<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 29, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________.
Commission File Number: 0-22408
PURUS, INC.
-----------
(Exact name of registrant as specified in its charter)
DELAWARE 77-0234694
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
605 TENNANT AVENUE, SUITE B, MORGAN HILL, CA 95037
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(Address of principal executive offices)(Zip code)
(408) 778-3465
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(Registrant's telephone number, including area code)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding as of March 29, 1997
----- ---------------------------------------
Common Stock 666,192
<PAGE>
PURUS, INC.
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets as of March 29, 1997
and December 29, 1996 . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations for the Three Months
Ended March 29, 1997 and March 30, 1996 . . . . . . . . . . . . 4
Statements of Cash Flows for the Three Months
Ended March 29, 1997 and March 30, 1996 . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .12
Item 4. Submission of Matters to a Vote of Security-Holders . . . . . .12
Item 6. Exhibits and Reports on Form 8K . . . . . . . . . . . . . . . .13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
March 29, 1997 and December 29, 1996
<TABLE>
<CAPTION>
March 29, December 29,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 266,051 $ 494,201
Short-term investments 4,565,409 4,740,963
Other current assets 349,808 99,339
------------ ------------
Total current assets 5,181,268 5,334,503
Property and equipment, net - 652
Other assets 10,746 10,745
------------ ------------
$ 5,192,014 $ 5,345,900
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,332 $ 18,642
Accrued expenses 1,204,777 525,194
Net liabilities of
discontinued operations 200,000 1,062,373
------------ ------------
Total current liabilities 1,445,109 1,606,209
------------ ------------
Shareholders' equity:
Common stock: 5,000,000 shares
authorized; $.01 par value;
666,192 and 666,193 shares issued
and outstanding at March 29, 1997
and December 29, 1996, respectively 6,662 6,662
Additional paid-in capital 45,126,395 45,126,395
Accumulated deficit (41,386,152) (41,393,366)
------------ ------------
Total shareholders' equity 3,746,905 3,739,691
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$ 5,192,014 $ 5,345,900
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
for the three months ended March 29, 1997 and March 30, 1996
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
------------ ----------
<S> <C> <C>
Operating income (expenses) of
continuing operations
General and administrative $(1,039,790) $(126,772)
Interest income 54,724 108,062
------------ ----------
Income (loss) from
continuing operations (985,066) (18,710)
Income (loss) from
discontinued operations 992,280 21,875
------------ ----------
Net income (loss) 7,214 3,165
============ ==========
Net income (loss) from
continuing operations per share (1.48) (0.03)
Net income (loss) from
discontinued operations per share 1.49 0.035
------------ ----------
Net income (loss) per share 0.011 0.005
============ ==========
Weighted average common shares 666,192 651,207
============ ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
for the three months ended March 29, 1997 and March 30, 1996
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ 7,214 $ 3,165
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 651 2,314
Changes in operating assets and liabilities:
Accounts receivable - -
Inventory - -
Other current assets (250,469) 8,513
Other assets - 3,919
Accounts payable 21,690 118,991
Accrued expenses 679,583 (470,215)
Net liabilities -
discontinued operations (862,373) (13,819)
------------ ------------
Net cash used in operating activities (403,704) (347,132)
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments (3,624,446) (2,300,000)
Proceeds from sale/maturity of
short-term investments 3,800,000 2,452,179
Purchases of property and equipment - -
------------ ------------
Net cash provided by (used in)
investing activities 175,554 152,179
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Cash flows from financing activities:
Net proceeds from sale of common stock - 35,000
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Net cash provided by financing activities - 35,000
------------ ------------
Net decrease in cash (228,150) (159,953)
Cash and cash equivalents, beginning of period 494,201 281,922
------------ ------------
Cash and cash equivalents, end of period $ 266,051 $ 121,969
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Financial information for the three months ended March 29, 1997 and
March 30, 1996 is unaudited but has been prepared on the same basis as the
audited financial statements and, in the opinion of management, includes all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly operating results and cash flows for those periods. This
Quarterly Report on Form 10-Q should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report to stockholders for 1996. The results of operations for the period
ended March 29, 1997 are not necessarily indicative of the results to be
expected for any subsequent quarter or for the entire year ending January 3,
1998.
