-----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, I8w9+CNOnSBXFdMLYYM/EV7zC50eyVGd4dANrfstadcjs2YzqjgxfOqhm9EgOA3Q 00c8TBz8WPDQdCYbNeaKKA== 0001000096-01-500320.txt : 20010815 0001000096-01-500320.hdr.sgml : 20010815 ACCESSION NUMBER: 0001000096-01-500320 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 001-09327 FILM NUMBER: 1707923 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 pollution063001.txt FORM 10-QSB (JUNE 30, 2001) 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, 2001 ------------- { } 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 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 stock equity as of the latest practicable date: Class Date No. of Shares Outstanding ----- -------------- ------------------------- Common August 3, 2001 5,916,752 --------- Traditional Small Business Disclosure Format (check one): Yes X No ----- ----- . POLLUTION RESEARCH AND CONTROL CORP. Form 10-QSB For the Six Months Ended June 30, 2001 TABLE OF CONTENTS Page Part I Financial Information Item 1. Financial Statements: Consolidated Balance Sheet 3 Consolidated Statement of Operations 5 Consolidated Statement of Shareholders' Equity 7 Consolidated Statement of Cash Flows 8 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II Other Information Item 1 Legal Proceedings 13 Item 6 Reports on Form 8-K 13 2 PART 1 - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) As of 06/30/01 ---------- CURRENT ASSETS Cash $ 287,196 Accounts receivable, trade, less allowance for doubtful 396,275 accounts of $35,504 Inventories (Note 2) 2,510,708 Inventory held by joint venture 500,000 Prepaid consulting fees (Note 4) 360,068 Other current assets 38,675 ---------- TOTAL CURRENT ASSETS 4,092,922 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 64,929 ---------- OTHER ASSETS Investment in joint venture 485,421 Accounts receivable, related party 203,937 Deferred tax asset, net 3,387,000 Other intangible assets 23,509 Other assets 12,140 ---------- TOTAL OTHER ASSETS 4,112,007 ---------- TOTAL ASSETS $8,269,858 ========== See accompanying notes to financial statements 3 CONSOLIDATED BALANCE SHEET (continued) LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) As of CURRENT LIABILITIES 06/30/01 ----------- Notes payable and convertible debt $ 2,790,000 Note payable, bank (Note 3) 350,000 Accounts payable 901,897 Accrued liabilities 354,190 Deferred revenue 550,000 ----------- TOTAL CURRENT LIABILITIES 4,946,087 ----------- DEFERRED RENT 21,800 ----------- LONG-TERM DEBT -- ----------- SHAREHOLDERS' EQUITY: (Note 4) Common Stock, no par value; 30,000,000 shares authorized. 5,916,752 issued and outstanding 11,319,076 Addition paid in capital 2,275,705 Treasury stock (1,680,000) Accumulated deficit (8,612,810) ----------- TOTAL SHAREHOLDERS' EQUITY 3,301,971 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,269,858 =========== See accompanying notes to financial statements 4
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended June 30, -------------- 2001 2000 ----------- ----------- Net Revenues $ 350,573 $ 1,002,388 Cost of goods sold 524,561 780,517 ----------- ----------- Gross profit (173,988) 221,871 ----------- ----------- Operating expenses: Selling, general and administrative expenses 608,295 626,399 Research and development 599 22,393 ----------- ----------- Total operating expenses 608,894 648,792 ----------- ----------- Loss from operations (782,882) (426,921) ----------- ----------- Other Income (Expense) Amortization of loan fees (92,210) (195,053) Interest expense (163,029) (39,967) Interest and other income -- 15,000 ----------- ----------- Net Other Income (Expense) (255,239) (220,020) ----------- ----------- Loss from unconsolidated joint venture (114,579) -- ----------- ----------- Loss Before Income Taxes (1,152,700) (646,941) Provision for income taxes -- -- ----------- ----------- Net Income (loss) $(1,152,700) $ (646,941) =========== =========== Earnings per share Net Income (loss) per share-basic and diluted $ (.19) $ (.15) =========== =========== Weighted Average Number of Shares Outstanding 5,950,085 4,244,418 =========== =========== See accompanying notes to financial statements 5
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Six Months Ended June 30, 2001 2000 ----------- ----------- Net Revenues $ 1,044,931 $ 1,430,760 Cost of goods sold 991,823 1,175,487 ----------- ----------- Gross profit 53,108 255,273 ----------- ----------- Operating expenses: Selling, general and administrative expenses 1,224,360 1,312,452 Research and development 8,189 23,798 ----------- ----------- Total operating expenses 1,232,549 1,336,250 ----------- ----------- Income (loss) from operations (1,179,441) (1,080,977) Other Income (Expense) Amortization of loan fees (334,565) (254,283) Interest Expense (241,557) (154,783) Other income (expense) -- 15,261 ----------- ----------- Net other income (expense) (576,122) (393,805) ----------- ----------- Loss on unconsolidated joint venture (114,579) -- ----------- ----------- Income (loss) Before Income Taxes (1,870,142) (1,474,782) Provision for income taxes -- -- ----------- ----------- Net Income (loss) $(1,870,142) (1,474,782) =========== =========== Earnings per share Net Income (loss) per share - basic $ (.29) $ (.37) =========== =========== Weighted Average Shares 6,456,196 3,986,074 =========== =========== See accompanying notes to financial statements 6
