-----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, EqH2MaffcCnCiql6+05tBTAClvIwiCBWH9r5iyFLeI8r3xnVdMoeF1PrF1375Epz hquRYZFMm9Pq4kIFyLkp9A== 0001000096-97-000546.txt : 19970814 0001000096-97-000546.hdr.sgml : 19970814 ACCESSION NUMBER: 0001000096-97-000546 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 001-09327 FILM NUMBER: 97657887 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 June 30, 1997 [ ] 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 (I.R.S. Employer Identification No.) of 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 13, 1997 8,673,732 Traditional Small Business Disclosure Format (check one): Yes X No ------- ------- FORM 10-QSB For the Six-Month Period Ended June 30, 1997 TABLE OF CONTENTS Page Part I Financial Information Item 1. Financial Statements........................... 3 Consolidated Balance Sheet............................. 3 Consolidated Statements of Operations.................. 5 Consolidated Statements of Cash Flows.................. 7 Notes to Financial Statements.......................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 11 Part II Other Information...................................... 13 Item 4. Submission of Matters to a Vote of Security Holders.................................... 13 Item 6(b). Reports on Form 8-K......................... 13 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) AS OF CURRENT ASSETS 6/30/97 ---------- Cash $ 674,938 Marketable securities 99,000 Accounts receivable, trade, less allowance for doubtful accounts of $41,382 1,397,138 Inventories (Note 2) 2,200,198 Other current assets 32,189 ---------- TOTAL CURRENT ASSETS 4,403,463 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated depreciation of $301,712 (Note 2) 1,559,233 OTHER ASSETS Goodwill, less accumulated amortization of $7,950 295,856 Loan costs, less accumulated amortization of $30,275 60,549 Organization costs, less accumulated amortization of $6,800 33,709 Other 18,855 ---------- TOTAL OTHER ASSETS 408,969 ---------- TOTAL ASSETS $6,371,665 ========== 3 CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS'EQUITY (Unaudited) AS OF CURRENT LIABILITIES 6/30/97 ----------- Notes payable (Note 3) $ 710,997 Current portion of long-term debt, related parties 11,047 Current portion of long-term debt (Note 3) 222,681 Accounts payable 713,650 Accrued liabilities 216,889 ----------- TOTAL CURRENT LIABILITIES 1,875,264 LONG-TERM DEBT, related party, less current portion 362,476 DEFERRED RENT 103,936 LONG-TERM DEBT, less current portion (Note 3) 636,138 DEFERRED INCOME TAXES 45,000 COMMITMENTS AND CONTINGENCIES (Note 4) -- SHAREHOLDERS' EQUITY (Note 5) 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, 8,673,732 issued and outstanding 2,626,932 Less notes receivable (86,857) Other paid in capital 4,107,812 Accumulated deficit (3,416,557) Unrealized gain on marketable securities 99,000 Unrealized foreign currency translation loss 18,521 ----------- TOTAL SHAREHOLDERS' EQUITY 3,348,851 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,371,665 =========== 4
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30 ------------- 1997 1996 ----------- ----------- Net revenues $ 1,935,629 $ 1,929,848 Cost of goods sold 1,802,492 1,265,954 ----------- ----------- Gross Profit 133,137 663,894 ----------- ----------- Operating Expenses: Selling, general and administrative expenses 656,254 421,099 Research and development 16,493 41,876 Total operating expenses 672,747 462,975 ----------- ----------- Income from operations (539,610) 200,919 Interest expense (88,053) (4,375) Interest income 1,106 1,102 Other income 2,911 -- ----------- ----------- Income before income taxes (623,646) 197,646 Provision for income taxes: Current -- -- Deferred (Note 6) -- (24,000) ----------- ----------- Total provision for income taxes -- (24,000) ----------- ----------- Net income (loss) $ (623,646) $ 221,646 =========== =========== Earnings per share: Primary: Net income (loss) $ (.07) $ .03 =========== =========== Weighted average number of common and common equivalent shares outstanding 8,673,732 7,374,396 =========== =========== Fully Diluted: Net income (loss) not applicable $ .03 =========== Weighted average number of common and common equivalent shares outstanding 7,414,352 =========== 5
