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 June 28, 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
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
605 Tennant Avenue, Suite B, Morgan Hill, CA 95037
(Address of principal executive offices)(Zip code)
(408) 778-3465
(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 issuers
classes of common stock, as of the latest practicable date.
Class Shares Outstanding as of June 28, 1997
Common Stock 666,192
<PAGE>
PURUS, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of June 28, 1997 and
December 29, 1996 3
Statements of Operations for the
Three Months and Six Months
Ended June 28, 1997 and June 29, 1996 4
Statements of Cash Flows for the Six
Months Ended June 28, 1997 and June 29, 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8K 14
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
June 28, 1997 and December 28, 1996
June 28, December 28,
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 235,250 $ 494,201
Short-term investments 4,613,180 4,740,963
Other current assets 177,629 99,339
Total current assets 5,026,059 5,334,503
Property and equipment, net 3,030 652
Other assets 10,746 10,745
$ 5,039,835 $ 5,345,900
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 128,133 $ 18,642
Accrued expenses 1,069,917 525,194
Net liabilities of discontinued operations 73,657 1,062,373
Total current liabilities 1,271,707 1,606,209
Shareholders equity:
Common stock: 5,000,000 shares authorized;
$.01 par value; 666,192 and 637,208 shares
issued and outstanding at June 29, 1997
and December 29, 1996, respectively 6,662 6,372
Additional paid-in capital 45,126,395 45,126,685
Accumulated deficit (41,364,929) (41,393,366)
Total shareholders equity 3,768,128 3,739,691
$ 5,039,835 $ 5,345,900
The accompanying notes are an integral
part of these financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
for the three and six months ended June 28, 1997 and June 29, 1996
Three Months Ended Six Months Ended
June 28 June 29 June 28 June 29
1997 1996 1997 1996
Operating income (expenses)
of continuing operations
General and Administrative $ (94,426) $(379,415) $(1,134,029) $(506,187)
Interest Income 49,698 93,977 104,422 202,039
Income (loss) from
continuing operations (44,728) (285,438) (1,029,607) (304,147)
Income (loss) from
discontinued operations 65,952 341,718 1,058,644 363,593
Net income (loss) $ 21,224 $ 56,280 $ 29,037 $ 59,445
Net income (loss) from
continuing operations per share (0.07) (0.43) (1.55) (0.46)
Net income (loss) from
discontinued operations per
share 0.10 0.52 1.60 0.56
Net income (loss) per share $ 0.03 $ 0.09 $ 0.04 $ 0.10
Weighted average common shares 662,591 651,195 662,591 651,195
The accompanying notes are an integral
part of these financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
for the three and six months ended June 28, 1997 and June 29, 1996
June 28, June 29,
1997 1996
Cash flows from operating activities:
Net Income (loss) $ 28,437 $ 59,445
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 651 4,629
Changes in operating assets and
liabilities:
Accounts receivable (612) -
Inventory - -
Other current assets (78,290) (67,104)
Other assets (3,030) 3,919
Accounts payable (17,912) 44,692
Accrued expenses 622,373 (546,451)
Net liabilities - discontinued
operations (938,963) (499,241)
Net cash used in operating activities (387,346) (1,000,111)
Cash flows from investing activities:
Purchases of short-term investments (4,668,575) (8,001,478)
Proceeds from sale/maturity of
short-term investments 4,800,000 8,751,954
Purchases of property and equipment (3,030) -
Net cash provided by (used in)
investing activities 128,395 750,476
Cash flows from financing activities:
Net proceeds from sale of common stock - 35,000
Net cash provided by financing
activities - 35,000
Net decrease in cash (258,951) (214,635)
Cash and cash equivalents, beginning
of period 494,201 281,922
Cash and cash equivalents, end of period $ 235,250 $ 67,287
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 and six months ended
June 28, 1997 and June 29, 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 Companies Annual Report to stockholders for 1996.
The results of operations for the period ended June 28, 1997 are
not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire year ending January x, 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 June 28, 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:
June 28, December 29,
1997 1996
Payroll related $ - $ -
Legal and professional expenses 1,104,777 461,194
Other - 64,000
$ 1,104,777 $ 525,194
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 PADREr installations, and for the
operating losses of the discontinued operations. The net
liabilities of the discontinued operations were approximately
$73,000 as of June 28, 1997 and $1,062,373 as of December 29,
1996 as follows:
June 28, December 29,
1997 1996
Accounts receivable $ - $ -
Accrued payroll and related - 32,350
Accrued warranty 73,657 1,012,620
Other - 17,403
$ 73,657 $1,062,373
The decrease in net liabilities of discontinued operations was
primarily due to paying expenses associated with the warranty
expenditures for PADRE systems.
