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 30, 1999
[ ] 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 August 11, 1999, Registrant had outstanding 10,365,976 shares of
Common Stock.
PART I -- FINANCIAL INFORMATION
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
ASSETS
June 30,
1999
------------
Current Assets:
Cash and cash equivalents $ 2,135,774
Accounts receivable, net 1,074,594
Prepaid expenses and other 97,381
Deposits 392,512
------------
Total Current Assets 3,700,261
Property, Plant and Equipment, net 4,375,526
Income taxes benefit 3,932,866
Other Assets 703,137
------------
Total Assets $ 12,711,790
------------
------------
The accompanying notes are an integral
part of these consolidated financial statements.
2
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
June 30,
1999
--------------
Current Liabilities:
Short-term debt $ 213,588
Payroll taxes payable 336,468
Accounts payable 1,501,873
Preferred dividends payable 57,218
Accrued liabilities 319,619
Customer Deposits 30,060
--------------
Total Current Liabilities 2,245,237
--------------
Long-term Notes payable 4,229,346
--------------
Total Liabilities 6,688,171
--------------
Shareholders' Equity:
Common stock, $0.001 par value, 20,000,000 shares authorized; 10,366
10,365,976 shares issued
Preferred Stock 3,181
Additional Paid In Capital 15,327,815
Preferred dividend 0
Retained earnings (loss) (7,923,576)
Year-to-date earnings (loss) (1,394,167)
--------------
Total shareholders' Equity 6,023,619
--------------
Total Liabilities and Equity $ 12,711,790
--------------
--------------
The accompanying notes are an integral
part of these consolidated financial statements.
3
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
June 30
------------------------------------
1999 1998
------------- ------------
REVENUE $ 2,220,199 $ 935,465
COSTS AND EXPENSES:
Cost of Goods sold 276,384 106.156
Direct wages and costs 665,936 226,818
----------- ------------
942,320 332,974
----------- ------------
GROSS PROFIT 1,277,878 602,491
------------- ------------
OPERATING EXPENSES 1,431,254 813,332
------------- ------------
NET OPERATING INCOME (153,375) (210,841)
------------- ------------
GENERAL AND ADMINISTRATIVE 910,077 862,536
------------- ------------
INCOME BEFORE INCOME TAXES (1,063,452) (1,073,377)
------------- ------------
PROVISION FOR INCOME TAXES (372,208) (375,682)
------------- ------------
NET INCOME $ (691,244) $ (697,695)
------------- ------------
NET INCOME PER COMMON SHARE $ (0.07) $ (0.16)
------------- ------------
COMMON SHARES OUTSTANDING 10,365,976 4,495,375
------------- ------------
------------- ------------
The accompanying notes are an integral
part of these consolidated financial statement.
4
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
-----------------------------------
June 30
1999 1998
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,698,883 $ 877,384
Cash paid to suppliers and employees (3,372,729) (1,706,912)
Interest paid (151,363) (70,947)
Interest received 28,168 1,798
Income taxes paid 0 0
------------ -------------
Net Cash Provided by Operating Activities (1,797,041) (898,677)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,893,667) (963,519)
Net proceeds from lease line 729,730 587,564
Net Cash Used in Investing Activities (1,163,937) (375,955)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (15,727) (0)
Proceeds from selling of stock 4,820,000 1,271,631
Proceeds from Capital leases and notes 0 70,849
Proceeds from exercise of stock options 0 0
------------ -------------
Net Cash from Financing Activities 4,804,273 1,342,480
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,843,295 67,848
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 292,479 20,179
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,135,774 $ 88,027
------------ -------------
------------ -------------
The accompanying notes are an integral
part of these consolidated financial statements.
5
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Three Months Ended
June 30
--------------------------------
1999 1998
------------ -----------
NET INCOME $ (691,244) $ (697,695)
------------ -----------
Depreciation and amortization 237,770 133,722
(Increase) decrease in accounts receivable (654,343) (58,082)
Increase in prepaid expenses and other assets (3,884) 0
Increase in accrued liabilities 136,911 0
Increase (decrease) in accounts payable (450,043) 99,060
Increase (decrease) in deferred income tax benefit (372,208) (375,682)
------------ -----------
Total Adjustments (1,105,797) (200,982)
------------ -----------
Net Cash Provided by Operating Activities $ (1,797,041) $ (898,677)
------------ -----------
The accompanying notes are an integral
part of these consolidated financial statements
6
VENTURI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 -- Interim Financial Statement Policies and Disclosures
The unaudited, consolidated, condensed financial statements of
Venturi Technologies Inc., a Nevada corporation, 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.
Note 2 -- Equipment Purchases
During the first quarter of 1999, the Company ordered an additional
140 trucks equipped with carpet cleaning equipment. Of the 140 ordered 27
have been placed in service during the second quarter of 1999. The remaining
113 trucks will be delivered in increments through March 2000. After all the
trucks are in service, Venturi's truck mounted carpet cleaning fleet will
total 192 trucks. The 140 trucks ordered during the first quarter of 1999 are
being financed using capital leases with five-year terms. The effective
implicit interest rate in the leases is 18 %.
Note 3 -- Investments
On April 14, 1999, the Company sold and issued 2,303,738 shares of
Series D Convertible Preferred Stock ("Series D Preferred Stock") to Beaulieu
Group, LLC, a Georgia limited liability company ("Beaulieu"), in exchange for
the cash payment of $3,000,000, in a transaction that was exempt from
registration with the Securities and Exchange Commission pursuant to Rules
505 and 506 promulgated under the Securities Act of 1933. The Series D
Preferred Stock does not carry a dividend preference, but it does provide for
a liquidation preference in the amount of the original issue price plus a
cumulative return of 8% per annum. The liquidation preference is on an equal
footing with the Series A, Series B, and Series C Preferred Stock. The
holders of Series D Preferred Stock were also given the right to appoint one
member to Venturi's Board of Directors.
