FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1997
Commission file number: 333-16247
PURO WATER GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 1-325396-8
- ------------------------------- ------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
56-45 58th Street, Maspeth, New York 11378
------------------------------------------
(Address of principal executive offices)
(718) 326-7000
(Issuer's telephone number)
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
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes |X| 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:
3,476,789 as of May 15, 1997
- -------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PURO WATER GROUP, INC.
BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 736,890
Accounts receivable, less allowance for doubtful accounts
of 201,205 2,911,683
Inventory 550,243
Current Tax Asset 0
Prepaid expenses 312,226
-----------
Total current assets 4,511,042
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of 1,103,602 5,846,160
INTANGIBLE ASSETS, net of accumulated amortization of 826,043 7,670,463
OTHER ASSETS 121,396
-----------
TOTAL ASSETS 18,149,061
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 624,007
Accrued expenses and other current liabilities 165,625
Accrued Registration Costs 197,872
Current Income Taxes Payable 32,782
Deferred income 239,644
Short-term borrowings 50,000
Current portion of long-term debt 1,093,746
Current portion of capital lease obligations 210,410
-----------
Total current liabilities 2,614,086
LONG-TERM LIABILITIES:
Long-term debt 3,654,245
Capital lease obligations 155,718
Deferred tax liability 765,000
Other liabilities 111,273
-----------
Total long-term liabilities 4,686,236
STOCKHOLDERS' EQUITY:
Common stock, $.0063 par value; 10,000,000 shares authorized;
3,476,789 shares issued and outstanding 21,904
Additional paid-in capital 9,427,880
Retained earnings 1,398,955
-----------
Total stockholders' equity 10,848,739
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 18,149,061
===========
<PAGE>
PURO WATER GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
March 31, 1997 March 31, 1996
-------------- --------------
REVENUE:
Bottled water sales and other revenues $2,299,250 $1,813,475
Rental revenue 524,249 484,818
---------- ----------
2,823,498 2,298,293
COST OF GOODS SOLD:
Cost of goods sold (excluding depreciation) 992,863 646,789
Depreciation 148,080 109,354
---------- ----------
GROSS PROFIT 1,682,555 1,542,150
OPERATING EXPENSES:
Operating expense (excluding depreciation
and amortization) 673,361 567,834
General and administrative expenses 541,227 717,582
Depreciation and amortization 130,774 97,545
---------- ----------
Total operating expenses 1,345,362 1,382,961
---------- ----------
INCOME FROM OPERATIONS 337,193 159,189
OTHER INCOME/(EXPENSE):
Other Income (Expense) 9,997 (7,590)
Interest expense (147,626) (139,708)
---------- ----------
(137,629) (147,298)
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 199,564 11,891
PROVISION FOR INCOME TAXES 87,500 4,281
---------- ----------
NET INCOME $ 112,064 $ 7,610
---------- ----------
PER SHARE INFORMATION:
Earnings per share $ 0.04 $ 0.00
========== ==========
Weighted average common shares outstanding 3,032,679 2,237,679
========== ==========
<PAGE>
PURO WATER GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTH- PERIOD ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock
--------------------
Number of Additional Retained
Shares Par Value Paid-in Capital Earnings Total
------ --------- --------------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 1,971,361 12,420 2,842,694 659,728 3,514,842
Issuance of Common Stock 98,568 621 499,379 -- 500,000
Exercise of Stock Warrants 56,860 358 642 -- 1,000
Net income -- -- -- 627,163 627,103
--------- ------ --------- ---------- ----------
BALANCE, December 31, 1996 2,126,789 13,399 3,342,715 1,286,891 4,643,005
========= ====== ========= ========== ==========
Issuance of Common Stock 1,350,000 8,505 6,085,165 -- 6,093,670
Net Income -- -- -- 112,064 112,064
--------- ------ --------- ---------- ----------
BALANCE, March 31, 1997
(unaudited) 3,476,789 21,904 9,427,880 1,398,955 10,848,739
========= ====== ========= ========== ==========
</TABLE>
<PAGE>
PURO WATER GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
3/31/97 3/31/96
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 112,064 $ 7,610
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 278,854 206,899
Provision for allowance for doubtful accounts -0- (26,422)
Changes In Assets And Liabilities-
Increase in accounts receivable (383,768) (420,645)
Increase in inventory -0- (93,632)
Increase in prepaid expenses and other assets (108,198) (267,599)
Increase (Decrease) in accounts payable, accrued
expenses and other liabilities (297,980) 476,221
Increase in deferred income 3,460 118,573
----------- -----------
Net cash (used) provided by operating
activities (395,568) 1,005
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (227,788) (1,593,854)
Net assets acquired -0- (4,200,627)
----------- -----------
Net cash used in investing activities (227,788) (5,794,481)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings -0- 2,000,000
Repayment of capital lease obligations (52,602) (51,771)
Repayment of short-term debt (2,050,000) -0-
Repayment long-term debt (3,318,025) (2,153,866)
Proceeds from issuance of common stock $ 6,563,913 $ 820,000
----------- -----------
Net cash provided by financing
activities 1,143,286 5,314,363
----------- -----------
NET (DECREASE) IN CASH 519,930 (479,113)
CASH, beginning of period 216,960 689,332
===========
CASH, end of period $ 736,890 $ 210,219
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 186,861 $ 107,955
----------- -----------
Income taxes $ 234,140 $ --
----------- -----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred $ -0- $ 41,250
----------- -----------
Deferred offering costs not yet paid $ 197,872 $ -0-
----------- -----------
<PAGE>
Puro Water Group, Inc.
