SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 27, 1997.
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: 0-22408
PURUS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0234694
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
605 Tennant Avenue, Suite B, Morgan Hill, CA 95037-5529
(Address of principal executive offices)(Zip code)
(408) 778-3465
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable
date.
Class Shares Outstanding as of September 27, 1997
Common Stock 666,192
PURUS, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of September 27, 1997 and December 29, 1996 3
Statements of Operations for the Three Months and Nine Months
Ended September 27, 1997 and September 28, 1996 4
Statements of Cash Flows for the Nine Months Ended
September 27, 1997 and September 28, 1996 5
Notes to Financial Statements 6
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8K 14
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
September 27, 1997 and December 29, 1996
September 27, December 29,
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 112,290 $ 494,201
Short-term investments 4,645,463 4,740,963
Other current assets 197,394 99,339
Total current assets 4,955,147 5,334,503
Property and equipment, net 0 652
Other assets 10,746 10,745
$ 4,965,893 $ 5,345,900
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 42,612 $ 18,642
Accrued expenses 1,078,152 525,194
Net liabilities of discontinued operations 73,657 1,062,373
Total current liabilities 1,194,421 1,606,209
Shareholders' equity:
Common stock: 5,000,000 shares authorized;
$.01 par value; 666,192 and 637,208 shares
issued and outstanding at September 27, 1997
and December 29, 1996, respectively 6,662 6,372
Additional paid-in capital 45,126,395 45,126,685
Accumulated deficit (41,361,585) (41,393,366)
Total shareholders equity 3,771,472 3,739,691
$ 4,965,893 $ 5,345,900
The accompanying notes are an integral
part of these financial statements.
STATEMENTS OF OPERATIONS
for the three and nine months ended September 27, 1997 and September 28, 1996
Three Months Ended Nine Months Ended
September 27 September 28 September 27 September 28
1997 1996 1997 1996
Operating income
(expenses) of
continuing operations
General and
Administrative $ (68,703) $(108,009) $ (1,203,441) $ (614,196)
Interest Income 72,048 37,889 176,470 239,928
Income (loss) from
continuing operations 3,345 (70,120) (1,026,971) (374,268)
Income (loss) from
discontinued operations 0 353,462 1,058,752 717,155
Net income (loss) $ 3,345 $ 283,342 $ 31,781 $ 342,887
Net income (loss) from
continuing operations
per share 0.01 (0.11) (1.54) (0.57)
Net income (loss) from
discontinued operations
per share 0.00 0.54 1.59 1.10
Net income (loss)
per share $ 0.01 $ 0.43 $ 0.05 $ 0.53
Weighted average
common shares 666,192 651,192 666,192 651,192
The accompanying notes are an integral
part of these financial statements.
STATEMENTS OF CASH FLOWS
for the nine months ended September 27, 1997 and September 28, 1996
September 27, September 28,
1997 1996
Cash flows from operating activities:
Net Income (loss) $ 31,781 $ 342,887
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 651 6,943
Changes in operating assets and liabilities:
Other current assets (98,044) 72,789
Other assets 3,919
Accounts payable 23,970 35,127
Accrued expenses 552,958 (559,073)
Net liabilities - discontinued operations (988,716) (875,348)
Net cash used in operating activities (477,411) (972,756)
Cash flows from investing activities:
Purchases of short-term investments (4,704,500) (23,938,710)
Proceeds from sale/maturity of short-term
investments 4,800,000 24,751,954
Purchases of property and equipment - -
Net cash provided by (used in) investing
activities 95,500 813,244
Cash flows from financing activities:
Net proceeds from sale of common stock - 35,000
Net cash provided by financing activities - 35,000
Net decrease in cash (381,911) (124,512)
Cash and cash equivalents, beginning of period 494,201 281,922
Cash and cash equivalents, end of period $ 112,290 $ 157,410
The accompanying notes are an integral
part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
Financial information for the three months ended
September 27, 1997 and September 28, 1996 is unaudited but has
been prepared on the same basis as the audited financial
statements and, in the opinion of management, includes all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly operating results and cash flows
for those periods. This Quarterly Report on Form 10-Q should
be read in conjunction with the financial statements and notes
thereto included in the Companies Annual Report to
stockholders for 1996. The results of operations for the
period ended September 27, 1997 are not necessarily indicative
of the results to be expected for any subsequent quarter or
for the entire year ending January 3, 1998.