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The Series D Preferred Stock is convertible into common stock at any
time on the basis of two (2) shares of common stock for each one (1) share of
Series D Preferred Stock. On a fully diluted basis, Beaulieu is now the
beneficial owner of approximately 25.75% of the Company's common stock.
Concurrently with the closing of the sale of Series D Preferred
Stock, the Company and Beaulieu entered into a Marketing agreement that
provides, among other things, that Beaulieu will promote and endorse the
Company's VenturiClean System and that the Company will not endorse or
recommend goods manufactured by any carpet or fiber manufacturer other than
Beaulieu.
Beaulieu and its affiliates are privately owned companies that are
among the largest manufacturers of carpet and rugs in the world.
On June 3, 1999, Greenwich A.G., a Germany based investment fund,
purchased 1,600,000 shares of common stock in a private placement, at a total
price of $2,000,000, all of which was available as operating capital.
Greenwich was also issued a warrant to purchase 22,806 shares of Venturi's
common stock for a price of $30.00 per share. Venturi can force the exercise
of the warrant if Venturi reaches certain designated financial milestones.
Greenwich was also granted registration rights with respect to the sale of
common stock, and was given the right to appoint one member to Venturi's
Board of Directors.
Note 4 -- Acquisitions / Penetration
There were no acquisitions in the second quarter 1999. The company
concentrated on penetration in current markets. As new trucks have been
placed in service Venturi has experienced a steady increase in revenue. The
new trucks combined with a grassroots marketing program have resulted in
revenues of over $900,000 in June 1999 and over $1,100,000 in July.
8
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
The Company's revenue for the second quarter of 1999 increased 137%
over revenue for the same three month period in 1998. This increase was
primarily attributable to several acquisitions by the Company of independent
carpet cleaning and restoration businesses during 1998 and to an increase in
market share in those geographic markets in which the Company operates. The
increase in revenue was also attributable to more trucks being placed into
service, and to more aggressive marketing made possible largely by the
availability of operating capital.
The Company's cost of goods sold and direct wages and costs
increased approximately 183% from the second quarter of 1998 to the second
quarter of 1999. The cost of goods and direct wages also increased as a
percentage of total sales from the second quarter of 1998 to the second
quarter of 1999. This increase was primarily attributable to the acquisition
of several independent carpet cleaning and restoration businesses. The
increase was also attributable to an increase in direct wages primarily to
employees of independent businesses acquired by the Company during the
assimilation period following acquisition.
Operating costs increased approximately 76% in the second quarter of
1999 as compared to the second quarter of 1998, again primarily as a result
of the Company's acquisitions and its marketing efforts to increase market
penetration. However, the Company's operating costs decreased from 86.9% of
revenue in the second quarter of 1998 to 64.5% of revenue in the second
quarter of 1999. This decrease in the percentage of revenue utilized for
operating costs was attributable to increased efficiencies in operations and
the reorganization of some of the acquired companies.
General and administrative expenses increased just 5% from the
second quarter of 1998 to the second quarter of 1999. The increase was
primarily because of increased personnel to handle the assimilation of recent
acquisitions and to the Company's continued efforts to build a solid
infrastructure to handle the Company's anticipated rapid growth.
LIQUIDITY
During the second quarter of 1999, the Company raised $5,000,000
from the sale of common and preferred stock (see Note 3 to Consolidated
Condensed Financial Statements). The proceeds from those sales of stock
should enable the Company to continue operations at their present level for
several months. For the month of July 1999, the Company had a positive net
cash flow for the
9
first time in its history. Management is optimistic that the Company will
continue at or near a positive cash flow into the future. The Company
continues to raise investment capital, to be used to fund expansion and
growth and to be used as consideration to acquire independent carpet cleaning
businesses. Management is confident of its ability to continue to raise
investment capital as needed.
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Management
of the Company does not anticipate that any significant modification or
replacement of the Company's software will be necessary for its computer
systems to properly utilize dates beyond December 31, 1999 or that the
Company will incur significant operating expenses to make any such computer
system improvements. The Company is not able to determine, however, whether
any of its suppliers, lenders, or service providers will need to make any
such software modifications or replacements or whether the failure to make
such software corrections will have an effect on the Company's operations or
financial condition.
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) (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
- ----------- --------
10.55 Securities Purchase Agreement, dated June 3, 1999 between Venturi
Technologies, Inc. and Greenwich A.G.
10.56 Registration Rights Agreement dated June 3, 1999 between Venturi
Technologies, Inc. and Greenwich A.G.
10.57 License Right of First Refusal Agreement dated June 3, 1999 between
Venturi Technologies, Inc. and Greenwich A.G.
10.58 Lock-up Agreement, dated June 3, 1999, executed by Gaylord Karren
in favor of Greenwich A.G.
10.59 Lock-up Agreement, dated June 3, 1999, executed by John Hopkins in
favor of Greenwich A.G.
10.60 Lock-up Agreement, dated June 3, 1999, executed by Greenwich A.G.
in favor of Venturi Technologies, Inc.
10.61 Warrant to Purchase Shares of Common Stock, dated June 3, 1999,
between Venturi Technologies, Inc. and Greenwich A.G.
b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
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: August 16, 1999 By: /s/ Gaylord M. Karren
----------------------------------------
Gaylord M. Karren, Chairman of the Board
and Chief Executive Officer
By: /s/ B.J. Mendenhall
----------------------------------------
B.J. Mendenhall
Chief Accounting Officer