On November 17, 1995, the shareholders approved a one-for-ten reverse
stock split of the Company's common stock. The financial statements for all
periods presented have been restated to retroactively reflect this reverse
stock split as if it had been in effect as of the beginning date of each
statement.
In 1995 the Company converted to a reporting calendar in which quarters
end on the Saturday closest to March 31, June 30, September 30 and
December 31.
2. NET INCOME/(LOSS) PER SHARE
Net income/(loss) per share is computed using the weighted average
number of shares of common stock outstanding.
3. INVENTORIES
In 1995, the Company discontinued its environmental operations and the
carrying value of all inventory was written off.
4. PROPERTY AND EQUIPMENT
As of March 29, 1997, the carrying value of all of the Company's
property and equipment was fully depreciated.
5. ACCRUED EXPENSES
A summary of accrued expenses follows:
<TABLE>
<CAPTION>
March 29, December 29,
1997 1996
----------- ------------
<S> <C> <C>
Payroll related $ - $ -
Legal and professional expenses 1,204,777 461,194
Other - 64,000
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$ 1,024,777 $ 525,194
=========== ============
</TABLE>
6. DISCONTINUED OPERATIONS
During the fourth quarter of 1995, when the Company discontinued its
operations, it provided provisions for the writedown of inventory and fixed
assets, for the costs of employee termination, and for anticipated warranty
expenditures over the remaining life of PADRE(r) installations, and for the
operating losses of the discontinued operations. The net liabilities of the
discontinued operations were approximately $200,000 as of March 29, 1997 and
$1,062,373 as of December 29, 1996 as follows:
<TABLE>
<CAPTION>
March 29, December 29,
1997 1996
--------- ------------
<S> <C> <C>
Accounts receivable $ - $ -
Accrued payroll and related - 32,350
Accrued warranty 200,000 1,012,620
Other - 17,403
--------- ------------
$ 200,000 $ 1,062,373
========= ============
</TABLE>
The decrease in net liabilities of discontinued operations was
primarily due to paying expenses associated with the costs of employee
termination and warranty expenditures for PADRE(r) systems and reducing the
accrual for warranty expenses.
7. COMMITMENTS AND CONTINGENCIES
On or about July, 27, 1995, Aron Parnes, a stockholder of the Company,
filed suit against the Company and five of its current or former employees,
officers, and directors in the United States District Court for the Northern
District of California. The lawsuit alleges violations of the federal
securities laws, and purports to seek damages on behalf of a class of
stockholders who purchased the Company's common stock during the period
November 9, 1993 through March 8, 1995. On April 16, 1996, the Company filed
a motion to dismiss the complaint. On or about March 31, 1997, the Court
issued an order granting the defendants' motion to dismiss the complaint and
granting the plaintiff 45 days leave to amend. If the action is not
dismissed with prejudice, the Company intends to litigate it vigorously. The
Company and other defendants have obtained discovery regarding the propriety
of plaintiff's named class representative through document and interrogatory
requests. The plaintiffs have begun to pursue formal discovery, including
requesting documents from the Company and from third parties.
In July 1995, eight former employees of the AT&T Multi Language Center
filed suit against the Company and AT&T in Santa Clara County Superior
Court. The lawsuit alleges that plaintiffs were exposed to an unspecified
toxic substance while working at the AT&T facility, previously located next
door to the Company's former San Jose, California facility. The Company has
filed an answer denying all liability. The parties have engaged in discovery
through document procedure requests, interrogatories and depositions.
Except for certain provisions for legal and professional expenses, the
financial statements for the period ended March 29, 1997 do not contain any
provisions for these legal proceedings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following information should be read in conjunction with the
unaudited interim financial statements and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-Q and the Company's 1996 Annual
Report on Form 10-K.
Purus, Inc. (the "Company") was founded in 1989 and was engaged
initially in research and product development of environmental technologies.
In 1992, the Company focused its efforts on the development of an adsorptive
based technology for the separation of volatile organic compounds from air
streams and began to manufacture, market and sell products now known as
PADRE(r) air pollution control systems.
