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ARGAN INC — Interim / Quarterly Report 2001
Dec 14, 2001
31210_rns_2001-12-14_aa69eb68-661f-4689-a1ff-981200aba72a.zip
Interim / Quarterly Report
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10QSB 1 a2066124z10qsb.htm FORM 10QSB Prepared by MERRILL CORPORATION QuickLinks -- Click here to rapidly navigate through this document TOC_END
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 31, 2001
Commission File Number 0-5622
PUROFLOW INCORPORATED (Exact name of registrant as specified in its charter)
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| DELAWARE (State or other jurisdiction of incorporation or organization) | 13-1947195 (I.R.S. Employer identification No.) |
|---|---|
| 16559 Saticoy Street, Van Nuys, California (Address of executive offices) | 91406-1739 (ZIP Code) |
end of user-specified TAGGED TABLE
Registrant's telephone number, including area code: (818) 756-1388
Securities registered pursuant to Section 12(g) of the Act:
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| Common Stock | Shares outstanding |
|---|---|
| Common Stock, $.15 Par Value | 494,132 |
end of user-specified TAGGED TABLE
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 / /
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PUROFLOW INCORPORATED Consolidated Balance Sheets (Unaudited)
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| October 31, 2001 | ||||
|---|---|---|---|---|
| ASSETS | ||||
| CURRENT ASSETS | ||||
| Cash | $ 107,919 | $ | 8,250 | |
| Accounts receivable | ||||
| Net of allowance for doubtful accounts of $48,000 at | ||||
| October 31, 2001 and $25,000 at January 31, 2001 | 1,373,642 | 1,701,442 | ||
| Advances to officers & employees | 2,150 | 3,125 | ||
| Deferred tax benefit | 120,528 | 136,528 | ||
| Inventories | 2,139,638 | 2,016,792 | ||
| Prepaid expenses and other current assets | 79,588 | 114,068 | ||
| TOTAL CURRENT ASSETS | 3,823,465 | 3,980,205 | ||
| PROPERTY & EQUIPMENT | ||||
| Leasehold improvements | 62,834 | 62,834 | ||
| Machinery and equipment | 3,676,857 | 3,622,541 | ||
| Tooling and dies | 398,892 | 376,307 | ||
| 4,138,583 | 4,061,682 | |||
| Less accumulated depreciation and amortization | 3,510,054 | 3,366,441 | ||
| NET PROPERTY AND EQUIPMENT | 628,529 | 695,241 | ||
| DEFERRED TAXES | 590,165 | 590,165 | ||
| OTHER ASSETS | 294,105 | 339,762 | ||
| TOTAL ASSETS | $ 5,336,264 | $ | 5,605,373 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| CURRENT LIABILITIES | ||||
| Line of credit | $ 520,000 | $ | 544,000 | |
| Notes payable, current | 38,000 | 48,000 | ||
| Bank overdraft | | 34,698 | ||
| Accounts payable | 417,490 | 506,207 | ||
| Accrued expenses | 134,548 | 429,986 | ||
| TOTAL CURRENT LIABILITIES | 1,110,038 | 1,562,891 | ||
| Long-term debt | | 44,200 | ||
| TOTAL LIABILITIES | 1,110,038 | 1,607,091 | ||
| STOCKHOLDERS' EQUITY | ||||
| Preferred stock, par value $.10 per share authorized 500,000 shares issued none | ||||
| Common stock, par value $.15 per share authorized 12,000,000 shares | ||||
| Outstanding 493,272 shares at January 31, 2001 and 494,132 at October 31, 2001 | 433,967 | 433,967 | ||
| Additional paid-in capital | 5,141,767 | 5,141,767 | ||
| Accumulated deficit | (1,310,589 | ) | (1,538,533 | ) |
| Less: | ||||
| Notes receivable from stockholders | (6,000 | ) | (6,000 | ) |
| Treasury stock at cost | (32,919 | ) | (32,919 | ) |
| TOTAL STOCKHOLDERS' EQUITY | 4,226,226 | 3,998,282 | ||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 5,336,264 | $ | 5,605,373 |
end of user-specified TAGGED TABLE
See accompanying notes to the consolidated financial statements
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PUROFLOW INCORPORATED Consolidated Statements of Operations (Unaudited)
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| Three months ended October 31, — 2001 | 2000 | Nine months ended October 31 — 2001 | 2000 | |||||
|---|---|---|---|---|---|---|---|---|
| Net revenue | $ 1,909,820 | $ | 1,919,336 | $ 5,931,967 | $ | 5,631,811 | ||
| Cost of goods sold | 1,306,014 | 1,326,423 | 4,175,632 | 3,855,581 | ||||
| Gross profit | 603,806 | 592,913 | 1,756,335 | 1,776,230 | ||||
| Selling, general and administrative expense | 498,718 | 426,437 | 1,421,542 | 1,324,888 | ||||
| Operating income | 105,088 | 166,476 | 334,793 | 451,342 | ||||
| Interest expense | (10,945 | ) | (16,487 | ) | (38,895 | ) | (47,234 | ) |
| Other income | 30 | 36 | 2,029 | 665 | ||||
| Amortization goodwill/non-compete | (16,768 | ) | (13,116 | ) | (45,656 | ) | (39,348 | ) |
| Income before taxes from continuing operations | 77,405 | 136,909 | 252,271 | 365,425 | ||||
