-----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, SiTGa5X5WPpEtRDY70NVRtgzCLhVu0vMaC1KQIubGw/dFag1NQ0ZxRA2KmhxC6er dM5I4gsduR/Qp5m767Ke1g== 0001000096-00-000367.txt : 20000516 0001000096-00-000367.hdr.sgml : 20000516 ACCESSION NUMBER: 0001000096-00-000367 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633681 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, 2000 { } 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 11, 2000 4,235,085 Traditional Small Business Disclosure Format (check one): YES X No ___ 1 POLLUTION RESEARCH AND CONTROL CORP. Form 10-QSB For the Three Months Ended March 31, 2000 TABLE OF CONTENTS Page ---- Part I Financial Information Item 1. Financial Statements: Consolidated Balance Sheet 3 Consolidated Statements of Operations 5 Consolidated Statement of Shareholders' Equity 6 Consolidated Statement of Cash Flows 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II Other Information 11 Item 1 Legal Proceedings 11 Item 6 Reports on Form 8-K 11 2 PART 1 - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) As of 3/31/00 --------- CURRENT ASSETS Cash $ 659,795 Accounts receivable, trade, less allowance for doubtful 462,981 accounts of $ 33,350 Inventories (Note 2) 1,546,075 Prepaid Loan Fees 551,233 Other current assets 48,997 ---------- TOTAL CURRENT ASSETS 3,269,081 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 96,586 ---------- OTHER ASSETS Advances to joint venture 203,938 Deferred tax asset, net 2,659,000 Other intangible assets 30,009 Other assets 12,140 ---------- TOTAL OTHER ASSETS 2,905,087 ---------- TOTAL ASSETS $6,270,754 ========== See accompanying notes to financial statements 3 CONSOLIDATED BALANCE SHEET (continued) LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) As of CURRENT LIABILITIES 03/31/00 ----------- Notes payable (Note 3) $ 385,000 Convertible debt (Note 3) 1,075,000 Accounts payable 120,771 Accrued liabilities 221,998 ----------- TOTAL CURRENT LIABILITIES 1,802,769 ----------- DEFERRED RENT 39,968 ----------- SHAREHOLDERS' EQUITY : (Note 4) Common Stock, no par value; 30,000,000 shares authorized, 4,235,085 issued and outstanding 8,507,826 Additional paid in capital 1,120,849 Accumulated (deficit) (5,200,658) ----------- TOTAL SHAREHOLDERS' EQUITY $ 4,428,017 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,270,754 =========== See accompanying notes to financial statements 4 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, -------------------------- 2000 1999 ----------- ----------- Net Revenues $ 428,372 $ 648,921 Cost of goods sold 394,970 542,775 ----------- ----------- Gross profit 33,402 106,146 ----------- ----------- Operating expenses: Selling, general and administrative expenses 686,053 328,667 Research and development 1,405 1,480 ----------- ----------- Total operating expenses 687,458 330,147 ----------- ----------- Loss from operations (654,056) (224,001) Other Income (Expense) Interest Expense (86,046) (18,101) Interest and other income 261 -- ----------- ----------- Net Other Income (Expense) (85,785) (18,101) Loss Before Income Taxes (739,841) (242,102) Provision for income taxes -- -- ----------- ----------- Net Income (loss) $ (739,841) $ (242,102) =========== =========== Earnings per share Net Income (loss) per share - basic and diluted $ (.20) $ (.09) =========== =========== Weighted Average Number of Shares Outstanding 3,721,018 2,564,072 =========== =========== See accompanying notes to financial statements 5
POLLUTION RESEARCH AND CONTROL CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Three Months Ended March 31, 2000 (Unaudited) Additional Total Common Stock Paid In Accumulated Shareholders' Shares Amount Capital (Deficit) Equity ------ ------ ------- --------- ------ Balance December 31, 1999 3,672,545 $ 7,840,920 $ 708,167 $(4,460,817) $ 4,088,270 Exercise of Warrants 429,207 404,406 404,406 Conversion of debt to common stock 33,333 75,000 75,000 Increase in amount realized from stock issued under settle- ment agreement 98,949 98,949 Issuance of common stock to debenture holder 100,000 187,500 187,500 Issuance of Warrants 313,733 313,733 Net Loss -- -- -- (739,841) (739,841) ----------- ----------- ----------- ----------- ----------- Balance March 31,2000 4,235,085 $ 8,507,826 $ 1,120,849 $(5,200,658) $ 4,428,017 =========== =========== =========== =========== =========== See accompanying notes to financial statements 6 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 -------------------------------- 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) $(739,841) $(242,102) Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization 65,795 17,849 Deferred rent (3,634) (3,633) Changes in operating assets and liabilities: Accounts receivable, trade, net 713,715 20,794 Inventories (157,364) (13,368) Other current assets (3,997) (5,261) Other assets -- (12,140) Accounts payable (96,979) (31,633) Accrued liabilities (61,512) 30,362 --------- --------- Cash flows (used) by operating activities (283,817) (239,132) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan fees (50,000) (10,000) --------- --------- Cash flows (used) by investing activities (50,000) (10,000) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 404,406 199,375 Advances on notes payable 575,000 147,343 Repayments of debt (200,000) -- Repayment of advances to related parties -- 19,000 --------- --------- Cash flows provided by financing activities 779,406 365,718 --------- --------- NET INCREASE (DECREASE) IN CASH 445,589 116,586 CASH AT BEGINNING OF PERIOD 214,206 63,951 --------- --------- CASH AT END OF PERIOD $ 659,795 $ 180,537 ========= ========= Non Cash Transactions: The Company paid $ 551,233 for prepaid loan fees by the issuance of stock and warrants. Supplemental Disclosure: Cash paid for: Interest $ 84,608 $ 18,101 Taxes $ -- $ -- See accompanying notes to financial statements 7
NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information furnished herein reflects all material 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 the results of operations for the full year. The financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB filed with the Securities and Exchange Commission for the year ended December 31, 1999. 2. Inventories: Inventories at March 31, 2000 consisted of the following: Raw Materials $ 987,540 Work-in-Progress 153,639 Finished Goods 404,896 ------------ $ 1,546,075 3. Notes Payable & Convertible Debt: On February 23, 2000 the Company entered into 12% subordinated convertible debenture agreements for $500,000 due February 23, 2001. The debentures are convertible into the Company's Common Stock at any time at the option of the holder. The conversion price is the lesser of 85% of the market price of the Common Stock on the date of conversion or $2.00. As an incentive to enter into this agreement, the Company issued 100,000 shares of Common Stock plus warrants to purchase 100,000 shares and 200,000 shares of Common Stock at $2.25 per share and $4.50 per share, respectively. The fair market value of the 100,000 shares of Common Stock of $187,500 and the fair market value of the warrants of $313,733 were capitalized as prepaid loan fees and is being amortized over the term of the debt. The Company also paid $50,000 of loan fees related to this debt. On January 21, 2000 the Company obtained a loan for $75,000 for its wholly owned subsidiary, Dasibi China Corp.. This loan bears interest at 10% per annum, and was due March 21, 2000 and is being negotiated for conversion to equity in that subsidiary. See accompanying notes to financial statements 8 4. Shareholders' Equity: In March 2000 a holder of $150,000 of convertible debentures elected to convert $75,000 into 33,333 shares of Common Stock in accordance with the terms of the debentures. In February 2000 in connection with the issuance of $500,000 of convertible debentures, the Company issued 100,000 shares of Common Stock and 300,000 warrants as inducement for the loan. The fair value of these shares has been capitalized as loan fees and is being amortized over the 1-year terms of the debentures. On March 31, 2000, warrants to purchase 50,000 shares of Common Stock at $2.40 per share and 379,207 shares of Common Stock at $.75 per share were exercised. Common Stock issued to Fidelity Federal under a compromise settlement agreement in June 1999 was used to pay the related debt. The actual proceeds from the sale of these shares exceeded the amount recorded by $98,949. This increase has been recorded as additional paid in capital. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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., and, since January 1998 has focused its business primarily on the air pollution market of the People's Republic of China. The Company has experienced operating losses during quarters in which no product was shipped to China. High staffing and related expenses toward maintaining a consistent quality control and manufacturing schedule. The 1999 Phase I contract for $5.2 million was essentially completed in a 5 month schedule ending November 1999. The Company's future operating results may be affected by a number of important factors, including: but not limited to the ability of the Company to obtain further contracts for China; 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; In April 2000 the Company signed a $13.5 million agreement (the Phase II "China Contract"). In May 2000 the Company's Board of Directors approved signed letters of intent and a Company proposal for a joint venture to manufacture its product in China. RESULTS OF OPERATIONS Three Months Ended March 31, 2000 ("2000") Compared To Three Months Ended March 31, 1999 ("1999") Net revenues for 2000 were $428,372 which represented a decrease of $220,549 or 34% under 1999 net revenue of $648,921. The decrease was primarily due to ongoing competitive price pressures in the U.S. and Europe. Also there were no China shipments. Gross profit was $33,402 for 2000, a decrease of $72,744 from $106,146 for 1999. The gross profit percentage was 8% in 2000, a decrease from 16% in 1999. The decrease in the gross profit percentage was primarily attributable to increased staffing and training in anticipation of the China Phase II Contract. See accompanying notes to financial statements 9 Selling, general and administrative expenses (SG&A) were $686,053 or 160% of sales for 2000, an increase of $357,386 from $328,667 or 109%. The increase in SG&A was principally due to the related expenses to the above increase in staffing and training. 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 the Company's access to capital, and when capital has been obtained it has been necessarily costly due to high interest costs and related loan fees. Net cash used in operating activities in the three months ended March 31, 2000 amounted to $283,817, due to the net operating loss of $739,841. The Company's cash level increased 208% as compared to the end of 1999, a total of $445,509 consisting of $284,000 applied to operating activities, offset by $779,000 raised through issuance of common stock and additional borrowings. Working capital was $915,709 at March 31, 2000. The Company currently has $385,000 in term borrowings which mature in early June 2000. Management is negotiating "rollovers" for these loans. There is no assurance that these rollovers will be accepted, however management also believes, based on recent experience, that substitute loans can be obtained. Previously during the 1st quarter of 1999 two similar loans were renegotiated and a third loan was paid off with a release obtained on May 3, 2000. Management believes that with the recent signing of the Phase II China contract its "bankability" has been substantially improved. 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. See accompanying notes to financial statements 10 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, 2000. See accompanying notes to financial statements 11 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 11, 2000 By: /s/ Albert E. Gosselin, Jr. -------------------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer Date: May 11, 2000 By: /s/ Donald Ford -------------------------------------- Donald Ford Chief Financial Officer See accompanying notes to financial statements 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 MAR-31-2000 660 0 496 33 1,546 600 97 0 6,271 1,803 0 0 0 4,428 0 6,271 428 428 395 687 0 (654) 86 (740) 0 (740) 0 0 0 (740) (.20) (.20)
-----END PRIVACY-ENHANCED MESSAGE-----