Beginning in November 1993, following the Company's initial public
offering, the Company expanded its efforts to commercialize the PADRE(r)
technology. In anticipation of future demand, the Company increased its
engineering, manufacturing, sales and service capabilities and built up an
inventory of raw materials and finished units. However, during this period
corrosion and mechanical design problems became evident among installed
PADRE(r) systems resulting in significant field service and redesign
expenses. A market perception of unreliability developed which adversely
affected sales. In August 1995, after an extensive review of its markets and
technologies, the Company announced that it would pursue the option of
selling some or all of its PADRE(r) technology while taking other actions
intended to minimize further losses and preserve its capital.
On October 20, 1995, the Company licensed its PADRE(r) air pollution
control technology to Thermatrix Inc., a California corporation
("Thermatrix"), and, in connection therewith, entered into a five-year
agreement not to compete with Thermatrix. On April 18, 1996, the Company
consummated the sale of substantially all of its noncash assets, excluding
inventory, to Thermatrix, including all of its right, title, and interest to
and in the PADRE(r) technology (the "Asset Sale"). In consideration for such
assets, the Company received a $300,000 cash payment and the right to
royalties in the amount of seven percent (7%) of the net invoice value of
Thermatrix' PADRE(r) equipment sales until the earlier of (i) October 20,
2000, or (ii) the date on which the Company has received an aggregate of
$2,000,000 in royalty payments. In addition, Thermatrix agreed to offer
warranty services to the Company as an independent contractor on an as-requested
basis through the earlier of (i) January 4, 2001, or (ii) the date
on which both parties agree that all warranty obligations on the part of the
Company have expired, and to take possession of a substantial portion of the
Company's inventory on consignment.
In connection with the Asset Sale, the Company discontinued the
development, manufacture and marketing of air pollution control systems
which, prior to the Asset Sale, represented substantially all of its
operations. However, the Company's obligation to provide service and parts
to approximately fourteen (14) PADRE(r) installations covered under existing
warranty and service agreements was not assumed by Thermatrix.
In light of the discontinuation of its air pollution control operations
and its agreement not to compete with Thermatrix, the Company's current
operating plan is to (i) service PADRE(r) installations covered by existing
warranty agreements not assumed by Thermatrix; (ii) defend against pending
litigation (see "Item 1. Legal Proceedings" below); (iii) handle the
administrative and reporting requirements of a public company; and (iv)
search for potential businesses, products, technologies and companies for
acquisition. At present, the Company has no understandings, commitments or
agreements with respect to the acquisition of any business, product,
technology or company and there can be no assurance that the Company will
identify any such business, product, technology or company suitable for
acquisition in the future. Further, there can be no assurance that the
Company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
On March 21, 1997, following the Company's 1997 Annual Meeting of
Stockholders, Donald D. Winstead was elected Chairman of the Board of
Directors, Chief Executive Officer, Chief Financial Officer and Secretary of
the Company, and Reinhard Siegrist and Hans C. Ochsner were elected chairman
and member, respectively, of the Audit and Compensation Committees of the
Board of Directors. At March 29, 1997, the Company had no full time
employees.
During the quarter ended March 29, 1997, the Company relocated its
corporate headquarters to 605 Tennant Avenue, Suite B, Morgan Hill,
California 95037 where it sub-leases approximately 300 square feet of office
space on a month-to-month basis and the Company terminated its lease of
warehouse space in Alcoa, Tennessee.
Subsequent to the quarter ended March 29, 1997, the Company completed
its obligations to the owner of the last remaining PADRE(r) installation
covered by a warranty agreement. The Company believes that it has no further
obligations under PADRE(r) warranty agreements that were not assumed by
Thermatrix. Also subsequent to the quarter ended March 29, 1997, Thermatrix
and the Company mutually terminated Thermatrix' obligation to provide
warranty services to the Company and Thermatrix returned to the Company the
inventory that it held on consignment. Such returned inventory, which had
been entirely written-off by the Company in 1995, was liquidated.
The discontinuation of the Company's PADRE(r) technology, leaves the
Company without significant continuing operations. As a result, the Company
believes that period-to-period comparisons of its results of operations are
not meaningful and should not be relied upon as indications of future
performance.
The Company has incurred cumulative net losses of approximately $41.4
million from inception to March 29, 1997. The Company does not expect to
report operating profits unless and until such time as a new business, or
technology, is acquired and only then if such acquisition is successful.
