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 28, 1998.
[ ] 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
(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
issuerIs classes of common stock, as of the latest practicable
date: 666,193 shares of Common Stock.
PURUS, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of March 28, 1998 and December 27, 1997 3
Statements of Operations for the Three Months Ended
March 28, 1998 and March 29, 1997 4
Statements of Cash Flows for the Three Months Ended
March 28, 1998 and March 29, 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
March 28, 1998 and December 27, 1997
March 28, December 27,
1998 1997
Assets
Current assets:
Cash and cash equivalents $ 84,744 $ 172,881
Short-term investments 2,632,584 4,508,594
Other current assets 180,961 175,874
Total current assets 2,898,289 4,857,349
Other assets 1,810,746 10,745
$ 4,709,035 $ 4,868,094
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 33,916 $ 81,619
Accrued legal expenses 935,777 1,016,095
Total current liabilities 969,693 1,097,714
Shareholders' equity:
Common stock: 5,000,000 shares authorized;
$.01 par value; 666,193 and 666,192 shares
issued and outstanding at March 28, 1998
and December 27, 1997, respectively 6,662 6,662
Additional paid-in capital 45,126,395 45,126,395
Accumulated deficit (41,393,715) (41,362,677)
Total shareholders' equity 3,739,342 3,770,380
$ 4,709,035 $ 4,868,094
The accompanying notes are an integral
part of these financial statements.
STATEMENTS OF OPERATIONS
for the three months ended March 28, 1998 and March 29, 1997
March 28, March 29,
1998 1997
Operating income (expenses) of
continuing operations
General and administrative $ (136,652) $ (1,039,790)
Interest income 53,141 54,724
Income (loss) from continuing operations (83,511) ( 985,066)
Income (loss) from discontinued operations 16,665 992,280
Tax 2,053 -
Net income (loss) (68,898) 7,214
Net income (loss) from continuing operations
per share (0.13) (1.48)
Net income (loss) from discontinued operations
per share 0.03 1.49
Net income (loss) per share (0.10) 0.01
Weighted average common shares 666,193 666,192
The accompanying notes are an integral
part of these financial statements.
STATEMENTS OF CASH FLOWS
for the three months ended March 28, 1998 and March 29, 1997
March 28, March 29,
1998 1997
Cash flows from operating activities:
Net loss $ (68,898) $ 7,214
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization -- 651
Changes in operating assets and liabilities:
Accounts receivable 14,068 --
Other current assets (13,767) (250,469)
Other assets -- --
Accounts payable (80,318) 21,690
Accrued expenses -- 679,583
Net liabilities - discontinued operations -- (862,373)
Net cash used in operating activities (139,040) (403,704)
Cash flows from investing activities:
Purchases of short-term investments -- (3,624,446)
Proceeds from sale/maturity of
short-term investments 50,903 3,800,000
Purchases of property and equipment -- --
Net cash provided by (used in)
investing activities 50,903 175,554
Cash flows from financing activities:
Net proceeds from sale of common stock -- --
Net cash provided by financing activities -- --
Net decrease in cash (88,137) (228,250)
Cash and cash equivalents, beginning of period 172,881 494,201
Cash and cash equivalents, end of period $ 84,744 $ 266,051
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 March
28, 1998 and March 29, 1997 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-QSB should be read
in conjunction with the financial statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-KSB.
The results of operations for the period ended March 28, 1998
are not necessarily indicative of the results to be expected
for any subsequent quarter or for the entire year.
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. Inventories
In 1995, the Company discontinued its environmental
operations and the carrying value of all inventory was written
off.
4. Property and Equipment
As of March 29, 1997, the carrying value of all of the
Company's property and equipment was fully depreciated.
5. Discontinued Operations
During the fourth quarter of 1995, when the Company
discontinued its operations, it made 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 PADREr installations, and for the
operating losses of the discontinued operations. The net
liabilities of the discontinued operations were zero as of
March 28, 1998 and December 27, 1997. A summary of operating
results of the discontinued operations follows:
March 28, December 27,
1998 1997
Revenue $ 16,665 $ 174,720
Reversal of warranty provision -- 915,384
Income from discontinued operations 16,665 1,090,104
6. Commitments and Contingencies
In July 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 1993 through March 1995. In April 1996, the Company
filed a motion to dismiss the complaint. In March 1997, the
Court issued an order granting the defendants' motion to
dismiss the complaint and granting the plaintiff 45 days leave
to amend. In May 1997, the suit was re-filed reasserting the
claims previously made, and in June 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 defend
the suit 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
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.
7. Loan Transactions
In February 1998, the Company made a loan of $1,800,000,
which bears interest at 6% per annum, to Casa Solaz, Inc. (a
Nevada corporation, "CSI"). CSI is not a related party to
the Company or its management. [Existence of an affiliation
was incorrectly reported in Note G to the Company's
financial statements filed with its 1997 Annual Report on
Form 10-KSB.] CSI manufactures prefabricated housing,
primarily in South America. The proceeds of the loan will
be used to acquire production equipment and facilities for
the operations of CSI. The principal and any accrued and
unpaid interest is due on December 31, 1999. The loan is
collateralized by all of the assets of CSI, including the
stock of the CSI subsidiary. The loan is convertible into
450,000 shares of 8% preferred stock of CSI. As
consideration for making the loan, the Company received a
warrant to purchase 550,000 shares of 8% preferred stock of
CSI at $4.00 per share. Each share of 8% preferred stock is
convertible into one share of common stock of CSI. In April
1998, the amount of the loan was increased to $4,000,000.
