SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission File Number 000-25183
VENTURI TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
NEVADA 87-0580279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
763 NORTH 530 EAST 84097
OREM, UTAH (ZIP CODE)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 235-9552
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 [ ]
As of May 17, 2000, Registrant had outstanding 14,369,020 shares of Common
Stock.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
UNAUDITED
ASSETS
Current assets
Cash and cash equivalents $ 1,132,148
Accounts receivable, net of $120,000 allowance for
doubtful accounts 2,394,021
Inventory 123,028
Note receivable-related party 40,024
Other current assets 166,799
Total current assets 3,856,020
Fixed assets
Capital lease equipment 7,952,685
Machinery and equipment 1,620,040
Computer and office equipment 555,601
Automobiles and trucks 1,315,911
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Total fixed assets 11,444,237
Less accumulated depreciation (2,860,211)
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Net fixed assets 8,584,026
Deferred tax asset, net of valuation allowance of $3,827,408 3,648,000
Goodwill, net of amortization of $62,316 6,950,983
Lease and rent deposits 293,026
------------
Total assets $ 23,332,055
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,732,528
Accrued liabilities 2,387,058
Notes payable to stockholders 1,171,184
Current portion long-term debt and capital leases 2,606,351
------------
Total current liabilities 8,897,121
Long-term liabilities
Notes payable - stockholders 4,466,780
Capital lease obligations, net of unamortized discount 5,140,910
Notes payable - other 3,516
------------
Total long-term liabilities 9,611,206
Total Liabilities 18,508,327
============
Stockholders' equity
Preferred stock, Series A through E, $.001 par value,
cumulative, convertible, 5,000,000 shares authorized,
3,258,993 issued and outstanding 3,258
Common stock,$.001 par value, 20,000,000 shares authorized,
13,562,683 issued and 13,559,983 outstanding 13,563
Additional Paid-in capital 25,736,060
Common shares held in treasury (11,891)
Retained earnings (deficit) (20,917,262)
------------
Total stockholders' equity 4,823,728
------------
Total liabilities and stockholders' equity $ 23,332,055
============
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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VENTURI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three months ended
March 31
2000 1999
------------ -----------
Revenues:
Carpet cleaning $ 3,885,699 $ 1,336,633
Expenses:
Carpet cleaning 1,956,533 619,854
Other selling, general & administrative 4,210,543 1,594,628
Depreciation and amortization 584,211 151,539
------------ -----------
Total expenses 6,751,287 2,366,021
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Net (loss) from operations (2,865,588) (1,029,388)
Other income and expense:
Interest expense and amortization of debt discount (719,477) (49,821)
------------ -----------
Net (loss) from continuing operations,
before income tax benefit (3,585,065) (1,079,209)
Income tax benefit -- 378,496
------------ -----------
Net (loss) from continuing operations (3,585,065) (700,713)
Discontinued operations:
Loss from operations of restoration business (347,479) (2,210)
Loss from disposal of restoration operations (472,025) --
------------ -----------
(819,504) (2,210)
Net (loss) $ (4,404,569) $ (702,923)
============ ===========
Per share amounts (basic and diluted):
Net loss from continuing operations before
income tax benefit $ (.30) $ (.12)
Income tax benefit $ -- $ .04
Net loss from discontinued operations $ (.07) $ --
------------ -----------
Net (loss) $ (.37) $ (.08)
============ ===========
Weighted average shares used in computing
per share amounts 11,909,210 8,765,976
============ ===========
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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VENTURI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Three months ended
March 31
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,404,569) $ (702,923)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for allowance on accounts receivable 18,875 --
Common stock issued in lieu of wages, rent, interest,
and fees 200,163 --
Compensatory options and warrants 205,560 --
Depreciation and amortization 584,211 180,000
Amortization of debt discount -- --
Impairment losses -- --
Changes in operating assets and liabilities:
Accounts receivable (590,049) (33,269)
Other current assets 42,231 (44,084)
Inventory (33,464) --
Lease and rent deposits (28,741) --
Accounts payable and accrued liabilities 1,811,477 72,935
Deferred taxes, net of valuation allowance -- (378,496)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,194,306) (905,837)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and other fixed assets (71,475) (440,987)
Acquisitions, net of cash acquired (753,550) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (825,025) (440,987)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to stockholders 1,000,000 530,972
Payments on capital lease obligations (535,465) --
Payments on notes payable to stockholders (55,842) --
Issuances of common stock for cash 1,000,000 --
Issuances of preferred stock for cash 2,500,000 841,400
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,908,693 1,372,372
----------- -----------
NET INCREASE (DECREASE) IN CASH 889,362 25,548
Cash at Beginning of Period 242,786 266,931
----------- -----------
CASH AT END OF PERIOD $ 1,132,148 $ 292,479
=========== ===========
Supplemental disclosures - Cash interest paid $ 497,000 $ 49,821
Schedule of non-cash investing and financing activities:
Capital lease obligations entered into to acquire vehicles
and equipment $ 1,327,829 $ --
With acquisitions described in Note 2, liabilities were assumed
as follows:
Fair value of assets acquired $ 1,750,215 $ --
Stock and paid-in-capital 2,457,000 --
Cash paid 800,000 --
----------- -----------
Liabilities assumed or incurred in acquisition $ 5,007,215 $ --
=========== ===========
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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VENTURI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
UNAUDITED
1. INTERIM FINANCIAL STATEMENT POLICIES AND DISCLOSURES
The unaudited, consolidated, condensed financial statements of Venturi
Technologies included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote Disclosures normally required in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These consolidated, condensed financial statements reflect all adjustments
which, in the opinion of management, are necessary to present a fair statement
of the results of operations for the interim periods presented. All of the
adjustments which have been made in these consolidated, condensed financial
statements are of a normal recurring nature.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the Company's
latest Annual Report on Form 10-KSB.
