ARGAN INC — Annual Report 2002

May 31, 2002

10KSB/A 1 form10ksba05190_05312002.htm AMENDMENT TO FORM 10KSB sec document SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2002 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File No. 0-5622 PUROFLOW INCORPORATED --------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-1947195 ---------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 10616 Lanark Street, Sun Valley, California 91352 ---------------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 504-4000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.15 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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. [X] Registrant's revenues for the fiscal year ended January 31, 2002 were approximately $7,236,000. The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $2,500,583 as of March 31, 2002, based upon the closing price on the NASDAQ Electronic Bulletin Board System reported for such date. Shares of Common Stock held by each Officer and Director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such person may under certain circumstances be deemed to be affiliates. The determination of an affiliate status is not necessarily a conclusive determination for other purposes. Number of shares of Common Stock outstanding as of March 31, 2002: 494,306 Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the directors and the executive officers of the Company: Name Age Positions with the Company ---- --- -------------------------- Michael H. Figoff 59 Director, CEO and President Travis Bradford 30 Director, Chairman of the Board Warren G. Lichtenstein 37 Director Glen Kassan 58 Director Dr. Tracy Kent Pugmire 71 Director Josh Schechter 29 Director Robert A. Smith 61 Director Wayne Conner 54 Vice President of Engineering Dale Livingston 63 Vice President of Operations The business experience of each of the persons listed above for at least five years is as follows: Michael H. Figoff has served as President and Chief Executive Officer and Director of the Company since May 1995. Mr. Figoff joined the Company in 1988 and has previously served as its Executive Vice President and Director of Marketing. Prior to joining the Company, Mr. Figoff served in various capacities with Lockheed Martin, Textron, Fairchild and Ferranti International. Mr. Figoff received his B.S. degree in Business Administration from Woodbury University in 1973. Travis Bradford has been a Director of the Company since February 1, 2001 and Chairman of the Board of Directors since August 28, 2001. Mr. Bradford has been a strategic and operational consultant for over 10 years. He has been a Vice President of Steel Partners Services, Ltd., a management and advisory company that provides services to Steel Partners II, L.P. ("Steel"), since June 1999. From March 1997 to May 1999 he was a member of Holding Capital Group, LLC, an equity investment group. Mr. Bradford received his B.B.A. degree in Finance from Georgia State University in 1992 and his M.B.A. degree in Finance and Management from Stern School of Business at New York University in 1996. He also attended the Ph.D. program at the University of Chicago studying finance and economics. Warren G. Lichtenstein has served as a Director of the Company since September 16, 1999. Mr. Lichtenstein has served as the Chairman of the Board, Secretary and the Managing Member of Steel Partners, L.L.C., the general partner of Steel, since January 1, 1996. Prior to such time, Mr. Lichtensten was the Chairman and a Director of Steel Partners, Ltd., the general partner of Steel Partners Associates, L.P., which was the general partner of Steel from 1993 until prior to January 1, 1996. Mr. Lichtenstein was the acquisition/risk arbitrage analyst at Ballantrae Partners, L.P., a private investment partnership formed to invest in risk arbitrage, special situations and undervalued companies, from 1988 to 1990. Mr. Lichtenstein has served as a Director of WebFinancial Corporation, a consumer and commercial lender, since 1996 and as its President and Chief Executive Officer since December 1997. He served as a Director and the Chief Executive Officer of Gateway Industries, Inc., a provider of database development and Web site design and development services, since 1994 and as the Chairman of the Board since 1995. Mr. Lichtenstein has served as a Director and the President and Chief Executive Officer of CPX, Corp., a financial advisory and management company since June 1999 and as its Secretary and Treasurer since May 2001. He has also served as Chairman of the Board of Directors of Caribbean Fertilizer Group Ltd., a private company engaged in the production of agricultural