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Six Months Ended June 30 ------------- 1997 1996 ----------- ----------- Net revenues $ 4,487,995 $ 3,558,894 Cost of goods sold 3,630,974 2,195,010 ----------- ----------- Gross Profit 857,021 1,363,884 ----------- ----------- Operating Expenses: Selling, general and administrative expenses 1,311,362 824,713 Research and development 23,223 79,898 Total operating expenses 1,334,585 904,611 ----------- ----------- Income from operations (477,564) 459,273 Interest expense (159,514) (8,212) Interest income 2,183 2,240 Other income 2,911 3,500 ----------- ----------- Income before income taxes (631,984) 456,801 Provision for income taxes: Current -- -- Deferred (Note 6) (10,000) (24,000) ----------- ----------- Total provision for income taxes (10,000) (24,000) ----------- ----------- Net income (loss) $ (621,984) $ 480,801 =========== =========== Earnings per share: Primary: Net income (loss) $ (.07) $ .07 =========== =========== Weighted average number of common and common equivalent shares outstanding 8,673,732 7,171,287 =========== =========== Fully Diluted: Net income (loss) not applicable $ .07 =========== Weighted average number of common and common equivalent shares outstanding 7,242,885 =========== 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 ------------- 1997 1996 ------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($621,984) $ 480,801 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 116,574 25,509 Deferred income taxes (10,000) (24,000) Inventory reserves 200,000 -- Changes in operating assets and liabilities: Accounts receivable, trade, net 324,004 (930,037) Inventories 151,390 223,291 Other current assets (10,992) 3,917 Other assets (1,221) -- Accounts payable (288,568) (56,322) Accrued liabilities (39,492) (52,589) Unearned revenues (50,820) -- Deferred rent 27,745 (7,267) --------- --------- Net cash provided by (used for) operating activities (203,364) (336,697) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, equipment, and leasehold improvements (5,224) (19,076) Acquisition of subsidiaries, net of cash acquired of $186,304 -- (433,795) Other assets -- (13,793) --------- --------- Net cash used for investing activities (5,224) (466,664) --------- --------- 7 CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Bank line of credit - advances (repayments) 5,000 -- Net increase in Nutek line of credit 152,342 171,145 Additional borrowings under long-term debt 100,000 -- Proceeds from issuance of common stock (Note 8) -- 777,390 Repayment of long-term debt (95,518) -- --------- --------- Net cash provided by financing activities 161,824 948,535 --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,468) (1,187) --------- --------- NET INCREASE IN CASH (48,232) 143,987 CASH AT BEGINNING OF PERIOD 723,170 641,695 CASH AT END OF PERIOD $ 674,938 $ 785,682 ========= ========= 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 at June 30, 1997, include the activity of two subsidiaries, NUTEK, Inc. and LOGAN MEDICAL DEVICES, Inc., which were acquired by the company in June, 1996. Pro-forma results for the six months ended June 30, 1996, presented as if the acquisition of Nutek had occurred at the beginning of the quarter is presented below: Six Months Ended June 30 1996 Revenues $ 5,315,000 ============ Net income (loss) $ 371,000 ============= Earnings per share: Primary: Net income (loss) $ .05 ============= Weighted average common and common equivalent shares outstanding 7,258,787 ============= Fully diluted: Net income $ .05 ============= Weighted average common and common equivalent shares outstanding 7,518,395 Results of operations for Logan Medical Devices, Inc. for the six months ended June 30, 1996 are not material to the consolidated results of operations. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10KSB for the year ended December 31, 1996. 9 2. Inventories: Inventories at June 30, 1997 consisted of the following: Materials and Supplies $ 682,812 Work-in-Process 386,745 Finished Goods 1,330,641 Reserve (200,000) ----------- $ 2,200,198 ============ 3. Notes Payable and Long Term Debt: Since the filing of the Company's Annual Report on Form 10-K, the Company has increased its borrowings under the Nutek working capital facility by $291,104 and increased the term loan by an additional $100,000. 4. Commitments and Contingencies: In October 1996, the Company terminated its agreement with a public relations firm and cancelled 1,300,000 options held by the public relations firm. The matter is presently in dispute. The probability or amount of any loss to the Company cannot be determined at this time. 5. Shareholders' Equity: Options and Warrants - -------------------- As of June 30, 1997, the Company had 3,205,500 options and 1,275,836 warrants outstanding at exercise prices ranging from $0.55 to $2.00 which, if exercised, would generate proceeds to the Company of $4,821,386. 