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 March 31, 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 March 31, 2012:

4,452,793 shares of common stock, $.001 par value.

 

Transitional Small Business Disclosure Format:

 

YES ¨                               NO x

 

 

 

 

PLURES TECHNOLOGIES, INC.

INDEX

  

	PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Balance Sheets as of March 31, 2012 and  December 31, 2011	3
Statements of Operations for the Three Months Ended March 31, 2012 and 2011	4
Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011	5
Notes to the Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures about Market Risk	23
Item 4. Controls and Procedures	23
PART II - OTHER INFORMATION
Item 1A Risk Factors	24
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6 Exhibits	24
Signature	25
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

 

 

  

Item 1. Financial Statements

Plures Technologies, Inc. 

 

Consolidated Balance Sheets

(Unaudited)

 

		March 31, 2012				December 31, 2011
Current Assets
Cash & Cash Equivalents		$	1,001,666			$	1,123,518
Accounts Receivable, net			471,604				247,885
Inventories			682,804				681,160
Prepaid & Other Current Assets			129,142				59,760
Total Current Assets			2,285,216				2,112,323
Equipment, net			3,635,472				3,184,569
Intangible Assets, net			1,660,136				1,724,528
Other Assets
Restricted Cash			200,000				200,000
Deferred Financing Fees			31,774				32,988
Total Other Assets			231,774				232,988
Total Assets		$	7,812,598				7,254,408
Liabilities, Preferred Stock and Stockholders' Equity
Current Liabilities
Accounts Payable		$	1,353,909			$	928,253
Accrued Expenses			582,225			$	808,414
Advances Payable to shareholders			-				2,017
Deferred Revenue & Customer Deposits			54,476				30,257
Current Portion of Note			83,452				22,410
Total Current Liabilities			2,074,062				1,791,351
Long-Term Liabilities
Note Payable, net of current portion			1,495,738				1,296,029
Warrant Liability			136,488				80,357
Total Long-Term Liabilities			1,632,226				1,376,386
Total Liabilities		$	3,706,288			$	3,167,737
Commitments and Contingencies
Preferred Stock		$	2,750,000			$	2,750,000
Stockholders' Equity
Non-Controlling Interest			286,168			$	286,683
Additional Paid-in-Capital			2,361,477				2,352,686
Common stock at March 31, 2012 and  December 31, 2011 authorized 50,000,000 shares par value $.001, 4,418,793 shares outstanding, respectively			4,419				4,419
Preferred stock at March 31, 2012 and  December 31, 2011 authorized 5,000,000 shares par value $.001, 1,375,000 shares outstanding, respectively			-				-
Accumulated Deficit			(1,295,754	)			(1,307,117	)
Total Stockholders' Equity		$	1,356,310			$	1,336,671
Total Liabilities, Preferred Stock and Stockholders' Equity		$	7,812,598			$	7,254,408

 

See notes to unaudited consolidated financial statements

 

 

Plures Technologies, Inc.

Consolidated Statements of Operations

(Unaudited)

 

		Three months ended
		March 31, 2012				March 31, 2011
Revenue		$	2,800,189			$	0
Cost of Revenue			2,278,692				0
Gross profit		$	521,497			$	0
Operating Expenses:
Selling, general & administrative			447,502				68,685
Operating income		$	73,995			$	(68,685	)
Other Income (Expense):
Interest Income (Expense)			(28,397	)			0
Other Income (Expense)			(34,749	)			0
Total Other Income (Expense), net			(63,146	)			0
Net Income(Loss)		$	10,849			$	(68,685	)
Less: Net Loss attributable to noncontrolling interest			(515	)			0
Net Income (Loss) attributable to Plures Technologies, Inc.		$	11,364			$	(68,685	)
Net Income(Loss) Per Share
Basic and Diluted		$	0.00			$	(0.02	)
Weighted Average Shares Outstanding
Basic			4,418,793				4,041,834
Diluted			6,805,501				4,041,834

 

See notes to unaudited consolidated financial statements

 

  

