U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 27, 1997, or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange act of 1934 for the transition period from to
Commission File No. 0-22408
PURUS, INC.
(Name of Small Business Issuer 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 and Zip Code)
Issuer's Telephone Number: (408) 778-3465
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $0.01
Check whether the issuer (1) filed all reports required to be
filed by sections 13 or 15(d) of the Exchange Act during the past
12 months (or such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year are
$1,335,884.
The aggregate market value of voting stock held by non-affiliates
computed on the basis of the last sale price on April 14, 1998,
was $2,307,813.
As of December 27, 1997, the Registrant had outstanding 666,193
shares of Common Stock, par value $0.01.
Documents incorporated by reference: None
<PAGE>
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part I
1. Description of Business 3
2. Description of Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 5
Part II
5. Market for Common Equity and Related Stockholder 5
Matters
6. Management's Discussion and Analysis of Financial 6
Condition
and Results of Operations
7. Financial Statements 7
8. Changes in and Disagreements with Accountants 7
on Accounting and Financial Disclosure
Part III
9. Directors, Executive Officers, Promoters and Control 7
Persons; Compliance with Section 16(a) of the
Exchange Act
10. Executive Compensation 8
11. Security Ownership of Certain Beneficial Owners and 9
Management
12. Certain Relationships and Related Transactions 9
13. Exhibits and Reports on Form 8-K 10
<PAGE>
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and
similar expressions are intended to identify forward-looking
statements within the meaning of Section 27a of the Securities
Act of 1933 and Section 21e of the Securities Exchange Act of
1934 regarding events, conditions, and financial trends that may
affect the Company's future plans of operations, business
strategy, operating results, and financial position. Persons
reviewing this report are cautioned that any forward-looking
statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may
differ materially from those included within the forward-looking
statements as a result of various factors. Such factors are
discussed under the headings "Item 1. Description of Business,"
and "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and also include general
economic factors and conditions that may directly or indirectly
impact the Company's financial condition or results of
operations.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Development and Discontinuation of Air Pollution Control Business
Purus, Inc. (the "Company") was founded in 1989 to research and
develop environmental technologies and products. 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 air pollution control systems.
Beginning in November 1993, the Company expanded its efforts to
commercialize the PADRE technology, but encountered mechanical
design problems 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.
In October 1995, the Company licensed its PADRE air pollution
control technology to Thermatrix Inc., a California corporation
("Thematrix"). In April 1996, the Company consummated the sale
of substantially all of its noncash assets, excluding inventory,
to Thermatrix, including all of its interest in the PADRE
technology. In consideration for such assets, the Company
received a $300,000 cash payment and the right to royalties in
the amount of seven percent of the net invoice value of
Thermatrix' PADRE equipment sales until the earlier of (i)
October 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 take possession of a substantial portion of
the Company's inventory on consignment, and to offer warranty
services to the Company as an independent contractor on an as-
requested basis. In April 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 in April 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. There can be no assurance that
the Company will receive any significant income from Thematrix
for royalties on PADRE equipment sales. See "Item 6,
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
General Description of Continuing Operations
In light of the discontinuation of its active business operations
in 1996, the Company's current operating plan is to (i) defend
against legal actions (see "Item 3. Legal Proceedings" below),
(ii) handle the administrative and reporting requirements of a
public company, and (iii) seek to identify potential businesses,
products, technologies and companies for acquisition. At
present, the Company has no commitments or agreements with
respect to the acquisition of any business, product, technology
or company, but has entered into a loan transaction with a
prospective acquisition target.
To facilitate its acquisition effort, the Company entered into a
consulting agreement in August 1997, with Friedli Corporate
Finance Inc., under which the Company pays a consulting fee of
$4,000 per month, reimburses the consultant for expenses up to
$6,000 per year, and issued to the consultant a warrant to
purchase 20,000 shares of common stock at an exercise price of
$4.00 per share. At the time of the transaction, an affiliate of
the consultant was a five percent stockholder of the Company.
