-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P/SrGhD69ASqb8/QEIK7jxcNT4bRCz0O2k1YffnV+Jz4MN+CKazqDw38K72IzYRM mLXyuNJC/k3PdDXzCX0d5g== 0000950150-96-000846.txt : 19960814 0000950150-96-000846.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950150-96-000846 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLLUTION RESEARCH & CONTROL CORP /CA/ CENTRAL INDEX KEY: 0000763950 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 952746949 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14266 FILM NUMBER: 96611001 BUSINESS ADDRESS: STREET 1: 506 PAULA AVENUE CITY: GLENDALE STATE: CA ZIP: 91201 BUSINESS PHONE: 8182477601 MAIL ADDRESS: STREET 1: 506 PAULA AVE CITY: GLENDALE STATE: CA ZIP: 91201 FORMER COMPANY: FORMER CONFORMED NAME: DASIBI ENVIRONMENTAL CORP DATE OF NAME CHANGE: 19900529 10QSB 1 FORM 10-QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1996 [ ] Transition Report under Section 13 or 15(d) of the Exchange Act For the Transition Period from ________ to ________ Commission file Number 0-14266 POLLUTION RESEARCH AND CONTROL CORP. (Exact Name of Small Business Issuer as Specified in Its Charter) California 95-2746949 - ---------- ---------- (State of or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 506 Paula Ave. Glendale, California 91201 (Address of Principal Executive Offices) (818) 247-7601 (Issuer's Telephone Number, Including Area Code) Check whether the Issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
Class Date No. of shares outstanding ---------- ------------------- ------------------------- Common August 12, 1996 8,224,565
Traditional Small Business Disclosure Format (check one): Yes X No --- --- 2 FORM 10-QSB FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1996 TABLE OF CONTENTS Part I Financial Information Page Item 1. Financial Statements Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . 14 Part II Other Information Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 16 Item 6(b). Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (UNAUDITED) AS OF CURRENT ASSETS 06/30/96 ----------- Cash $ 785,682 Certificate of deposit 21,750 Marketable securities 100,000 Accounts receivable, trade, less allowance for doubtful accounts of $44,734 1,846,459 Inventories (Note 3) 2,690,717 Deferred tax assets (Note 6) 106,782 Other current assets 37,248 ----------- TOTAL CURRENT ASSETS 5,588,638 PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated depreciation of $123,499 (Note 2) 1,668,046 OTHER ASSETS Goodwill (Note 4) 223,023 Loan costs (Note 4) 90,500 Organization costs, less accumulated amortization of $3,400 13,600 Deferred tax asset (Note 6) 60,000 Other 20,129 ----------- TOTAL OTHER ASSETS 407,252 ----------- TOTAL ASSETS $ 7,663,936 ===========
See notes to the financial statements. 3 4 CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) AS OF CURRENT LIABILITIES 06/30/96 --------- Notes payable (Notes 2 and 5) $ 947,109 Current portion of long-term debt (Notes 2 and 5) 196,749 Accounts payable 1,063,074 Accrued liabilities 454,111 ---------- TOTAL CURRENT LIABILITIES 2,661,043 ---------- LONG-TERM DEBT, less current portion (Notes 2 and 5) 1,192,639 DEFERRED RENT, less current portion 94,470 DEFERRED INCOME TAXES (Note 6) 449,000 COMMITMENTS AND CONTINGENCIES (Note 7) -- SHAREHOLDERS' EQUITY (Note 8) Preferred Stock, no par value; 20,000,000 shares -- authorized, no shares issued and outstanding Common Stock, no par value; 30,000,000 shares authorized, 8,224,565 issued and outstanding 6,209,013 Less notes receivable (86,857) Accumulated deficit (2,954,184) Unrealized gain on marketable securities 100,000 Unrealized foreign currency translation loss (1,188) ---------- TOTAL SHAREHOLDERS' EQUITY 3,266,784 ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,663,936 ==========
See notes to the financial statements. 4 5 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30 ------------- 1996 1995 ---- ---- Net revenues $1,929,848 $1,434,302 Cost of goods sold 1,265,954 847,268 ---------- ---------- Gross profit 663,894 587,034 ---------- ---------- Operating expenses: Selling, general and administrative expenses 421,099 504,122 Research and development 41,876 63,887 ---------- ---------- Total operating expenses 462,975 568,009 ---------- ----------- Income from operations 200,919 19,025 Interest expense (4,375) -- Interest income 1,102 -- Other income -- 494 ---------- ---------- Income before income taxes 197,646 19,519 Provision for income taxes: Current -- -- Deferred (Note 6) (24,000) -- ----------- ---------- Total provision for income taxes (24,000) -- ----------- ---------- Net income $ 221,646 $ 19,519 ========== ========== Earnings per share: Primary: Net income $ .03 $ .01 ========== ========== Weighted average number of common and common equivalent shares outstanding 7,374,396 6,932,662 ========== ========== Fully Diluted: Net income $ .03 Not applicable ========== Weighted average number of common and common equivalent shares outstanding 7,414,352 ==========
