PINX:MANY Plures Technologies Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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SECURITIES AND EXCHANGE COMMISSION

Washington D.C.  20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

Commission file number 1-12312

 

PLURES TECHNOLOGIES, INC.

(Name of registrant as specified in its charter)

 

Delaware 95-3880130
(State of incorporation) (I.R.S. Employer Identification No)

 

5297 Parkside Drive, Canandaigua, NY  14424

(Address of principal executive offices)

 

Issuer’s telephone number:   (585) 905-0544

 

Indicate by check mark whether the issuer (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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ¨                               NO x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

¨ Accelerated filer  ¨ Large accelerated filer

 

x Smaller reporting company  Non-accelerated filer

 

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act)

YES x                               NO ¨

 

Number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2012:

4,763,526 shares of common stock, $.001 par value.

 

Transitional Small Business Disclosure Format:

 

YES ¨                               NO x

 

 
 

  

PLURES TECHNOLOGIES, INC.
 
INDEX

 

   PAGE 
PART I - FINANCIAL INFORMATION   3 
      
Item 1. Financial Statements (Unaudited)   3 
      
Balance Sheets as of June 30, 2012 and  December 31, 2011    3 
      
Statements of Operations for the Three Months and Six Months Ended June 30, 2012 and 2011   4 
      
Statements of Cash Flows for the  Six Months Ended June 30, 2012 and 2011   5 
      
Notes to the Financial Statements   6 
      
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   20 
      
Item 3. Quantitative and Qualitative Disclosures about Market Risk   22 
      
Item 4. Controls and Procedures   22 
      
PART II - OTHER INFORMATION   23 
      
Item 1A Risk Factors   23 
      
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds   23 
      
Item 6 Exhibits   23 
      
Signature   24 
      
Exhibit 31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   25 
      
Exhibit 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   27 
      

 

-2-
 

   

Item 1. Financial Statements

 

Plures Technologies, Inc. 

Consolidated Balance Sheets

(Unaudited)


 

   June 30, 2012   December 31, 2011 
Current Assets          
Cash & Cash Equivalents  $1,094,866   $1,123,518 
Accounts Receivable, net   545,871    247,885 
Inventories   644,320    681,160 
Restricted Cash   200,000    - 
Prepaid & Other Current Assets   58,295    59,760 
Total Current Assets   2,543,352    2,112,323 
           
Equipment, net   3,900,572    3,184,569 
           
Intangible Assets, net   1,595,744    1,724,528 
           
Other Assets          
Restricted Cash   -    200,000 
Deferred Financing Fees   30,560    32,988 
Total Other Assets   30,560    232,988 
           
Total Assets  $8,070,228    7,254,408 
           
Liabilities  and Stockholders' Equity          
           
Current Liabilities          
Accounts Payable  $852,424   $928,253 
Accrued Expenses   623,700   $808,414 
Advances Payable to shareholders   -    2,017 
Deferred Revenue & Customer Deposits   146,203    30,257 
Current Portion of Note Payable   186,754    22,410 
Total Current Liabilities   1,809,081    1,791,351 
           
Long-Term Liabilities          
Note Payable, net of currrent portion   1,741,021    1,296,029 
Warrant Liability   136,488    80,357 
Total Long-Term Liabilities   1,877,509    1,376,386 
           
Total Liabilities  $3,686,590   $3,167,737 
           
Commitments and Contingencies          
Preferred Stock          
Preferred stock, par value $.001, authorized 5,000,000 shares, 1,375,000 shares outstanding at June 30, 2012 and December 31, 2011 respectively  $2,750,000   $2,750,000 
           
Stockholders' Equity          
Non-Controlling Interest   232,481   $286,683 
Additional Paid-in-Capital   3,558,961    2,352,686 
Common stock, per value $.001, authorized 50,000,000 shares, 4,763,526 and 4,418,793 shares outstanding at June 30, 2012 and  December 31, 2011 respectively   4,763    4,419 
Accumulated Deficit   (2,162,567)   (1,307,117)
Total Stockholders' Equity  $1,633,638   $1,336,671 
           
Total Liabilities, Preferred Stock and Stockholders' Equity  $8,070,228   $7,254,408 

 

 

See notes to unaudited consolidated financial statements

 

-3-
 

  

Plures Technologies, Inc.

Consolidated Statements of Operations

(Unaudited)


 

   Three months ended   Six Months Ended 
   June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011 
                 
Revenue  $1,735,435   $666,747   $4,535,624    666,747 
              -      
Cost of Revenue   1,916,002    599,932    4,194,694    599,932 
Gross Profit (Loss)  $(180,567)  $66,815   $340,930   $66,815 
                     
Operating Expenses:                    
Selling, general & administrative   766,079    336,402    1,213,581    382,362 
                     
Operating Income (Loss)  $(946,646)  $(269,587)  $(872,651)  $(315,547)
                     
Other Income (Expense):                    
Amortization of Debt Financing Expenses   -    (357,330)   -    (380,055)
Interest Expense   (35,309)   2,129    (64,083)   2,129 
Other Income (Expense)   83,525    1,651,848    49,153    1,651,847 
Total Other Income (Expense), net   48,216    1,296,647    (14,930)   1,273,921 
                     
Net Income (Loss)  $(898,430)  $1,027,060   $(887,581)  $958,375 
                     
Less: Net Income (Loss) attributable to noncontrolling interest   (31,617)   (2,612)   (32,132)   (2,612)
                     
Net Income (Loss) attributable to Plures Technologies, Inc.  $(866,813)  $1,029,672   $(855,449)  $960,987 
                     
Net Income (Loss) Per Share                    
Basic and Diluted  $(0.19)  $0.23   $(0.19)  $0.23 
                     
Weighted Average Shares Outstanding                    
Basic   4,544,293    4,437,837    4,482,270    4,239,836 
Diluted   4,544,293    4,437,837    4,482,270    4,239,836 

 

  

See notes to unaudited consolidated financial statements

 

-4-
 

 

Plures Technologies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


 