Due to the legal proceedings pending against the Company (see
"Item 3. Legal Proceedings" below), the Company has been unable
to acquire an interest in a business venture, because of the
unwillingness of the business ventures reviewed by the Company to
consider an acquisition transaction while the legal proceedings
are unresolved. In the view of management, the legal proceedings
prevent the Company from moving ahead, and are detrimental to the
Company and its stockholders. Most recently, the inability of
the Company to acquire a business activity because of the legal
proceedings resulted in a determination by the Nasdaq Stock
Market to delist the Company's common stock from the quotation
system on the grounds that the Company is not engaged in any
active business operations. The Company has appealed this
determination to obtain additional time with which to resolve the
legal proceedings and acquire a business venture, but there is no
assurance this appeal will be successful or, if successful, that
the Company will be able to acquire a business venture within the
time allotted by The Nasdaq Stock Market. Loss of its Nasdaq
listing would adversely affect the trading market in the
Company's common stock. (See Item 5. Market for Common Equity
and Related Stockholder matters.")
In February 1998, the Company made a loan of $1,800,000 to Casa
Solaz, Inc. ("CSI"), a private Nevada corporation which recently
commenced the business of manufacturing, marketing, and
installing prefabricated housing units in South America. The
loan bears interest at the rate of six percent per annum, and all
principal and interest is due December 31, 1999. The loan is
secured by all of the assets of CSI, including all of the capital
stock of its Venezuelan subsidiaries conducting operations in
South America. The loan is convertible at the option of the
Company at any time prior to maturity into 450,000 shares of the
Series A Convertible Preferred Stock of CSI. As a negotiated
element of the transaction, CSI granted to the Company a warrant
to purchase 550,000 additional shares of Series A Convertible
Preferred Stock at a price of $4.00 per share exerciseable on or
before December 31, 1998. The Series A Convertible Preferred
Stock provides for a cumulative dividend at the rate of 8% per
annum and is convertible to common stock of CSI at the rate of
one share of common for one share of preferred. The Company is
hopeful this lending arrangement is a prelude to a potential
acquisition, but is unable to proceed much further until the
stockholder litigation and other issues are resolved in a manner
acceptable to Casa Solaz, Inc. 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
any business it acquires.
ITEM 2. DESCRIPTION OF PROPERTIES
In March 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.
ITEM 3. LEGAL PROCEEDINGS
In July 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
1993 through March 1995. In April 1996, the Company filed a
motion to dismiss the complaint. In March 1997, the Court issued
an order granting the defendants' motion to dismiss the complaint
and granting the plaintiff 45 days leave to amend. In May 1997,
the suit was re-filed reasserting the claims previously made, and
in June 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 defend the suit 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 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.
No matter was submitted to a vote of security holders in the
fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Quotations for the Company's common stock are reported on the
Nasdaq SmallCap Market System under the symbol "PURS." The
following table sets forth, for the respective periods indicated,
the prices of the Company's Common Stock in the over-the-counter
market, as reported and summarized by the Nasdaq SmallCap Market
System. Such prices are based on inter-dealer bid prices,
without markup, markdown, commissions, or adjustments and may not
represent actual transactions.
Calendar Quarter Ended Low Bid ($) High Bid ($)
March 31, 1996 2.13 7.00
June 30, 1996 3.50 4.75
September 30, 1996 3.38 5.25
December 31, 1996 3.00 6.25
March 31, 1997 3.25 4.38
June 30, 1997 2.13 3.25
September 30, 1997 2.25 3.75
December 31, 1997 2.00 3.75
In late February 1998, the Company received notice of a decision
by the Nasdaq Stock Market to delist the Company's common stock
from the SmallCap Market. This decision was based on the finding
by Nasdaq that the Company was not engaged in any active business
operations, and that as a matter of policy Nasdaq does not list
inactive companies with only cash assets, regardless of whether
those companies satisfy the quantitative listing maintenance
requirements. The Company has appealed this decision and a
hearing on the matter will be held April 23, 1998. The Company
will contend that the stockholder litigation described in this
report has prevented the Company from acquiring a new business
venture, the Company is attempting to terminate the stockholder
litigation, and the Company is pursuing acquisitions as
expeditiously as possible under the circumstances. These
arguments may give the Company some time extension on the
decision to delist, but management does not believe any such
extension would be more than a few months. Accordingly, unless
the Company can prevail on the appeal, terminate the stockholder
litigation soon, and enter into an agreement to acquire a
business venture, there is a substantial likelihood that the
Company's listing on the Nasdaq SmallCap Market will terminate.