POLLUTION RESEARCH AND CONTROL CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Six Months Ended June 30, 2001 (Unaudited) Additional Employee Total Common Stock Paid In Stock Plan Treasury Accumulated Shareholders' Shares Amount Capital Receivable Stock (Deficit) Equity ----------- ----------- ----------- ----------- ---------- ----------- ------------ Balance 12/31/00 5,116,752 $10,269,076 $ 2,216,505 $(1,667,400) $ -- $(6,742,668) 4,075,513 Exercise of Warrants 200,000 100,000 -- -- -- -- 100,000 Stock issued for 700,000 700,000 -- -- -- -- 700,000 consulting services Unissued Common -- 250,000 -- -- -- -- 250,000 Stock Issuance of Warrants -- -- 59,200 -- -- -- 59,200 Buyout of -- -- -- (12,600) -- -- (12,600) employee stock Cancellation of (840,000) -- -- 1,680,000 (1,680,000) -- -- Employee Stock Plan Net Loss -- -- -- -- -- (1,870,142) (1,870,142) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance 06/30/01 5,176,752 $11,319,076 $ 2,275,705 $ -- $(1,680,000) $(8,612,810) $3,301,971 =========== =========== =========== =========== =========== =========== ========== See accompanying notes to financial statements 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 ------------- 2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) $(1,870,142) $(1,474,782) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation 12,450 12,287 Amortization of loan fees 334,565 254,283 Beneficial conversion feature of convertible debt -- 88,000 Amortization of Consulting Fee 339,932 -- Loss from unconsolidated joint venture 114,579 -- Deferred rent (7,267) (7,267) Changes in operating assets and liabilities: Accounts receivable, trade, net (169,855) 722,432 Inventories (288,872) (134,364) Inventory held by joint venture (500,000) -- Other current assets 38,404 (82,340) Accounts payable 687,397 (51,463) Accrued liabilities 36,299 (132,222) Deferred revenue 550,000 -- ----------- ----------- Cash flows (used) by operating activities (722,510) (805,436) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 350,000 404,406 Advances on notes payable 150,000 775,000 Loan fees -- (50,000) Repayments of debt -- (210,000) Employee stock plan receivable (12,600) -- Advances under letter of credit 350,000 -- ----------- ----------- Cash flows provided by financing activities 837,400 919,406 ----------- ----------- NET INCREASE (DECREASE) IN CASH 114,890 113,970 CASH AT BEGINNING OF PERIOD 172,306 214,206 ----------- ----------- CASH AT END OF PERIOD $ 287,196 $ 328,176 =========== =========== Non Cash Transactions: The Company paid $700,000 for prepaid consulting fees by the issuance of stock. Supplemental Disclosure: Cash paid for: Interest $ 111,729 $ 154,059 Taxes $ -- $ -- See accompanying notes to financial statements 8
NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited financial statements have been prepared by us 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 by us reflects all material adjustments, consisting only of normal recurring adjustments, which are, in our opinion, 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 our annual report on Form 10-KSB filed with the Securities and Exchange Commission for the year ended December 31, 2000. 2. Inventories: Inventories at June 30, 2001 consisted of the following: Raw Materials $ 1,190,160 Work-in-Progress 580,360 Finished Goods 740,188 ----------- $ 2,510,708 =========== 3. Note Payable, Bank In February 2001 we received a letter of credit from our joint venture to buy $600,000 in "parts to build" air pollution instruments in China. Through the efforts of World Trade Finance, we were able to borrow $450,000 on the order. This loan is payable with monthly interest at a rate of 11.50%, and principal is repaid out of shipment. $550,000 of parts were shipped in the middle of April 2001 and this loan was repaid. In June 2001, we obtained another loan for $350,000 which bears interest at Wall Street Journal Prime Rate + 3.0% p.a. and is due September 15, 2001 or upon collection under the assignment of letter of credit proceeds, whichever occurs earlier. This loan was against a letter of credit for instruments in China for a total of $490,000. The instruments were shipped on July 31, 2001. 