   Six months ended 
   June 30, 2012   June 30, 2011 
Cash Flows from Operating Activities:          
Net Income (Loss)  $(887,581)  $958,375 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Bargain purchase gain   -    (1,652,523)
Interest related to beneficial conversion feature   -    46,053 
Amortization of debt issuance costs   2,428    380,055 
Interest on convertible debt converted to Class A Common Shares   -    9,307 
Interest on advances to Advanced MicroSensors Inc   -    (57,326)
Debt discount on Note Payable   5,740    - 
Stock compensation expense   192,050    - 
Change in Fair Value of Warrants   56,131    - 
Depreciation   123,461    39,632 
Amortization of intangibles   128,784    27,688 
Changes in operating assets and liabilities, net of effects of acquisition          
Accounts receivable   (297,986)   (417,712)
Inventories   36,840    (173,542)
Prepaid expenses & other current assets   1,465    (90,050)
Accounts payable   (75,829)   54,575 
Accrued expenses   (184,714)   214,473 
Deferred rent   -    (392,678)
    115,945    6,100 
Net cash used in operating activities  $(783,266)  $(1,047,573)
           
Cash Flows from Investing Activities:          
Advances to AMS Inc  $-   $(750,000)
Purchase of manufacturing equipment   (839,465)   (67,950)
Cash received from acquisition   -    180,436 
Net cash used in investing activities  $(839,465)   (637,514)
           
Cash Flows from Financing Activities:          
Restricted Cash  $-    (200,000)
Issuance of convertible debt, net of issuance costs   -    2,408,941 
Issuance of  common stock,net of issuance costs   992,500    - 
Reduction of payable to shareholders   (2,017)   (43,500)
Note Payable, net of fees   603,596    - 
Net cash provided by financing activities  $1,594,079   $2,165,441 
           
Net increase (decrease) in cash and cash equivalents   (28,652)  $480,354 
           
Cash and cash equivalents, beginning of period   1,123,518   $146,347 
           
Cash and cash equivalents, end of period  $1,094,866    626,701 
           
Non-Cash investing and Financing Activities          
Conversion of convertible debt and interest into common stock   -    884,307 
Issuance of common stock for finders' fees   -    187,268 

For six months ended June 30, 2012 the Company paid $55,915 cash interest and $0 taxes.

 

 

See notes to unaudited consolidated financial statements

 

-5-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

1. Basis of Presentation, The Company and Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements of Plures Technologies Inc. and subsidiary (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position at June 30, 2012, the results of operations for the three and six month periods ended June 30, 2012 and 2011, and cash flows for the three and six month periods ended June 30, 2012 and 2011. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC on March 30, 2012.

 

The results for the six month period ended June 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012, or any future period

 

The Company

 

Plures Holdings, Inc. (“Holdings”) was formed December 24, 2008 (date of inception) in the State of Delaware.  Holdings was an entrepreneurial start-up company based in Upstate New York.  As of May 23, 2011, Holdings, through its subsidiary Advanced MicroSensors Corporation (“AMS Corp”) develops and manufactures thin film, magnetic and MEMS devices.

 

On September 30, 2010, Holdings entered into an Asset Purchase Agreement (“APA”) with Advanced MicroSensors, Inc.  (“AMS Inc.” or “AMS”) to acquire substantially all of the assets and liabilities of AMS Inc. through its wholly owned subsidiary AMS Corp.

 

On May 23, 2011, Holdings closed the APA to acquire substantially all of the assets and specified liabilities of AMS Inc. The purchase price was a number of shares of authorized but previously unissued shares of common stock of AMS Corp., representing 5% of the outstanding common stock on a fully diluted basis on the closing date.  Additionally, in conjunction with the closing of the APA, Holding’s note receivable with AMS Inc. in the amount of $1,650,000 was terminated and AMS Inc. was released of all obligations under the terms of the notes.

 

On May 23, 2011, Holdings entered into an agreement with CMSF Corp. (name since changed to Plures Technologies, Inc., the “Company”), the stock of which was quoted on the OTC Bulletin Board, and several related entities, providing for the merger of Holdings with a subsidiary of the Company such that Holdings would become a wholly owned subsidiary of the Company. On August 10, 2011, the merger contemplated by the agreement was consummated. As a part of the transaction, Holdings, on May 23, 2011, borrowed a total of $2 million from the principal stockholders (“Lenders”) of the Company to be used to consummate the purchase by Holdings of the assets of AMS Inc., which it did on the same date.

 

On August 10, 2011 (the “Effective Time”), the Company consummated the reverse merger with Holdings as contemplated by the Merger Agreement. Pursuant to the Merger Agreement the name of the Company was changed from CMSF Corp. to Plures Technologies, Inc. In addition, Holdings became a wholly-owned subsidiary of the Company. At the Effective Time of the Merger each issued and outstanding  share of Holdings was converted into .914 shares of common stock of the Company ( after the effect of a subsequent 1 for 400 stock combination) with the stockholders of Holdings immediately receiving 85% of the Company’s common shares into which their Holdings shares were converted and the remaining 15% of the Company’s common shares (the “Holdback Shares”) issuable to the stockholders of Holdings withheld from issuance until February 2013 to satisfy any indemnification obligations of the stockholders of Holdings. . In addition, certain promissory notes issued by Holdings to RENN Universal and RENN Global in the aggregate principal amount of $2,000,000 were converted into 1,000,000 shares of Series A Preferred Stock of the Company.

 

-6-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

Immediately after the Merger, the former stockholders of Holdings held 72.5% of the Company’s outstanding shares including the Holdback Shares, RENN Universal and RENN Global held 20% collectively of the Company’s common stock as a result of the conversion of their $2,000,000 promissory note into Series A Preferred Stock and assuming conversion of the Preferred Stock into common stock, and the pre-merger stockholders of the Company, including RENN Universal and RENN Global held 7.5% of the Company’s common stock.

 

Liquidity and Management Plans

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The Company believes that, existing cash along with additional future equity or debt financing will be adequate to support its planned level of operations. The Company cannot be certain that additional debt or equity or other funding will be available on acceptable terms, or at all and the Company has not secured the additional financing. If the Company fails to obtain additional funding when needed, it may be forced to scale back, or terminate operations, or seek to merge with or be acquired by another company. Additionally, as described in Note 13, the Company has relied on a major customer for the majority of its revenue for three and six months ended June 30, 2012. Any further and continuing decrease in purchase quantities or purchase prices would have a significant impact on revenue and profitability.