See notes to the financial statements. 5 6 CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30 ------------- 1996 1995 ---- ---- Net revenues $3,558,894 $2,903,344 Cost of goods sold 2,195,010 1,719,618 ---------- ---------- Gross profit 1,363,884 1,183,726 ---------- ---------- Operating expenses: Selling, general and administrative expenses 824,713 911,249 Research and development 79,898 117,983 ---------- ---------- Total operating expenses 904,611 1,029,232 ---------- ---------- Income from operations 459,273 154,494 Interest expense (8,212) -- Interest income 2,240 -- Other income 3,500 1,016 ---------- ---------- Income before income taxes 456,801 155,510 Provision for income taxes: Current -- -- Deferred (Note 6) (24,000) -- ---------- ---------- Total provision for income taxes (24,000) -- ---------- ---------- Net income $ 480,801 $ 155,510 ========== ========== Earnings per share: Primary: Net income $ .07 $ .02 ========== ========== Weighted average number of common and common equivalent shares outstanding 7,171,287 6,932,662 ========== ========== Fully diluted: Net income $ .07 Not applicable ========== Weighted average number of common and common equivalent shares outstanding 7,242,885 ==========
See notes to the financial statements. 6 7 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $480,801 $155,510 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 25,509 48,804 Deferred income taxes (24,000) Changes in operating assets and liabilities: -- Accounts receivable, trade, net (930,037) 196,170 Inventories 223,291 4,000 Other current assets 3,917 (13,100) Accounts payable (56,322) (96,941) Accrued liabilities (52,589) (184,614) Deferred rent (7,267) 16,956 -------- -------- Net cash provided by (used for) operating activities (336,697) 126,785 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, equipment, and leasehold improvements (19,076) (30,317) Acquisition of subsidiaries, net of cash acquired of (433,795) $186,304 -- Other assets (13,793) (6,999) -------- -------- Net cash used for investing activities (466,664) (37,316) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in lines of credit 171,145 100,000 Proceeds from issuance of common stock (Note 8) 777,390 -- -------- -------- Net cash provided by financing activities 948,535 100,000 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,187) -- -------- -------- NET INCREASE IN CASH 143,987 189,469 CASH AT BEGINNING OF PERIOD 641,695 464,821 -------- -------- CASH AT END OF PERIOD $785,682 $654,290 ======== ========
See notes to the financial statements. 7 8 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION: The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to a fair presentation of the financial statements for the periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1995. 2. SIGNIFICANT EVENTS AND TRANSACTIONS: Effective June 19, 1996, the Company acquired 100% of the outstanding stock of Nutek, Inc. ("Nutek"), a Florida corporation engaged in the manufacture of electrical control panels for utility, pulp and paper mill and other industrial process control applications. The Company paid $315,000 in cash (inclusive of acquisition costs), and financed the balance of the total purchase price of approximately $1,900,000 (including the assumption of debt) with asset-based financing of $1,290,000, seller financing of $150,000, with miscellaneous debt incurred or assumed representing the remainder. This transaction was a "material event" and was reported on a Form 8-K filed with the Securities and Exchange Commission on July 3, 1996. The acquisition was accounted for as a purchase. The purchase price was assigned to current assets and liabilities at their fair values, with the balance of approximately $1,500,000 assigned to property and equipment. 8 9 Pro-forma results for the six months ended June 30, 1996 and 1995, presented as if the acquisition of Nutek had occurred at the beginning of the respective periods, is presented below:
