11
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 January
2, 1999, 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.)
96 West Second Street, Morgan Hill, CA 95037-4504
(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 $0.
The aggregate market value of voting stock held by non-affiliates
computed on the basis of the average of the bid and asked prices
on March 28, 1999, was $887,752.
As of January 2, 1999, 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 5
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 8
Management
12. Certain Relationships and Related Transactions 9
13. Exhibits and Reports on Form 8-K 9
<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
Business
Purus, Inc. ("Company") was not engaged in any active business
operation during fiscal year 1998. 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 on or before December 31,
2000, 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. The inability of the Company to
acquire a business activity resulted in a determination by the
Nasdaq Stock Market in May 1998 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. (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 is
engaged in 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. In April 1998, the
Company made an additional 6% loan of $2,200,000 to CSI,
collateralized in the same way as the first loan. 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
exercisable on or before December 31, 1998. The warrant expired
at the end of 1998 without being exercised. 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
further until the stockholder litigation and other issues are
resolved in a manner acceptable to CSI. 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.
History
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
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 October 1995, the Company licensed its PADRE air pollution
control technology to Thermatrix Inc., a California corporation
("Thermatrix"). 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 in 1997.
ITEM 2. DESCRIPTION OF PROPERTIES
In October 1998, the Company relocated its corporate headquarters
to 96 West Second Street, Morgan Hill, California 95037-4504
where it sub-leases approximately 300 square feet of office space
on a month-to-month basis.
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. The parties to the litigation have
engaged in formal discovery related to the claims and defenses
raised in the case. The Company intends to defend the suit
vigorously, and can not now predict the outcome of the
litigation.
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. A settlement was reached
with the plaintiffs in February 1999 resulting in a payment by
the Company of $28,000, and the Company has been released from
all claims related to this matter.
The Company is not a party to any other pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders in the
fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Quotations for the Company's common stock were reported on the
Nasdaq SmallCap Market System under the symbol "PURS" until May
8, 1998, and thereafter on the NASD OTC Bulletin Board The
following table sets forth, for the respective periods indicated,
the prices of the Company's Common Stock in the over-the-counter
market, as reported and summarized by the Nasdaq SmallCap Market
System and the OTC Bulletin Board. Such prices are based on
inter-dealer bid prices, without markup, markdown, commissions,
or adjustments and may not represent actual transactions.
Calendar Quarter Ended Low Bid ($) High Bid ($)
March 31, 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
March 31, 1998 2.50 3.94
June 30, 1998 1.62 4.00
September 30, 1998 1.62 2.00
December 31, 1998 0.75 1.87
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 January 2, 1999, there were approximately 88 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 January 2, 1999, and December 27, 1997
The Company had no revenue from continuing operations for fiscal
years 1998 and 1997.
General and administrative expenses from continuing operations
for fiscal years 1998 and 1997 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 $361,020 and
$1,305,195 for 1998 and 1997, respectively. General and
administrative expenses in 1998 were less than in 1997 primarily
due to increases in the reserves for legal expenses in 1997.
The Company had no interest expense in 1998 or 1997. Interest
income for fiscal year 1997 resulted exclusively from the
investment of the Company's cash. Interest income in 1998
resulted primarily from amounts accrued on the loans to CSI. In
1998, a total of $183,000 in interest income was attributable to
the CSI loans. Interest income was $277,848 and $245,780 in 1998
and 1997, respectively. Interest income in 1998 was higher than
in 1997 due to the higher yield attributable to the CSI loans.
As a result of the foregoing factors, the Company realized net
loss from continuing operations of $83,172 for 1998 as compared
to a net loss of $1,059,415 for 1997.
Results of Discontinued Operations
Years Ended January 2, 1999, and December 27, 1997
Income from discontinued operations was $57,533 and $1,090,104
for 1998 and 1997, 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 loss in
1998 was $25,639 as compared to net income of $30,689 in 1997.
