-----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, SDeRRoJBVymW2YTHxdL88Df8hcsPd9/Z5BZ0li5xykv+jfb+Cn9n+SMfluk5g6XM BFbnEWmuRWnyBJiYXQMMgQ== 0001000096-99-000242.txt : 19990514 0001000096-99-000242.hdr.sgml : 19990514 ACCESSION NUMBER: 0001000096-99-000242 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: SEC FILE NUMBER: 001-09327 FILM NUMBER: 99620196 BUSINESS ADDRESS: STREET 1: 506 PAULA AVE 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 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 March 31, 1999 { } Transition Report pursuant to Section 13 or 15(d) of the Securities 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 or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 506 Paula Avenue, Glendale, California 91201 -------------------------------------------- (Address of Principal Executive Offices) (818) 247-7601 -------------- (Issuer's telephone number, including area code) Check whether the Small Business Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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 of 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 May 10, 1999 3,326,770 Traditional Small Business Disclosure Format (check one): YES X No ___ 1 POLLUTION RESEARCH AND CONTROL CORP. Form 10-QSB For the Six-Month Period Ended March 31, 1999 TABLE OF CONTENTS Page ---- Part I Financial Information Item 1. Financial Statements: Consolidated Balance Sheet 3 Consolidated Statements of Operations 5 Consolidated Statements of Cash Flows 6 Consolidated Statement of Shareholders Equity 7 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II Other Information 12 Item 6(b) Reports on Form 8-K 12 2 PART 1 - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) As Of 03/31/99 -------- CURRENT ASSETS Cash $ 180,537 Accounts receivable, trade, less allowance for doubtful 252,239 accounts of $ 4,734 Inventories (Note 2) 1,640,523 Other current assets 19,340 ---------- TOTAL CURRENT ASSETS 2,092,639 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated depreciation of $190,203 105,271 ---------- OTHER ASSETS Advances to joint venture 203,938 Technical service center 600,000 Other intangible assets 35,134 Other assets 12,140 ---------- TOTAL OTHER ASSETS 851,212 ---------- TOTAL ASSETS $3,049,122 ========== See notes to financial statements 3 CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) As of CURRENT LIABILITIES 3/31/99 ------- Notes payable $ 147,342 Accounts payable 225,060 Accrued liabilities (Note 3) 598,423 ----------- TOTAL CURRENT LIABILITIES 970,825 ----------- DEFERRED RENT 54,502 ----------- SHAREHOLDERS' EQUITY : (Note 4) Preferred Stock, no par value; 20,000,000 shares authorized, none issued and outstanding Common Stock, no par value; 30,000,000 shares authorized, 3,326,770 issued and outstanding 6,910,270 Other paid in capital 942,081 Accumulated deficit (5,828,556) ----------- TOTAL SHAREHOLDERS' EQUITY $ 2,023,795 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,049,122 =========== See notes to financial statements 4
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, -------------------------- 1999 1998 ----------- ----------- Net Revenues $ 648,921 $ 577,031 Cost of goods sold 542,775 216,098 ----------- ----------- Gross profit 106,146 360,933 ----------- ----------- Operating expenses: Selling, general and administrative expenses 328,667 362,266 Research and development 1,480 960 ----------- ----------- Total operating expenses 330,147 363,226 ----------- ----------- Loss from operations (224,001) (2,293) Other Income (Expense) Interest Expense (18,101) (2,414) Interest and other income -- 29 ----------- ----------- Loss from continuing operations Before Income Taxes (242,102) (4,678) Provision for income taxes -- -- ----------- ----------- Income (loss) from continuing operations (242,102) (4,678) Discontinued operations Income (loss) from discontinued operations -- (40,796) Gain on disposal -- 154,575 ----------- ----------- -- 113,779 ----------- ----------- Net Income ($ 242,102) $ 109,101 =========== =========== Earnings per share Net Income (loss) per share - basic and diluted Continuing operations $ (0.09) $ (.002) =========== =========== Discontinued operations $ -- $ .05 =========== =========== Weighted Average Shares 2,564,072 2,168,433 =========== =========== See notes to financial statements 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 --------------------- 1999 1998 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) ($242,102) $ 109,101 Adjustments to reconcile net income to net cash used