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 June 27, 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
issuers classes of common stock, as of the latest practicable
date.
Class Shares Outstanding as of June 27, 1998
Common Stock 666,192
PURUS, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of June 27, 1998 and December 27, 1997 3
Statements of Operations for the Three Months and Six Months
Ended June 27, 1998 and June 28, 1997 4
Statements of Cash Flows for the Six Months Ended June 27, 1998
and June 28, 1997 5
Notes to Financial Statements 6
Item 2.ManagementIs Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
June 27, 1998 and December 27, 1997
June 27, December 27,
Assets 1998 1997
Current assets:
Cash and cash equivalents $ 143,613 $ 172,881
Short-term investments 300,000 4,508,594
Other current assets 178,103 175,874
Total current assets 621,716 4,857,349
Other assets 4,071,074 10,745
$ 4,692,790 $ 4,868,094
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 84,686 $ 81,619
Accrued legal expenses 846,690 1,016,095
Total current liabilities 931,376 1,097,714
Shareholders equity:
Common stock: 5,000,000 shares authorized;
$.01 par value; 666,192 and 666,192 shares
issued and outstanding at June 27, 1998
and December 27, 1997, respectively 6,662 6,662
Additional paid-in capital 45,126,395 45,126,395
Accumulated deficit (41,371,643) (41,362,677)
Total shareholders equity 3,761,414 3,770,380
$ 4,692,790 $ 4,868,094
The accompanying notes are an integral
part of these financial statements.
STATEMENTS OF OPERATIONS
for the three and six months ended June 27, 1998 and June 28, 1997
Three Months Ended Six months Ended
June 27 June 28 June 27 June 28
1998 1997 1998 1997
Operating income (expenses) of
continuing operations
General and Administrative $ (34,910) $ (94,426) $ (171,562) $ (1,134,029)
Interest Income 77,632 49,698 130,773 104,422
Income (loss) from
continuing operations 42,722 (44,728) (40,789) (1,029,607)
Income (loss) from
discontinued operations 17,210 65,952 33,875 1,058,644
Tax - - - -
Net income (loss) $ 59,932 $ 21,223 $ (8,966) $ 29,137
Net income (loss) from
continuing operations per share 0.06 (0.07) (0.06) (1.54)
Net income (loss) from
discontinued operations per share 0.03 0.10 0.05 1.60
Net income (loss) per share $ 0.09 $ 0.03 $(0.01) $ 0.04
Weighted average common shares 666,193 662,591 666,193 662,591
The accompanying notes are an integral
part of these financial statements.
STATEMENTS OF CASH FLOWS
for the six months ended June 27, 1998 and June 28, 1997
June 27, June 28,
1998 1997
Cash flows from operating activities:
Net Income (loss) $ (8,966) $ 28,437
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization - 651
Changes in operating assets and liabilities:
Accounts receivable 2,229 (612)
Other current assets - (78,290)
Other assets 4,120,657 (3,030)
Accounts payable 3,067 (17,912)
Accrued expenses (169,405) 622,373
Net liabilities - discontinued operations - (938,963)
Net cash used in operating activities 4,113,920 (387,346)
Cash flows from investing activities:
Purchases of short-term investments (4,208,594) (4,668,575)
Proceeds from sale/maturity of short-term
investments 65,406 4,800,000
Purchases of property and equipment - (3,030)
Net cash provided by (used in)
investing activities (4,143,188) 128,395
Cash flows from financing activities:
Net proceeds from sale of common stock - -
Net cash provided by financing activities - -
Net decrease in cash (29,268) (258,951)
Cash and cash equivalents, beginning of period 172,881 494,201
Cash and cash equivalents, end of period $ 143,613 $ 235,250
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 and six months
ended June 27, 1998 and June 27, 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 Companies Annual Report on Form 10-KSB
for the fiscal year ended December 27, 1997. The results of
operations for the period ended June 27, 1998 are not
necessarily indicative of the results to be expected for any
subsequent quarter or for the entire year ending January 2,
1999.