There can be no assurance that the Company will achieve profitability.
RESULTS OF CONTINUING OPERATIONS
QUARTERS ENDED MARCH 29, 1997 AND MARCH 30, 1996
The Company had no revenue from continuing operations for the quarters
ended March 29, 1997 and March 30, 1996.
General and administrative expenses from continuing operations for the
quarters ended March 29, 1997 and March 30, 1996 consisted of general
corporate administration, legal and professional expenses, accounting and
auditing costs, public company costs, directors and officers insurance, and
similar items. These expenses were $1,039,790 for the quarter ended
March 29, 1997, and $126,772 for the quarter ended March 30, 1996. General
and administrative expenses in the quarter ended March 29, 1997 is greater
than in the quarter ended March 30, 1996 primarily due to an increase in
accrued legal and professional expenses in connection with pending
litigation against the Company (see "Item 1. Legal Proceedings").
Interest income of $54,724 and $108,062 for the quarters ended March 29,
1997 and March 30, 1996, respectively, resulted from the investment of
the net proceeds of the Company's initial public offering in 1993 into
short-term, liquid cash equivalents. Interest income in the quarter ended
March 29, 1997 is lower than in the quarter ended March 30, 1996 primarily
due to a reduction in the Company's cash and short-term investments used to
fund operating losses and to pay accrued expenses. Interest income will
likely continue to decrease if additional cash or short-term investments are
used to fund operating losses and accrued expenses, or if interest rates
decline.
As a result of the foregoing factors, the Company's net loss from
continuing operations was $985,066 for the quarter ended March 29, 1997 as
compared to a net loss of $18,710 for the quarter ended March 30, 1996.
RESULTS OF DISCONTINUED OPERATIONS
QUARTERS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Revenues from discontinued operations was $129,907 and $21,875 for the
quarters ended March 29, 1997 and March 30, 1996, respectively. Revenues
from discontinued operations consist of royalty payments and inventory
purchases by Thermatrix in connection with the Asset Sale, and revenues from
customer services provided by the Company on PADRE(r) systems not sold to
Thermatrix. The Company expects to have some revenues from royalty payments
and inventory purchases by Thermatrix in the second quarter of fiscal year
1997, and that the amount of such revenues will decline thereafter. The
Company does not expect any future revenues from customer services provided
by the Company and there can be no assurance that the Company will continue
to generate future revenues related to the Asset sale.
During the fourth quarter of fiscal year 1995, when the Company
discontinued its operations, it included provisions for the write-down of
inventory and fixed assets, for the costs of employee termination, for
anticipated warranty expenditures over the remaining life of PADRE(r)
installations and for the operating losses of the discontinued operations.
The net liabilities of the discontinued operations were $200,000 as of
March 29, 1997 and approximately $1,062,373 as of December 29, 1996. The
decrease in net liabilities of discontinued operations was primarily due to
paying expenses associated with the costs of employee termination and
warranty expenditures for PADRE(r) systems and reducing the accrual for
warranty expenses
As a result of the foregoing factors, the Company's net income from
discontinued operations was $992,280 for the quarter ended March 29, 1997 as
compared to $21,875 for the quarter ended March 30, 1996.
NET INCOME/NET LOSS FROM CONTINUING AND DISCONTINUED OPERATIONS
As a result of the foregoing factors, the Company's net income from
both continuing and discontinued operations was $7,214 for the quarter ended
March 29, 1997, as compared to $3,165 for the quarter ended March 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1997, the Company had working capital of approximately
$3,736,159 as compared to $3,728,294 at December 29, 1996. Working capital
as of both dates consisted substantially of short-term investments, cash and
cash equivalents, accrued liabilities, and net liabilities from discontinued
operations. Net cash used in operating activities was approximately $403,704
for the quarter ended March 29, 1997, and $347,132 for the quarter ended
March 30, 1996. Although the Company's most significant assets consist
largely of cash and cash equivalents, the Company has no intent to become,
or hold itself out to be, engaged primarily in the business of investing,
reinvesting, or trading in securities. Accordingly, the Company does not
anticipate being required to register pursuant to the Investment Company Act
of 1940 and expects to be limited in its ability to invest in securities,
other than cash equivalents and government securities, in the aggregate
amount of over 40% of its assets. There can be no assurances that any
investment made by the Company will not result in losses.