Notes to the Financial Statements
(Unaudited)
1. Reference should be made to the Company's financial statements for the
year ended December 31, 1996 for a description of the accounting policies
which have been continued without change. Also, reference should be made
to the notes to the Company's December 31, 1996 financial statements for
additional details of the Company's financial condition, results of
operations and cash flows. All adjustments (of a normal and recurring
nature) which are, in the opinion of management, necessary to a fair
presentation of the results of the interim period have been included.
2. The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share". This Statement
establishes standards for computing and presenting earnings per share
("EPS") and applies to all entities with publicly held common stock or
potential common stock. This statement replaces the presentation of
primary EPS and fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS ecxludes dilution and is computed by
dividing earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period. Similar to fully
diluted EPS, diluted EPS reflects the potential dilution of securities
that could share in the earnings. Thhis Statement is not expected to have
a material effect on the Company's reported EPS amounts. This Statement is
effective for the Company's financial statements for the year ended
December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section and other parts of this Quarterly Report on Form 10-QSB
contain forward-looking statements that involve risks and uncertainties. The
issuer's actual results may differ significantly from the results discussed in
the forward-looking statements. The following discussion and analysis should be
read in conjunction with the Company's financial statements and the notes
thereto included elsewhere in this Report.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) should be read in conjunction with the MD&A
contained in the Puro Water Group's (the "Company") 1996 Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996.
Results of Operations
The Company derives its revenues from two major sources: bottled water
sales and the rental and service of water coolers, filtration systems and
plumbed-in fountains. While most other bottled water companies sell only
pre-packaged bottled water, the Company also rents water treatment equipment
which processes and dispenses drinking water at the point of use which enables
the consumer to enjoy quality drinking water with reduced contaminants.
Additionally, in contrast to most other water treatment dealers and
distributors that have historically sold their water treatment equipment
outright, the Company creates long-term relationships with its own customers by
renting or placing the equipment under lease/service agreements. These
agreements result in revenue streams which provide the Company with a base of
recurring revenue.
The Year Ended December 31, 1995, Year Ended December 31, 1996, Quarter Ended
March 31, 1996 and Quarter ended March 31, 1997
Revenues.
Revenues for the year ended December 31, 1996 increased by 93% to $10.6
million from $5.5 million for the year ended December 31, 1995. This increase in
revenues reflects the acquisition of Electrified's operations in East Orange,
New Jersey for eleven of the twelve months ended December 31, 1996 and the
acquisition of the five-gallon routes from Mountainwood for the six months
beginning July 1, 1996 through December 31, 1996. Moreover, this increase
occurred notwithstanding an abnormally harsh winter in 1996 evidenced by a
record snow fall and unusually cold spring and summer seasons during the same
year. This factor is even more significant when considering the significantly
higher than normal temperatures experienced in the summer of 1995.
Revenues for the quarter ended March 31, 1997 increased by 27% to $2.8
million from $2.3 million for the quarter ended March 31, 1996. This increase in
revenues reflects an abnormally harsh winter in 1996 compared to 1997, the
addition of Mountainwood sales effective July 1, 1996, Electrified's sales
effective February 1, 1996, and additional one gallon case goods sales in early
1997. The quarters ending March 31 have historically been periods of seasonally
lower sales volume for the Company due to cooler weather and less efficient
deliveries.
Cost of Goods Sold.
Cost of goods sold (excluding depreciation) for the year ended December
31, 1996 increased to $3.5 million from $1.6 million, or 118% over that incurred
in 1995. This increase results principally from increases in volume relating to
the acquisitions referred to previously. Cost of goods sold (excluding
depreciation) as a percentage of revenues for the year ended December 31, 1996
increased to 33% from 29% for the same period in 1995. The increase reflects
entry into the case goods product market which is traditionally a more costly
product due to packaging.