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. Discontinued Operations
During the fourth quarter of 1995, when the Company
discontinued its operations, it provided provisions for the
writedown 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. A
summary of operating results of the discontinued operations
for the six months ended June 27, 1998 and the year ended
December 27, 1997 follows:
June 27, December 27,
1998 1997
Revenue $ 33,875 $ 174,720
Reversal of warranty provision - 915,384
Income from discontinued operations 33,875 1,090,104
7. 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. At June 30, 1998, the court has not
ruled on the new motion. 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
CompanyIs 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 June 27, 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.
The Company has completed it's risk assessment plan for
year 2000 compliance. Based on this assessment, the company
has determined that each system currently in use is fully
compliant.
Results of Continuing Operations
Three and Six Month periods Ended June 27, 1998 and June 28, 1997
The Company had no revenue from continuing operations for
the three and six month periods ended June 27, 1998 and June
28, 1997.
General and administrative expenses from continuing
operations for the three and six month periods ended June 27,
1998 and June 28, 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
$34,910 and $94,426 for the three month period ended June 27,
1998, and June 28, 1997, respectively; and $171,562 and
$1,134,029 for the six month period ended June 27, 1998, and
June 28, 1997, respectively. General and administrative
expenses for the three month period ending June 27, 1998 were
lower than in the three month period ending June 28, 1997 due
to the reclassification of certain expenses previously
recorded in the three month period ending March 28, 1998. A
charge in the amount of approximately $52,000 was erroneously
made to the operating expense account whereas it should have
been charged to the accrued legal expenses account. General
and administrative expenses in the six month period ended
June 28, 1997 were greater than in the six month period ended
June 27, 1998 primarily due to increases in the reserves for
legal expenses.
The Company had no interest expense in the three and six
month periods ending June 27, 1998 or June 28, 1997.
Interest income in the three and six month periods ended June
27, 1998 and June 28, 1997, 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 $77,632 and $49,698 in the three month
period ended June 27, 1998, and June 28, 1997, respectively;
and $130,773 and $104,422 for the six month period ended June
27, 1998, and June 28, 1997, respectively. Interest income in
the periods ended June 27, 1998 is higher than in the periods
ended June 28, 1997 primarily due to the higher interest rate
realized from the loan to CSI.
As a result of the foregoing factors, the Company's
recorded a net profit from continuing operations in the amount
of $42,722 for the three month period ending June 27, 1998, a
net loss from continuing operations of $44,728 for the three
month period ended June 28, 1997 and a net loss for the six
month periods ended June 27, 1998 and June 28, 1997, of
$40,789 and $1,029,607, respectively The improved
performance in the most recent periods is a result of
significantly reduced activity levels.
Results of Discontinued Operations
Three and Six Month periods Ended June 27, 1998 and June 28,
1997
Income from discontinued operations was $17,210 and
$33,875 for the three and six month periods ended June 27,
1998, respectively compared to $65,952 and $1,058,644 for the
three and six month periods ended June 28, 1997, 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.
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 a
profit of $59,932 for the three month period ending June 27,
1998, a loss of $8,966 for the six month period ending June
27, 1998 a profit of $21,223 and $29,137 for the three and six
month periods ended June 28, 1997, respectively. Net income
per share from both continuing and discontinued operations was
positive $0.09 and negative $0.03 for the three and six month
periods ended June 27, 1998, respectively and $0.03 and $0.04
for the three and six month periods ended June 28, 1997,
respectively.
Liquidity and Capital Resources
At June 27, 1998, the Company had a working capital
deficit of approximately $310,000 as compared to working
capital of $3,759,635 at December 27, 1997. The change in
working capital in the amount of approximately $4,000,000 is
the result of loans made to CSI. Net cash used in operating
activities was $4,113,920 for the six month period ended June
27, 1998, and $128,395 for the six month period ended June 28,
1997. There can be no assurances that any investment made by
the Company will not result in losses.
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 is uncertain as to whether the Company has
sufficient cash and short-term investments to meet the
anticipated needs of the Company's continuing and discontinued
operations through the next twelve (12) months because of
uncertainties related to pending legal actions against the
Company. There can be no assurances because 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. 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 8-K
(a) Exhibits:
N/A
(b) Reports on Form 8-K:
During the quarter ended June 27, 1998, the Company filed
one Current Report on Form 8-K dated April 16, 1998, under
Item 5. Other Events, the Company's pending arrangement for
acquisition of 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 August 17, 1998