On November 17, 1995, the shareholders approved a one-for-
ten reverse stock split of the Company's common stock. The
financial statements for all periods presented have been
restated to retroactively reflect this reverse stock split as
if it had been in effect as of the beginning date of each
statement.
In 1995 the Company converted to a reporting calendar in
which quarters end on the Saturday closest to March 31, June
30, September 30 and December 31.
2. Net Income/(Loss) per Share
Net income/(loss) per share is computed using the
weighted average number of shares of common stock outstanding.
3. Accrued Expenses
A summary of accrued expenses follows:
September 28, December 29,
1997 1996
Legal and professional expenses $ 1,078,152 $ 461,194
Other 64,000
$ 1,078,152 $ 525,194
4. Discontinued Operations
During the fourth quarter of 1995, when the Company
discontinued its operations, it provided provisions for the
write down of inventory and fixed assets, for the costs of
employee termination, and for anticipated warranty
expenditures over the remaining life of PADRE installations,
and for the operating losses of the discontinued operations.
The net liabilities of the discontinued operations were
approximately $73,657 as of September 27, 1997 and $1,062,373
as of December 29, 1996 as follows:
September 27, December 29,
1997 1996
Accrued payroll and related $ - $ 32,350
Accrued warranty 73,657 1,012,620
Other 17,403
$ 73,657 $ 1,062,373
The decrease in net liabilities of discontinued operations was primarily due to
paying expenses associated with the warranty expenditures for PADRE systems.
5. Commitments and Contingencies
On or about July, 27, 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 9, 1993 through March 8, 1995. On
April 16, 1996, the Company filed a motion to dismiss the
complaint. On or about March 31, 1997, the Court issued an
order granting the defendants' motion to dismiss the complaint
and granting the plaintiff 45 days leave to amend. On or about
May 15, 1997, the suit was re-filed reasserting the claims
previously made. On June 30, 1997, the Company filed a new
motion to dismiss the re-filed complaint. If the action is
not dismissed with prejudice, the Company intends to litigate
it vigorously. The Company and other defendants have obtained
discovery regarding the propriety of plaintiff's named class
representative through document and interrogatory requests.
The plaintiffs have begun to pursue formal discovery,
including requesting documents from the Company and from third
parties.
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.
The Company has filed an answer denying all liability. The
parties have engaged in discovery through document procedure
requests, interrogatories and depositions.
Except for certain provisions for legal and professional
expenses, the financial statements for the period ended
September 27, 1997 do not contain any provisions for these
legal proceedings.
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations
General
The following information should be read in conjunction
with the unaudited interim financial statements and the notes
thereto included in Item 1 of this Quarterly Report on Form 10-
Q and the Company's 1996 Annual Report on Form 10-K.
Purus, Inc. (the "Company") was founded in 1989 and was
engaged initially in research and product development of
environmental technologies. 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 now
known as PADRE air pollution control systems.
Beginning in November 1993, following the Company's
initial public offering, the Company expanded its efforts to
commercialize the PADRE technology. In anticipation of future
demand, the Company increased its engineering, manufacturing,
sales and service capabilities and built up an inventory of
raw materials and finished units. However, during this period
corrosion and mechanical design problems became evident among
installed PADRE systems resulting in significant field service
and redesign expenses. A market perception of unreliability
developed which adversely affected sales. In August 1995,
after an extensive review of its markets and technologies, the
Company announced that it would pursue the option of selling
some or all of its PADRE technology while taking other actions
intended to minimize further losses and preserve its capital.
On October 20, 1995, the Company licensed its PADRE air
pollution control technology to Thermatrix Inc., a California
corporation ("Thermatrix"), and, in connection therewith,
entered into a five-year agreement not to compete with
Thermatrix. On April 18, 1996, the Company consummated the
sale of substantially all of its non-cash assets, excluding
inventory, to Thermatrix, including all of its right, title,
and interest to and in the PADRE technology (the "Asset
Sale"). In consideration for such assets, the Company received
a $300,000 cash payment and the right to royalties in the
amount of seven percent (7%) of the net invoice value of
ThermatrixI PADRE equipment sales until the earlier of (i)
October 20, 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 offer warranty services to the
Company as an independent contractor on an as-requested basis
through the earlier of (i) January 4, 2001, or (ii) the date
on which both parties agree that all warranty obligations on
the part of the Company have expired, and to take possession
of a substantial portion of the Company's inventory on
consignment.