 

Principles of Consolidation

 

The consolidated financial statements include the Company and its majority owned and controlled subsidiary, AMS Corp. The Company presents all of AMS Corp’s assets, liabilities, revenue and expenses, as well as the non-controlling interest in AMS Corp. (representing the 5% equity interest in the entity not owned by the Company), in its consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Basis of Accounting

 

Prior to the acquisition of AMS Inc. assets and operations, Holdings had not earned any revenues and accordingly, the Company’s activities had been accounted for as those of a “Development Stage Enterprise” as set forth in FASB ASC 915 Accounting and Reporting by Development State Enterprises.  As a result of the acquisition of the assets and operations of AMS Inc., the Company is no longer in the development stage.

 

Use of estimates in the preparation of financial statements

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Cash and cash equivalents

 

Cash is held at financial institutions and includes bank demand deposit accounts and certain money market accounts.  At times account balances may exceed insured limits.  However, the Company has not experienced any losses in such accounts and does not believe it is exposed to significant risk in cash and cash equivalents.

 

Restricted Cash

 

The restricted cash serves as collateral for an irrevocable standby letter of credit that provides financial assurance that the Company will fulfill its obligations with respect to certain lease obligations (Note 12). The cash is held in custody by the issuing bank, has restrictions as to withdrawal or use, and is currently invested in money market funds. Income from these investments is held in the account.  The restricted cash is classified as current as the letter of credit expires on June 30, 2013. 

 

-7-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

Income taxes

 

Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates which are expected to be in effect when these differences reverse.  Deferred tax assets and liabilities are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate.  Deferred tax assets and liabilities not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse.

 

The Company has recorded a full valuation allowance against its net deferred tax assets since management believes that, after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, it is more likely than not that the net deferred tax assets at June 30, 2012 will not be realized.

 

Inventories

 

Inventories are stated at the lower of cost or market. Costs are determined using the first-in, first-out method.

 

Equipment

 

Equipment is stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows:

 

Category  Useful Life
in Years
 
     
Manufacturing equipment   10 
Computer  and General equipment   3 
Leasehold Improvements   3 
Furniture and Fixtures   3 

 

Revenue Recognition

 

The Company recognizes revenue when (i) an evidence of arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Revenue from the sale of products and prototypes is recognized upon delivery, or upon customer acceptance for transactions where customer acceptance is stipulated and when all other revenue recognition criteria have been met. Revenue from engineering development services is recognized when services are performed and when all other revenue recognition criteria have been met.

 

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

 

The Company reviews the valuation of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When it is determined that the carrying value of applicable long-lived assets may not be recoverable based upon the existence of one or more indicators, the Company must evaluate whether the carrying amount of the asset exceeds the sum the undiscounted cash flows expected to result from the use and eventual disposition of that asset. The impairment would be measured as the amount by which the carrying amount of the particular long-lived assets exceeds its fair value. The fair value would be determined based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model or through an independent appraisal of individual assets.

 

-8-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

  

 

Research and Development

 

Research and development expenses include expenses which were incurred in the development of new products and new or improved technologies that enhance the production processes. Costs for product development are expensed as incurred. The Company incurred no research and development expense for the three months and six months ending June 30, 2012 and 2011, respectively.

 

Stock Based Compensation

 

The Company maintains stock-based incentive plans, under which it provides stock incentives to employees, directors and contractors. The Company grants to employees, directors and contractors, restricted stock and/or options to purchase common stock at an option price not less than the fair market value of the stock on the date of the grant. The Company follows FASB ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”), for all stock-based compensation. Under this application, the Company is required to record compensation expense over the vesting period for all awards granted.

 

Net Income (Loss) per Common Share

 

The Company’s basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period and, if there are dilutive securities, diluted income (loss) per share is computed by including common stock equivalents which includes shares issuable upon the exercise of stock options, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.

 

Fair Value of Financial Instruments

 

At June 30, 2012 the Company's financial instruments were comprised of cash and cash equivalents, accounts receivables, accounts payable and note payable.  The carrying amounts of which approximate fair market value.

 

Recently Issued Accounting Standards

 

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards” (Topic 820)—Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s financial statements.

 

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 increases the prominence of other comprehensive income in financial statements. Under ASU 2011-05, companies will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. ASU 2011-05 eliminates the option to present other comprehensive income in the statement of changes in equity and is applied retrospectively. For public companies, ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. . The adoption of this ASU did not have a material impact on the Company’s financial statements.

 

In December 2011, the FASB issued Accounting Standards Update No. 2011-12: Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-12"). The Update defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. As part of this update, the FASB did not defer the requirement to report comprehensive income either in a single continuous statement or in two separate but consecutive financial statements. ASU 2011-12 is effective for annual periods beginning after December 15, 2011. The Company does not expect the adoption to have a material impact on its financial statements.

 

-9-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

  

2. Fair Value Measurements

 

The Company has adopted FASB ASC Topic 820, “Fair Value Measurement and Disclosures”, (“ASC 820”). This topic defines fair value, establishes a framework for measuring fair value under US GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following :

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

The Company’s liabilities that are measured at fair value on a recurring basis relate to its warrants. Accordingly, the value of the warrant is evaluated each quarter. The fair value of the warrants are determined using the Black Scholes model with the following assumptions: risk free rate 2.0%, dividend yield 0.0%, expected life of 10 years, and volatility of 65%. For six months ended June 30, 2012 the liability increased to $136,488 from $80,357. The measurement is based upon significant inputs not observable in the market. Subsequent changes in the value of this liability will be recorded in the statement of operations.

 

The following table sets forth Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy

 

Fair Value measurements at June 30, 2012 :
   Level 1   Level 2   Level 3   Total 
Assets                
Money Market Account (a)  $110,372   $-   $-   $110,372 
                     
Liabilities                    
Warrant Liability  $-   $-   $136,488   $136,488 

 

-10-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

  

Fair Value measurements at December 31, 2011 :
   Level 1   Level 2   Level 3   Total 
Assets                
Money Market Account (a)  $171,651   $-   $-   $171,651 
                     
Liabilities                    
Warrant Liability  $-   $-   $80,357   $80,357 

 

  

(a)Included in cash and cash equivalents on the consolidated balance sheet

 

 

The change in the fair value of the warrant during the period is as follows:

 

Balance at December 31, 2011  $80,357 
Mark to Market   56,131 
Balance at June 30, 2012  $136,488 

  

As noted above the Company recorded a $56,131 increase in the fair value of the warrant liability as an expense in the statement of operations during the six months ended June 30, 2012.