| Provision for income taxes | 17,900 | 10,600 | 24,327 | 13,900 | ||||
| Income from continuing operations | $ 59,505 | $ | 126,309 | $ 227,944 | $ | 351,525 | ||
| Loss from discontinued operations | $ | $ | (79,887 | ) | $ | $ | (146,208 | ) |
| Net Income | $ 59,505 | $ | 46,422 | $ 227,944 | $ | 205,317 | ||
| Net income(Loss) per common share | ||||||||
| Basic earnings per share | $ 0.12 | $ | 0.09 | $ 0.46 | $ | 0.41 | ||
| Diluted earnings per share | $ 0.12 | $ | 0.09 | $ 0.46 | $ | 0.40 | ||
| Weighted average number of shares | ||||||||
| Basic | 494,132 | 493,272 | 494,132 | 504,101 | ||||
| Diluted | 494,926 | 498,587 | 495,165 | 509,785 |
end of user-specified TAGGED TABLE
See accompanying notes to the consolidated financial statements
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PUROFLOW INCORPORATED Consolidated Statements of Cash Flows (Unaudited)
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| 2001 | ||||
|---|---|---|---|---|
| For the nine months ended October 31 | ||||
| CASH AT BEGINNING OF PERIOD | $ 8,250 | $ | 56,829 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Net income | 227,944 | 205,317 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 143,613 | 154,955 | ||
| Amortization of Goodwill/Non-compete | 45,656 | 39,348 | ||
| Provision for losses on accounts receivable | 23,000 | 22,617 | ||
| Changes in operating assets and liabilities: | ||||
| Advances to Officers & Employees | 975 | 900 | ||
| Accounts receivable | 304,800 | (183,357 | ) | |
| Inventories | (122,846 | ) | (364,249 | ) |
| Prepaid expenses and other current assets | 34,481 | (1,048 | ) | |
| Deferred tax benefit | 16,000 | 3,800 | ||
| Accounts payable & accrued expenses | (384,155 | ) | 173,868 | |
| Net cash provided by operating activities | 289,468 | 52,151 | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||
| Purchases of property and equipment | (76,901 | ) | (62,492 | ) |
| Net cash used in investing activities | (76,901 | ) | (62,492 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Bank Overdraft | (34,698 | ) | | |
| Payments on long term debt | (54,200 | ) | (85,400 | ) |
| Advances (Payments) on credit line | (24,000 | ) | 44,000 | |
| Net cash used by financing activities | (112,898 | ) | (41,400 | ) |
| NET INCREASE (DECREASE) IN CASH | 99,669 | (51,741 | ) | |
| CASH AT END OF PERIOD | $ 107,919 | $ | 5,088 |
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See accompanying notes to the consolidated financial statements
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PUROFLOW INCORPORATED AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity (Unaudited)
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| Balance at January 31, 2000 | COMMON STOCK PAR VALUE — $ 441,277 | ADDITIONAL PAID-IN CAPITAL — $ 5,682,729 | $ (1,516,407 | ) | NOTES RECEIVABLE FROM STOCKHOLDERS AND TREASURY STOCK — $ (587,191 | ) | TOTAL — $ 4,020,408 | ||
|---|---|---|---|---|---|---|---|---|---|
| Reversal of Notes Receivable on Stock Purchase and retirement of shares | $ (7,310 | ) | $ (540,962 | ) | $ 548,272 | $ | |||
| Net Loss | $ (22,126 | ) | $ (22,126 | ) | |||||
| Balance at January 31, 2001 | $ 433,967 | $ 5,141,767 | $ (1,538,533 | ) | $ (38,919 | ) | $ 3,998,282 | ||
| Net Income | $ 80,288 | $ 80,288 | |||||||
| Balance at April 30, 2001 | $ 433,967 | $ 5,141,767 | $ (1,458,245 | ) | $ (38,919 | ) | $ 4,078,570 | ||
| Net Income | $ 88,151 | $ 88,151 | |||||||
| Balance at July 31, 2001 | $ 433,967 | $ 5,141,767 | $ (1,370,094 | ) | $ (38,919 | ) | $ 4,166,721 | ||
| Net Income | $ 59,505 | $ 59,505 | |||||||
| Balance at October 31, 2001 | $ 433,967 | $ 5,141,767 | $ (1,310,589 | ) | $ (38,919 | ) | $ 4,226,226 |
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See accompanying notes to the financial statements
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PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. (Unaudited) October 31, 2001, January 31, 2001, and October 31, 2000
NOTE 1ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet at the end of the preceding fiscal year has been derived from the audited consolidated balance sheet contained in the Company's annual report on Form 10-K for the fiscal year ended January 31, 2001 (The "Form 10-KSB") and is presented for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments that include only normal recurring adjustments necessary to present fairly the financial position, results of operations and changes in financial positions for all periods presented have been made. The results of operations for interim periods are not necessarily indicative of the operating results for the full year.