In connection with the Asset Sale, the Company
discontinued the development, manufacture and marketing of air
pollution control systems which, prior to the Asset Sale,
represented substantially all of its operations. However, the
Company's obligation to provide service and parts to
approximately fourteen (14) PADRE installations covered under
existing warranty and service agreements was not assumed by
Thermatrix. In April of 1997, the obligations of the Company
under each of its then existing warranty and service
agreements ended.
In light of the discontinuation of its air pollution
control operations and its agreement not to compete with
Thermatrix, the Company's current operating plan is to (i)
defend against pending litigation (see "Item 1. Legal
Proceedings" below); (ii) handle the administrative and
reporting requirements of a public company; and (iii) search
for potential businesses, products, technologies and companies
for acquisition. At present, the Company has no
understandings, commitments or agreements with respect to the
acquisition of any business, product, technology or company
and there can be no assurance that the Company will identify
any such business, product, technology or company suitable for
acquisition in the future. Further, 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 the business, product, technology or company
it acquires. On August 1, 1997, the company entered into an
agreement with a financial management firm under which the
firm will assist the Company in seeking potential merger
partners.
On March 21, 1997, following the Company's 1997 Annual
Meeting of Stockholders, Donald D. Winstead was elected
Chairman of the Board of Directors, Chief Executive Officer,
Chief Financial Officer and Secretary of the Company, and
Reinhard Siegrist and Hans C. Ochsner were elected chairman
and member, respectively, of the Audit and Compensation
Committees of the Board of Directors. On June 1, 1997, the
board of directors accepted the resignation of Hans C. Ochsner
and appointed Jorg R. Bader to serve as a director during the
remainder of the term. Mr. Bader, age 44, has for the past
five years served as President of Meliga, LTI, a company
located in Biel, Switzerland. At September 27, 1997, the
Company had no full time employees.
On March 25, 1997, the Company relocated its corporate
headquarters to 605 Tennant Avenue, Suite B, Morgan Hill,
California 95037-5529 where it sub-leases approximately 300
square feet of office space on a month-to-month basis and the
Company terminated its lease of warehouse space in Alcoa,
Tennessee.
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.
The discontinuation of the Company's PADRE technology,
leaves the Company without significant continuing operations.
As a result, the Company believes that period-to-period
comparisons of its results of operations are not meaningful
and should not be relied upon as indications of future
performance.
The Company has incurred cumulative net losses of
approximately $41.4 million from inception to September 27,
1997. The Company does not expect to report operating profits
unless and until such time as a new business, or technology,
is acquired and only then if such acquisition is successful.
There can be no assurance that the Company will ever achieve
profitability.
Results of Continuing Operations
Three and Nine Month periods Ended September 27, 1997 and
September 28, 1996
The Company had no revenue from continuing operations for
the three and nine month periods ended September 27, 1997 and
September 28, 1996.
General and administrative expenses from continuing
operations for the three and nine month periods ended
September 27, 1997 and September 28, 1996 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
$68,703 and $108,009 for the three month period ended
September 27, 1997, and September 28, 1996, respectively; and
$1,203,441 and $614,196 for the nine month period ended
September 27, 1997, and September 28, 1996, respectively.
General and administrative expenses in the nine month period
ended September 27, 1997 were greater than in the nine month
period ended September 28, 1996 primarily due to increases in
the reserves for legal expenses.
The Company had no interest expense in the three and nine
month periods ending September 28, 1996 or September 27, 1997.
Interest income in the three and nine month periods ended
September 27, 1997 and September 28, 1996, respectively,
resulted from the investment of the net proceeds of the
Company's initial public offering in 1993 into short-term,
liquid cash equivalents. Interest income was $72,048 and
$37,889 in the three month period ended September 27, 1997,
and September 28, 1996, respectively; and $176,470 and
$239,928 for the nine month period ended September 27, 1997,
and September 28, 1996, respectively. Interest income in the
three month period ended September 27, 1997 is higher than in
the three month period ended September 28, 1996 primarily due
to timing of interest recognition and is lower in the nine
month period ended September 27, 1997 than in the nine month
period ended September 28, 1996 due to to a reduction in the
Company's cash and short-term investments used to fund
operating losses and to pay accrued expenses. Interest income
will likely continue to decrease if additional cash or short-
term investments are used to fund operating losses and accrued
expenses, or if interest rates decline.
As a result of the foregoing factors, the Company's
realized a net profit from continuing operations of $3,345 for
the three month period ended September 27, 1997 compared to a
net loss of $70,120 for the three month period ended September
28, 1996, and a net loss of $1,026,971 and $374,268 for the
nine month periods ended September 27, 1997 and September 28,
1996, respectively. The improved performance in the most
recent quarter is a result of significantly reduced activity
levels.