for operating activities: Gain on disposal of subsidiary -- (154,575) Losses on disposed subsidiary -- 26,418 Depreciation and amortization 17,849 37,917 Deferred income taxes -- -- Deferred rent (3,633) 22,379 Changes in operating assets and liabilities: Accounts receivable, trade, net 20,794 (56,988) Inventories (13,368) 224,587 Other current assets (5,261) 9,776 Other assets (12,140) 998 Accounts payable (31,633) (99,011) Accrued liabilities 30,362 (119,814) Unearned revenue -- (143,695) --------- --------- Net cash used for operating activities (239,132) (142,907) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan fees (10,000) -- Acquisition of property, equipment and leasehold improvements -- (1,919) --------- --------- Net cash used for investing activities (10,000) (1,919) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from private placements of stock 199,375 -- Advances on notes payable 147,343 (20,000) Net increase (decrease) in Nutek line of credit -- (104,086) Repayments of long-term debt -- (30,084) Repayment of advances to related parties 19,000 -- --------- --------- Net cash provided by financing activities 365,718 (154,170) --------- --------- NET INCREASE (DECREASE) IN CASH 116,586 (298,996) CASH AT BEGINNING OF PERIOD 63,951 514,895 --------- --------- CASH AT END OF PERIOD $ 180,537 $ 215,899 ========= ========= Supplemental Disclosure: Cash paid for: Interest $ 18,101 $ 23,870 Taxes $ -- $ -- See notes to financial statements 6
POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Three Months Ended March 31, 1999 Series A Preferred Stock Series B Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ BALANCE 12/31/98 220,000 $ 2,200 450,000 $ 4,500 2,368,439 $ 6,704,195 Issuance of warrants with note payable Conversion of Series A and Series B preferred stock to common stock (220,000) $ (2,200) $(450,000) $ (4,500) $ 670,000 $ 6,700 Issuance of common stock net of issuance costs of $16,875 288,331 $ 199,375 Net Loss for the three months -- -- -- -- -- -- --------- -------- --------- --------- ---------- ----------- Balance March 31,1999 -0- -0- -0- -0- 3,326,770 $ 6,910,270 ========= ======== ========= ========= ========== =========== Table continued on next page. 7 POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Three Months Ended March 31, 1999 (Continued) Other Total From Sale Paid In Accumulated Shareholders of Stock Capital Deficit Equity -------- ------- ------- ------ BALANCE 12/31/98 $ 928,831 $(5,586,454) $ 2,053,272 Issuance of warrants with note payable $ 13,250 $ 13,250 Conversion of Series A and Series B preferred stock to common stock Issuance of common stock net of issuance costs of $16,875 $ 199,375 Net Loss for the three months -- (242,102) (242,102) --------- ----------- ----------- Balance March 31,1999 $ 942,081 $ 5,828,556 $ 2,023,795 ========= =========== =========== See notes to financial statements 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 period 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, 1998. 2. Inventories: Inventories at March 31, 1999 consisted of the following: Raw Materials $ 842,578 Work-in-Progress 424,234 Finished Goods 373,711 ---------- $1,640,523 ========== 3. Accrued Expenses: Accrued expenses at March 31, 1999 consisted of the following: Accrued settlement loss - Nutek, Inc. $349,397 Accrued payroll and related taxes 190,501 Accrued vacation 25,013 Current portion of deferred rent 23,012 Other 10,500 -------- $598,423 ======== 4. Shareholders' Equity: During the first quarter of 1999, the Company received $199,375, net of $16,875 of issuance costs, from the issuance of 288,331 shares of common stock under a private placement. As part of the private placement, the Company issued three-year warrants to purchase 288,331 shares of common stock at $.75 per share. During the first quarter of 1999 all of the holders of the Series A & Series B preferred stock converted their shares to 670,000 shares of common stock in accordance with the original conversion terms. 5. Discontinued Operations: In April, 1998 and February, 1998 the Company discontinued the operations of two of its subsidiaries, Nutek, Inc. and Logan Research Limited. 9 6. Notes Payable: During the first quarter of 1999, the Company borrowed $100,000 under a four-month note, bearing interest at 11% per annum. In conjunction with this loan, the Company issued the note holder three-year warrants to purchase 48,000 shares of common stock at $.75 per share. The Company paid loan fees of $10,000 plus warrants to purchase an additional 5,000 shares of common stock at $.75 per share. 