products in Puerto Rico and Jamaica, since June 2000. Mr. Lichtenstein is a Director of SL Industries, Inc., a manufacturer and marketer of Power and Data Quality systems and equipment. Mr. Lichtenstein has served as Chairman of the Board and as Chief Executive Officer of SL Industries, Inc. since January 24, 2002 and February 4, 2002, respectively. Mr. Lichtenstein is also a Director of the following publicly held companies: TAB Products Co., a document management company; Tandycrafts, Inc., a manufacturer of picture frames and framed art; United Industrial Corporation, a designer and producer of defense, training, transporation and energy systems; ECC International Corp., a manufacturer and marketer of computer-controlled simulators for training personnel to perform maintenance and operator procedures on military weapons; and US Diagnostic Inc., an operator of outpatient medical diagnostic imaging and related facilities. -2- Glen Kassan has been a Director of the Company since August 28, 2001. Mr. Kassan has served as Executive Vice President of Steel Partners Services, Ltd., a management and advisory company, since June 2001 and Vice President since October 1999. Steel Partners Services, Ltd. provides management services to Steel and other affiliates of Steel. Mr. Kassan has served as Vice President, Chief Financial Officer and Secretary of Gateway Industries, Inc., a provider of database development and Web site design and development services, since June 2000. He has also served as Vice President, Chief Financial Officer and Secretary of WebFinancial Corporation, a commercial and consumer lender, since June 2000. Mr. Kassan has served as Vice Chairman of the Board of Directors of Caribbean Fertilizer Group Ltd., a private company engaged in the production of agricultural products in Puerto Rico and Jamaica, since June 2000. Mr. Kassan is a Director and has served as President of SL Industries, Inc., a manufacturer and marketer of Power and Data Quality systems and equipment for industrial, medical, aerospace and consumer applications, since January 2002 and February 2002, respectively. From 1997 to 1998, Mr. Kassan served as Chairman and Chief Executive Officer of Long Term Care Services, Inc., a privately owned healthcare services company which Mr. Kassan co-founded in 1994 and initially served as Vice Chairman and Chief Financial Officer. Mr. Kassan is currently a Director of Tandycrafts, Inc., a manufacturer of picture frames and framed art and the Chairman of the Board of US Diagnostic Inc., an operator of outpatient diagnostic imaging. Dr. Tracy Kent Pugmire has served as a Director of the Company since June 1991. Since April 1992, Dr. Pugmire has served as an independent technical consultant. Dr. Pugmire currently provides consulting services to Spincraft, a Division of Standex International, and is involved with the design and fabrication of the X-33 and X-34 rocket vehicles. Previously, Dr. Pugmire was Executive Vice President of ARDE Inc. and worked as a Program Manager for several companies including TRW Space Systems Division, Technion Inc., AVCO Missile and Space Systems (now a division of Textron), General Electric Space Sciences Laboratory, and Boeing Propulsion and Mechanical Systems Department. Josh Schechter has been a Director of the Company since August 28, 2001. Mr. Schechter has served as an Associate of Steel Partners Services, Ltd. since July 2001. From March 1998 to June 2001, Mr. Schechter was an Associate in the corporate finance group at Imperial Capital, LLC, an investment banking firm. From August 1997 to February 1998, he was a Senior Analyst at Leifer Capital, Inc., an investment banking firm. From January 1996 to June 1997, Mr. Schechter was a Tax Consultant with Ernst & Young LLP. Mr. Schechter received his B.B.A. and M.A. in Professional Accounting from the University of Texas at Austin in 1995. Robert A. Smith has served as a Director of the Company since July 1994. Mr. Smith had been President of Microsource Incorporated, a subsidiary of Giga-tronics, from October 1998 until May 2001 and currently serves as Microsource's Vice Chairman. Previously, Mr. Smith served as President of the Industrial Products Group of Haskel International Inc. from February 1995 to January 1998; President and Chief Executive Officer of Industrial Tools Inc. from January 1994 to February 1995; President of Engineered Filtration Company from October 1992 to January 1994; President of Puroflow Corporation, a wholly-owned subsidiary of the Company, from February 1991 to October 1992; and President of RTS Systems Incorporated from May 1988 to February 1991, when the company was acquired by Telex Communications, Inc. Mr. Smith