Net income (loss) per share was $(0.03) and $0.05 for 1998 and
1997, respectively.
Liquidity and Capital Resources
At January 2, 1999, the Company had a working capital deficit of
$452,252, compared to working capital of $3,759,635 at the end of
1997. Working capital consists of cash and cash equivalents,
reduced by accounts payable and accrued liabilities. Net cash
used in operating activities was $374,310 in 1998 and $553,689
for 1997.
The reduction in working capital results from two loans made to
CSI in February of 1998 in the amount of $1,800,000 ("February
Loan") and in April of 1998 in the amount of $2,200,000.. CSI is
a private Nevada corporation engaged in the business of
manufacturing, marketing, and installing prefabricated housing
units in South America. Both loans bear interest at the rate of
6% per annum, and all principal and interest is due December 31,
1999. The loans are secured by all of the assets of CSI,
including all of the capital stock of its Venezuelan subsidiaries
conducting operations in South America. The February 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 exercisable on or before December
31, 1998. The warrant expired at the end of 1998 without being
exercised. 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.
Management is uncertain as to whether the Company has sufficient
cash and short-term investments to meet the anticipated needs of
the Company's continuing and discontinued operations through the
next 12 months because of uncertainties related to pending legal
actions against the Company. The Company has no assurance of
significant revenues and is subject to contingent liabilities,
including, without limitation, any damages awarded and/or costs
and expenses incurred by it in connection with pending litigation
against the Company, which could result in the depletion of its
capital. 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 financial statements of the Company appear at the end of
this report beginning with the Index to Financial Statements on
page F-1.
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 45 Chief Executive Officer and 1998
Director
Jorg Bader 46 Director 1997
Reinhard 52 Director 1996
Siegrist
(1) 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.
The Company is not aware of any 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 during
1998.
ITEM 10. EXECUTIVE COMPENSATION
Compensation
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 FCF for expenses up to $6,000 per year, and issued to
FCF a warrant to purchase 20,000 shares of common stock on or
before December 31, 2000, at an exercise price of $4.00 per
share. At the time of the transaction, an affiliate of FCF was a
five percent stockholder of the Company.
The Company does not pay any other compensation to its executive
officers.
Warrants
In consideration of the commitment of time and resources required
of Mr. 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 on or before November 30, 1999 at an exercise price
of $4.00 per share, which was subsequently repriced in July 1998,
to $2.00 per share. No other options or warrants were granted to
executive officers. The following table summarizes the terms of
the warrant granted to FCF.
% of Total
Number of Options/SARs
Securities Granted to Exercise
Name and Underlying Employees or Expiration
Principal Options in Base Price Date
Position Granted Fiscal ($/Sh)
Year
Peter Friedli 250,000 100 2.00 11/30/99
Chief Executive
Officer
The following table sets forth certain information with respect
to unexercised warrants held by Peter Friedli through FCF as of
January 2, 1999. No outstanding options or warrants were
exercised in 1998.
Number of Securities Value of Unexercised
Name and Underlying Unexercised In-the-Money Options
Principal Options at FY End ($) (1)
Position at FY End (#)
Exercisable/ Exercisable/
Unexercisable Unexercisable
Peter Friedli 270,000/ -0- -0-/ -0-
Chief Executive
Officer
(1) This value is determined on the basis of the difference
between the fair market value of the securities underlying the
options and the exercise price at fiscal year end.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of March 29, 1999, 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 32.1
Jorg Bader 2,000 (3) 0.3
Reinhard Siegrist 3,000 (3) 0.4
All directors and officers as a group 305,555 32.5
(3 persons)
(1) Percentage of beneficial ownership is calculated based on
666,193 shares of Common Stock outstanding on March 29,
1999, 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 a weighted
average exercise price of $2.15 per share. Peter Friedli
and Joyce Limited share beneficial ownership with respect to
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 exercisable.
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 Title of Document Location
No. Ref.
No.