 

  

3. Inventories

 

Inventories are comprised of the following:

 

  

June 30, 2012

  

December 31 , 2011

 
Raw Material  $306,260   $327,787 
Work-in-Process   -    353,373 
Finished Goods   338,060    - 
Total  $644,320   $681,160 

 

 

4. Property and Equipment

 

Equipment is comprised of the following:

 

   June 30, 2012   December 31, 2011 
Manufacturing Equipment  $4,077,794   $3,298,695 
Computers/Gen’l Equipment   20,803    3,650 
Leasehold Improvements   34,385    - 
Furniture & Fixtures   8,826    - 
Total  $4,141,808   $3,302,345 
           
Less Accumulated Depreciation   241,236    117,776 
Equipment, net  $3,900,572   $3,184,569 

 

Total depreciation expense for three and six months ended June 30, 2012 was $68,570 and $123,461. Total depreciation expense for period ending December 31, 2011 was $117,776.

 

-11-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

5.Business Combination

 

On May 23, 2011, the Company closed an APA to acquire substantially all of the assets and specified liabilities of AMS Inc. The purchase price was a number of shares of authorized but unissued shares of common stock of the Company, representing 5% of the outstanding common stock on a fully diluted basis on the closing date.  Additionally, in conjunction with the closing of the APA, the Company’s note receivable with AMS Inc. in the amount of $1,650,000 was terminated and AMS Inc. was released of all obligations under the terms of the notes.

 

The Company assessed the fair value of the tangible and intangible assets that were acquired from AMS Inc., for the purpose of purchase price allocation. The Company’s management determined fair value with assistance from its outside consultants and used fair value methodologies in accordance with generally accepted accounting principles to arrive at the fair value of both tangible and intangible assets. The fair values of the assets were significantly higher than the purchase price for the assets of AMS Inc., which were the primary factors resulting in the recording of a gain on the purchase.

 

In regard to tangible assets, the Company considered the fact that the fair value of the acquired assets greatly exceeded their nominal carrying value and concluded that the carrying value of the assets was not indicative of the fair value of these assets. The primary factor leading to this conclusion was the current price of equipment of similar type and condition, which became the basis for the values assigned to the assets acquired. Additionally, these tangible assets have been properly maintained and are expected to have a useful life that will extend another 10 years. While the carrying value at the time of acquisition was nearly $0, the fair value was determined to be approximately $1.9 million. These assets will be a significant contributor to manufacturing the Company’s product for many years in the future.

 

The valuation of the intangible assets was based on methodologies that relied upon forward looking forecasts that considered all known information at that time, the most significant assumption being the revenue growth of the Company, primarily in the magnetic sensor business.

 

AMS Inc. past financial losses were a result of the declining legacy tape head business. During 2010 production began on magnetic sensors and sales from this product have grown each quarter since. Future revenue growth, and therefore, AMS profitability, is based in part on this new market area. These assumptions were used in the valuation of intangible assets in purchase accounting of approximately $1.9 million that did not exist on the balance sheet of AMS prior to the acquisition.

 

The allocation of the purchase price and the purchase price accounting is based on the fair value of the acquired assets and liabilities measured as of May 23, 2011 in accordance with ASC Topic 805, Business Combinations.

 

Fair value of shares of common stock issued to AMS  $385,000 
Advances to AMS including interest (obligation to repay released at closing of merger)   1,707,326 
      
Total consideration  $2,092,326 
      
 Allocation of Purchase Price:     
Cash and cash equivalents  $180,436 
Accounts receivable   332,568 
Inventories   414,038 
Prepaid expenses and other   54,285 
Equipment   1,923,650 
Intangible assets   1,881,000 
Accounts payable   (538,628)
Accrued expenses   (100,433)
Deferred rent and other   (402,067)
Gain on bargain purchase   (1,652,523)
      
   $2,092,326 

  

-12-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

The gain related to the acquisition of AMS Inc. assets and liabilities in the amount $1,652,523 was recorded in other income in the statement of operations for the three and six months ended June 30, 2011.

 

The fair value of the shares issued in the AMS acquisition was based on the enterprise value of AMS.  Using an income approach the Company first determined the fair value of AMS as a whole and then attributed 5% of this value as the estimated fair value of the shares issued to AMS Inc. In connection with the acquisition of AMS Inc, the Company incurred acquisition related costs totaling approximately $68,400 which were expensed as incurred. Included in expenses for years ended December 31, 2011 and December 31, 2010 were acquisition related expenses amounting to approximately $28,000 and $40,400 respectively of which acquisition expenses for the six months ended June 30, 2012 and June 30, 2011 were approximately $0 and $29,000 , respectively.

 

The following presents the pro forma net loss for the six months ended June 30, 2012 and 2011 for the Company’s acquisition of AMS Inc. assuming the acquisition occurred as of January 1, 2011. The pro forma results are unaudited and are derived from the historical financial results of the acquired business for the periods presented and are not necessarily indicative of the results that would have occurred had the acquisition been consummated on January 1, 2011.

 

For the six months ended June 30,  2012   2011 
Revenue  $4,535,624   $2,811,727 
Net  income (loss)  $(855,449)  $(1,239,060)

 

Customer relationships are amortized based on patterns in which the economic benefits of customer relationships are expected to be utilized. Other finite-lived identifiable assets are amortized on a straight-line basis. The following are the intangible assets acquired and their respective amortizable lives as follows:

 

   Fair Value   Estimated   Amortization   Carrying 
   as of   Useful life    through   Value as of  
   May 23, 2011   (years)   June 30, 2012   June 30, 2012 
Technology  $605,400    5   $134,096   $471,304 
                     
Tradename   132,200    14    10,458    121,742 
                     
Customer Relationships   1,143,400    9    140,702    1,002,698 
                     
Total  $1,881,000        $285,256   $1,595,744 

 

  

6.Accrued Expenses

 

Accrued expenses are comprised of the following:

 

   June 30, 2012   December 31, 2011 
         
Accrued payroll and related expenses  $330,227   $237,867 
Professional Fees   87,000    154,000 
Utilities Expenses   93,897    102,802 
Other   112,576    313,745 
Total  $623,700   $808,414 

 

-13-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

  

During the three and six months ended June 30, 2012, the company reduced the estimate for warranty claims by $93,000 and $191,000 respectively, which was recorded as a credit in cost of revenue.