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-
QSB and the Company's 1997 Annual Report on Form 10-KSB.
On January 8, 1998, following the resignation of the
Company's former Chairman of the Board and Chief Executive
Officer, Reinhard Siegrist was appointed to the position of
Chairman of the Board and Peter Friedli was appointed to the
position of Chief Executive officer by action of the Board of
Directors.
The Company has incurred cumulative net losses of
approximately $41.4 million from inception to March 28, 1998.
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 achieve
profitability.
Results of Continuing Operations
Quarters Ended March 28, 1998 and March 29, 1997
The Company had no revenue from continuing operations for
the quarters ended March 28, 1998 and March 29, 1997.
General and administrative expenses from continuing
operations for the quarters ended March 28, 1998 and March 29,
1997 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 $136,652 for the quarter ended
March 28, 1998, and $1,039,790 for the quarter ended March 29,
1997. General and administrative expenses in the quarter ended
March 28, 1998 are lower than in the quarter ended March 29,
1997 due to the charge made in the earlier quarter to increase
the legal expense reserve and due to elimination of certain
accounting and administrative expense.
Interest income of $54,724 and $53,141 for the quarters
ended March 29, 1997 and March 28, 1998, 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 in the quarter ended
March 28, 1998 is lower than in the quarter ended March 29,
1997 primarily due 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 net
loss from continuing operations was $83,511 for the quarter
ended March 28, 1998 as compared to a net loss of $985,066 for
the quarter ended March 28, 1997. The smaller loss in the
recent quarter resulted from cost reduction measures
implemented after March 27, 1997.
Results of Discontinued Operations
Quarters Ended March 28, 1998 and March 29, 1997
Revenues from discontinued operations was $16,665 and
$992,280 for the quarters ended March 28, 1998 and March 29,
1997, respectively. Revenues from discontinued operations in
the quarter ended March 28, 1998 consist of royalty payments
from Thermatrix and for the quarter ended March 29, 1997
result primarily from the reversal of previously recorded
reserves. The Company does not expect any significant future
revenues from discontinued operations.
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
$7,214 for the quarter ended March 29, 1997, as compared to a
loss of $68,898 for the quarter ended March 28, 1998. The
increased loss in the recent quarter was the result of the
impact of reserve adjustments made in the earlier quarter.
Liquidity and Capital Resources
At March 28, 1998, the Company had working capital of
approximately $1,928,596 as compared to $3,759,635 at December
27, 1997. 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 $139,040 for the quarter ended March 28,
1998, and $403,704 for the quarter ended March 29, 1997.
The reduction in working capital results from the loan
made to Casa Solaz, Inc. ("CSI) in February of 1998 in the
amount of $1,800,000. CSI is a private Nevada corporation
which recently commenced the business of manufacturing,
marketing, and installing prefabricated housing units in South
America. The loan bears interest at the rate of 6% per annum,
and all principal and interest is due December 31, 1999. The
loan is secured by all of the assets of CSI, including all of
the capital stock of its Venezuelan subsidiaries conducting
operations in South America. The loan is convertible at the
option of the Company at any time prior to maturity into
450,000 shares of the Series A Convertible Preferred Stock of
CSI. As a negotiated element of the transaction, CSI granted
to Purus a warrant to purchase 550,000 additional shares of
Series A Convertible Preferred Stock at a price of $4.00 per
share exerciseable on or before December 31, 1998. The Series
A Convertible Preferred Stock provides for a cumulative
dividend at the rate of 8% per annum and is convertible to
common stock of CSI at the rate of one share of common for one
share of preferred. In April 1998, the amount of the loan to
CSI was increased to $4,000,000.
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. 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 5. Other Information
On May 8, 1998, the Company was notified that the listing
for the Company's common stock on the Nasdaq SmallCap Market
terminated at the close of business on that date. This action
was taken by Nasdaq on the basis of its determination that the
Company is not engaged in any active business operations and,
as a matter of policy, Nasdaq does not list inactive companies
with only cash or passive assets regardless of whether those
companies satisfy the quantitative listing maintenance
requirements. Management believes it has acted reasonably in
attempting to locate a new business activity in which to
participate over the past two years, but the pending
stockholder litigation has prevented the Company from
acquiring a new business venture. Consequently, management is
of the opinion that the loss of the listing is a direct result
of the stockholder litigation and beyond the control of the
Company.
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits: Attached only to the electronic filing with
the Securities and Exchange Commission is the Financial Data
Schedule, Exhibit Ref. No. 27, in accordance with Item 601(c)
of regulation S-K.
(b) Reports on Form 8-K:
During the quarter ended March 28, 1998, the Company
filed one Current Report on Form 8-K reporting under "Item
5. Other Events" the Company's loan to Casa Solaz, Inc.
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: /s/ Peter Friedli
Chief Executive Officer
Date: May 15, 1998