1 (3)(i) Certificate of Incorporation, as (1)
amended
2 (3)(ii) By-Laws (2)
3 (10) 6% Convertible Promissory Note (3)
dated February 17, 1998
4 (10) Security Agreement dated February (3)
17, 1998
5 (10) Stock Pledge Agreement of CSI dated (3)
February 17, 1998
6 (10) Stock Pledge Agreement of (3)
Subsidiary dated February 17, 1998
7 (10) Warrant for CSI Preferred Stock (3)
dated February 17, 1998
8 (10) 6 % Convertible Promissory Note (4)
dated April 17, 1998
9 (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.
(3) Incorporated by reference to exhibit no.'s 1 through 5 to
the Company's Current Report on Form 8-K dated February 17, 1998.
(4) Incorporated by reference to exhibit no. 2 to the Company's
Current Report on Form 8-K dated April 16, 1998.
FORM 8-K FILINGS
No reports on Form 8-K were filed in the last calendar quarter of
1998.
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: March 23, 1999 By: /s/ 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: March 23, 1999 /s/ Peter Friedli
Principal Executive, Financial and
Accounting Officer, Director
Dated: March 23, 1999 /s/ Jorg Bader, Director
Dated: March 23, 1999 /s/ Reinhard Siegrist, Director
INDEX TO FINANCIAL STATEMENTS
Page
Report Of Independent Certified Public Accountants F-2
FINANCIAL STATEMENTS
Balance Sheet F-3
Statements of Operations F-4
Statement of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
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 January 2, 1999, and the related
statements of operations, shareholders' equity, and cash flows
for each of the two fiscal years 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 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 financial position
of the Company as of January 2, 1999, and the results of its
operations and its cash flows for each of the two fiscal years
then ended, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
San Jose, California
April 1, 1999
Purus, Inc.
BALANCE SHEET
January 2, 1999
ASSETS
Current assets:
Cash and cash equivalents $303,268
Other current assets 158,995
Total current assets 462,263
Notes receivable and accrued interest 4,183,000
Other assets 13,993
$4,659,256
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $914,515
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 (41,388,316)
Total shareholders' equity 3,744,741
$4,659,256
The accompanying notes are an integral part of this statement.
Purus, Inc.
STATEMENTS OF OPERATIONS
Fiscal year ended
1998 1997
Income (expense) from continuing operations:
General and administrative expenses $(361,020) $ (1,305,195)
Interest income 277,848 245,780
Loss from continuing operations (83,172) (1,059,415)
Income from discontinued operations 57,533 1,090,104
Net income (loss) $(25,639) $ 30,689
Income (loss) per share from:
Continuing operations:
Basic $ (0.12) $(1.59)
Diluted (0.12) (1.59)
Discontinued operations;
Basic $ 0.09 $1.64
Diluted 0.09 1.64
Net income (loss) per share:
Basic $ (0.03) $0.05
Diluted (0.03) 0.05
Weighted average shares outstanding 666,193 666,193
The accompanying notes are an integral part of this statement.
Purus, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
Two fiscal years ended January 2, 1999
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
Balances, beginning
of fiscal year 666,193 $ 6,662 $45,126,395 $(41,393,366) $3,739,691
Net income for fiscal
year - - - 30,689 30,689
Balances, end of
fiscal year 666,193 6,662 45,126,395 (41,362,677) 3,770,380
Net loss for fiscal
year - - - (25,639) (25,639)
Balances, end of fiscal
year 666,193 $ 6,662 $ 45,126,395 (41,388,316) $3,744,741
The accompanying notes are an integral part of this statement.
Purus, Inc.
