ARGAN INC — Interim / Quarterly Report 2002

Jun 14, 2002

10QSB 1 a2082373z10qsb.htm FORM 10QSB 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 April 30, 2002

Commission File Number 0-5622

PUROFLOW INCORPORATED (Exact name of registrant as specified in its charter)

User-specified TAGGED TABLE

Delaware (State or other jurisdiction of incorporation or organization)	13-1947195 (IRS Employer identification No.)
10616 Lanark Street, Sun Valley, California (Address of executive offices)	91352 (ZIP Code)

end of user-specified TAGGED TABLE

Registrant's telephone number, including area code: (818) 504-4000

Securities registered pursuant to Section 12(g) of the Act:

User-specified TAGGED TABLE

Common Stock Common Stock, $.15 Par Value Shares outstanding 494,306

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 ý No o

ZEQ.=1,SEQ=1,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=1009842,FOLIO='blank',FILE='DISK038:[02WLA4.02WLA1444]BA1444A.;6',USER='BKYNARD',CD='13-JUN-2002;15:12' THIS IS THE END OF A COMPOSITION COMPONENT

TOC_END

PUROFLOW INCORPORATED Consolidated Balance Sheets (Unaudited)

User-specified TAGGED TABLE

	April 30, 2002
ASSETS
CURRENT ASSETS:
Cash	$ 172,898	$	123,330
Accounts receivable, net of allowance for doubtful accounts of $48,000 at April 30, 2002 and $48,000 at January 31, 2002	1,175,752		1,088,187
Inventories	2,098,597		2,159,755
Deferred tax benefit	145,235		145,235
Prepaid expenses and other current assets	92,092		123,986
TOTAL CURRENT ASSETS	3,684,574		3,640,493
PROPERTY & EQUIPMENT
Leasehold improvements	77,655		63,914
Machinery and equipment	3,700,030		3,669,356
Tooling and dies	397,205		397,205
Construction in progress	138,921		106,854
	4,313,811		4,237,329
Less accumulated depreciation and amortization	3,590,576		3,546,793
NET PROPERTY AND EQUIPMENT	723,235		690,536
Deferred tax benefit	589,985		589,985
Other assets	29,722		29,722
TOTAL ASSETS	$ 5,027,516	$	4,950,736
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit	$ 260,000	$	510,000
Current portion of long-term-debt	71,763		17,133
Current portion of capital lease	4,778		6,299
Accounts payable	437,520		402,773
Accrued expenses	448,225		516,664
TOTAL CURRENT LIABILITIES	1,222,286		1,452,869
Long-term debt	200,769		18,473
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, 494,306 shares outstanding April 30, 2002 and 494,306 shares outstanding at January 31, 2002	433,967		433,967
Additional paid-in capital	5,141,767		5,141,767
Accumulated deficit	(1,932,354	)	(2,057,421	)
Less:
Notes receivable from stockholders	(6,000	)	(6,000	)
Treasury stock at cost	(32,919	)	(32,919	)
TOTAL STOCKHOLDERS' EQUITY	3,604,461		3,479,394
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 5,027,516	$	4,950,736

end of user-specified TAGGED TABLE

See accompanying notes to the consolidated financial statements.

1

ZEQ.=1,SEQ=2,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=502383,FOLIO='1',FILE='DISK038:[02WLA4.02WLA1444]DE1444A.;13',USER='BKYNARD',CD='13-JUN-2002;15:12' THIS IS THE END OF A COMPOSITION COMPONENT

TOC_END

PUROFLOW INCORPORATED Consolidated Statements of Operations (Unaudited)

User-specified TAGGED TABLE

	Three Months Ended April 30, — 2002	2001
Net sales	$ 1,624,062	$	2,162,035
Cost of goods sold	1,112,751		1,613,235
Gross profit	511,311		548,800
Selling, general and administrative expenses	422,952		394,548
Operating income	88,359		154,252
Interest expense	(7,186	)	(16,015	)
Other income	54,114		1,954
Goodwill / non-compete	—		13,780
Income before taxes from continuing operations	135,287		126,411
Provision for income taxes	10,220		2,530
Income from continuing operations	125,067		123,881
Loss from discontinued operations	—		(43,593	)
Net Income	$ 125,067	$	80,288
Earnings per share:
Basic earnings per share, continuing operations	$ 0.25	$	0.26
Basic earnings per share, discontinued operations	$ —	$	(0.09	)
Total	$ 0.25	$	0.16
Diluted earnings per share, continuing operations	$ 0.25	$	0.26
Diluted earnings per share, discontinued operations	$ —	$	(0.09	)
Total	$ 0.25	$	0.16
Weighted average number of shares:
Basic	494,306		493,273
Diluted	494,836		494,263

end of user-specified TAGGED TABLE

See accompanying notes to the consolidated financial statements.