 

 

7.Earnings Per Share

 

The Company reports basic and diluted earnings per share (“EPS”). Basic EPS is based on the weighted average number of shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of the Company’s outstanding stock options, warrants , and restricted stock computed using the treasury stock method as well as other potentially dilutive securities. For the periods ended June 30, 2012 and 2011 potentially dilutive securities include:

 

   June 30, 2012   June 30, 2011 
         
Restricted stock   34,000    - 
Warrants   238,690    - 
Options   453,750    - 
Escrow shares   691,373    - 
Convertible preferred stock   1,682,264     - 
Total potentially dilutive securities   3,100,077    - 

   

 

For the three and six months ended June 30, 2012, the shares used in computing diluted net loss per share do not include any of the above securities as the effect is anti-dilutive given the Company’s loss.

 

Basic and Diluted loss per share were the same for the three months and six months ended 2011 as there were no adjustments to the net income and there were no common stock equivalents. 

 

 

A summary of the Company’s calculation of net income (loss) per share is as follows;

 

   THREE MONTHS ENDED   SIX MONTHS ENDED 
   June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011 
                 
Net income (loss) available to common shareholders  $(866,813)  $1,029,672   $(855,449)  $960,987 
                     
Basic shares used in the calculation of earnings per share   4,544,293    4,437,837    4,482,270    4,239,836 
                     
Effect of dilutive securities:                    
Restricted stock   -    -    -    - 
Warrants   -    -    -    - 
Options             -      
Escrow shares   -    -    -    - 
Convertible preferred stock   -    -    -    - 
                     
Diluted shares used in the calculation of earnings per share   4,544,293    4,437,837    4,482,270    4,239,836 
                     
Net income (loss) per share :                    
Basic  $(0.19)  $0.23   $(0.19)  $0.23 
Diluted  $(0.19)  $0.23   $(0.19)  $0.23 

  

-14-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

8.Income Taxes

 

The Company has recorded a full valuation allowance against its net deferred tax assets since management believes that, after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, it is more likely than not that the deferred tax assets at June 30, 2012 will not be realized.

 

At June 30, 2012 the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $ 10.5 million and $ 6.8 million, respectively, which may be used to offset future taxable income, subject to the limits discussed below. The transaction for the AMS Inc. acquisition most closely resembles a Type C reorganization under IRC Section 368 (a1C). In a Type C reorganization one corporation acquires nearly all properties of another corporation in exchange solely for all or a part of its’ own or its’ controlling parent’s voting stock followed by the acquired corporation’s distribution of all its’ properties pursuant to the plan of reorganization. This type of transaction qualifies as a non-taxable transaction under IRC Section 368 (a1C). These NOL’s are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and state tax authorities. The federal NOL’s expire at various dates through 2032. For state purposes, Massachusetts has a five year net operating loss carryover rule for tax years beginning before January 1, 2010. At June 30, 2012, there are $1.475 million in Massachusetts NOL’s set to expire at various dates through 2015. For tax years beginning on or after January 1, 2010, Massachusetts has adopted a twenty year NOL carryover rule and has $ 6.1 million in net operating loss carryforwards that are set to expire at various dates through 2032. The Company has available net operating loss carryovers for New York State purposes in the amount of $244,000 that are set to expire at various dates through 2032.

 

Utilization of NOLs may be subject to annual limitations due to ownership change limitations that have occurred previously or that could occur in the future as provided by Section 382 and 383 of the Internal Revenue Code of 1986, as well as similar state provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points within a three year period.

 

The Company considered the change in ownership during 2011 and determined that a change in ownership as defined in Section 382 of the Internal Revenue Code occurred. As a result of this change in ownership, the utilization of its Federal and state net operating losses are subject to an annual limitation based on a statutory rate of return and the value of the corporation at the time of the change in ownership. The utilization of the Company’s NOL carryforwards may be further limited if the Company experiences future ownership changes as defined in Section 382 of the Internal Revenue Code. The current annual calculated Section 382 limitation is $405,042.

 

In addition, $121,400 of Federal general business credits are available to the Company as carryforwards, expiring in various dates through 2032. Since these credits cannot be utilized until the Federal net operating loss carryforward is exhausted, they are fully reserved for in the Company’s deferred tax valuation allowance.

 

-15-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

In addition, $7,950 of Massachusetts investment tax credits are available to the Company as carryforwards, expiring in various dates through 2015, Since these credits cannot be utilized until the Massachusetts net operating loss carryforward is exhausted, they are fully reserved for in the Company’s deferred tax valuation allowance.

 

The Company is taxed under the provisions of the Internal Revenue Code and state tax laws.  The Company files tax returns in the U.S. federal jurisdiction, New York State and Massachusetts.  The tax returns for the years ended December 31, 2008 through December 31, 2011 are still subject to potential audit by the IRS and the taxing authorities in New York State and Massachusetts.  The Company adopted the provisions of FASB ASC 740-10, Accounting for Uncertainty in Income Taxes and its related amendment on January 1, 2009.  Management of the Company believes it has no material uncertain tax positions and, accordingly it will not recognize any liability for unrecognized tax benefits.

 

 

9.Financing Arrangements

 

Note Payable

 

On October 13, 2011, the Company and its subsidiary, AMS entered into a series of agreements with Massachusetts Development Financing Agency(“MDFA”) related to financing for  up to $2,000,000 loan for the purchase of equipment, including a Loan Agreement, a Note, a Security Agreement, a Guaranty and a Warrant. The agreements covering the loan subject the company to various restrictive covenants with which we must comply on an ongoing basis. The actual principal amount will be based on equipment purchased during the first six months or such longer period as the lender permits.  The loan bears interest at the rate of 6.25% per annum. The term of the loan is seven years and is repayable as follows: interest only for the first twelve months, and then constant payments of interest and principal during the following six year period in the amount of approximately $33,465 per month. The loan is repayable in whole or part without penalty.  The loan is secured by a security interest in substantially all of the assets of AMS, excluding intellectual property.  The Company has granted a warrant to MDFA for 59,524 shares of common stock of the Company at an exercise price of $2.10. The fair value of the warrant of $80,357 was recorded as a discount to the debt. Additionally, the Company paid the direct financing costs, which was recorded as a deferred financing cost of $34,000. At June 30, 2012 AMS had borrowed $ 2,000,000. Interest expense of $31,225 and $55,915 was paid for three and six months ended June 30, 2012 respectively.