STATEMENTS OF CASH FLOWS
Fiscal year ended
1998 1997
Cash flows from operating activities:
Net income (loss) $(25,639) $ 30,689
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 650 652
Settlement of net liabilities of discontinued
operations - (915,386)
Accrual for litigation - 542,139
Interest on notes receivable (183,000) -
Changes in operating assets and liabilities:
Other current assets 16,879 (76,535)
Accounts payable and accrued expenses (183,200) (61,671)
Net liabilities of discontinued operations - (73,577)
Net cash used in operating activities (374,310) (553,689)
Cash flows from investing activities:
Issuance of note receivable (4,000,000) -
Purchase of property and equipment (3,897) -
Purchases of short-term investments - (4,508,594)
Proceeds from sale of short-term investments 4,508,594 4,740,963
Net cash provided by investing activities 504,697 232,369
Net increase (decrease) in cash and cash
equivalents 130,387 (321,320)
Cash and cash equivalents, beginning of fiscal year 172,881 494,201
Cash and cash equivalents, end of fiscal year $303,268 $ 172,881
Accompanying notes are an integral part of this statement.
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS
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 consisted of debt securities issued by
the U.S. Treasury with maturity dates of less than two years.
These investments were classified as available for sale
securities and were valued at market, which approximated
cost. Realized and unrealized losses and gains within the
Company's short-term investments were not material. All
short-term investments were redeemed in fiscal 1998.
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, interest
receivable, accounts payable and accrued liabilities
approximate fair values due to the short maturity of those
instruments.
ii)The fair value of notes receivable and accrued interest
thereon cannot be determined as there are no quoted market
prices for the notes and the cost of determining the fair
value would be excessive.
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING
POLICIES (continued)
6. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the
weighted average number of common shares outstanding during
the period. Diluted earnings (loss) per share is computed
using the weighted average number of common and common
equivalent shares outstanding during the period. Common
equivalent shares consist of the incremental common shares
issuable upon conversion of convertible securities (using the
if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method).
Common equivalent shares are excluded from the computation if
their effect is anti-dilutive.
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. Stock-Based Compensation
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 granted 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.
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 estimated operating losses of the discontinued
operations. The Company has settled all outstanding claims
related to the discontinued operations and continues to collect
royalty revenues related to the discontinued operations.
A summary of the results of the discontinued operations
follows:
1998 1997
Revenue $ 33,875 $174,720
Reversal of warranty provision 23,658 915,384
Income from discontinued operations $ 57,533 $1,090,104
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
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. As of December 31, 1998, 100,000 shares
remain available for grant under the 1993 Plan.
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. As of December 31, 1998, 15,000 shares
remain available for grant under the 1995 Director Plan.
In 1998, the Company granted Friedli Corporate Finance, Inc.
("FCF"), through Mr. Peter Friedli ("Friedli"), 250,000
warrants exercisable at $4 to purchase the Company's common
stock. FCF is a principal shareholder in the Company and is
controlled by Friedli who serves as the current Chief Executive
Officer of the Company. The exercise price of these warrants
was subsequently reduced to $2. The warrants are vested and
expire in November 1999. Friedli also holds 20,000 warrants
exercisable at $4 to purchase shares of the Company's common
stock. These warrants were issued prior to 1997 and expire in
2000.
A summary of the status of the Company's stock options and
warrants as of January 2, 1999, and December 27, 1997, and
changes during the fiscal years ended on those dates along with
the pro forma effects of the options and warrants, as
determined under SFAS No. 123, on income and loss per share is
presented below:
1998 1997
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
Outstanding at beginning of year 28,000 $3.81 22,500 $4.06
Granted 252,000 2.00 7,000 3.16
Exercised - - - -
Forfeited (5,000) 3.16 (1,500) 7.60
Outstanding at year end 275,000 $2.16 28,000 $3.81
Exercisable at year end 275,000 $2.16 25,500 $3.97
Weighted average fair value of
options and warrants granted $1.38 $1.50
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE C - SHAREHOLDERS' EQUITY (continued)
December 31, December 27,
1998 1997
Loss from continuing operations
As reported $ (83,172) $(1,059,415)
Pro forma (431,252) (1,065,680)
Net income (loss)
As reported $ (25,639) $ 30,689
Pro forma (373,719) 24,424
Basis and diluted loss per share from
continuing operations
As reported $ (0.12) $ (1.59)
Pro forma (0.65) (1.60)
Basic and diluted net income per share
As reported $ (0.03) $ 0.05
Pro forma (0.56) 0.04
As required by SFAS No. 123, the fair value of each grant is
estimated on the date of grant using the Black-Scholes pricing
model with the following weighted average assumptions: no
expected dividends, an expected life of 1.5 years in 1998 and 3
years in 1997, volatility of 100% in 1998 and 50% in 1997 and a
risk free rate of return of 5.5%.