6. Earnings per Share: Earnings per share is computed by dividing net income or loss by the weighted average number of common and common equivalent shares (options and warrants) outstanding during the period. Options and warrants which are dilutive are included as common equivalents under the treasury stock method, unless the dilutive options and warrants would, if exercised, generate proceeds sufficient to repurchase more than 20% of the Company's outstanding common stock at market prices, in which case the modified treasury stock method applies. During the quarter ended June 30, 1997, there were not sufficient number of dilutive options and warrants to cause application of the modified treasury stock method. 7. 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. 10 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 ("Dasibi"). The Company currently derives the majority of its revenue from sales of Dasibi's instruments and their replacement parts, referred to as the "core business". 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 26% from $3,559,000 during the six-month period ended June 30, 1996 to $4,488,000 during the six-month period ended June 30, 1997, primarily as a result of the acquisition of Nutek, Inc. in June 1996. However, core business revenues declined 30% for the three month period because of fewer instrument orders obtained in an escalating competitive price environment. Gross margin declined from 38% to 19% for the six month period, and from 34% to 7% for the three month period, primarily due to three factors. First, Nutek is operating at a lower gross margin of 23%, secondly, because Dasibi is operating at lower margins of 21% due to ongoing competitive price pressures, and finally, due to the write off of possible obsolete inventory for both Nutek and Dasibi. Selling, general and administrative expenses increased $487,000 from $825,000 in the six months ended June 30, 1996 to $1,311,000 in the six months ended June 30, 1997 and increased $235,000 for the three months ended June 30, 1997 as compared to the same period in 1996, primarily due to the full inclusion of Nutek in the Company's business. Research and development expenditures declined $57,000 and $25,000 during the six month and three month periods, respectively, due to cost reduction measures, which included the closure of the Company's Texas R&D facility. As a result of the foregoing factors, none of the subsidiaries reached "break-even" revenues, and net income decreased $1,103,000 for the six-month period ended June 30, 1997 over the same period in 1996, and decreased $845,292 for the three month period over the comparable period of the prior year. 11 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. During the six months ended June 30, 1997, operations generated all but $204,000 of the cash needs of the Company. An additonal $162,000 was generated through borrowings under the Nutek line of credit and term loan. This resulted in a decrease in cash of $48,000. Working capital at June 30, 1997 was approximately $2,500,000, a decrease of $700,000 from the previous quarter. This decrease is due primarily to the loss from operations arising as a result of the lower production levels. As of June 30, 1997, Nutek had borrowings of $515,997 under its line of credit which has a maximum of the lesser of $1,000,000 or the borrowing base (as defined in the loan agreement). Dasibi renewed its line of credit with a bank, which provides for borrowings of up to $200,000 through June 3, 1998. As of June 30, 1997, Dasibi had borrowed $200,000 under this agreement, $190,000 of which was outstanding at July 30, 1997. 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. 12 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) On June 18, 1997 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 ---- -------- ------------- Albert E. Gosselin, Jr. 7,836,805 396,636 Gary L. Dudley 7,266,786 966,655 Craig E. Gosselin 7,254,600 978,841 Barbara L. Gosselin 7,264,594 968,847 Marcia Smith 7,268,700 964,741 Barry Soltani 7,263,725 969,716 No other matters were submitted to the shareholders. 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 six months ended June 30, 1997. 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 13, 1997 By: /s/ Albert E. Gosselin, Jr. -------------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer Date: August 13, 1997 By: /s/ Cynthia L. Gosselin ------------------------------- Cynthia L. Gosselin, Chief Financial Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 674 0 1,397 0 2,200 4,403 1,860 301 6,371 1,875 0 0 0 0 0 6,371 4,487 0 3,630 3,630 1,334 0 0 (631) 0 0 0 0 0 (631) (.07) (.07)
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