 

The following is a summary of the maturities of debt outstanding on June 30, 2012:

 

December 31, 2012  $45,867 
December 31, 2013   285,972 
December 31, 2014   304,629 
December 31, 2015   324,504 
December 31, 2016   345,496 
Thereafter   693,532 
Total  $2,000,000 

 

 

 

10.Stockholders’ Equity

 

Classes of Stock

 

The Company has two classes of capital stock: Common Stock, and Preferred Stock. Holders of Common Stock are entitled to one vote for each share held.

 

The Preferred Stock may be issued from time to time in a series.  The Board of Directors is authorized and required to fix, in a manner and to the fullest extent provided and permitted by law, all provisions of the shares of each series not otherwise set forth in the Amended and Restated Certificate of Incorporation, including liquidation preference, dividend, voting rights and conversion rights.

 

-16-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

There were 1,375,000 shares of Series A Preferred Stock issued and outstanding at June 30, 2012 and December 31, 2011.  The Preferred Stock is convertible to 1,682,264 shares of common stock and the liquidation preference of these outstanding shares is $2,750,000 as of June 30, 2012 and December 31, 2011 repectively. The Series A Preferred Stock is entitled to all of the proceeds of a liquidation of the Company, which includes acquisitions, prior to distributions to the holders of the Common Stock, in an amount equal to the purchase price thereof. As a result of liquidation that is outside of the Company’s control Preferred Stock is classified as mezzanine on the balance sheet. The terms of conversion are subject to adjustment for stock splits and combinations, stock dividends and reorganizations.  The Series A Preferred Stock may be converted by the holders at any time, and will automatically be converted if the Company has nine consecutive months of profits or makes an aggregate of $1 million, during the 18 months following initial issuance of the Series A Preferred Stock.   In addition, if the Company has nine consecutive months of losses, or does not make an aggregate of at least $1 million during the 18 months after initial issuance of the Series A Preferred Stock, the holders of the Series A Preferred Stock, as a group, can elect a majority of the Board of Directors.

 

In accordance with merger of August 10, 2011 with the Company the outstanding shares of Holdings stock of 5,108,481 were converted into 4,609,219 shares of Company common stock.  Of these shares 15% were withheld from issuance until February 2013 leaving the issued share balance of 3,917,846 shares at the date of merger..

 

During the three months ended June 30, 2012 the Company raised $1,000,000 through the sale of common stock and warrants. Total common stock sold was 333,333 shares with warrants to purchase an additional 166,667 shares. The warrants have an exercise price of $3.50 and a term of 5 years. The Company paid $7,500 in cash fees for this investment.

 

Restricted Shares

 

The Company expenses restricted shares granted for compensation in accordance with the provisions of ASC 718. The fair value of the restricted shares issued is amortized on a straight-line basis over the vesting period. In August 2011, the Company granted a total of 60,000 shares of restricted common stock to certain members of its Board of Directors with a fair value of $109,722. One-third of the shares awarded in August 2011 were free of restriction beginning with the start date of serving on the board. One-third of the shares will vest upon each of the next two anniversary dates, subject to the grantee’s continued service on the Board of Directors unless he fails to serve because not re-elected. Compensation expense related to the first block was recognized in compensation expense on the start date.  The second and third block will be recognized straight-line over the two years based on the fair value of the shares at date of grant. The expense associated with the awarding of restricted shares for the three months and six months ended June 30, 2012 is $8,790 and $17,580 respectively, which is included in general and administrative expense on the accompanying consolidated statement of operations. As of June 30, 2012 there was $ 38,091 of total unrecognized compensation costs related to unvested restricted stock. The cost is expected to be recognized evenly over the next thirteen months.

 

A summary of restricted stock activity for all stock option plans is as follows:

 

   Six Months Ended
June 30,
 
   2012   2011 
Beginning outstanding balance   34,000    0 
Granted   0    0 
Vested   0    0 
Forfeited   0    0 
           
Ending outstanding balance   34,000    0 

 

-17-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

11.Stock Based Compensation

  

On December 16, 2011 the Company’s board of directors approved the 2011 Stock Option Plan (the “2011 Plan”), under which 600,000 shares of common stock have been reserved for issuance to employees, consultants and advisors. On February 28, 2012 the Board of Directors increased the shares subject to the 2011 Plan to 750,000 shares of common stock. Awards granted under the 2011 Plan, could include incentive stock options, nonqualified stock options and/or restricted stock. The 2011 Plan provides that the exercise price of incentive stock options must be at least equal to the fair market value of the Company’s common stock at the date such option is granted. If any person to whom an option is to be granted owns in excess of ten (10%) of the outstanding capital stock of the Company then the incentive options shall be granted to such person only for 110% or more of the fair market value on the date of the grant. Granted options expire in ten years or less from the date of grant and vest based on the terms of the awards.

 

As of June 30, 2012 options to purchase an aggregate of 453,750 shares had been granted under the 2011 Plan. All grants were effective May 23, 2012 at an exercise price of $3.50 with a 10 year life. One-fifth of the options will vest on December 31, 2012 and then the remaining options will vest at a rate of 20% on each December 31 of each year through 2016. The Company recognized $28,055 in compensation expense for three and six months ended June 30, 2012.

 

For incentive stock options, the Company uses the Black-Scholes option-pricing model to value compensation expense. Expected forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The expected term of options granted is derived from historical data on employee exercises. The risk-free interest rate is based on the United States Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of the Company’s stock. There were no stock options granted as of June 30, 2011. For the six months ended June 30, 2012 , options were valued assuming a risk-free interest rate of 2.0%, volatility of 65.0% , zero dividend yield, and an expected life of 10 years. The weighted average fair value of options granted was $2.16 for the six months ended June 30, 2012 . The Company records stock compensation expense over the vesting period, which is generally 5 years. As of June 30, 2012, the Company had approximately $954,000 of unrecognized compensation expense expected to be recognized over a period of approximately 4.5 years.