 Plures Technologies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

		Three months ended
		March 31, 2012				March 31, 2011
Cash Flows from Operating Activities:
Net Income (Loss)		$	10,849			$	(68,685	)
Adjustments to reconcile net income (loss) to net cash  provided by operating activities:
Amortization of debt issuance costs			-				22,725
Deferred Financing Fees			1,214				-
Debt discount on Note Payable			2,870
Stock compensation expense			8,790				-
Change in Fair Value of Warrants			56,131				-
Depreciation			54,890				-
Amortization of intangibles			64,392				-
Changes in operating assets and liabilities, net of effects of acquisition							-
Accounts receivable			(223,719	)			-
Inventories			(1,644	)			-
Prepaid expenses & other current assets			(69,382	)			-
Accounts payable			425,656				50,460
Accrued expenses			(226,189	)			-
Deferred revenue and customer deposits			24,219				-
Net cash provided by operating activities		$	128,077			$	4,500
Cash Flows from Investing Activities:
Advances to AMS Inc		$	-			$	(500,000	)
Purchase of manufacturing equipment			(505,793	)			-
Net cash used in investing activities		$	(505,793	)			(500,000	)
Cash Flows from Financing Activities:
Issuance of convertible debt, net of issuance costs			-				470,559
Deposit on convertible debt			-				25,000
Reduction of payable to shareholders			(2,017	)			(27,500	)
Note payable, net of fees			257,881				-
Net cash provided by financing activities		$	255,864			$	468,059
Net decrease in cash			(121,852	)		$	(27,441	)
Cash and cash equivalents, beginning of period			1,123,518			$	146,347
Cash and cash equivalents, end of period		$	1,001,666			$	118,906
Non-Cash investing and Financing Activities
Issuance of common stock for finders' fees			-				27,268

 

For the three months ended March 31, 2012 the Company paid $24,690 cash interest and $0 taxes.

See notes to unaudited consolidated financial statements

  

 

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 March 31, 2012, the results of operations for the three month periods ended March 31, 2012 and 2011, and cash flows for the three month periods ended March 31, 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 three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012, or any future period. Interim period amounts are not necessarily indicative of the results of operations for the full fiscal year.

 

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 (“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 executed 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, Holdings 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 traded 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 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 reserved to satisfy any indemnification obligations of the stockholders of Holdings after which the balance will be issued. 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.

 

 

 

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. 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 10, the Company relies on a major customer for approximately 87% of its revenue. Any decreases in purchase quantities or purchase prices would have a significant impact on our revenue and resultant profitability. The Company expects its general and administrative costs to increase as the Company adds personnel.

 

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 9). 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 long term as the letter of credit expires on June 30, 2013. 

 

 

 

Fair Value of Financial Instruments

 

At March 31, 2012 the Company's financial instruments were comprised of cash and cash equivalents, accounts receivables and accounts payable and note payable.  The carrying amounts of which approximate fair market value.

 

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 During the quarter ended March 31, 2012, the Company increased this fair value of this liability 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 using: as of March 31, 2012

Assets		Level 1				Level 2				Level 3				Total
Marketable securities (a)		$	7,041			$	-			$	-			$	7,041
Liabilities
Warrant liability			—				—			$	136,488			$	136,488

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

 

  

Fair value measurements using: as of December 31, 2011

 

Assets		Level 1				Level 2				Level 3				Total
Marketable securities (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:

 

Three months ended March 31, 2012,
Balance as of December 31, 2011		$	80,357
Mark to market			56,131
Balance as of March 31, 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 quarter ended March 31, 2012.

 

 

 

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 March 31, 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 software and equipment			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.

 

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 ending March 31, 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 equal to the market value of the stock at the date of 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 Loss per Common Share

 

The Company’s basic net income (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period and, if there are dilutive securities, diluted 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.

 

Basic and Diluted loss per share were the same for the three months ended March 31, 2011 as there were no adjustments to the net loss and there were no common stock equivalents.  Basic and Diluted earnings per share for the three months ended March  31, 2012 used the same numerator as there were no adjustments to the net income.