Management believes loss of the listing would adversely affect
the trading market in the common stock of the Company.
Since its inception, no dividends have been paid on the Company's
common stock. The Company intends to retain it capital and any
earnings for future business activities, so it is not expected
that any dividends on the common stock will be declared and paid
in the foreseeable future.
At December 31, 1997, there were approximately 83 holders of
record of the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
Years Ended December 27, 1997, and December 29, 1996
The Company had no revenue from continuing operations for fiscal
years 1997 and 1996.
General and administrative expenses from continuing operations
for fiscal years 1997 and 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 $1,305,195 and
$1,006,713 for 1997 and 1996, respectively. General and
administrative expenses in 1997 were greater than in 1996
primarily due to increases in the reserves for legal expenses.
The Company had no interest expense in 1996 or 1997. Interest
income in fiscal years 1997 and 1996 resulted from the investment
of the Company's cash assets in short-term, liquid cash
equivalents. Interest income was $245,780 and $307,992 in 1997
and 1996, respectively. Interest income in 1997 is lower than in
1996 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 realized a net
loss from continuing operations of $1,059,415 for 1997 compared
to a net loss of $698,721 for 1996.
Results of Discontinued Operations
Years Ended December 27, 1997, and December 29, 1996
Income from discontinued operations was $1,090,104 and $781,624
for 1997 and 1996, respectively. Income from discontinued
operations consists of royalty payments and inventory purchases
by Thermatrix, and revenues from customer services provided by
the Company on PADRE. The Company expects that the amount of
such revenues will be insignificant in the future.
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 $30,689 and
$82,903 for 1997 and 1996, respectively. Net income per share
from both continuing and discontinued operations was $0.05 and
$0.13 for 1997 and 1996, respectively.
Liquidity and Capital Resources
At December 27, 1997, the Company had working capital of
approximately $3,759,635. Working capital consists 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 $553,689
for 1997, and $1,884,697 for 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 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.
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.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report
beginning at page F-2 following the signature page:
Reports of Independent Certified Public Accountants
Balance Sheet
Statements of Operations
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Officers
The following table sets forth the names, ages, and positions
with the Company for each of the directors and officers of the
Company.
Name Age Positions (1) Since
Peter Friedli 44 Chief Executive Officer and 1998
Director
Jorg Bader 44 Director 1997
Reinhard Siegrist 51 Director 1996
All executive officers are elected by the Board and hold office
until the next annual meeting of stockholders and until their
successors are elected and qualified.
The following is information on the business experience of each
director and officer.
Peter Friedli has been a principal since 1986 of Friedli Corporate
Finance Inc., an investment bank and consulting firm based in Zurich,
Switzerland. He has over a decade of experience as an independent
investment manager in corporate finance and has successfully managed
various venture investment companies in the United States.
Jorg Bader has served since 1983 as the president and principal
of Maliga, LTI, a financial firm located in Biel, Switzerland.
Reinhard Siegrist has been an independent investor since 1989.
From 1981 to 1989 he served as financial analyst, fund manager
and head of asset management for at a branch of Credit Suisse.
Mr. Siegrist holds a Federal Diploma of Accounting of
Switzerland.
Section 16(a) Filing Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
officers and Directors of the Company and persons who own more
than ten percent of a registered class of the Company's equity
securities to file reports of ownership and changes in their
ownership on Forms 3, 4, and 5 with the Securities and Exchange
Commission, and forward copies of such filings to the Company.
Based on the copies of filings received by the Company, during
the most recent fiscal year two of the Company's directors, Jorg
Bader and Reinhard Siegrist, each failed to file one report on
Form 5 for 1997 due February 15, 1998, reporting their receipt of
options to acquire shares of the Company's common stock in the
amount of 1,000 options for Mr. Bader and 6,000 options for Mr.
Siegrist. The Company is not aware of any other directors,
officers, and beneficial owners of more than ten percent of the
equity securities of the Company who failed to file on a timely
basis all required Forms 3, 4, and 5 and any amendments thereto.