SIX MONTHS ENDED JUNE 30, ------------------------- 1996 1995 ---- ---- Revenues $ 5,315,000 $ 3,958,000 ============ =========== Net income (loss) $ 371,000 $ (215,000) ============ =========== Earnings per share: Primary: Net income (loss) $ .05 $ (.03) ============ =========== Weighted average common and common equivalent shares outstanding 7,258,787 6,932,662 ============ =========== Fully diluted: Net income $ .05 Not applicable ============ Weighted average common and common equivalent shares outstanding 7,518,395 ============
The 500,000 options issued at a price slightly above market in connection with the Nutek acquisition would have had a dilutive effect during the six months ended June 30, 1996 had they been issued at market on January 1, 1996; therefore, an adjustment to the weighted average shares for the period ended June 30, 1996 was made in the above computations. The options would not have had a similar dilutive effect for the six months ended June 30, 1995, and no adjustment to the weighted average shares was made for that period. Effective June 1, 1996, the Company acquired 100% of the outstanding stock of Logan Medical Devices, Inc. ("LMD"), a Colorado corporation, and its wholly-owned subsidiary Logan Research Limited ("LRL") of Kent, England, a private United Kingdom company limited by shares. LMD is essentially a start-up company engaged in the manufacture of medical instrumentation for non-invasive asthma diagnostic applications. The Company invested $284,000 in cash inclusive of acquisition costs (of which LMD received $250,000) and issued $300,000 in notes to the former shareholders of LRL. This acquisition was also accounted for as a purchase. The balance sheet and operating results of LMD and LRL were not material to the consolidated financial position or operations of the Company. Due to the acquisitions mentioned above occurring in June 1996, the results for the six months ended June 30, 1996 will not be indicative of annual results. 3. INVENTORIES: Inventories at June 30, 1996 consisted of the following: Materials and Supplies $ 1,392,123 Work-in-Process 793,373 Finished Goods 505,221 ---------- $2,690,717 ==========
9 10 4. GOODWILL AND LOAN COSTS: The $223,023 in goodwill arose in connection with the acquisition of LMD and LRL (see Note 2), and represents the excess of the purchase price over the tangible net assets of LMD and LRL as of the acquisition date. The goodwill will be amortized over 40 years. The $90,500 in loan costs were related to the financing of the Nutek acquisition, and will be amortized over the 3 year period of the asset-based financing facility described below. 5. NOTES PAYABLE AND LONG TERM DEBT In June 1996, the Company entered into an extension of its line of credit agreement with a bank, which provides for borrowings up to $300,000 through June 3, 1997. Borrowings under this agreement bear interest at 2% above the bank's prime rate and are collateralized by substantially all of the Company's assets. All of the $300,000 was outstanding at June 30, 1996 and $250,000 was outstanding at August 12, 1996. In connection with the acquisition of Nutek, the Company obtained a working capital facility for Nutek from an asset-based lender for the lesser of $1,000,000 or the borrowing base (as defined). A total of $540,000 was advanced on this facility in connection with the Nutek acquisition (see Note 2); $535,069 was outstanding at June 30, 1996. The note bears interest at 2 1/2% over the large commercial bank prime rate and matures June 28, 1999. Substantially all of Nutek's assets are pledged as collateral for this note and the $750,000 term loan described below, which were obtained from the same asset-based lender. The related Loan and Security agreement contains numerous restrictive covenants common to asset- based financing. Additionally, the Company has guaranteed these asset-based loans. LRL has an overdraft facility with an English bank of up to L.80,000 (approximately $127,000 at current exchange rates). The amount borrowed at June 30, 1996 was $112,040. The facility bears interest at the "base" rate plus 3% (currently 9%) and must be "reviewed" September 30, 1996. The facility is secured by the personal residences of the former shareholders of LRL. Long-term debt consists of the following: Nutek, Inc. ----------- Term loan $750,000 Notes payable to former shareholders 150,000 Subordinated notes 75,000 Installment loans 83,166 ------------ 1,058,166 ------------ Logan Medical Devices, Inc. --------------------------- Notes payable to former shareholders of Logan Research Limited 300,000 ------------ Logan Research Limited ---------------------- Advances from officer 31,222 ------------ Total 1,389,388 Less current portion 196,749 ------------ Long-term debt $ 1,192,639 ============