4. Shareholders' Equity: On January 25, 2001, we issued 700,000 shares of stock under a one-year consulting agreement. The value of these shares of $700,000 is being amortized as consulting expense over the term of the agreement. At June 30, 2001 $360,068 remains as prepaid consulting fees. During the second quarter, the employee stock plan was terminated and as a result, the 840,000 shares were put into treasury. The Company will return all monies deducted by payroll to all employees. 5. Foreign Sales The following table sets forth certain information regarding the Company's foreign sales for the six months ended June 30, 2001 and 2000: Six months ended June 30 ------------------------ 2001 2000 -------- --------- Aggregate sales to unaffiliated foreign customers: Europe and the United Kingdom $156,740 $ -- Asia and the Pacific Rim $783,700 $328,000 During the period ended June 2001 and 2000 one customer in China accounted for 75% and 23% of net sales. 9 6. Deferred Revenue Income and expenses not earned or incurred are recorded as deferred revenue. Sales to the 50% Joint Venture are not considered earned until shipped by the Joint Venture. Revenue will be recognized upon shipment of products. 7. Joint Venture Financial Statement The joint venture had the following activity for the period ended June 30, 2001: Revenue $ -- General and Administrative Expense 229,158 ---------- Net Loss $ (229,158) ========== Dasibi's share of net loss (50%) $ (114,579) ========== Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We design, manufacture and market automated continuous monitoring instruments used to detect and measure various types of air pollution through our wholly-owned subsidiary, Dasibi Environmental Corp., and, since January 1998 we have focused our business primarily on the air pollution market of the People's Republic of China. We have experienced operating losses during quarters in which no product was shipped to China due to high staffing and related financing expenses toward maintaining a consistent quality control and manufacturing schedule. The 1999 Phase 1 contract for $5.2 million was essentially completed in a five month schedule ending November 1999. Except for that period, the past three years, including this current quarter, have experienced insufficient revenue to offset our level of staffing and its level of related expenses. Our future operating results may be affected by a number of important factors, including but not limited to our ability to obtain further contracts from China, ability to obtain parts from vendors, uncertainties relative to global economic conditions and political stability, industry factors, the availability and cost of components, our ability to develop, manufacture and sell our products profitably. In April 2000 we signed a $13.5 million agreement (the Phase II "China Contract"). In December 2000 our board of directors approved a joint venture to manufacture our product in China. A contract to provide air monitoring networks for cities in China under U.S. Export-Import financing requires a "letter of mandate" from the China bank, which in turn requires China bank credit approval of the cities involved. In the 1998 Phase I contract this approval required approximately six months for eleven cities. In the 2000 Phase II contract, 32 cities are involved. As of April 30, 2001, 27 cities have been approved. Current indication from the China side is that a October, 2001 project start date is their goal. This start date is critical for us to generate "steady stream" revenues to justify staffing levels and more importantly, eliminate on-going expensive financing requirements. For us to be profitable for 2001, the Phase II project should have started in the third quarter of the current year. Our Company has been notified by NASDAQ that our share price of July 17, 2001 is below listing requirements and that we have 90 days to "cure". RESULTS OF OPERATIONS Three Months Ended June 30, 2001 ("2001") Compared to Three Months Ended June 30, 2000 ("2000") Net revenues for 2001 were $350,573 which represented a decrease of $651,815, or 65% over 2000 net revenue of $1,002,388. The decrease was primarily due to a 40% decrease in core business sales and a lack of unit sales for China business. Sales of spare parts accounted for the major portion of gross income for the period. Gross profit was ($173,988) for 2001, a decrease of $395,859 from $221,871 for 2000. The gross loss percentage was (50%) in 2001, a decrease from a 22% gross profit in 2000. The decrease in the gross profit percentage was primarily 10 attributable to the dismantling of 21 completed units representing potential gross income of $1,500,000 and gross profit of approximately $600,000. The retrofitting for resale resulted in increased work in process labor costs. Selling, general and administrative expenses (SG&A) were $608,295, or 174% of sales for 2001, a decrease of $18,104 from $626,399 in 2000. The decrease in SG&A was principally due to a decreased G&A burden and decreased sales effort. During the three months ended June 30, 2001 charges related to amortization of loan fees and