ITEM 10. EXECUTIVE COMPENSATION
During the calendar year 1997, the Company's former president,
Donald Winstead received cash compensation in the total amount of
$61,530. In addition, Mr. Winstead was granted an option under
the Company's 1993 Stock Option Plan to purchase 5,000 shares at
an exercise price of $4.00 per share, which expired following the
end of his association with the Company. No other officer or
director received any cash compensation for services as an
officer and director to the Company.
Russell K. Burbank, former president and chief executive officer
of the Company, received at the beginning of 1997 the final
termination payments pertaining to his employment in the amount
of $134,000.
Five months prior to the appointment in January 1998, of Peter
Friedli as an executive officer and director, the Company entered
into a consulting agreement with Friedli Corporate Finance Inc.
("FCF"), a private consulting company owned by Mr. Friedli, under
which the Company pays a consulting fee of $4,000 per month,
reimburses the consultant for expenses up to $6,000 per year, and
issued to the consultant a warrant to purchase 20,000 shares of
common stock at an exercise price of $4.00 per share. At the
time of the transaction, an affiliate of the consultant was a
five percent stockholder of the Company.
In consideration of the commitment of time and resources required
of Peter Friedli in his new positions as an executive officer and
director, the Company approved in February 1998, the issuance to
FCF of warrants to purchase 250,000 shares of the Company's
common stock at an exercise price of $4.00 per share exerciseable
on or before November 30, 1999, which exercise price represents a
premium over the trading price of $3.25 in the common stock of
the Company on the date of grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of February 19, 1998, the
number and percentage of the outstanding shares of common stock
which, according to the information supplied to the Company, were
beneficially owned by (i) each person who is currently a director
of the Company, (ii) each executive officer, (iii) all current
directors and executive officers of the Company as a group and
(iv) each person who, to the knowledge of the Company, is the
beneficial owner of more than 5% of the outstanding common stock.
Except as otherwise indicated, the persons named in the table
have sole voting and dispositive power with respect to all shares
beneficially owned, subject to community property laws where
applicable.
Common Percent of
Shares Class(1)
Name
Peter Friedli (2) 300,555 31.1
Jorg Bader 1,000 (3) *
Reinhard Siegrist 2,000 (3) *
All directors and officers as a group (3 303,555 31.3
persons)
* Less than one percent
(1) Percentage of beneficial ownership is calculated based on
666,193 shares of Common Stock outstanding on February 19,
1998, and Common Stock which such individual or entity has
the right to acquire beneficial ownership within 60 days,
including but not limited to the exercise of options and
warrants.. These figures represent the percentage of
ownership of the named individuals assuming each of them
alone has exercised his or her options or warrants, and
percentage ownership of all officers and directors of a
group assuming all such purchase rights held by such
individuals are exercised.
(2) The business address of Mr. Friedli is c/o Friedli Corporate
Finance Inc., Freigutstrasse 5, 8002 Zurich, Switzerland.
This figure includes 270,000 shares of Common Stock issuable
to Friedli Corporate Finance Inc., of which Peter Friedli is
a principal, upon exercise of warrants with an exercise
price of $4.00 per share. Peter Friedli and Confinvest 97
Ltd., share beneficial ownership with respect 20,555 shares,
which is included in this figure. The Company believes that
holders of securities of the Company held beneficially by
persons advised by Friedli Corporate Finance Inc., represent
approximately 60% of the outstanding Common Stock of the
Company. Holders of securities advised by Friedli Corporate
Finance Inc., are likely to vote the same way on issues
presented to them. Consequently, it is likely that such
stockholders will be able to control all decisions requiring
the vote of stockholders.
(3) Represents shares subject to stock options which are
presently exerciseable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no proposed transactions and no transactions during the
past two years to which the Company was a party and in which any
officer, director, or principal stockholder, or their affiliates
or associates, was also a party.
ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits.
Copies of the following documents are included as exhibits to
this report pursuant to Item 601 of Regulation S-B.
Exhibit SEC Ref. Title of Document Location
No. No.
1 (3)(i) Certificate of Incorporation, as amended (1)
2 (3)(ii) By-Laws (2)
3 (27) Financial Data Schedules This Filing
Page E-1
(1) Incorporated by reference to exhibit no. 3.1 to the
Company's Registration Statement (no. 33-68946) which became
effective November 8, 1993, and exhibit 3.3 to the Company's Form
10-Q for the quarterly period ending April 1, 1995.