10 11 The term loan bears interest at the large commercial bank prime rate plus 3 1/2%. Monthly payments of $12,500 plus interest are required until June 28, 1999, at which time the remaining balance is due. The term loan was received from the same asset-based lender who provided Nutek's working capital facility-see the description of Nutek's working capital facility above. The notes payable to the former shareholders of Nutek bear interest at 8%. Monthly interest- only payments are required until June 30, 1997, after which time the principal and interest is payable in 48 equal monthly installments aggregating $3,661.95. The notes are unsecured. The subordinated notes were issued to two individuals who became employees of Nutek upon the Company's acquisition of Nutek. The notes bear interest at 14% and were repayable in 24 equal monthly installments totalling $3,600.96 commencing August 1, 1996. The notes are subordinated to the asset-based financing. On August 6, 1996, the Company agreed to repay these notes in full on or before October 5, 1996, in connection with the termination of the employment of the two individuals. The installment loans bear interest at rates ranging from 6 1/2% to 9% and mature at various dates from February 1997 to April 2000. The loans are secured by purchase money liens on the underlying assets. The notes payable to the former shareholders of Logan Research Limited bear interest at 9% per annum. Quarterly payments of accrued interest are required commencing June 30, 1998. The notes are callable by the Company at any time after December 28, 1996, and are callable by the holders at any time after June 28, 1998. The notes are secured by substantially all of the assets of LMD and LRL. The advances from an officer of LRL are represented by an open advance account. Management does not expect to repay the advances in the foreseeable future. Scheduled maturies of the long-term debt are as follows:
Twelve Months Ended June 30, -------------- 1997 $ 196,749 1998 547,899 1999 522,407 2000 49,015 2001 42,096 Thereafter 31,222 -------------- $ 1,389,388 ==============
11 12 6. DEFERRED TAXES A deferred tax liability of $452,000 arose in connection with the acquisition of Nutek, and primarily represents taxes on the difference between the amount assigned to property and equipment in the purchase and the tax bases of those assets. Deferred tax assets of $105,000 in connection with the acquisition of Nutek and $41,000 in connection with the acquisition of LMD and LRL were recorded at the respective acquisition dates, representing the estimated future tax benefits of the deductible temporary differences and net operating loss carryforwards of these entities. At December 31, 1995 the Company had a net operating carryforward of approximately $2,600,000 for income tax purposes, and a related deferred tax asset of $1,020,000, against which a 100% valuation allowance had been made. Management has reevaluated this valuation allowance and, commencing in the second quarter of 1996, has begun to reduce the valuation allowance and recognize income, as management now believes there is a greater probability the net operating loss carryforwards will ultimately be realized. Deferred taxes of $24,000 were credited to income in the second quarter of 1996. 7. COMMITMENTS AND CONTINGENCIES In connection with the acquisition of Nutek, a 5 year lease on the real estate of Nutek was executed which provides for the following minimum rental payments:
Twelve Months Ended June 30 ------------- 1997 $ 36,000 1998 48,000 1999 60,000 2000 72,000 2001 84,000 --------- $ 300,000 =========