The following table summarizes information about stock options
and warrants outstanding at January 2, 1999:
Weighted
Average Weighted
Range of Outstanding Remaining Average
Exercise and Contractual Exercise
Prices exercisable Life (Years) Price
$2.00 252,000 0.9 $2.00
$3.81 - $4.00 23,000 2.2 $3.98
$2.00 - $4.00 275,000 1.0 $2.16
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
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 31, 1998:
Net operating loss carryforward $12,600,000
Litigation and legal accruals 322,000
Research credit carryforward 650,000
Gross deferred tax asset 13,572,000
Less valuation allowance (13,572,000)
Net deferred tax asset $ -
As of January 2, 1999, the Company had available net operating
loss carryforwards approximating $33,400,000 and $10,500,000
for federal and California tax purposes, respectively which
expire beginning in 2004 and 1999, respectively. The Company
also has research credit carryforwards of approximately
$460,000 and $190,000 for federal and California tax purposes.
The federal and California net operating losses can be carried
forward to reduce income taxes on future earnings subject to
the limitations discussed below.
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
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. The parties to the
litigation have engaged in formal discovery. The Company
cannot predict the outcome of the litigation. Aside from
certain provisions for legal expenses, the financial statements
do not contain any provisions for settlement of this suit.
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE E - COMMITMENTS AND CONTINGENCIES (continued)
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. A settlement
agreement was reached in February 1999 to settle this claim for
$28,000.
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.
NOTE F - RELATED PARTY TRANSACTIONS
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
1997, BPM was paid $65,000.
In September 1997, the Company entered into a consulting
agreement with 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. In 1997, the Company
paid Friedli an additional $149,000 for 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.
The Company pays consulting and management fees of $6,000 per
month, plus reimbursed expenses, to Mr. Don Winstead, a former
officer and director of the Company.
Purus, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G - NOTE RECEIVABLE
The Company has loaned $4,000,000 to Casa Solaz, Inc. (a Nevada
corporation, "CSI"). CSI manufactures prefabricated housing in
South America. The proceeds of the loan have been used to
construct manufacturing facilities in Venezuela. The principal
and any unpaid interest (at 6%) is due on December 31, 1999;
however, because of the development stage nature of CSI as
described below, the Company has classified the notes
receivable as long-term. The loan is collateralized by all of
the assets of CSI, including the stock of the CSI subsidiaries.
Loan principal in the amount of $1,800,000 is convertible into
450,000 shares of 8% preferred stock of CSI. In connection
with the issuance of the notes, the Company received warrants
to purchase shares of 8% preferred stock of CSI at $4.00 per
share, which expired in December 1998. Each share of 8%
preferred stock is convertible into one share of common stock
of CSI.
CSI is currently a development stage enterprise as principal
revenue producing activities have not begun. Operations to
December 31, 1998, have consisted of constructing manufacturing
facilities, designing products to be sold, and developing a
sales organization. Condensed financial information of CSI
follows:
December 31,
1998
Cash $222,665
Other current assets 687,263
909,928
Property and equipment 4,579,437
$5,489,365
Current liabilities 193,475
Notes to Purus, including interest 4,183,000
Other notes payable 585,000
4,961,475
Equity 527,890
$5,489,365
Year ended
December 31,
1998
Revenues and interest income $152,426
Expenses (1,498,631)
Net loss $(1,346,205)
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