interest amounted to $255,239, an increase of $20,219 from $235,020 in 2000. As a result of the foregoing factors we incurred a loss of $1,152,700 during the three months ended June 30, 2001 as compared to a loss of $646,941 during the three months ended June 30, 2000. Six Months Ended June 30, 2001, versus Six Months Ended June 30, 2000 Net revenues decreased 27%% from $1,430,760 during the first half of 2000 to $1,044,931 during the first half of 2001. The decrease was primarily due to a decrease in core business sales and a lack of unit sales for China business. Gross profit margin was 5% for the first half of 2001 versus 18% for the first half of 2000. Decrease in gross profit percentage remains primarily attributable to the additional labor expended to retrofit units for outside of China business. The retrofitting for resale outside of China was necessitated by the inability of Chinese cities to furnish fundable letters of credit or bank guarantees. Selling, general and administrative expenses decreased $88,092, or 7% during the first half of 2001, versus the same period in 2000, primarily due to decreased G&A burden and decreased selling expenditures. During the first six months of 2001 accounting charges related to amortization of loan fees and interest amounted to $576,122, an increase of $167,056, or 41% over the first six months of 2000. As a result of the foregoing factors, the Company incurred a loss of $1,870,142 during the six months ended June 30, 2001 as compared to a loss of $1,474,782 during the six months ended June 30, 2000. Liquidity and Capital Resources We have historically financed our growth and cash needs primarily through borrowings, and the public and private sales of our securities. The low market value of our securities and our unstable operating performance have severely restricted our access to capital, and when capital has been obtained it has been necessarily costly due to high interest costs and related loan fees. During the second quarter, we were requested by SEPA of China to provide, on an emergency basis, 21 single systems for 21 cities for shipment by May 10, 2001. It was realized that a letter of credit was not possible but there was agreement for a borrowable bank guarantee. We fulfilled the system building request on schedule but SEPA was unable to procure any bank guarantee until June 15, 2001 and we determined it was a non-borrowable instrument. This resulted in a severe shortage of cash and a serious vendor supply problem. Second quarter shipments and earnings were materially affected. We are aggressively seeking funding to allow "free flow of parts." If we are unsuccessful, this situation can impact us in a materially negative operations situation. 11 Net cash used in operating activities decreased $82,926 in the six months ended June 30, 2001 as compared to June 30, 2000 primarily due to amortization of stock issued for consulting and an increase in accounts payable. The cash level decreased in the same period by $40,980 primarily due to a decrease in new financing activities. Working capital was $(853,165) at June 30, 2001. An escrow which began October 19, 2000 intended to increase our working capital level failed to close. During the first quarter of 2001 we entered into a similar net funding escrow with a different unaffiliated corporation as in October, 2000. The escrow has been structured to avoid anti-dilution provisions of convertible bond holders who have again agreed to "pay-off" terms. The escrow is arranged in stages of which the first is release of working capital to us. At this date $250,000 has been released to us. Subsequent stages involve equity exchange to be negotiated so that a minimum common share price of $1.15 per share is maintained. Depending on valuation of asset acquisition in the escrow a possible minimum share value of approximately 97 cents per share may be realized. At this time no formal escrow agreements are in effect. Advances to date are non-refundable and a completion of escrow is not expected before June 1, 2001. A maximum dilutive effect to our company is expected to be in the order of 15% to 17%. There are no assurances this financing will be completed, or if completed that it would be timely so as to remedy vendor parts supply. Inflation We believe that inflation has not had a material impact on our business. Seasonality We do not believe that our business is seasonal. 12 PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Not applicable (b) We did not file any reports on Form 8-K during the three months ended June 30, 2001. 13 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 14, 2001 By: /s/ Albert E. Gosselin --------------- ------------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer Date: August 14, 2001 By: /s/ Donald Ford --------------- -------------------------------- Donald Ford Chief Financial Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----