Footnote disclosures normally included in financial statements prepared in accordance with the generally accepted accounting principles have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission.
The consolidated financial statements and notes thereto should be read in conjunction with management's discussion and analysis of financial condition and results of operations, contained in the Company's annual report on Form 10-KSB for the year ended January 31, 2001.
NOTE 2INVENTORIES
Inventories consist of the following:
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| October 31, 2001 | January 31, 2001 | |
|---|---|---|
| Raw materials and purchased parts | 1,426,345 | 1,263,199 |
| Work in process | 376,279 | 394,580 |
| Finished goods and assemblies | 337,014 | 359,013 |
| Totals | $ 2,139,638 | $ 2,016,792 |
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NOTE 3STOCKHOLDERS' EQUITY
On February 17, 2000 the Board announced a plan to retire 920,000 shares of its common stock, from shares issued August 24, 1998, in return for cancellation of notes received by the company from employees and board members. The company received and retired 731,030 shares of common stock.
On August 27, 2001 at a duly called meeting of the stockholders, stockholders voted in favor of an amendment authorizing a fifteen to one reverse stock split. On October 8, 2001 the Board initiated this "Reverse Stock Split" where every share issued and outstanding prior to the effective date (October 8, 2001) shall be reclassified and continued as one-fifteenth of one share of Common Stock, without any action on the part of the holder.
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NOTE 4NET INCOME PER SHARE
Reconciliation of basic and diluted earnings per share:
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| INCOME | SHARES | PER-SHARE AMOUNT | |
|---|---|---|---|
| 9 Months Ended October 31, 2001 | |||
| Basic earnings per share | $ 227,944 | 494,132 | $ .46 |
| Effect of Dilutive Securities | |||
| Stock options | 1,033 | ||
| Diluted earnings per share | $ 227,944 | 495,165 | $ .46 |
| 9 Months Ended October 31, 2000 | |||
| Basic earnings per share | $ 205,317 | 504,101 | $ .41 |
| Effect of Dilutive Securities | |||
| Stock Options | 5,684 | ||
| Diluted earnings per share | $ 205,317 | 509,785 | $ .40 |
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Basic earnings per share is based on the weighted average number of shares outstanding. Diluted earnings per share include the effect of common stock equivalents when dilutive. Earnings per share for the nine months ended October 31, 2000 have been adjusted to reflect the fifteen to one reverse stock split.
NOTE 5LINE OF CREDIT
The Company has a $1,000,000 revolving credit line maturing on December 17, 2001. This credit line bears interest at the rate of prime plus 0.25% per annum and is secured primarily by the Company's accounts receivable and inventories. The terms of this loan agreement contains certain restrictive covenants, including maintenance of minimum working capital, net worth, and ratios of current liabilities and debt to net worth. There is an open balance of $520,000 as of October 31, 2001.
NOTE 6INCOME TAXES
The company complies with Financial Accounting Standards No. 109, Accounting for Income Taxes. The Company will use loss carryforwards to offset future federal income tax liability.
NOTE 7DISCONTINUED OPERATIONS
As of January 31, 2001 the Company elected a shutdown of its International Division, and all operations have been classified under loss from discontinued operations in fiscal years 2001 and 2000. The Company has provided a reserve for its estimated loss on the International Division during the phase-out period which expects will end on or about November 30, 2001. The provision was $211,000 of which none remains at October 31, 2001. There are no significant assets or liabilities of the International Division remaining on the books at October 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2001 and January 31, 2001, the Company had $107,919 and $8,250 respectively available in cash. The current ratio was 3.44 to 1 at October 31, 2001 compared to 2.55 to 1 at January 31, 2001. The Company maintains a revolving credit line of $1,000,000, of which $480,000 was available to fund operations at October 31, 2001.
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OPERATING ACTIVITIES
Cash flow from operating activities for the nine months ended October 31, 2001 was increased by $289,468 as compared to $52,151 for the nine months ended October 31, 2000, mostly from faster collections and slower inventory growth.
INVESTING ACTIVITIES
The Company invested $76,901 in new capital equipment in the first three quarters for upgrading computer equipment and for tooling and machinery in support of new PMA products.