 

Changes in options outstanding, for the six months ended June 30, 2012 are as follows:

 

 

             
   Shares   Weighted
Average
Price
   Weighted
Average
Life
 
Outstanding, December 31, 2011   -   $-     
Granted   453,750    3.50      
Exercised   -    -      
Canceled   -    -      
                
Outstanding, June 30, 2012   453,750   $3.50    10 
                
Options exercisable, June 30, 2012   -   $-    - 

 

Total stock based compensation related to restricted shares, BOD shares, ISO shares and warrants for three and six months ended June 30, 2012 was $183,260 and $192,050 respectivlely, compared to $0 for the 2011 periods.

 

 

12.Commitments

 

Rent

 

AMS Corp leases office and manufacturing facilities, including office furniture, under a non-cancelable operating lease through June 30, 2013. The facility lease now expires in June 2013 as the one year renewal was granted upon closing of the APA.   Total payments under the lease, excluding facility charges for three months ended and six months ended June 30, 2012 were approximately $300,900 and $601,800.

 

On November 22, 2011, the Company entered a lease agreement for office facilities in Canandaigua NY. The term of the agreement is for 12 months commencing on January 1, 2012. Monthly lease payments are $1,327. The Company also pays a proportionate share of utilities of $250 per month. Total payments under the lease, excluding facility charges for the three and six months ended June 30, 2012 were approximately $4,100 and $8,200.

 

-18-
 

 

Plures Technologies, Inc

Notes to Consolidated Financial Statements (Unaudited)

 

 

Total non-cancelable lease commitments through the remainder of fiscal 2012 and fiscal 2013 are $601,782 and $601,782 respectively.

 

Facilities Expense

 

Under the terms of the lease discussed above, AMS Corp is obligated to pay for additional facilities charges. Total facility expenses included in the accompanying statements of operations for the lease and facility charges amounted to $297,812 and $616,854 for the three month and six months ended June 30, 2012 respectively.

 

Other

 

AMS Corp. is also liable for various other operating leases for office equipment. All such leases were renewed in 2011.  Future minimum lease payments related to the office equipment are $19,619 as of June 30, 2012. Additionally, AMS leases certain manufacturing equipment per agreements entered into in January 2009 and January 2010 with the same party.  These leases run through 2018 with annual combined payments of $6,000.

 

  

13.Concentrations of Credit Risk

 

During the three and six months ended June 30, 2012, the Company had sales to one customer that accounted for approximately 75% and 81% of all revenue, respectively.  During the three and six months ended June 30, 2011 sales to this customer accounted for approximately 0% and 73% of all revenue respectively.

 

14.Related Party Transactions

 

The Company utilizes services of a law firm that has an employee who is also an officer and director of the Company.  Fees charged by this firm were $68,988 and $132,000 for the six  months ended June 30, 2012 and 2011, respectively.

 

-19-
 

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

FORWARD-LOOKING STATEMENTS

 

In addition to historical information, this Quarterly Report contains forward-looking statements.  The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those discussed in this section.  Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof.  The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.  Readers should carefully review the risks described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the former fiscal year ended December 31, 2011, the Quarterly Reports on Form 10-Q filed by the Company and any Current Reports on Form 8-K by the Company.

 

The following discussion and analysis should be read in conjunction with the condensed financial statements and notes thereto in this quarterly report.

 

Overview

 

Until August 10, 2011, and since 2009, the Company was considered a shell company, in that it did not have significant assets and conducted no operations. On August 10, 2011 the Company’s wholly owned subsidiary merged with and into Plures Holdings, Inc. (formerly known as Plures Technologies, Inc.). Plures Holdings, Inc. is the holder of approximately 95% of the outstanding common stock of Advanced Microsensors Corporation (“AMS”). AMS and its predecessor have been in business for approximately 12 years and are based in Shrewsbury, Massachusetts. The business of AMS is the design and fabrication of micromechanical electrical systems (MEMS) including, in some instances magnetic components (Spintronics), and its principal activities include the fabrication of magnetic compass sensors and MEMS switches.

 

Critical Accounting Policies

 

We consider an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changed in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. For a discussion of the critical accounting policies that we consider to be the most sensitive and that require the most significant estimates and assumptions used in the preparation of our consolidated financial statements, see our Annual Report on Form 10-K for year ended December 31, 2011, under the heading, “Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies”. There has been no change in our critical accounting policies and estimates from those described in our Annual Report 10-K for the year ended December 31, 2011.

 

Results of Operations for Three Months Ended June 30, 2012 and 2011

 

Revenues for the three months ended June 30, 2012 were $ 1,735,435, compared with $666,747 for the three months ended June 30, 2011, reflecting the acquisition of AMS operations on May 23, 2011 and no revenue in 2011 prior to that date. Revenues for the three months ended June 30, 2012 were adversely affected by a decline in sales to the Company’s largest customer, which has accounted for the substantial portion of its revenues during the preceding 12 months.

 

Cost of revenues for the three months ended June 30, 2012 were $ 1,916,002, compared with $599,932 for the three months ended June 30, 2011, reflecting the acquisition of AMS operations on May 23, 2011 with no cost of revenue prior to that date. This resulted in a gross loss of $180,567. Cost of revenue includes a credit for the reduction in the estimate for warranty claims of $98,000. Although the Company had a decline in sales to its principal customer its cost of revenue did not decline proportionately since the majority of the costs are relatively fixed.

 

Operating expenses for the three months ended June 30, 2012 were $766,079 as compared with $336,402 for the 2011 period. The majority of the increase was related to labor spending, stock compensation expense and severance pay. Labor increased by approximately $140,000 due to small number of staff during the 2011 non-operating period prior to the acquisition of AMS on May 23, 2011 as compared with the staff of the Company including a full period of AMS in the 2012 period. Stock compensation expense related to warrants, BOD shares, and ISO shares and accounted for approximately $183,000 of this increase. Severance pay for terminated employees accounted for an $85,000 increase from the 2011 period.

 

-20-
 

 

 

Other income (expense) in the three months ended June 30, 2012 was $48,216. This includes interest expense of approximately $35,000 related to the note payable offset by $80,000 gain on reclaim of materials Other income (expense ) at June 30, 2011 was $1,296,647 which was made up of $1,652,423 related to the gain on the acquisition of AMS offset by debt financing fees.