(2) Incorporated by reference to exhibit no. 3.2 to the
Company's Form 10-K for the fiscal year ended December 31, 1994.
FORM 8-K FILINGS
No reports on Form 8-K were filed in the last calendar quarter of
1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PURUS, INC.
Date: April 14, 1998 By: (Signature)
Peter Friedli
Chief Executive Officer
In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: April 14, 1998 (Signature)
Peter Friedli
Principal Executive, Financial
and Accounting Officer, Director
Dated: April 14, 1998 (Signature)
Jorg Bader, Director
Dated: April 14, 1998 (Signature)
Reinhard Siegrist, Director
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Balance Sheet F-4
Statements of Operations F-5
Statement of Shareholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors
Purus, Inc.
We have audited the accompanying balance sheet of Purus, Inc.
(the "Company"), as of December 27, 1997, and the related
statements of operations, shareholders' equity, and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the Company as of December 27, 1997, and the results of its
operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Grant Thornton LLP
San Jose, California
April 13, 1998
<PAGE>
Report of Independent Auditors
The Board of Directors
Purus, Inc.
We have audited the accompanying statements of operations,
shareholders' equity, and cash flows of Pursu, Inc. (the Company)
for the year ended December 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of its
operations and its cash flows for the year ended December 29,
1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Mountain View, California
January 15, 1997
<PAGE>
Purus, Inc.
BALANCE SHEET
December 27, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 172,881
Short-term investments 4,508,594
Other current assets 175,874
Total current assets 4,857,349
Other assets 10,745
$ 4,868,094
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 81,619
Accrued legal and litigation expenses 1,016,095
Total current liabilities 1,097,714
Shareholders' equity:
Preferred stock; $.001 par value, 5,000,000 shares
authorized; none outstanding -
Common stock; $.01 par value, 5,000,000 shares
authorized; 666,193 issued and outstanding 6,662
Additional paid in capital 45,126,395
Accumulated deficit (41,362,677)
Total shareholders' equity 3,770,380
$ 4,868,094
The accompanying notes are an integral part of this statement.
<PAGE>
Purus, Inc.
STATEMENTS OF OPERATIONS
Year ended
December 27, December 29,
1997 1996
Operating (income) expense from
continuing operations:
General and administrative $ 1,305,195 $ 1,006,713
Interest income (245,780) (307,992)
Loss from continuing operations (1,059,415) (698,721)
Income form discontinued operations 1,090,104 781,624
Net income $ 30,689 $ 82,903
Income (loss) per share from:
Continuing operations:
Basic $ (1.59) $ (1.06)
Diluted (1.59) (1.06)
Discontinued operations:
Basic $ 1.64 $ 1.19
Diluted 1.64 1.19
Net income per share:
Basic $ .05 $ .13
Diluted .05 .13
Weighted average shares outstanding 666,193 654,947
The accompanying notes are an integral part of these statements.
<PAGE>
Purus, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
Two years ended December 27, 1997
Additional
Common stock Paid-In Accumulated
Shares Amount Capital Deficit
Balance, January 1, 1996 637,208 $ 6,372 $45,039,185 $(41,476,269)
Stock options exercised 28,985 290 87,210 -
Net income - - - 82,903
Balance, December 29, 1996 666,193 6,662 45,126,395 (41,393,366)
Net income - - - 30,689
Balance, December 27, 1997 666,193 $ 6,662 $45,126,395 $(41,362,677)
The accompanying notes are an integral part of this statement.
<PAGE>
Purus,Inc.
STATEMENTS OF CASH FLOWS
Year ended
December 27, December 29,
1997 1996
Cash flows from operating activities:
Net income $ 30,689 $ 82,903
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 652 9,257
Settlement of net liabilities of
discontinued operations (915,386) -
Accrual for litigation 542,139 -
Changes in operating assets and liabilities:
Other current assets (76,535) 74,287
Other assets - 3,720
Accounts payable and accrued expenses (61,671) (543,134)
Net liabilities of discontinued operations (73,577) (1,511,730)
Net cash used in operationg activities (553,689) (1,884,697)
Cash flows from investing activities:
Purchases of short-term investments (4,508,594) (30,358,165)
Proceeds from sale/maturity of short-term
investments 4,740,963 32,367,641
Net cash provided by investing activities 232,369 2,009,476
Cash flows from financing activities:
Proceeds from sale of common stock - 87,500
Net (decrease) increase in cash and cash
equivalents (321,320) 212,279
Cash and cash equivalents, beginning of year 494,201 281,922
Cash and cash equivalents, end of year $ 172,881 $ 494,201
The accompanying notes are an integral part of these statements.