 

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

 

 

		March 31, 2012				March 31, 2011
Net income (loss) available to common shareholders		$	11,364			$	(68,685	)
Basic shares used in the calculation of earnings per share			4,418,793				4,041,834
Effect of dilutive securities:
Restricted stock			13,071				-
Escrow shares			691,373				-
Convertible preferred stock			1,682,264				-
Diluted shares used in the calculation of earnings per share			6,805,501				4,041,834
Net income (loss) per share :
Basic		$	0.00			$	(0.02	)
Diluted		$	0.00			$	(0.02	)

 

 

 

The calculation of basic net income (loss) per share for three months ending March 31, 2012 and 2011 does not include 34,000 and 0 shares, respectively, of restricted common stock issued to board members, executive officers and employees of the Company as they are subject to time-based vesting. These potential shares were excluded from the computation of basic loss per share as these shares are not considered outstanding until vested.

 

The calculation of diluted net income (loss) per share for the three months ending March 31, 2012 and 2011 does not includes 59,524 and 0 shares, respectively, of common stock warrants because such shares are antidilutive.

 

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 Company does not expect the adoption to have a material impact on its 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 Company does not expect the adoption to have a material impact on its 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.

 

Accounting Standards Update (“ASU”) 2011-5, “Comprehensive Income” and ASU 2011-12, “Comprehensive Income” require entities to elect the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single, continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The ASU is effective prospectively 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 consolidated financial statements.

 

ASU 2011-04, “Fair Value Measurements and Disclosures” requires expanded disclosure of certain fair value measurements categorized in Level 3 of the fair value hierarchy. The ASU is effective prospectively 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 consolidated financial statements.

 

 

 

2.	Inventories

 

Inventories are comprised of the following:

 

		March 31, 2012
Raw Material		$	325,311
Work-in-Process			357,493
Finished Goods			0
		$	682,804

 

There was no inventory as of March 31, 2011.

  

3.

Equipment

 

Equipment is comprised of the following:

 

		March 31, 2012
Manufacturing equipment		$	3,784,637
Computer software and equipment			3,650
Equipment Not in Service			19,851
			3,807,868
Less accumulated depreciation			172,666
Equipment , net		$	3,635,472

 

Total depreciation expense for the three months ended March 31, 2012 and 2011 was $54,891 and $0 respectively.

 

4.	Business combination

 

On May 23, 2011, the Company executed 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
Estimated 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

  

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 year ended December 31, 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 three months ended March 31, 2012 and March 31, 2011 were approximately $0 and $8,100 , respectively.

 

The following presents the pro forma net loss for the three months ended March 31, 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 three months ended March 31,		2012				2011
Revenue		$	2,800,189			$	1,336,250
Net  income (loss)		$	11,364			$	(492,200	)

 

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:

 

										Amortization				Carrying
		Fair Value				Estimated				through				Value as of
		as of May 23, 2011				Useful life (years)				March 31, 2012				March 31, 2012
Technology		$	605,400				5			$	103,826			$	501,574
Tradename			132,200				14				8,097				124,103
Customer Relationships			1,143,400				9				108,941				1,034,459
		$	1,881,000							$	220,864			$	1,660,136

 

Estimated amortization expense for the next five years will be approximately $86,000 per year.

 

 

5.	Accrued Expenses

 

Accrued expenses are comprised of the following:

 

		March 31, 2012				December 31, 2011
Accrued payroll and related expenses		$	199,648			$	237,867
Professional Fees			83,463				154,000
Utilities Expenses			98,139				102,802
Other			200,975				313,745
		$	582,225			$	808,414

 

During the three months ended March 31, 2012, the company reduced the estimate for warranty claims by $93,000, which was recorded as a credit in cost of revenue.

 

 

 

6.	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 March 31, 2012 will not be realized.

 

At March 31, 2012 the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $9.2 million and $3.3 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 carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and state tax authorities. The federal carryforwards 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 March 31, 2012, there are $1.475 million in Massachusetts net operating loss carryforwards set to expire at various dates through 2015. For tax years beginning on or after January 1, 2010, Massachusetts has adopted a twenty year net operating loss carryover rule and has $3.1 million in net operating loss carryforwards 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.

 

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.

 

 

 

7.	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 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 $29,457 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 March 31, 2012 AMS had borrowed $1,654,286. Interest expense of $24,690 was paid for three months ended March 31, 2012. The remaining amount of $345,714 is available to be drawn to purchase additional equipment.