Nutek has the option to purchase the property at fair market value at any time during the term of the lease. In connection with the acquisition of LMD and LRL, LMD and LRL entered into an employment agreement with Mr. Ronald Bruce Logan-Sinclair, Chief Executive Officer of LMD and LRL, providing for minimum salary payments of L.45,000 per year (approximately $70,000 at current exchange rates) until June 1999. 8. SHAREHOLDERS' EQUITY In March 1996, the Company received proceeds of $160,140 from the exercise of 266,900 warrants. In June 1996, proceeds of $17,250 were received from the exercise of 25,000 warrants. In 12 13 May 1996, the Company issued 1,000,003 units, consisting of one common share of stock and one warrant exercisable at $1.00, in a private placement, receiving proceeds of $600,000. Options and Warrants On January 18, 1996, 5,000 options issued to an employee and 500,000 options issued to a public relations firm were canceled. On March 29, 1996, 1,839,098 warrants which had not been exercised expired. On April 1, 1996, 10,000 options were issued to an individual at $0.68 (above market on the date of the grant), expiring March 31, 2000. On May 30, 1996, 1,000,003 warrants were issued to investors in connection with the private placement agreement at $1.00 (above market value at the date of the grant), expiring May 29, 2000. On May 30, 1996, in connection with its agreement with a public relations firm, the Company granted 1,000,000 options at $0.94, 500,000 at $1.25 and 500,000 at $2.00 (all above market on the date of the grant), expiring May 29, 2000. On June 1, 1996, in connection with its agreement to acquire Nutek, the Company granted 500,000 options to various individuals at $1.10 (above market at the date of the grant). The options are exercisable beginning January 7, 1998 and expire May 31, 2000. On August 6, 1996, 160,000 of these options were canceled. On June 1, 1996, in connection with its agreement to acquire LMD, the Company issued 600,500 options at $1.10 (above market on the date of the grant) in exchange for the 1,201,000 shares of LMD outstanding it did not already own, exercisable beginning on January 7, 1998 and expiring May 31, 2000. On June 1, 1996, the Company granted 280,000 options at $1.10 (above market on the date of the grant) to various officers and directors of the Company, expiring May 31, 2000. On June 5, 1996, the Company granted 20,000 options to an employee at $1.50 (above market on the date of the grant), exercisable beginning December 6, 1996 and expiring June 4, 2000. As of August 6, 1996, the Company had 3,450,500 options and 1,065,003 warrants outstanding at exercise prices ranging from $0.55 to $2.00 which, if exercised, would generate proceeds to the Company of $5,189,453. 9. NON-CASH TRANSACTIONS In June 1996 the Company's subsidiary Logan Medical Services, Inc. issued $300,000 in notes to the former shareholders of Logan Research Limited, and the Company exchanged 600,500 options for the 1,201,000 shares of Logan Medical Services it did not already own, in connection with the acquisition of LMD and LRL. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS GENERAL The Company designs, manufactures and markets automated continuous monitoring instruments used to detect and measure various types of air pollution through its wholly-owned subsidiary, Dasibi Environmental Corp. The Company currently derives the majority of its revenue from sales of its instruments and their replacement parts. The Company designs, manufactures and markets electrical control panels for automation use in utility, pulp and paper mill and various other industrial process applications through its wholly-owned subsidiary, Nutek, Inc. ("Nutek") and currently derives approximately 30% of its revenue from Nutek sales. The Company designs, manufactures and markets medical instrumentation through its wholly owned subsidiary, Logan Medical Devices, Inc. ("LMD"), a start-up company applying the Company's technology to non-invasive asthma diagnostics. The Company currently derives approximately 5% of its revenue from medical sales. The Company's future operating results may be affected by a number of factors, including: uncertainties relative to global economic conditions; industry factors; the availability and cost of components; the Company's ability to develop, manufacture and sell its products profitably; the Company's ability to successfully increase its market share in its core business while expanding its product base into other markets; the strength of its distribution channels; and the Company's ability to effectively manage expense growth relative to revenue growth in anticipation of continued pressure on gross margins. RESULTS OF OPERATIONS Net revenues increased 23% from $2,903,000 during the six-month period ended June 30, 1995 to $3,559,000 during the six-month period ended June 30, 1996, and increased 35% from $1,434,000 for the three months ended June 30, 1995 to $1,930,000 for the same period in 1996, primarily as a result of the acquisition of Nutek, Inc. in June 1996. See Note 2 of Notes to