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. On or about May
15, 1997, the suit was re-filed reasserting the claims previously
made. On June 30, 1997, the Company filed a new motion to
dismiss the re-filed complaint. 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.
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
PADREr air pollution control systems.
Beginning in November 1993, following the Company's initial
public offering, the Company expanded its efforts to
commercialize the PADRE 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 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 technology while taking other actions intended to
minimize further losses and preserve its capital.
On October 20, 1995, the Company licensed its PADRE 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 non-cash assets, excluding inventory, to Thermatrix,
including all of its right, title, and interest to and in the
PADRE 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 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 installations covered under existing warranty and
service agreements was not assumed by Thermatrix. In April of
1997, the obligations of the Company under each of its then
existing warranty and service agreements ended.
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) defend against pending
litigation (see "Item 1. Legal Proceedings" below); (ii) handle
the administrative and reporting requirements of a public
company; and (iii) 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. On June 1, 1997, the board of directors
accepted the resignation of Hans C. Ochsner and appointed Jorg R.
Bader to serve as a director during the remainder of the term.
Mr. Bader, age 44, has for the past five years served as
President of Meliga, LTI, a company located in Biel, Switzerland.
At March 29, 1997, the Company had no full time employees.
On March 25, 1997, the Company relocated its corporate
headquarters to 605 Tennant Avenue, Suite B, Morgan Hill,
California 95037-5529 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 installation covered by a warranty agreement. The Company
believes that it has no further obligations under PADRE 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 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 June 28, 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
Three and Six Month periods Ended June 28, 1997 and June 29, 1996
The Company had no revenue from continuing operations for
the three and six month periods ended June 28, 1997 and June 29,
1996.
General and administrative expenses from continuing
operations for the three and six month periods ended June 28,
1997 and June 29, 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 $94,426 and
$379,415 for the three month period ended June 28, 1997, and
June 29, 1996, respectively; and $1,029,997 and $506187 for the
six month period ended June 28, 1997, and June 29, 1996,
respectively. General and administrative expenses in the six
month period ended June 28, 1997 were greater than in the six
month period ended June 29, 1996 primarily due to increases in
the reserves for legal expenses.
The Company had no interest expense in the three and six
month periods ending June 29, 1996 or June 28, 1997. Interest
income in the three and six month periods ended June 28, 1997 and
June 29, 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 was
$49,698 and $93,977 in the three month period ended June 28,
1997, and June 29, 1996, respectively; and $104,422 and $202,039
for the six month period ended June 28, 1997, and June 29, 1996,
respectively. Interest income in the periods ended June 28, 1997
is lower than in the periods ended June 29, 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 $44,728 and $285,438 for the three
month period ended June 28, 1997 and June 29, 1996, respectively;
and $1,029,607 and $304,147 for the six month period ended June
28, 1997 and June 29, 1996, respectively. The improved
performance in the most recent quarter is a result of
significantly reduced activity levels.
Results of Discontinued Operations
Three and Six Month periods Ended June 28, 1997 and June 29,
1996
Income from discontinued operations was $65,952 and
$1,058,644 for the three and six month periods ended June 28,
1997, respectively compared to $341,718 and $363,593 for the
three and six month periods ended June 29, 1996, respectively.
Income 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 systems not sold to Thermatrix. The Company
expects that the amount of such revenues will be insignificant in
the future. 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 installations and for the operating
losses of the discontinued operations.
The net liabilities of the discontinued operations were
$73,657 as of June 28, 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 systems and reducing the accrual for
warranty expenses.
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
$21,223 and $29,137 for the three and six month periods ended
June 28, 1997, respectively and $56,280 and $59,445 for the three
and six month periods ended June 29, 1996, respectively. Net
income per share from both continuing and discontinued operations
was $0.03 and $0.04 for the three and six month periods ended
June 28, 1997, respectively and $0.09 and $0.10 for the three and
six month periods ended June 29, 1996, respectively.
Liquidity and Capital Resources
At June 28, 1997, the Company had working capital of
approximately $3,769,128 as compared to $3,739,691 at December
28, 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 $387,346 for the six month period ended June
28, 1997, and $1,000,111 for the six month period ended June 29,
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.
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. On or about May
15, 1997, the suit was re-filed reasserting the claims previously
made. On June 30, 1997, the Company filed a new motion to
dismiss the re-filed complaint. 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 6. Exhibits and Reports on Form 8K
(a) Exhibits: N/A
(b) Reports on Form 8-K: N/A
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.
By: (Signature)
Donald D. Winstead
Chairman of the Board of Directors,
Chief Executive Officer, Chief Financial Officer
and Secretary
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