Management believes that the Company has sufficient cash and short-term
investments to meet the anticipated needs of the Company's continuing and
discontinued operations through at least the next twelve (12) months.
However, there can be no assurances to that effect, as the Company has no
assurance of significant revenues and is subject to contingent liabilities
which could result in the depletion of its capital, including, without
limitation, any damages awarded and/or costs and expenses incurred by it in
connection with pending litigation against the Company (see "Item 1. Legal
Proceedings"). Judgments or settlements against the Company in connection
with such litigation could exceed the Company's insurance coverage and
require the Company to use its limited capital resources in satisfaction
thereof. In addition, the Company may require outside advisors to assist
management in seeking and evaluating potential acquisitions, in consummating
such transactions and/or in managing the resulting enterprises. In the event
that the Company has not reserved sufficient cash for costs and expenses
relating to pending or threatened litigation or the acquisition of a
particular business, product or technology, the Company may require
additional financing. There can be no assurance that such financing would be
available to the Company on acceptable terms or at all. The Company does not
presently have a line of credit or other bank credit facility.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about July, 27, 1995, Aron Parnes, a stockholder of the Company,
filed suit against the Company and five of its current or former employees,
officers, and directors in the United States District Court for the Northern
District of California. The lawsuit alleges violations of the federal
securities laws, and purports to seek damages on behalf of a class of
stockholders who purchased the Company's common stock during the period
November 9, 1993 through March 8, 1995. On April 16, 1996, the Company filed
a motion to dismiss the complaint. On or about March 31, 1997, the Court
issued an order granting the defendants' motion to dismiss the complaint and
granting the plaintiff 45 days leave to amend. If the action is not
dismissed with prejudice, the Company intends to litigate it vigorously. The
Company and other defendants have obtained discovery regarding the propriety
of plaintiff's named class representative through document and interrogatory
requests. The plaintiffs have begun to pursue formal discovery, including
requesting documents from the Company and from third parties.
In July 1995, eight former employees of the AT&T Multi Language Center
filed suit against the Company and AT&T in Santa Clara County Superior
Court. The lawsuit alleges that plaintiffs were exposed to an unspecified
toxic substance while working at the AT&T facility, previously located next
door to the Company's former San Jose, California facility. The Company has
filed an answer denying all liability. The parties have engaged in discovery
through document procedure requests, interrogatories and depositions.
The Company is not a party to any other pending legal proceedings which
it believes will materially affect its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's 1997 Annual Meeting of Stockholders for stockholders of
record as of January 28, 1997 was held on March 21, 1997 to elect three
directors to serve until the next Annual Meeting of Stockholders or until
their respective successors are elected and qualified. At the 1997 Annual
Meeting of Stockholders, Reinhard Siegrist, Hans C. Ochsner and Donald D.
Winstead were elected directors by identical votes of 383,606 shares voting
for, representing 57.6% of the shares of the Company's common stock entitled
to vote at the Annual Meeting, and 10,300 shares voting against.
The foregoing matter is described in detail in the Company' proxy
statement dated February 24, 1997 for the 1997 Annual Meeting of
Stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits:
---------
N/A
(b) Reports on Form 8-K:
--------------------
During the quarter ended March 29, 1997, the Company filed one (1)
Current Report on Form 8-K. The Form 8-K, dated March 21, 1997, and filed
with the Securities and Exchange Commission on March 31, 1997, reported the
resignation of the firm of KPMG Peat Marwick LLP as the Company's
independent auditor and that there were no disagreements with KPMG Peat
during the audits of the Company's financial statements for the two most
recent fiscal years and any subsequent interim period preceding the change,
and that during the two most recent fiscal years and through the present,
there have been no reportable events with KPMG Peat Marwick LLP except that
during the audit of the Company's 1994 financial statements, KPMG Peat
Marwick noted matters involving the internal control structure and its
operation that they considered to be material weaknesses under standards
established by the American Institute of Certified Public Accountants.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PURUS, INC.
/S/
- ------------------
By:
Donald D. Winstead
Chairman of the Board of Directors,
Chief Executive Officer, Chief Financial Officer
and Secretary
- ------------------
Date