<PAGE>
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
December 27, 1997 and December 29, 1996
NOTE A - SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING
POLICIES
Purus, Inc. ("Purus" or the "Company") discontinued its
environmental technology business in November 1995.
Consequently, thereafter the Company's continuing operations
consist principally of management of the Company's short-term
investments, administration of general corporate and legal
matters, and investigation of potential acquisitions of
businesses, products or technologies that may or may not be
related to the environmental market.
1. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
2. Cash Equivalents
For purposes of the accompanying statements of cash flows,
the Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
3. Short-Term Investments
Short-term investments consist of debt securities issued by
the U.S. Treasury with maturity dates of less than two years.
These investments are classified as available for sale
securities and are valued at market, which approximates cost.
Realized and unrealized losses and gains within the Company's
short-term investments are not material.
4. Income Taxes
The Company accounts for income taxes using an asset and
liability approach for financial accounting and reporting
purposes.
5. Fair Value of Financial Instruments
Fair value estimates, methods, and assumptions for certain on-
and off-balance sheet financial instruments are set forth
below for the Company's financial statements.
i) The carrying amounts of cash, cash equivalents, accounts
payable, and accrued liabilities approximate fair values
due to the short maturity of those instruments.
ii) The fair value of short term investments, based on
quotations received from securities dealers, approximate
cost.
<PAGE>
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
December 27, 1997 and December 29, 1996
NOTE A - SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING
POLICIES (continued)
6. Earnings (Loss) Per Share
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share." In
accordance with SFAS No. 128, primary earnings (loss) per
share has been replaced with basic earnings (loss) per share,
and fully diluted earnings (loss) per share has been replaced
with diluted earnings (loss) per share which includes
potentially dilutive securities such as outstanding options
and convertible securities, using the treasury stock method.
7. Fiscal Year
The Company uses a reporting calendar in which quarters end
on the Saturday closest to March 31, June 30, September 30,
and December 31.
8. Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued
SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and display of
comprehensive income and its components in the financial
statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for
comparative purposes is required. The Company is in the
process of determining its preferred format. The adoption of
SFAS No. 130 will have no effect on the Company's results of
operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way that public business
enterprises report information about operating segments in
annual financial statements and requires that those
enterprises report selected information about operating
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for fiscal
years beginning after December 15, 1997. Financial statement
disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no
effect on the Company's results of operations, financial
position or cash flows.
<PAGE>
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
December 27, 1997 and December 29, 1996
NOTE B - DISCONTINUED OPERATIONS
During the fourth quarter of 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,
and for the operating losses of the discontinued operations.
The net liabilities of the discontinued operations were
$1,062,373 as of December 29, 1996. During 1997, the Company
settled all outstanding claims related to the discontinued
operations.
A summary of operating results of the discontinued operations
follows:
December 27, December 29,
1997 1996
Revenue $ 174,720 $ 251,723
Reversal of warranty provision 915,384 529,901
Income from discontinued operations $ 1,090,104 $ 781,624
NOTE C - SHAREHOLDERS' EQUITY
The Company has reserved 100,000 shares of common stock for
issuance under its 1993 Stock Option Plan (the "1993 Plan"),
which succeeded the Company's 1990 Stock Option Plan. The
Company's Board of Directors administers the 1993 Plan and
determines the terms of the options granted under the 1993
Plan, including the exercise price, number of shares subject to
each option and exercisability thereof. The exercise price of
incentive options granted under the 1993 Plan must be at least
equal to the fair market value of such shares on the grant date
and the exercise price of nonqualified stock options granted
under the 1993 Plan must be at least equal to 85% of the fair
market value of such shares on the date of the grant. Options
granted under the 1993 Plan usually become exercisable over
four years and have a five-year term. The maximum term of each
option is 10 years.