served as President of Purolator Technologies Inc. from 1980 to 1988 and served as the General Manager of the Filter Division of HR Textron Inc. from 1964 to 1980. Wayne Conner has over 30 years of filtration experience and has been the Vice President of Engineering of the Company since July 1997. From 1990 to 1994, Mr. Conner served as Senior Project Engineer - New Product Development for the Hydraulic Filter Division of Parker Hannifin Corporation. Mr. Conner also served in various capacities with Purolator Technologies Inc. Mr. Conner received his B.S. degree in Mechanical Engineering from Wayne State University in 1971. Dale Livingston has been the Vice President of Operations of the Company since February 1998. From August 1995 until February 1998, Mr. Livingston served as Director of Operations of the Company, and from October 1989 until August 1995, he served as Production Manager of the Company. Mr. Livingston previously served in various capacities with Parker Hannifin Corporation, Hydraulic Research/Textron, Talley Corporation, The Marquardt Company and Teleflex Control Systems. Director Compensation Each outside director of the Company receives a $2,500 annual fee, plus $300 for each formal meeting attended. Directors are also reimbursed for reasonable expenses actually incurred in connection with attending each formal meeting of the Board of Directors or any committee thereof. The Company's outside directors are currently Messrs. Bradford, Lichtenstein, Kassan, Schechter and Smith and Dr. Pugmire. -3- Compliance With Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Exchange Act requires the Company's directors and executive officers and persons who beneficially own more than 10% of the Company's Common Stock (collectively, the "Reporting Persons") to file with the Commission (and, if such security is listed on a national securities exchange, with such exchange), various reports as to ownership of such Common Stock. Such Reporting Persons are required by Commission regulations to furnish the Company with copies of all Section 16(a) reports they file. Based solely upon a review of copies of Section 16(a) reports and representations received by the Company from Reporting Persons, and without conducting any independent investigations of its own, the Company believes that no Reporting Person failed to timely file Forms 3, 4, and 5 with the Commission during the fiscal year ended January 31, 2002. ITEM 10. EXECUTIVE COMPENSATION Summary Compensation Table The following summary compensation table sets forth, for the fiscal years indicated, the aggregate compensation paid to or earned by the President and Chief Executive Officer of the Company and the four most highly compensated executive officers of the Company (other than the President and Chief Executive Officer) whose total annual salaries and bonuses exceeded $100,000 for the fiscal years ended January 31, 2002, 2001 and 2000. Please note that the executive officers identified are collectively referred to as the "Named Executive Officers". Long-Term Compensation Annual Compensation Awards Securities Name and Fiscal Underlying All Other Principal Position Year Salary ($) Bonus ($) Options/SARs Compensation $ (1) ------------------ ---- ---------- --------- ------------ ------------------- Michael H. Figoff 2002 165,000 - - 28,657 President and Chief 2001 165,000 - - 27,101 Executive Officer 2000 165,000 - - 22,894 Wayne Conner 2002 113,990 - - 8,215 Vice President of 2001 106,391 - - 7,813 Engineering 2000 103,858 - - 7,849 Dale Livingston 2002 108,544 - - 6,828 Vice President of 2001 102,400 - - 6,554 Operations 2000 99,542 - - 6,590 (1) Represents Company-reimbursed automobile expenses of such executive and life and disability insurance premiums paid by the Company. Option/SAR Grants in Fiscal Year No options were granted to any of the Named Executive Officers during the fiscal year ended January 31, 2002. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values The following table provides certain information regarding stock option ownership and exercises by the Named Executive Officers, as well as the number and assumed value of exercisable and unexercisable options held by those persons at January 31, 2002. Number of Securities Value of Unexercised In Underlying Unexercised The Money Options/SARs Name Options/SARs at 01/31/02 at 01/31/02($)(1) ---- ------------------------ ---------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Michael Figoff 3,667 - - - Wayne Conner 1,400 133 $816 - Dale Livingston 734 266 - - (1) Value of unexercised "in-the-money" options is equal to the difference between the closing bid price per share of the Common Stock on