2. ACQUISITION
The company completed the previously reported acquisition of Martin and
Peterman, Inc. (MPI) during the first quarter of 2000. The MPI acquisition has
been accounted for as a purchase with excess purchase price over the estimated
fair value of the net assets acquired recorded as goodwill. Goodwill in the
amount of $6,921,244 has been recorded related to this acquisition.
Approximately $62,000 has been recorded during the first quarter as goodwill
amortization expense.
3. DISCONTINUED OPERATIONS
During the first quarter of 2000, the board of directors decided to sell the
restoration portion of the Company's business. (See Part II, Item 5.) The
business was sold effective May 1, 2000. The Company has recorded the results of
this discontinued operations as follows:
Loss from operations of restoration business (347,479)
Loss from disposal of restoration business (472,025)
Included in the Loss from disposition of restoration operations is a provision
for April 2000 loss of approximately $198,873.06.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Form 10-QSB may contain trend information and forward-looking
statements that involve risks and uncertainties. The actual results of
operations of the Company could differ materially from the Company's historical
results of operations and those discussed in such forward-looking statements as
a result of certain factors set forth in this section and elsewhere in this Form
10-QSB, including information incorporated by reference.
RESULTS OF OPERATIONS
REVENUES. Revenues increased by 291% to $3,885,699 for the quarter ended March
31, 2000, compared to $1,336,633 for the quarter ended March 31, 2000. This
increase was attributable primarily to the
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Company's growth into new geographic areas by virtue of acquisitions of carpet
cleaning companies, and to increased market penetration in geographic areas
where the company has acquired new bases of operations.
OPERATING EXPENSES. Operating expenses increased by 316% to $1,956,533 for the
quarter ended March 31, 2000 compared to $619,854 for the quarter ended March
31, 1999. This increase is attributable to the acquisitions made during the past
year. During the second quarter of 2000 management commenced an aggressive plan
to reduce operating expenses.
OTHER SELLING, GENERAL AND ADMINISTRATIVE. Other selling, general and
administrative expenses increased 264% to $4,210,543 for the quarter ended March
31, 2000 compared to $1,594,628 for the quarter ended March 31, 1999. This
increase is attributable to the following expenses: compensatory stock awards,
including stock options and warrants $369,000; amortization of goodwill $62,000;
federal and state back tax and associated penalty and interest $273,000 and
other expenses associated with the acquisitions made over the prior year.
Management commenced an aggressive cost reduction plan during the second quarter
of 2000.
OTHER INCOME AND EXPENSE. Other expense increased primarily due to the
accelerated amortization of debt discount costs of $289,000 incurred as a result
of renegotiating 85 truck leases. This has been included in interest expense and
is a non recurring item. Also the increase in interest expense is associated
with the financing of additional trucks acquired through the acquisitions made
during the prior year. Part II
LIQUIDITY AND CAPITAL RESOURCES
a. On April 6, 2000, the Internal Revenue Service filed a Notice of Federal
Tax Lien against the Company in the amount of $342,121.82 for unpaid withholding
taxes during 1998 and 1999, plus penalties and interest. In researching the
non-payment of federal withholding taxes, management discovered that the Company
had also failed to pay a substantial amount of state withholding taxes during
1998, 1999 and 2000 to the states of Utah, Texas and California. Management
estimates that the total amount of unpaid state withholding taxes is
approximately $290,000, not including interest and penalties. It is estimated
that the total unpaid federal and state withholding taxes through April 2000,
including penalties and interest, is approximately $ 1,140,000. For the quarter,
the company has recorded a provision of approximately, $273,000 to properly
reflect its Federal and State withholding tax obligations.