The Company's 1995 Non-Employee Director Stock Option Plan (the
"1995 Director Plan") was adopted by the Company's Board of
Directors and approved by the Company's shareholders as the
successor to the Company's 1993 Non-Employee Director Stock
Option Plan. The 1995 Director Plan provides for the granting
of stock options to non employee directors of the Company. The
Board of Directors and the shareholders have authorized a total
of 20,000 shares of common stock for issuance under the 1995
Director Plan. The Company's Board of Directors administers
the 1995 Director Plan.
The Company has elected to use the intrinsic value-based method
of APB Opinion No. 25 to account for all of its employee stock-
based compensation plans. Accordingly, no compensation cost
has been recognized in the accompanying consolidated financial
statements for the stock option plans because the exercise
price of each option equals or exceeds the fair value of the
underlying common stock as of the grant date for each option.
The Company has adopted the pro forma disclosure provisions of
SFAS No. 123.
<PAGE>
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
December 27, 1997 and December 29, 1996
NOTE C - SHAREHOLDERS' EQUITY (continued)
A summary of the status of the Company's stock option plans as
of December 27, 1997 and December 29, 1996 and changes during
the fiscal years ended on those dates along with the pro forma
effects of the options, as determined under SFAS No. 123, on
income and earnings per share is presented below:
12/27/97 12/29/96
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
Outstanding at beginning of year 2,500 $4.56 63,876 $15.16
Granted 7,000 3.16 32,000 3.52
Exercised - - (29,000) 3.02
Forfeited (1,500) 7.60 (64,376) 15.22
Outstanding at end of year 8,000 $3.59 2,500 $4.56
Options exercisable at year end 5,500 $3.41 2,125 $3.99
Weighted average fair value of
options granted $1.50 $1.36
December 27, December 29,
1997 1996
Loss from continuing operations
As reported $(1,059,415) $ (698,721)
Pro forma (1,065,680) (700,081)
Net income
As reported $ 30,689 $ 82,903
Pro forma 24,424 81,543
Basic and diluted loss per share from
continuing operations
As reported $ (1.59) $ (1.06)
Pro forma (1.60) (1.06)
Basic and diluted net income per share
As reported $ .05 $ .13
Pro forma .04 .13
<PAGE>
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
December 27, 1997 and December 29, 1996
NOTE C - SHAREHOLDERS' EQUITY (continued)
As required by SFAS No. 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: no
expected dividends, an expected life of 3 years, volatility of
50% and a risk free rate of return of 5.5%.
The following table summarizes information about stock options
outstanding at December 27, 1997:
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/27/97 Life (Years) Price 12/27/97 Price
$2.63 - $4.00 8,000 9.9 $3.59 5,500 $3.41
A total of 70,157 shares of common stock remain reserved for
future grants under the plans as of December 29, 1996.
As of December 27, 1997, the Company had outstanding warrants
to purchase 20,000 shares of common stock at $4.00 per share.
The warrants are vested and expire in 2000.
NOTE D - INCOME TAXES
The provision for income taxes differs from the amount computed
by applying the federal statutory rate of 34% due to the
Company's inability to utilize its currently generated net
operating losses.
The tax effect of temporary differences that give rise to
significant portions of the deferred tax amounts are presented
as follows at December 27, 1997:
Net operating loss carryforward $ 11,980,000
Litigation and legal accruals 435,000
Research credit carryforward 650,000
Gross deferred tax asset 13,065,000
Less valuation allowance (13,065,000)
Net deferred tax asset $ -
As of December 27, 1997, the Company had available net
operating loss carryforwards approximating $33,143,000 and
$8,020,000 for federal and California tax purposes,
respectively. The Company also has research credit
carryforwards of approximately $460,000 and $190,000 for
federal and California tax purposes, respectively. The federal
and California net operating losses can be carried forward to
reduce income taxes on future earnings subject to the
limitations discussed below.
<PAGE>
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
December 27, 1997 and December 29, 1996
NOTE D - INCOME TAXES (continued)
Sections 382 and 383 of the Internal Revenue Code provide for
annual limitations on the utilization of net operating loss and
credit carryforwards following an ownership change as defined.