Financial Statements. Gross margin declined from 41% to 38% for the six month period, and from 41% to 34% for the three month period, primarily because Nutek operates at lower gross margins than the Company's core air pollution monitor business. Selling, general and administrative expenses decreased $86,000 from $911,000 in the six months ended June 30, 1995 to $825,000 in the six months ended June 30, 1996, and decreased $83,000 for the three months ended June 30, 1996 as compared to the same period in 1995. The decrease is primarily attributable to cost reduction measures the Company implemented and the write-off of various items in 1995 which reduced ongoing expenses, offset in part by the addition of general and administrative costs of Nutek and LMD, both of which were acquired in June. 14 15 Research and development expenditures declined $38,000 and $22,000 during the six month and three month periods, respectively, due to the cost reduction measures discusses above. In the second quarter of 1996 the Company recorded a deferred tax credit of $24,000- see Note 6 to the financial statements included herewith. As a result of the foregoing factors, net income increased $325,000 for the six-month period ended June 30, 1996 over the same period in 1995, and increased $202,000 for the three month period over the comparable period of the prior year. LIQUIDITY AND CAPITAL RESOURCES. The Company has historically financed its growth and cash needs primarily through borrowings, and the public and private sales of its securities. Net cash used in operating activities in the six months ended June 30, 1996 amounted to $337,000, due principally to higher accounts receivable resulting from higher levels of shipments. The Company realized $777,000 from a private placement and the exercise of warrants and borrowed a net additional $171,000 under its lines of credit during the six month period. Approximately $434,000 was used for acquisitions; the remainder was available for the increased working capital needs. Working capital was $2,928,000 at June 30, 1996. In June 1996, the Company entered into an extension of its line of credit with a bank, which now provides for borrowings of up to $300,000 through June 3, 1997. As of June 30, 1996, the Company had borrowed $300,000 under this agreement; $250,000 was outstanding at August 12, 1996. The Company has no material commitments for capital expenditures as of June 30, 1996. The Company believes it will be able to meet its current obligations with funds generated from operations and the existing credit facilities during the next twelve months. INFLATION The Company believes that inflation has not had a material impact on its business. SEASONALITY The Company does not believe that its business is seasonal. 15 16 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) One June 27, 1996 the Company's Annual Meeting of Shareholders was held. The following members of the Board of Directors were re-elected with the following vote:
Name Vote For Vote Withheld Abstentions Broker Non-Votes -------- ------------- ----------- ---------------- Albert E. Gosselin, Jr. 5,507,361 76,325 None None Gary L. Dudley 5,505,761 77,925 None None Craig E. Gosselin 5,484,329 99,357 None None Barbara L. Gosselin 5,504,061 79,625 None None Marcia Smith 5,511,761 71,925 None None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) The Company filed two reports on Form 8-K during the period ended June 30, 1996. On June 14, 1996, the Company filed a Current Report on Form 8-K describing the retaining of Liviakis Financial Communications, Inc. ("Liviakis") as its investor relations consultant, and the issuance of stock options to Liviakis in connection therewith. On July 3, 1996, the Company filed a Current Report on Form 8-K describing the acquisition of Nutek, Inc. and the incurrence of debt related thereto. 16 17 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POLLUTION RESEARCH AND CONTROL CORP. -------------------------------------- (Registrant) Date August 13, 1996 By: /s/ Albert E. Gosselin Jr. ------------------- ----------------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer Date August 13, 1996 By: /s/ Cynthia L. Gosselin ------------------- ----------------------------------- Cynthia L. Gosselin, Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 785 1 1,846 0 2,690 5,588 1,781 123 7,663 2,661 0 0 0 6,209 0 7,663 3,558 0 2,195 2,195 905 0 0 459 0 0 0 0 0 459 .07 .07
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