Results of Discontinued Operations
Three and Nine Month periods Ended September 27, 1997 and
September 28, 1996
Income from discontinued operations was zero and
$1,058,752 for the three and nine month periods ended
September 27, 1997, respectively compared to $353,462 and
$717,155 for the three and nine month periods ended September
28, 1996, respectively. Income from discontinued operations
consist of royalty payments and inventory purchases by
Thermatrix in connection with the Asset Sale, and revenues
from customer services provided by the Company on PADRE
systems not sold to Thermatrix. The Company expects that the
amount of such revenues will be insignificant in the future.
The Company does not expect any future revenues from customer
services provided by the Company and there can be no assurance
that the Company will continue to generate future revenues
related to the Asset Sale.
During the fourth quarter of fiscal year 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 over the remaining life of PADRE installations
and for the operating losses of the discontinued operations.
The net liabilities of the discontinued operations were
$73,657 as of September 27, 1997 and approximately $1,062,373
as of December 29, 1996. The decrease in net liabilities of
discontinued operations was primarily due to paying expenses
associated with the costs of employee termination and warranty
expenditures for PADRE systems and reducing the accrual for
warranty expenses.
Net Income/Net Loss from Continuing and Discontinued
Operations
As a result of the foregoing factors, the Company's net
income from both continuing and discontinued operations was
$3,345 and $31,781 for the three and nine month periods ended
September 27, 1997, respectively and $283,342 and $342,887 for
the three and nine month periods ended September 28, 1996,
respectively. Net income per share from both continuing and
discontinued operations was $0.01 and $0.05 for the three and
nine month periods ended September 27, 1997, respectively and
$0.43 and $0.53 for the three and nine month periods ended
September 28, 1996, respectively.
Liquidity and Capital Resources
At September 27, 1997, the Company had working capital of
approximately $3,760,726 as compared to $3,728,294 at December
29, 1996. Working capital as of both dates consisted
substantially of short-term investments, cash and cash
equivalents, accrued liabilities, and net liabilities from
discontinued operations. Net cash used in operating activities
was approximately $477,411 for the nine month period ended
September 27, 1997, and $972,756 for the nine month period
ended September 28, 1996. Although the Company's most
significant assets consist largely of cash and cash
equivalents, the Company has no intent to become, or hold
itself out to be, engaged primarily in the business of
investing, reinvesting, or trading in securities. Accordingly,
the Company does not anticipate being required to register
pursuant to the Investment Company Act of 1940 and expects to
be limited in its ability to invest in securities, other than
cash equivalents and government securities, in the aggregate
amount of over 40% of its assets. There can be no assurances
that any investment made by the Company will not result in
losses.
Management believes that the Company has sufficient cash
and short-term investments to meet the anticipated needs of
the Company's continuing and discontinued operations through
at least the next twelve (12) months. However, there can be no
assurances to that effect, as the Company has no assurance of
significant revenues and is subject to contingent liabilities
which could result in the depletion of its capital, including,
without limitation, any damages awarded and/or costs and
expenses incurred by it in connection with pending litigation
against the Company (see "Item 1. Legal Proceedings").
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. The
Company does not presently have a line of credit or other bank
credit facility.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On or about July, 27, 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 9, 1993 through March 8, 1995. On
April 16, 1996, the Company filed a motion to dismiss the
complaint. On or about March 31, 1997, the Court issued an
order granting the defendants' motion to dismiss the complaint
and granting the plaintiff 45 days leave to amend. On or about
May 15, 1997, the suit was re-filed reasserting the claims
previously made. On June 30, 1997, the Company filed a new
motion to dismiss the re-filed complaint. If the action is
not dismissed with prejudice, the Company intends to litigate
it vigorously. The Company and other defendants have obtained
discovery regarding the propriety of plaintiff's named class
representative through document and interrogatory requests.
The plaintiffs have begun to pursue formal discovery,
including requesting documents from the Company and from third
parties.
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.
The Company has filed an answer denying all liability. The
parties have engaged in discovery through document procedure
requests, interrogatories and depositions.
The Company is not a party to any other pending legal
proceedings which it believes will materially affect its
financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits:
N/A
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Purus, Inc.
By: (Signature)
Donald D. Winstead
Chairman of the Board of Directors,
Chief Executive Officer, Chief Financial Officer
and Secretary
Date: November 12, 1997