivable beyond reserves could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company has not experienced material product returns or
uncollectible receivables in the past.
Sales of the Company's products will depend principally on end user demand
for such products. The oil filtration industry has historically been competitive
and, as is typically the case with innovative products, the ultimate level of
demand for the Company's products is subject to a high degree of uncertainty.
Developing market acceptance, particularly worldwide, for the Company's existing
and proposed products will require substantial marketing efforts and the
expenditure of a significant amount of funds to inform customers of the
perceived benefits and cost advantages of its products.
The Company currently is not generating sufficient revenues to fund its
existing and planned expansion of its operations. Accordingly, the Company has
embarked and is implementing plans to raise additional capital. The Company
intends to use such additional financing to increase its marketing and sales
efforts, including the hiring of additional sales and technical personnel and
related costs, implementation of advertising, promotional and marketing
programs, and additional fleet testing programs. Additionally, the Company
intends to continue hiring additional manufacturing, operating, and
administrative personnel and acquire additional capital equipment and leasehold
improvements to meet expected production increases. Prior to the due date of the
Company's $2,000,000 obligation to QIP, the Company plans on completing another
financing which will enable it to repay such loan to QIP and provide sufficient
capital to continue its expansion plans. However, there can be no assurance that
such financing will be successful.
The above is not an all inclusive listing of the Company's planned
expenditures. In the event that the proceeds from future offerings or financings
are not received, the Company will not be able to fully implement its current
plans. The inability to obtain additional financing when needed, would have a
material adverse effect on the Company, including requiring the Company to
curtail or cease its operations.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's operations.
However, any significant decrease in the price for oil or labor, environmental
14
<PAGE>
compliance costs, and engine replacement costs could adversely impact the
Company's end users cost/benefit analysis as to the use of the Company's
products.
QUARTERLY FLUCTUATIONS
The Company's operating results may fluctuate significantly from period to
period as a result of a variety of factors, including product returns,
purchasing patterns of consumers, the length of the Company's sales cycle to key
customers and distributors, the timing of the introduction of new products and
product enhancements by the Company and its competitors, technological factors,
variations in sales by product and distribution channel, and competitive
pricing. Consequently, the Company's product revenues may vary significantly by
quarter and the Company's operating results may experience significant
fluctuations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
Exhibit 27 - Financial Data Schedule (Electronic filing only)
b) Reports on Form 8-K.
On July 21, 1997, the Company filed a report on Form 8-K reporting (1)
its entering into a Securities Purchase Agreement dated as of June 19,
1997 among Quantum Industrial Partners LDC, T/F Purifiner, Inc. and
members of the Ford and Taylor families and (2) the commencement of
certain legal proceedings against the Company.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
T/F PURIFINER, INC.
-------------------
(Registrant)
Date: August 11, 1997 By /s/ Keith T.J. Hart
-------------------------------
Keith T.J. Hart
Chief Executive Officer and
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF T/F PURIFINER, INC. FOR THE SIX MONTHS ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,048,413
<SECURITIES> 0
<RECEIVABLES> 221,189
<ALLOWANCES> 45,000
<INVENTORY> 602,210
<CURRENT-ASSETS> 2,920,965
<PP&E> 498,174
<DEPRECIATION> 163,238
<TOTAL-ASSETS> 3,617,363
<CURRENT-LIABILITIES> 2,618,690
<BONDS> 0
0
0
<COMMON> 5,146
<OTHER-SE> 622,824
<TOTAL-LIABILITY-AND-EQUITY> 3,617,363
<SALES> 848,189
<TOTAL-REVENUES> 848,189
<CGS> 508,551
<TOTAL-COSTS> 508,551
<OTHER-EXPENSES> 1,783,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,975
<INCOME-PRETAX> (1,459,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,459,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,459,692)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
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