Cost of goods sold (excluding depreciation) for the quarter ended March
31, 1997 increased by 53.5% to $1.0 million from $0.6 million for the quarter
ended March 31, 1996. This increase results principally from the increase in
total water revenues. Cost of goods sold (excluding depreciation) as a
percentage of revenues for the quarter ended March 31, 1997 increased to 35.2%
from 28.1% for the same period in 1996. This reflects an increase in the amount
of water sales of one gallon case goods from the Company's American Eagle
bottling facility.
<PAGE>
Operating Expenses.
Operating expenses (excluding depreciation and amortization) increased
by 46% to $1.9 million for the year ended December 31, 1996 from $1.3 million
for the year ended December 31, 1995. The increase reflects the acquisition of
Electrified's operations for eleven of the twelve months ended December 31,
1996, and the acquisition of Mountainwood's delivery routes for the six months
from July 1, 1996 through December 31, 1996. However, operating expenses
(excluding depreciation and amortization) decreased as a percentage of revenues
to 18% for the year ended December 31, 1996 compared to 24% from the year ended
December 31, 1995. This decrease was also due primarily to the efficiencies
achieved in the Company's bottling operations, route delivery and servicing
system. It was also reflective of entry into the case goods product market,
delivery costs of which are less intensive than the five gallon market.
Operating expenses (excluding depreciation and amortization) for the
quarter ended March 31, 1997 increased by 18.6% to $0.7 million from $0.6
million for the quarter ended March 31, 1996. This increase reflects the
increase in total revenues. Operating expenses (excluding depreciation and
amortization) decreased as a percentage of revenues to 23.8% for the quarter
ended March 31, 1997 from 24.7% for the same period in 1996. This decrease
reflects a slightly higher mix of gallon case goods sales for the quarter ended
March 31, 1997.
General and Administrative Expenses.
General and administrative expenses increased by 69% to $2.2 million in
the year ended December 31, 1996 from $1.3 million for the same period in 1995
due to the acquisitions referred to above. However, such expenses decreased as a
percentage of revenues to 20% for the year ended December 31, 1996 from 24% for
the same period in 1995. This decrease in general and administrative expenses
reflects efficiencies gained from the Electrified and Mountainwood transactions
with respect to office and clerical staffing.
General and administrative expenses for the quarter ended March 31, 1997
decreased by 24.6% to $0.5 million from $0.7 million for the quarter ended March
31, 1996. General and administrative expenses decreased as a percentage of
revenues to 19.2% for the quarter ended March 31, 1997 from 31.2% for the same
period in 1996. This decrease reflects a portion of the bottling plant
relocation charges incurred in 1996 and efficiencies gained from the Electrified
and Mountainwood transactions with respect to office and clerical staffing.
Total Depreciation and Amortization.
Total depreciation and amortization for the year ended December 31, 1996
increased by 100% to $1.0 million from $0.5 million for the same period in 1995.
Total depreciation and amortization increased as a percentage of revenues to 9%
for the year ended December 31, 1996 from 8% for the same period in 1995. This
increase resulted primarily from the Electrified acquisition, which included a
modern high-capacity bottling facility and the opening of a new bottling
facility in Commack, Long Island, New York.
Total depreciation and amortization for the quarter ended March 31, 1997
increased by 34.8% to $0.3 million from $0.2 million for the quarter ended March
31, 1996. Total depreciation and amortization rose as a percentage of revenues
to 9.9% for the quarter ended March 31, 1997 from 9.0% for the same period in
1996. This increase results primarily from the Electrified acquisition and the
opening of a new bottling facility in Commack, Long Island, New York.
Income from Operations. Increases in income from operations for all
periods discussed above relate to increases in sales, the consolidation of
production facilities and an improvement in route densities and scheduling.
Interest Expense.
For the year ended December 31, 1996, interest expense increased by 167%
to $0.8 million for the same period in 1995. Interest expense increased as a
percentage of revenues to 7% for the year ended December 31, 1996 from 6% for
the same period in 1995. This increase was due to additional borrowings in
connection with the acquisitions discussed previously. Approximately $5.3
million of the $10.0 million total debt outstanding at December 31, 1996 was
repaid with proceeds from the Company's initial public offering as further
discussed below.
Interest expense for the quarter ended March 31, 1997 increased by 5.7%
to $0.15 million from $0.14 million for the quarter ended March 31, 1996. This
increase reflects interest charges on the Electrified acquisition effective
February 1, 1996 and the Mountainwood acquisition effective July 1, 1996.
Interest expense decreased as a percentage of revenues to 5.2% for the quarter
ended March 31, 1997 from 6.1% for the same period in 1996. This reflects the
use of proceeds from the Company's Initial Public Offering available in late
February 1997 to reduce $5.2 million of indebtedness incurred in connection with
the Company's acquisitions.