the OTC Bulletin Board at January 31, 2002 ($6.20) and the option exercise price per share multiplied by the number of shares subject to options. -4- Senior Executive Bonus Plan The Compensation Committee developed and approved a senior executive bonus plan on April 4, 2002. The senior executive bonus plan has specific performance targets. Bonuses are to be paid under the bonus plan only if performance goals that were set at the beginning of the fiscal year are achieved by the end of the fiscal year. Accordingly, the actual bonuses paid will vary depending on actual performance. In general, the performance goals set at the beginning of the fiscal year were linked to factors such as annual revenue, earnings before interest, taxes, depreciation and amortization (EBITDA) and equity. There was no such senior executive bonus plan in fiscal year 2002. 2001 Incentive Stock Option Plan In August 2001, the Board of Directors adopted and the stockholders approved the 2001 Incentive Stock Option Plan (the "2001 Option Plan"). The 2001 Option Plan was authorized to issue options to purchase a maximum of 33,333 shares of Common Stock. The maximum number of shares may be adjusted in certain events, such as a stock split, reorganization or recapitalization. Employees (including officers and Directors who are employees) of the Company or its subsidiaries are eligible to receive incentive stock options. In the event incentive stock options are granted, the aggregate fair market value of the Common Stock issuable under such options for each optionee during any calendar year cannot exceed $100,000. This limit does not apply to non-qualified options. To the extent that an incentive stock option exceeds the $100,000 threshold, the excess will be treated as a non-qualified option. The Company will receive no monetary consideration for the grant of options under the 2001 Option Plan. In the case of an incentive stock option, the exercise price cannot be less than the fair market value (as defined in the 2001 Option Plan) of the Common Stock on the date the option is granted. If the optionee is a stockholder who beneficially owns 10% or more of the outstanding Common Stock, the exercise price of incentive stock options may not be less than 110% of the fair market value of the Common Stock. The term of an option cannot exceed ten years; provided, however, that the term of options granted to owners of 10% or more of the outstanding shares of Common Stock cannot exceed five years. The 2001 Option Plan will terminate automatically and no options may be granted after July 19, 2011 (the "Termination Date"); provided, however, that the 2001 Option Plan may be terminated by the Board of Directors at any time prior to the Termination Date. Termination of the 2001 Option Plan will not affect options that were granted prior to the Termination Date. As of January 31, 2002, there were no options granted under the 2001 Option Plan. 1991 Incentive Stock Option Plan In 1991, the Board of Directors adopted and the stockholders approved the 1991 Incentive Stock Option Plan (the "1991 Option Plan"). Under the 1991 Option Plan, the maximum number of shares of Common Stock that may be subject to options may not exceed an aggregate of 33,333 shares. The maximum number of shares may be adjusted in certain events, such as a stock split, reorganization or recapitalization. Employees (including officers and directors who are employees) of the Company or its subsidiaries are eligible to receive incentive stock options, but may receive nonqualified options. Options may also be granted to other persons, provided that such options shall be non-qualified options. In the event of incentive options, the aggregate fair market value of the Common Stock with respect to which such options become first exercisable by the holder during any calendar year cannot exceed $100,000. This limit does not apply to non-qualified options. To the extent an option that otherwise would be an incentive option exceeds this $100,000 threshold, it will be treated as a non-qualified option. This plan was terminated upon consummation of the 2001 Option Plan. As of January 31, 2002, there were options for 12,507 shares held and options for 10,868 shares available for exercise. Employment Agreements On March 1, 1993, the Company entered into an employment agreement with Michael Figoff pursuant to which Mr. Figoff agreed to serve as the Executive Vice President of the Company for a term of five years at an annual base salary of $95,000. Effective February 14, 1994, Mr. Figoff's annual base salary was increased to -5- $104,500. Mr. Figoff was appointed President of the Company in February 1995, and was appointed President and Chief Executive Officer in May 1995. In April 1997, Mr. Figoff's annual base salary was increased to $165,000. On June 9, 1998, the Company extended Mr. Figoff's employment agreement for a term of five years at an annual base salary of $165,000. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of May 15, 2002 regarding the beneficial ownership of Common Stock by (A) each person known by the Company to own beneficially more than five percent of the Common Stock, (B) each director and director nominee of the Company, (C) each of the "Named Executive Officers" (as defined in "Executive Compensation - Summary Compensation Table"), and (D) all executive officers, directors and director nominees of the Company as a group. Unless otherwise indicated, the address of each person named in the table below is c/o Puroflow Incorporated, 10616 Lanark Street, Sun Valley, California 91352. Number of Shares Percentage Beneficially Beneficially Name Owned(1) Owned ---------- ------------ Steel Partners II, L.P. 175,840(2) 35.6% Warren G. Lichtenstein 175,840(2) 35.6% David S. Nagelberg 30,623(3) 6.2% Michael H. Figoff 18,534(4) 3.7% Robert A. Smith 1,033(5) * Dale Livingston 6,453(6) 1.3% Dr. Tracy Kent Pugmire 3,201(7) * Wayne Conner 4,733(8) * Travis Bradford -(2) * Glen Kassan -(2) * Joshua Schechter -(2) * All directors and executive officers as a group (nine persons) 209,794 41.3% * Less than 1 % (1) As used in this table, a beneficial owner of a security includes any person who, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise has or shares (i) the power to vote, or direct the voting of, such security or (ii) investment power which includes the power to dispose, or to direct the disposition of, such security. In addition, a person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days of the date shown above. (2) Based upon a Form 4, filed with the Securities and Exchange Commission (the "Commission") by the Steel Parties. The business address of Steel Partners and Messrs. Lichtenstein, Bradford, Kassan and Schechter is 150 East 52nd Street, 21st Floor, New York, New York 10020. (3) Based upon a Schedule 13G filed with the Commission by Mr. Nagelberg. Includes 6,617 shares owned by The Nagelberg Family Trust over which Mr. Nagelberg and his spouse, as trustees, share voting and dispositive power. The business address of Mr. Nagelberg is c/o M.H. Meyerson & Co., Inc., P.O. Box 2142, Rancho Santa Fe, California 92067-2142. (4) Includes (a) options to purchase 5,667 shares of Common Stock, all of which are fully vested, and (b) 533 shares of Common Stock owned by Mr. Figoff's spouse. Mr. Figoff disclaims beneficial ownership of the shares owned by his spouse. (5) Includes (a) options to purchase 667 shares of Common Stock, all of which are fully vested, and (b) 366 shares of Common Stock owned jointly by Mr. Smith and his spouse. (6) Includes options to purchase 3,000 shares of Common Stock, of which 1,000 are fully vested. (7) Includes options to purchase 534 shares of Common Stock, all of which are fully vested. (8) Includes options to purchase 3,666 shares of Common Stock, of which 1,666 are fully vested. -6- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On February 17, 2000, the Board of Directors announced a plan to retire 61,333 shares of Common Stock in exchange for the cancellation of Notes received by Puroflow from certain members of the Board of Directors, officers and employees. The Company cancelled Notes in the aggregate amount of $548,272 in exchange for 48,735 shares of Common Stock. -7- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PUROFLOW INCORPORATED By: /s/Michael H. Figoff May 30, 2002 ------------------------------------------- Michael H. Figoff President/Chief Executive Officer Director Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. By: /s/Michael H. Figoff May 30, 2002 ------------------------------------------- Michael H. Figoff President/Chief Executive Officer Director By: /s/Travis Bradford May 30, 2002 ------------------------------------------- Travis Bradford Chairman of the Board By: ------------------------------------------- Glen Kassan Director By: /s/Warren Lichtenstein May 30, 2002 ------------------------------------------- Warren Lichtenstein Director By: ------------------------------------------- Dr. Tracy K. Pugmire Director By: /s/Josh Schechter May 30, 2002 ------------------------------------------- Josh Schechter Director By: ------------------------------------------- Robert A. Smith Director By: /s/Craig S. Montesanti May 30, 2002 ----------------------------------------------------- Craig S. Montesanti Vice President of Finance (Principal Accounting Officer) -8-