 

The following is a summary of the maturities of long-term debt outstanding on March 31, 2012:

 

2012		$	83,452
2013			192,143
2014			271,260
2015			288,957
2016			307,662
Thereafter			510,812
			1,654,286

  

8.	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.

 

There were 1,375,000 shares of Series A Preferred Stock issued and outstanding at March 31, 2012 and no shares issued or outstanding at March 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.   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 for 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 in 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 4,609,230 shares of Company common stock.  Of these shares 15% were withheld from issuance leaving the issued share balance of 3,917,846 shares at that time.

 

 

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 ended March 31, 2012 is $8,790, which is included in general and administrative expense on the accompanying consolidated statement of operations. As of March 31, 2012 there was $ 46,881 of total unrecognized compensation costs related to unvested restricted stock. The cost is expected to be recognized evenly over the next twenty-one months.

 

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

 

 

		Period Ended March 31,
		2012				2011
Beginning outstanding balance			34,000				0
Granted			0				0
Vested			0				0
Forfeited			0				0
Ending outstanding balance			34,000				0

  

Stock Incentive Plan

 

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. 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.

 

On February 28, 2012 the Board of Directors increased the shares subject to the 2011 plan to 750,000 shares of common stock.

 

In order for the 2011 Plan to be tax qualified, the same must be approved by the stockholders of the Registrant within 12 months of the date of adoption by the board of directors, among other matters.

 

As of March 31, 2012 no shares had been granted under this plan.

 

 

9.	Commitments

 

Rent

 

AMS Corp leases office and manufacturing facilities, including office furniture, under a non-cancelable operating lease through June 30, 2013. On September 29, 2010, the Company entered into a third amendment to its lease which suspended the base rent for the period from July 1, 2010 through the earlier of the closing of the APA” or December 31, 2010 . The lease amendment also reduced prepaid utilities to $110,000 per month from $150,000 and provided for consent to the assignment of this lease and a one year renewal of such for the Purchaser upon Closing of the APA.    Additionally, the amendment granted the landlord collateral in certain assets of the Company.  Upon closing of the APA on May 23, 2011, payment of the deferred rent including interest was made and the collateral interest was removed.  Also on that day the parties entered into a Fourth Amendment to the lease which reduced the required letter of credit from $250,000 to $200,000 and such letter of credit was put in place.   As noted above, 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 the period ended March 31, 2012 were approximately $300,891.

 

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 period ended March 31, 2012 were approximately $4,117.

 

Total non-cancelable lease commitments through the remainder of fiscal 2012 and fiscal 2013 are $902,673 and $ 601,722 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 approximately $319,042 and $0 for the three months ended March 31, 2012 and 2011 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 approximately $20,936 as of March 31, 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.

 

10.	Concentrations of Credit Risk

 

During the three months ended March 31, 2012, the Company had sales to one customer that accounted for approximately 87% of all revenue, respectively.  Accounts receivable from this customer was $259,595 and $0 as of March 31, 2012 and 2011 respectively.

 

11.	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 $34,960 and $45,592 for the three months ended March 31, 2012 and 2011, respectively.

 

 

  

12.	Subsequent Events

 

On April 1, 2012 the Board of Directors approved the issuance of common stock otherwise issuable to a director of the Company, as follows: 5,000 shares to RENN Global Entrepreneurs Fund, Inc, and 5,000 shares to RENN Capital Group, Inc.

 

On April 17, 2012 the Company, with the Board of Directors approval, entered into a consulting agreement with a consulting firm under which the consulting firm will receive a cash payment of $25,000 and warrants to purchase 50,000 shares of common stock for their consulting services.

 

 

 

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

 

Principles of Consolidation

 

The consolidated financial statements include the Company, and its subsidiary, Advanced Micro Sensors Corporation.   All material intercompany accounts and transactions have been eliminated in consolidation.

 

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.