Plant Relocation Charges. During the year ended December 31, 1996, the
Company relocated all bottled water production from its plants in Maspeth, New
York, and Port Jefferson, New York, to the Electrified facility in East Orange,
New Jersey, and the newly opened bottling plant in Commack, Long Island, New
York. The Maspeth and Port Jefferson bottling plants were subsequently closed.
Non-recurring plant relocation charges of $0.3 million or 2% of revenues for the
period ended December 31, 1996 were incurred.
<PAGE>
Provision for Income Taxes. The effective income tax rate was 42% for the
year ended December 31, 1996 and 36% for the year ended December 31, 1995. The
increase in the effective rate in 1996 is primarily attributable to
non-recurring write-offs of certain accounts receivable for income tax purposes
in 1995.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources have been
cash flow from operations, proceeds from the sale of equity securities to the
Company's current stockholders, purchase money financing for business
acquisitions and borrowings under the Company's bank agreement described below.
In February 1997, the Company completed an initial public offering of
1,350,000 shares of common stock raising net proceeds of $6.1 million. The
Company used substantially all of the proceeds to retire $5.4 million of debt
related primarily to the acquisitions referred to below. As a result of the
offering, the Company is now able to borrow an additional $1.5 million under its
bank agreement.
During the quarter ended March 31, 1997, net cash used by operating
activities was $0.4 million. Additionally the Company used $0.2 million of cash
to purchase capital equipment.
During 1996 and 1995, net cash provided by operating activities was $0.7
million and $0.4 million, respectively. During 1996, the Company made capital
expenditures in the amount of $2.8 million. In addition, the Company acquired
the net assets of two of its competitors whose aggregate purchase price was $5.5
million. The equipment purchases and the acquisitions were funded by operations
as well as seller financing. In 1995, the Company made capital expenditures for
coolers, other equipment and routes aggregating $2.8 million, which was funded
by cash from operations, private equity placement, purchase money financing of
business acquisitions and borrowings under the Company's bank agreement.
At December 31, 1996, cash totaled $0.2 million and no additional
borrowing was available under the Company's bank agreement. As of December 31,
1995, cash totaled $0.7 million, and approximately $1.0 million of additional
borrowings were available under the Company's bank agreement.
The Company's bank agreement provides for aggregate long-term borrowings
of up to $3.0 million, approximately all of which was currently outstanding as
of December 31, 1996, maturing between May 31, 1997 and December 31, 2001,
bearing interest at prime plus .25%-.50% per annum, secured by substantially all
of the assets of the Company and guaranteed by certain stockholders of the
Company. The Company has also borrowed $0.5 million from the same lender under
another agreement. These borrowings are also secured by certain stockholders of
the Company and were used for the acquisitions referred to above. In addition,
the bank agreement contains covenants that include requirements to maintain
certain working capital, debt coverage and other financial ratios and
restrictions and limitations on the payment of dividends, guaranty payments,
additional borrowings and the amount of compensation paid to employees who are
stockholders.
The Company's continued success is dependent upon the maintenance of its
delivery truck fleet and bottling equipment and its access to water sources.
These activities are currently funded through operations and bank financing. The
Company believes that it has sufficient sources of funding to achieve its
business objectives in the future.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company's Common Stock began trading upon the effectiveness of the
Company's Registration Statement on Form SB-2 on February 7, 1997. The Company's
Common Stock is traded on the American Stock Exchange under the Symbol HHO.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during this quarter.
<PAGE>
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.
Signature Title Date
- ------------------- ------------------------- ------------
/s/ Jack C. West President and Director May 15, 1997
- -------------------
Jack C. West
/s/ Scott Levy Chief Executive Officer and May 15, 1997
- ------------------- Director
Scott Levy
/s/ James G. Botti Chief Financial Officer May 15, 1997
- -------------------
James G. Botti
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 736,890
<SECURITIES> 0
<RECEIVABLES> 2,911,683
<ALLOWANCES> 201,205
<INVENTORY> 550,243
<CURRENT-ASSETS> 4,511,042
<PP&E> 5,846,160
<DEPRECIATION> 1,103,602
<TOTAL-ASSETS> 18,149,061
<CURRENT-LIABILITIES> 2,614,086
<BONDS> 0
0
0
<COMMON> 21,904
<OTHER-SE> 10,826,835
<TOTAL-LIABILITY-AND-EQUITY> 18,149,061
<SALES> 2,823,498
<TOTAL-REVENUES> 2,823,498
<CGS> 1,140,943
<TOTAL-COSTS> 1,140,943
<OTHER-EXPENSES> 1,335,365
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,626
<INCOME-PRETAX> 199,564
<INCOME-TAX> 87,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,064
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