Current management of the Company was unaware that federal and state
withholding taxes had not been paid during 1998 and 1999. Upon learning of the
Company's failure to pay such federal and state taxes, management hired counsel
to represent the Company in working out a payment arrangement with federal and
state taxing authorities, and immediately began work on a plan to fund any such
payment arrangement.
At the present time, management intends to fund the payment of back taxes
from the following sources. First, the two founders of the Company, who together
own a total of approximately 2,000,000 shares of the Company's common stock (not
including options), have agreed to surrender to the Company a total of 1,200,000
shares of their common stock, allowing the Company to raise the capital required
to pay all back taxes by selling stock without dilution to existing
shareholders. Second, one of the Company's major shareholders has agreed to
extend a personal guarantee of a line of credit to replace a high interest line
of credit secured by accounts receivable, which would result in annual savings
of several hundred thousand dollars. Third, the Company will fund any amount not
covered by the sale of the founders' stock or the savings in the Company's
accounts receivable line of credit from operating revenue as the Company enters
its busiest time of the year.
Management is confident that the Company will be able to pay all unpaid
federal and state withholding taxes, penalties and interest from the sources
identified above and that the filing of the Federal Tax Lien will not have a
material adverse effect upon the Company or its operations.
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b. On May 16, 2000, the company received notice that its $1,000,000 Note
Payable to Aspen Capital Resources Partner, LLC. has been called and is payable
May 26, 2000. Management is negotiating to refinance this note.
c. During the first quarter of 2000 management renegotiated the leases for 85
of the company's trucks. The present value of the cash savings resulting from
the new lease is approximately $1,920,647. This savings will be realized over
the next five years. In consideration for this renegotiated lease the company
incurred approximately $1,125,296 of debt discount costs, $836,000 was expensed
during 1999, and $289,296 was recorded during the first quarter of 2000.
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
SALE OF RESTORATION.
On May 10, 2000, the Company transferred and assigned to its wholly owned
subsidiary Venturi Flood & Fire Restoration, Inc., a Utah corporation ("VFFR"),
all of its assets and liabilities used in or relating to the restoration portion
of its business in the geographic areas of Salt Lake City and Orem, Utah and
Dallas, Texas, effective May 1, 2000. The Company then sold all of its
outstanding stock in VFFR to James K. Stone in consideration for $3,175.60,
representing the difference between the book value of the assets and the
liabilities of VFFR plus other non-balance sheet obligations (operating leases),
and the assumption of all debts, obligations and liabilities of VFFR and of the
restoration portion of the Company's business. In view of the historical
performance of the restoration portion of the business, and in view of the cash
flow demands placed on the Company by the restoration portion of the business,
the board of directors concluded that the consideration for the business
represented a fair price.
The board of directors decided to sell the restoration portion of the Company's
business because (a) the financial performance of that portion of the business
failed to meet projections, (b) the restoration business historically created
large and unforeseeable demands on the Company's cash flow, and (c) the
restoration business is outside the Company's core carpet cleaning business.
The buyer, James K. Stone, is a former member of the board of directors of the
Company, and at the time of the sale was a vice president of the Company in
charge of restoration.
AGREEMENT WITH FOUNDERS
On May 5, 2000, the Company entered into an agreement with its two founders,
Gaylord M. Karren and John M. Hopkins, pursuant to which (a) Messrs. Karren and
Hopkins agreed to resign as officers and directors of the Company effective May
21, 2000, (b) Messrs. Karren and Hopkins agreed to transfer to the Company a
total of 1,200,000 of their shares of common stock in the Company in order to
assist the Company in payment of unpaid state and federal payroll taxes, (c) the
Company entered into separate nine (9) month consulting agreements with Messrs.
Karren and Hopkins pursuant to which the Company will pay to each founder
consulting fees of $14,583 per month, and (d) Messrs. Karren and Hopkins each
entered into a confidentiality and four (4) year non-compete agreement in favor
of the Company.
RELOCATION OF CORPORATE OFFICES
Effective June 1, 2000, the Company will relocate its corporate headquarters to
6295 East 56th Avenue, Commerce City, Colorado 80022; telephone: (303) 444-4444.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
Exhibit No. Document
----------- --------
10.76 Stock Purchase Agreement between James K. Stone and Patrice
A. Stone as Buyers, Venturi Technologies, Inc. as Seller,
and Venturi Flood & Fire Restoration, Inc., dated as of
May 1, 2000, relating to the sale by the company of the
restoration portion of its business.
27.0 Financial Data Schedule for electronic filers pursuant to
Item 601(c) of Regulation S-B
(b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
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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.
VENTURI TECHNOLOGIES, INC.
Dated: May 19, 2000 By: /s/ Michael F. Dougherty
-----------------------------
Michael F. Dougherty
Chief Executive Officer
By: /s/ Stephen S. Abate
-----------------------------
Stephen S. Abate
Chief Financial Officer
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