FINANCING ACTIVITIES
The Company's revolving credit line of $1,000,000 bears an interest rate of prime plus 0.25% per annum and is secured by the Company's accounts receivable and inventory of which $520,000 was outstanding at October 31, 2001. The Company obtained a loan of $236,000 for the purposes of paying a non-recurring judgment and the purchase of a blueprint copier. At October 31, 2001, the balance of this note was $38,000.
BUSINESS ACQUISITION
On January 31, 1999 the Company acquired Quality Controlled Cleaning Corporation ("QCCC") for $550,630 including all costs of the acquisition. QCCC is a precision cleaning and repair company located in Commerce, California. The Company's acquisition resulted in goodwill of approximately $274,000 and a non-compete agreement of $50,000. The goodwill is amortized over 10 years and the non-compete over its term of 3 years.
In addition to the purchase price, the agreement included a contingent payment of 50% of net sales in excess of $500,000 up to a maximum of $800,000 in the year ended January 31, 2000. The liability totaled $125,609 and was recorded as additional goodwill. This liability has been fully satisfied.
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| SEGMENT REPORTING NET SALES | 9 Months @ October 31, 2001 | 9 Months @ October 31, 2000 |
|---|---|---|
| Filtration | $ 5,786,237 | $ 5,311,442 |
| Contract Services | $ 145,736 | $ 320,369 |
| Total | $ 5,931,967 | $ 5,631,811 |
end of user-specified TAGGED TABLE
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| OPERATING INCOME — Filtration | 9 Months @ October 31, 2001 — $ 455,708 | $ | 506,985 | |
|---|---|---|---|---|
| Contract Services | (120,915 | ) | (55,643 | ) |
| $ 334,793 | $ | 451,342 |
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RESULTS OF OPERATIONS FOR QUARTER ENDED OCTOBER 31, 2001
REVENUES
Sales were $1,909,820 for the three months ended October 31, 2001 compared to $1,919,336 for the same period in 2000, a .5% decrease of $9,516 due primarily to a decrease of contract services, offset by an increase in sales of filtration products.
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GROSS PROFIT
Gross profit as a percentage of sales was 31.6% for the three months ended October 31, 2001 compared to 30.9% for the same period in 2000, representing higher margins for filtration products as a result of continued manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of sales was 26.1% for the three months ended October 31, 2001 compared to 22.2% for the same period last year due to increases in rent, legal and general insurance.
OPERATING INCOME
Operating income for the three months ended October 31, 2001 was $105,088 or 5.5% compared to $166,476, an operating margin of 8.7% for the same period in 2000.
INTEREST CHARGES
Interest expense for the three months ended October 31, 2001 was $10,945 compared to $16,487 for the same period in 2000.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED OCTOBER 31, 2001
REVENUE
Sales were $5,931,967 for the nine months ended October 31, 2001 compared to $5,631,811 for the nine months ended October 31, 2000, a 5.3% increase of $300,156.
GROSS PROFIT
Gross profit as a percentage of sales was 29.6% for the nine months ended October 31, 2001 compared to 31.5% for the nine months ended October 31, 2000, a decrease of 1.9%. Lower margins for the nine month period are attributed to product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were 23.9% for the nine months ended October 31, 2001 compared to 23.5% for the nine months ended October 31, 2000.
OPERATING INCOME
Operating Income for the nine months ended October 31, 2000 was $334,793 or 5.6% compared to $451,342 or 8.0% for the nine months ended October 31, 2000.
INTEREST CHARGES
Interest expense for the nine months ended October 31, 2001 was $38,895 compared to $47,234 for the nine months ended October 31, 2000.
PART llOTHER INFORMATION
ITEM 1. PENDING LEGAL PROCEEDINGS.
The Company is not party, nor are its properties subject to, any material pending proceedings other than ordinary routine litigation incidental to the Company's business and the matters described above.
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ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed and on its behalf by the undersigned thereto, duly authorized.
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| Dec. 14, 2001 | PUROFLOW INCORPORATED — By: | /s/ MICHAEL H. FIGOFF Michael H. Figoff President/Chief Executive Officer |
|---|---|---|
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TOC_BEGIN FORM 10-QSB TOC_BEGIN Consolidated Balance Sheets (Unaudited) TOC_BEGIN Consolidated Statements of Operations TOC_BEGIN Consolidated Statements of Cash Flows TOC_BEGIN Consolidated Statement of Stockholders' Equity TOC_BEGIN PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. (Unaudited) October 31, 2001, January 31, 2001, and October 31, 2000 TOC_BEGIN SIGNATURE SEQ=,FILE='QUICKLINK',USER=TOSBORNA,SEQ=,EFW="2066124",CP="PUROFLOW INCORPORATED",DN="1" TOCEXISTFLAG