 

As a result of the above, the Company had net loss for the three months ended June 30, 2012 of $ 866,813 as compared to income of $1,029,672 for the 2011 period and net income of $11,364 for the three months ending March 31 2012.

 

Results of Operations for Six Months Ended June 30, 2012 and 2011

 

Revenues for the six months ended June 30, 2012 were $4,535,624, compared with $666,747 for the six months ended June 30, 2011, reflecting the acquisition of AMS operations on May 23, 2011 and no revenue in 2011 prior to that date. Revenues for the six months ended June 30, 2012 were adversely affected by a decline in sales to the Company’s largest customer.

 

Cost of revenues for the six months ended June 30, 2012 were 4,194,694, compared with $599,932 for the six months ended June 30, 2011, reflecting the acquisition of AMS operations on May 23, 2011 with no cost of revenue prior to that date. This resulted in a gross profit of $ 340,930. Cost of revenue includes a credit for the reduction in the estimate for warranty claims of $191,000. Although the Company had a decline in sales to its principal customer its cost of revenue did not decline proportionately since the majority of the costs are relatively fixed.

 

Operating expenses for the six months ended June 30, 2012 were $1,213,581 as compared with $382,362 for the 2011 period. The primary driver of this increase is the small number of staff during the 2011 non-operating period prior to the acquisition of AMS on May 23, 2011 as compared with the staff of the Company including AMS in the 2012 period which increased payroll and payroll related expenses by approximately $400,000. Professional fees for legal and audit also increased approximately $55,000 over the 2011 period. Amortization of intangibles represented approximately $ 54,000 of the increase based on a full 6 months of expense for the 2012 period. Stock compensation expense related to warrants, BOD shares, and ISO shares accounted for approximately $192,000 of this increase . Severance pay for terminated employees accounted for an $85,000 increase from the 2011 period.

 

Other income (expense) in the six months ended June 30, 2012 was ($14,930). This includes interest expense of approximately $55,500 related to the note payable, and $56,000, in expense for the change in fair value of warrants issue as apart to the note payable, these were offset by offset by approximately $100,000 gain on reclaim of materials. Other income (expense ) at June 30, 2011 was $1,273,921 which was made up of $1,652,423 related to the gain on the acquisition of AMS offset by debt financing fees.

 

As a result of the above, the Company had net loss for the six months ended June 30, 2012 of $855,449 as compared to income of $960,987 for the 2011 period.

 

 

Liquidity and Financial Resources

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The Company believes that, existing cash and additional equity or debt financing being sought in the amount of approximately $2 million will be adequate to support its planned level of operations for at least the next 12 months.. The Company estimates it will need an additional approximately $1.0 million for equipment, in addition to the $2 million set forth above during 2012.   The Company cannot be certain that any required additional debt or equity or other funding will be available on acceptable terms, or at all and the Company has not secured the additional financing.. If the Company fails to obtain additional funding when needed, it may not meet its loan covenants, it may be forced to scale back, or terminate operations, or seek to merge with or be acquired by another company. The Company expects its general and administrative costs to increase as the Company adds personnel. 

 

For the six months ended June 30, 2012 net cash used by operations was $ 783,266 compared to $1,047,573 for the 2011 period. The cash used by operations during the period ended June 30, 2012 was due primarily to net loss and net decrease in operating assets and liabilities of approximately $404,000 as sales to it’s largest customer declined during the period. The Company expects little or no sales to its largest customer in the third quarter of 2012 and possibly in the fourth quarter of 2012 and there can be no assurance of sales from this customer beyond 2012. In addition to the financing described above, to offset the impact on operations, the Company has implemented cost savings measures and is seeking additional sales to other customers and to new customers.

 

Cash flow used for investing activities during the six months ended June 30, 2012 totaled $839,465 which included the acquisition of approximately $779,500 in new equipment for AMS’s manufacturing operations and $60,000 in the equipping of the corporate office in Canandaigua New York. Cash flow from financing activities for the six months ended June 30, 2012 was $1,594,079 of which $992,500 was due to the sale of 333,333 shares of common stock with warrants. The remainder represents additional borrowing on the AMS’s note payable to Mass Development Loan of $603,595, which was used to fund equipment purchases offset by $2,017 reduction in payables to shareholders. There is no remaining availability under the loan agreement as of June 30, 2012.

 

-21-
 

 

 

Item 3 Quantitative and Qualitative Disclosures about Market Risk

 

We believe we are not subject to material foreign currency exchange rate fluctuations, as substantially all of our sales and expenses are

denominated in the U.S. dollar. We do not hold derivative securities and have not entered into contracts embedded with derivative

instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars or warrants, either to hedge existing

risks or for speculative purposes.

 

  

Item 4 Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), were effective as of June 30, 2012, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

 

Changes in Internal Controls Over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

-22-
 

   

PART II

 

OTHER INFORMATION

 

Item 1A. Risk Factors

 

There have been no material changes to the Risk Factors described in Part 1, Item 1A of our Annual Report on Form 10-K filed with the SEC on March 30, 2012 for the year ended December 31, 2011, except as set forth below.

 

We will lose revenue due to one of our major customers reducing its purchases

 

We have relied on a major customer for approximately 80% of our revenue for the past 12 months. Due to uncertainties concerning the demands of its customers, we expect little or no sales to this customer in the third quarter of 2012 and possibly the fourth quarter of 2012 and there can be no assurance of sales from this customers beyond 2012. Although the Company is seeking to offset the effect of this sales reduction with additional financing, the reduction of operating costs and the addition of other business, this sales reduction will have a material impact on our revenues and potential profitability.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 6. Exhibits

 

Exhibit 31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Exhibit 101 Instance Document

 

Exhibit 101 Schema Document

 

Exhibit 101 Calculation Linkbase Document

 

Exhibit 101 Labels Linkbase Document

 

Exhibit 101 Presentation Linkbase Document

 

Exhibit 101 Definition Linkbase Document

 

-23-
 

  

SIGNATURE

 

In accordance with the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: August 14, 2012 PLURES TECHNOLOGIES, INC.  
     
  /s/ David R. Smith  
  David R. Smith  
  Chief Executive Officer  

 

-24-

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