Further, if the Company failed to continue its business
enterprise for a period of two years following an ownership
change, the net operating loss carryforwards could be
forfeited. As the Company has not determined if an ownership
change has occurred, the net operating loss carryforwards maybe
subject to such limitation.
NOTE E - 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. In March
1997, the court issued an order granting the defendants' motion
to dismiss and granting the plaintiff 45 days leave to amend.
In May 1997, the suit was re-filed reasserting the clams
previously made, and in June 1997, the Company filed a new
motion to dismiss the refiled complaint. If the action is not
dismissed with prejudice, the Company intends to defend the
suit vigorously. At March 31, 1998, a ruling on the Company's
motion to dismiss plaintiff's complaint was pending. The
Company and other defendants have obtained discovery regarding
the validity of plaintiff's purported class action 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. On January 3, 1997,
the plaintiffs began to pursue formal discovery through
document requests.
Aside from certain provisions for legal expenses, the financial
statements for the period ended December 27, 1997 do not
contain any provisions for settlement of these legal
proceedings.
Although the Company was engaged in research and development
and manufacturing operations that generated only very small
volumes of waste, it, like its customers, may be potentially
subject to environmental liabilities with respect to the
investigation or cleanup of hazardous waste sites. The Company
currently maintains no specific environmental impairment
liability insurance. Although the Company believes that the
risk is minimal that it would ever be found by a court or
regulatory agency to be liable for the investigation or cleanup
of a hazardous waste site, the costs associated with such a
finding could be substantial.
<PAGE>
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
December 27, 1997 and December 29, 1996
NOTE F - RELATED PARTY TRANSACTIONS
In March, 1996, the Company retained The Dettmers Consulting
Group ("DCG"),of which Mr. Dettmers, a former director of the
Company, is a principal, to provide services with respect to
the wind-down of the Company's operations. For the services
provided to the Company in fiscal year 1996, Mr. Dettmers and
DCG were paid $5,000.
The Company retained the accounting firm of Burr, Pilger &
Mayer ("BPM") for financial, accounting and administrative
services, of which Stephen D. Mayer, the Company's former
Treasurer and Principal Financial and Accounting Officer, is a
managing partner. For the services provided to the Company in
fiscal years 1997 and 1996, BPM was paid $65,000 and $144,000,
respectively. BPM's services were terminated in March 1997.
In September 1997, the Company entered into a consulting
agreement with Friedli Corporate Finance, Inc. ("FCF"), a
principal shareholder of the Company. Mr. Peter Friedli
("Friedli") is a principal in FCF and is the current Chief
Executive Officer of the Company. The agreement calls for FCF
to provide general business, financial and investment advice
and serve as a liaison between FCF clients/investors and the
Company. FCF is paid a monthly fee of $4,000 plus annual
expenses of up to $6,000 per year. The agreement terminates
December 31, 2000. FCF was granted 20,000 warrants to purchase
the Company's common stock at $4 per share. The warrants are
vested and expire in 2000.
During 1997, the Company paid Friedli $149,000 for past
reimbursement of expenses and consulting services rendered.
In 1997, the Company made payments to its former Chief
Executive Officer in the amount of $134,000 as severance
payments pursuant to a November 1996 agreement.
During 1997, the Company paid consulting and management fees,
including reimbursed expenses to Mr. Don Winstead, a former
officer and director of the Company totaling $61,530.
NOTE G - SUBSEQUENT EVENTS
In February 1998, the Company made a loan of $1,800,000, which
bears interest at 6% per annum, to Casa Solaz, Inc. (a Nevada
corporation, "CSI"), a related company through ownership
affiliations of Friedli. CSI manufactures prefabricated
housing, primarily in South America. The proceeds of the loan
will be used to construct manufacturing facilities. The
principal and any accrued and unpaid interest is due on
December 31, 1999. The loan is collateralized by all of the
assets of CSI, including the stock of the CSI subsidiary. The
loan is convertible into 450,000 shares of 8% preferred stock
of CSI. As consideration for making the loan, the Company
received a warrant to purchase 550,000 shares of 8% preferred
stock of CSI at $4.00 per share. Each share of 8% preferred
stock is convertible into one share of common stock of CSI.
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