2

ZEQ.=1,SEQ=3,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=1028701,FOLIO='2',FILE='DISK038:[02WLA4.02WLA1444]DG1444A.;3',USER='BKYNARD',CD='13-JUN-2002;15:12' THIS IS THE END OF A COMPOSITION COMPONENT

TOC_END

PUROFLOW INCORPORATED Consolidated Statements of Cash Flows (Unaudited)

User-specified TAGGED TABLE

	Three Months Ended April 30, — 2002	2001
CASH AT BEGINNING OF PERIOD	$ 123,330	$	8,250
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	125,067		80,288
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	43,783		53,031
Amortization of goodwill/non-compete	—		13,780
Changes in operating assets and liabilities:
Accounts receivable	(87,565	)	(111,917	)
Inventories	61,159		98,957
Prepaid expenses and other current assets	31,894		2,997
Accounts payable & accrued expenses	(33,693	)	(203,035	)
Net cash provided by/(used for) operating activities	140,645		(65,899	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(76,482	)	(19,493	)
Net cash used for investing activities	(76,482	)	(19,493	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft	—		101,192
Principal payments on notes payable	(9,387	)	—
Payment of long term debt	—		(11,800	)
Payments on credit facility	(5,208	)	(4,000	)
Net cash provided by/(used for) financing activities	(14,595	)	85,392
NET INCREASE (DECREASE) IN CASH	49,568		—
CASH AT END OF PERIOD	$ 172,898	$	8,250

end of user-specified TAGGED TABLE

See accompanying notes to the consolidated financial statements.

3

ZEQ.=1,SEQ=4,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=57624,FOLIO='3',FILE='DISK038:[02WLA4.02WLA1444]DI1444A.;2',USER='BKYNARD',CD='13-JUN-2002;15:12' THIS IS THE END OF A COMPOSITION COMPONENT

TOC_END

PUROFLOW INCORPORATED AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Unaudited)

User-specified TAGGED TABLE

Balance at January 31, 2001	COMMON STOCK PAR VALUE — $ 433,967	ADDITIONAL PAID-IN CAPITAL — $ 5,141,767	ACCUMULATED DEFICIT TOTAL — $ (1,538,533	)	NOTES RECEIVABLE FROM STOCKHOLDERS AND TREASURY STOCK — $ (38,919	)	TOTAL — $ 3,998,282
Net loss			$ (518,888	)			$ (518,888	)
Balance at January 31, 2002	$ 433,967	$ 5,141,767	$ (2,057,421	)	$ (38,919	)	$ 3,479,394
Net Income			$ 125,067				$ 125,067
Balance at April 30, 2002	$ 433,967	$ 5,141,767	$ (1,932,354	)	$ (38,919	)	$ 3,604,461

end of user-specified TAGGED TABLE

4

ZEQ.=1,SEQ=5,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=600953,FOLIO='4',FILE='DISK038:[02WLA4.02WLA1444]DK1444A.;5',USER='BKYNARD',CD='13-JUN-2002;15:24' THIS IS THE END OF A COMPOSITION COMPONENT

TOC_END

PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) April 30, 2002, January 31, 2002, and April 30, 2001

NOTE 1—ORGANIZATION 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, 2002 (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 financials 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, 2002.

NOTE 2—INVENTORIES

Inventories are stated at the lower of cost of market on a first-in, first-out (FIFO) basis, and consist of the following items:

User-specified TAGGED TABLE

	April 30, 2002	January 31, 2002
Raw materials and purchased parts	$ 1,378,857	$ 1,417,418
Work in process	289,554	376,047
Finished goods and assemblies	430,186	366,290
Totals	$ 2,098,597	$ 2,159,755

end of user-specified TAGGED TABLE

NOTE 3—STOCKHOLDERS' EQUITY

On February 17, 2000 the Board entered into a plan to retire 61,333 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 48,735 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.