7. Contingencies: In connection with the discontinued operations of Nutek, Inc. as discussed in Note 5, the Company is party to a lawsuit filed by the major secured lender of Nutek. The Company has accrued a settlement loss of approximately $350,000 as the probable outcome of this lawsuit. The original claim filed was approximately $800,000, however, management is in settlement negotiations with the lender which confirm a maximum possible settlement figure of $450,000. 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 has experienced operating losses during the past three quarters as it pumps up operations to manufacture and ship product to the People's Republic of China pursuant to an agreement signed in June 1998. The Company expects to ship the first such product in May 1999, however performance under the China contract is dependent on the Company obtaining additional financing. If such financing is not obtained, the Company may not be able to perform under such contract which, in turn, could adversely impact the Company's business. 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 products 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 Three Months Ended March 31, 1999, versus Three Months Ended March 31, 1998 Net revenues increased 12% from $577,031 during the first quarter of 1998 to $648,921 during the first quarter of 1999. The increase was primarily due to orders from core customers who are not influenced by competitive price discounts experienced by the Company during the last four years. Gross margin was 16% for the first quarter of 1999 versus 62% for the first quarter of 1998, because of the increased level of staff and operating structure begun in July 1998 in anticipation of shipment of equipment to China. 10 Selling, general and administrative expenses decreased $33,599, or 9% during the first quarter of 1999, versus the same period in 1998, principally due to cost cutting procedures of reduced travel and administrative salaries to decrease working capital drain. As a result of the foregoing factors, net operating loss increased from a net operating loss of ($4,678) during the three months ended March 31, 1998 to a net operating loss of ($242,102) during the three months ended March 31, 1999. 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. The low market value of the Company's securities and its unstable operating performance has severely restricted access to capital. Net cash used in operating activities in the three months ended March 31, 1999, amounted to $239,132, due to the net operating loss of $242,000. The Company's cash level decreased 16% as compared to the end of the first quarter of 1998, a total of $35,000 consisting of $239,000 applied to operating activities, offset by $365,000 raised through a private placement of common stock and additional borrowings. Working capital was $1,121,814 at March 31, 1999. The Company has no material commitments for capital expenditures as of March 31, 1999. The Company believes it would be able to meet its current obligations with funds generated from operations 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. Year 2000 Compliance General. The Company believes it has completed all internal efforts to avoid the adverse effects of the Year 2000 issue. State of Readiness. The Company received certifications of compliance from all vendors deemed material to its business operations during the first quarter of 1999. Contingency Plans. The Company believes it should not rely completely on key vendor compliance certification. Therefore costs are being incurred to enable the Company to utilize alternative design procedures to allow alternate vendor supply. These design changes are on-going and the costs are not expected to be material. Risks. The Company presently does not anticipate any material business disruption will occur as a result of Year 2000 issues. The greatest potential risk appears to be with federal, state and local governments. 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Not applicable (b) The Company did not file any reports on Form 8-K during the three months ended March 31, 1999. 12 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: May 10, 1999 By: /s/ Albert E. Gosselin Jr ------------ --------------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 3-MOS DEC-31-1999 MAR-31-1999 180 0 252 0 1640 2092 105 6 3049 970 0 0 0 6910 0 3049 648 0 542 0 330 0 18 0 0 (242) 0 0 0 (242) (.09) 0
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