 

Allowance for Doubtful Accounts

 

The Company’s policy is to maintain allowances for estimated losses from the inability of its customers to make required payments. Credit limits are established through a process of reviewing the financial results, stability and payment history of each customer. Where appropriate, the Company obtains credit rating reports and financial statements of customers when determining or modifying credit limits. The Company’s senior management reviews accounts receivable on a periodic basis to determine if any receivables may potentially be uncollectible. The Company includes any accounts receivable balances that it determines may likely be uncollectible, along with a general reserve for estimated probable losses based on historical experience, in its overall allowance for doubtful accounts. An amount would be written off against the allowance after all attempts to collect the receivable had failed. Based on the information available to the Company, it believes the allowance for doubtful accounts is adequate.

 

  

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 deferred tax assets at March 31, 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. The Company regularly reviews inventory quantities on hand and records a provision for excess and/or obsolete inventory primarily based upon estimated usage of its inventory as well as other factors.

 

 

Intangible Assets

 

Intangible assets are evaluated for impairment whenever events or circumstances indicate the carrying amount of the assets may not be recoverable.  Intangible assets subject to amortization were the result of the Company’s acquisition of AMS Inc.

 

Revenue Recognition

 

The Company recognizes revenue when (i) an agreement 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

 

The Company reviews the valuation of long-lived assets whenever events or change 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 of 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.

 

Results of Operations

 

Three months Ended March 31, 2012 and 2011

 

Revenues for the three months ended March 31, 2012 were $2,800,189, compared with $0 for the three months ended March 31, 2011, reflecting the acquisition of AMS operations on May 23, 2011 and no revenue in 2011 prior to that date.

 

Cost of revenues for the three months ended March 31, 2012 were $ 2,278,692, compared with $0 for the three months ended March 31, 2011, reflecting the acquisition of AMS operations on May 23, 2011. This resulted in a gross profit of $521,497. Cost of revenue includes a credit for the reduction in the estimate for warranty claims of $93,000.

 

 

 

Operating expenses for the three months ended March 31, 2012 were $447,502 as compared with $68,685 for the 2011 period, the increase is due to a very small staff during the 2011 non-operating period as compared with the staff of the Company including AMS in the 2012 period which increased payroll and payroll related expenses by approximately $195,000. Professional fees for legal and audit also increased approximately $30,000 over the 2011 period. Additionally amortization of intangibles represented approximately $64,000 of the 2012 amount.

 

Other income (expense) in the three months ended March 31, 2012 was ($63,146). This includes interest expense of approximately $26,000 related to the note payable as well as $56,131 in expense for the change in fair value of warrants issued as part of the loan agreement. These expenses were partially offset by a gain on materials of approximately $20,000. Other income (expense ) at March 31, 2011 was $0.

 

As a result of the above, the Company had net income for the three months ended March 31, 2012 of $11,364 as compared to a loss of $68,685 for the 2011 period when the Company was a shell corporation.

 

 

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 in the amount of approximately $2 million will be adequate to support its planned level of operations. The Company estimates it will need an additional approximately $1.0 million for equipment, which is part of the $2 million set forth above during 2012.  The Company is presently pursuing an incremental application with the Massachusetts Development Financing Agency for these funds. The Company cannot be certain that any required additional debt or equity or other funding will be available on acceptable terms, or at all. 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. The Company expects its general and administrative costs to increase as the Company adds personnel. 

 

For the three months ended March 31, 2012 net cash provided by operations was $128,077 compared to $4,500 for the 2011 period. The cash generated by operations during the period ended March 31, 2012 was due primarily to net income of $10,849 which when adjusted by approximately $188,300 of non-cash expenses for interest, stock compensation, amortization and depreciation resulted in approximately $199,150 in cash generated. This was offset by a net decrease in operating assets and liabilities of approximately $71,060.

 

Cash flow used for investing activities during the three months ended March 31, 2012 includes the acquisition of $505,793 in new equipment for AMS’s manufacturing operation. Cash flow from financing activities for the three months ended March 31, 2012 was $255,864 which primarily represents additional borrowing on the AMS’s note payable to Mass Development Loan of $257,881, which was used to fund equipment purchases. The remaining availability under the loan agreement as of March 31, 2012 was $345,714.

  

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 March 31, 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 March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

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.

 

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

 

 

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:  May 15, 2012	PLURES TECHNOLOGIES, INC.
	/s/ David R. Smith
	David R. Smith
	Chief Executive Officer