5

ZEQ.=1,SEQ=6,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=568950,FOLIO='5',FILE='DISK038:[02WLA4.02WLA1444]DM1444A.;6',USER='BKYNARD',CD='13-JUN-2002;15:12'

NOTE 4—NET INCOME PER SHARE

Reconciliation of basic and diluted earnings per share:

User-specified TAGGED TABLE

	INCOME	SHARES	PER-SHARE AMOUNT
3 Months Ended April 30, 2002
Basic earnings per share	$ 125,067	494,306	$ 0.25
Effect of Dilutive Securities
Stock options		530
Diluted earnings per share	$ 125,067	494,836	$ 0.25
3 Months Ended April 30, 2001
Basic earnings per share	$ 80,288	493,273	$ 0.16
Effect of Diluted Securities
Stock options		990
Diluted earnings per share	$ 80,288	494,263	$ 0.16

end of user-specified TAGGED TABLE

Basic earnings per share are based on the weighted average number of shares outstanding. Diluted earnings per share include the effect of common stock equivalents when dilutive.

NOTE 5—LINE OF CREDIT

The Company has a $1,000,000 credit facility made up of two credit agreements with the bank. 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 these loan agreements contain certain restrictive covenants, including maintenance of minimum working capital, net worth, and ratios of current liabilities and debt to net worth.

One agreement is a $250,000 term note that is payable over four years that expires in March 2006, and the other is a $750,000 revolving line of credit that expires in December 2002. The Company was in compliance with all of its covenants on the credit facility at April 30, 2002.

NOTE 6—INCOME TAXES

The company complies with Financial Accounting Standards No. 109, Accounting for Income Taxes. The company will use loss carryforwards to offset future income tax liability.

NOTE 7—DISCONTINUED OPERATIONS

As of January 31, 2002 the Company elected to shut down its Quality Controlled Cleaning division and all operations have been reclassified under loss from discontinued operations in fiscal years 2001 and 2002. The Company has provided for its estimated loss on the Quality Controlled Cleaning division during the phase-out period which it expects will end during fiscal year 2003. The balance of the provision is $303,651 and is included in accrued expenses.

NOTE 8—SEGMENT REPORTING

Due to the discontinuance of the Quality Controlled Cleaning Corporation business segment, the Company operates in only one business segment.

6

ZEQ.=2,SEQ=7,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=788213,FOLIO='6',FILE='DISK038:[02WLA4.02WLA1444]DM1444A.;6',USER='BKYNARD',CD='13-JUN-2002;15:12'

NOTE 9—RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations." SFAS 141 requires the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. Puroflow does not expect the adoption of SFAS 141 to have a material effect on its financial condition or results of operations.

In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which requires the discontinuance of goodwill amortization. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001, with certain early adoption permitted. Puroflow does not expect the adoption of SFAS 142 to have a material effect on its financial condition or results of operations.

In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. Puroflow is in the process of assessing the effect of adopting SFAS 144, which will be effective for Puroflow's 2003 fiscal year.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-QSB contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainty, (including without limitation, the Company's future gross profit, selling, general and administrative expenses, the Company's financial position, working capital and seasonal variances in the Company's operations, as well as general market conditions) though the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-QSB will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

Results of Operations for the Three Months Ended April 30, 2002 and April 30, 2001

Net Sales

Net sales were $1,624,062 for the three months ended April 30, 2002 compared to $2,162,035 for the three months ended April 30, 2001. The 24.9% decrease is due primarily to a decline in the volume of air bag products sold combined with lower sales of high performance filtration products sold through the Company's commercial distribution network. This market segment has experienced a significant downturn in the past year due to a slowing U.S. economy.

Gross Margin

Gross margin as a percentage of net sales was 31.5% for the three months ended April 30, 2002 compared to 25.4% for the three months ended April 30, 2001. The 6.1% increase in gross margin was attributable to the higher concentration of high performance filtration products sold which traditionally are a higher margin product than the airbag products.

7

ZEQ.=3,SEQ=8,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=214440,FOLIO='7',FILE='DISK038:[02WLA4.02WLA1444]DM1444A.;6',USER='BKYNARD',CD='13-JUN-2002;15:12'

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $422,952 or 26.0% of net sales for the three months ended April 30, 2002 compared to $394,548 or 18.2% of net sales for the three months ended April 30, 2001. The increase is due to a general increase in both legal and information technology expenses.

Operating Income

Operating income was $88,359 or 5.4% of net sales for the three months ended April 30, 2002 compared to $154,252 or 7.1% of net sales for the three months ended April 30, 2001. The $65,893 decrease in operating income is attributable to the lower net sales from the Company's commercial distribution network which has been impacted by the slowing U.S. economy.

Other Income

Other income was $54,114 for the three months ended April 30, 2002 compared to $1,954 for the three months ended April 30, 2001. The $52,160 increase in other income was due to an early exit payment made by the Company's former landlord for the relocation of the organization in February 2002.

Liquidity and Capital Resources

At April 30, 2002 and January 31, 2002, the Company had $172,898 and $123,330 respectively available in cash. The Company's financial condition remained strong, with a ratio of current assets to current liabilities of 3.0:1 at April 30, 2002 compared to 2.5:1 at January 31, 2002.

The Company generated cash from operating activities of $140,645 which consisted primarily of the income earned from operations in the first quarter of fiscal year 2003.

Cash used for investing activities of $76,482 primarily represented the investment made in the construction of a new clean room in the Company's new facility. The project is near completion and it is anticipated that an additional $20,000 will be incurred to complete the project.

Net cash used for financing activities of $14,595 included $9,387 to pay the principal balance of an outstanding notes payable and $5,208 to pay down the principal balance of the credit facility.

With its present capital resources, available credit from its credit facilities and cash flow from operations, the Company believes that is should have sufficient resources to meet its operating needs for the next twelve months and to provide for debt maturities and capital expenditures.

PART II—OTHER INFORMATION

ITEM 1. PENDING LEGAL PROCEEDINGS

At April 30, 2002 the Company is party to two legal proceedings, one as a plaintiff and one as a defendant that have arisen in the normal course of business. In its single matter in which it is a defendant management believes it has substantial and meritorious defenses. Management further believes that this matter will not have a material adverse affect on the Company's results of operations, liquidity or financial position.

ITEM 2. CHANGES IN SECURITIES

None.

8

ZEQ.=4,SEQ=9,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=85478,FOLIO='8',FILE='DISK038:[02WLA4.02WLA1444]DM1444A.;6',USER='BKYNARD',CD='13-JUN-2002;15:12'

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.

9

ZEQ.=5,SEQ=10,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=537355,FOLIO='9',FILE='DISK038:[02WLA4.02WLA1444]DM1444A.;6',USER='BKYNARD',CD='13-JUN-2002;15:12' THIS IS THE END OF A COMPOSITION COMPONENT

TOC_END

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.

User-specified TAGGED TABLE

June 13, 2002	PUROFLOW INCORPORATED — By:	/s/ MICHAEL H. FIGOFF Michael H. Figoff President/Chief Executive Officer

end of user-specified TAGGED TABLE

10

ZEQ.=1,SEQ=11,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1",CHK=419841,FOLIO='10',FILE='DISK038:[02WLA4.02WLA1444]JC1444A.;4',USER='BKYNARD',CD='13-JUN-2002;15:12' THIS IS THE END OF A COMPOSITION COMPONENT

QuickLinks

TOC_BEGIN PUROFLOW INCORPORATED Consolidated Balance Sheets (Unaudited) TOC_BEGIN PUROFLOW INCORPORATED Consolidated Statements of Operations (Unaudited) TOC_BEGIN PUROFLOW INCORPORATED Consolidated Statements of Cash Flows (Unaudited) TOC_BEGIN PUROFLOW INCORPORATED AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Unaudited) TOC_BEGIN PUROFLOW INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) April 30, 2002, January 31, 2002, and April 30, 2001 PART II—OTHER INFORMATION ITEM 1. PENDING LEGAL PROCEEDINGS ITEM 2. CHANGES IN SECURITIES ITEM 3. DEFAULT UPON SENIOR SECURITIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K TOC_BEGIN SIGNATURE SEQ=,FILE='QUICKLINK',USER=BKYNARD,SEQ=,EFW="2082373",CP="PUROFLOW INCORPORATED",DN="1" TOCEXISTFLAG