-----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, MYSoqDF7xP6qloustxD9UwZ0YLvQv5K+p0uSblnLBBVOzqHbcVVuL+llbt3k+chY sLKalAdFXsmM25J0CFdtDw== 0001000096-97-000855.txt : 19971117 0001000096-97-000855.hdr.sgml : 19971117 ACCESSION NUMBER: 0001000096-97-000855 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 001-09327 FILM NUMBER: 97717998 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 September 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 November 13, 1997 8,673,732 Traditional Small Business Disclosure Format (check one): Yes X No -------- -------- FORM 10-QSB For the Nine-Month Period Ended September 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....................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 10 Part II Other Information................................... 12 Item 4. Submission of Matters to a Vote of Security Holders................................. 12 Item 6(b). Reports on Form 8-K...................... 12 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) AS OF CURRENT ASSETS 9/30/97 ------- Cash $ 279,915 Marketable securities 23,000 Accounts receivable, trade, less allowance for doubtful accounts of $41,382 1,329,006 Inventories (Note 2) 2,184,976 Other current assets 8,885 ---------- TOTAL CURRENT ASSETS 3,825,782 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated depreciation of $347,577 1,519,778 OTHER ASSETS Goodwill, less accumulated amortization of $9,577 285,818 Loan costs, less accumulated amortization of $37,843 57,981 Other intangible assets, less accumulated amortization of $7,225 33,284 Other 12,000 ---------- TOTAL OTHER ASSETS 389,083 ---------- TOTAL ASSETS $5,734,643 ========== 3 CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS'EQUITY (Unaudited) AS OF CURRENT LIABILITIES 9/30/97 ----------- Notes payable (Notes 2 and 5) $ 805,290 Accounts payable 610,963 Accrued liabilities 227,177 Current portion of long-term debt (Notes 2 and 5) 221,874 Current portion of long-term debt, related party 11,269 ----------- TOTAL CURRENT LIABILITIES 1,876,573 LONG-TERM DEBT, less current portion (Notes 2 and 5) 581,392 LONG-TERM DEBT, related party, less current portion 358,868 DEFERRED RENT, less current portion 103,303 DEFERRED TAXES (Note 6) 45,000 COMMITMENTS AND CONTINGENCIES (Note 4) -- 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, 8,673,732 issued and outstanding 2,626,932 Less notes receivable (86,857) Other paid in capital 4,107,812 Accumulated deficit (3,900,094) Unrealized gain on marketable securities 23,000 Unrealized foreign currency translation loss (1,286) TOTAL SHAREHOLDERS' EQUITY 2,769,507 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,734,643 =========== 4
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Sept.30 ------------- 1997 1996 ------------ ------------ Net revenues $ 1,229,983 $ 2,859,872 Cost of goods sold 1,016,224 1,860,188 ------------ ------------ Gross Profit 213,759 999,684 ------------ ------------ Operating Expenses: Selling, general and administrative expenses 702,403 788,156 Research and development 9,309 46,263 Total operating expenses 711,712 834,419 ------------ ------------ Income (Loss) from operations (497,953) 165,265 Interest expense (65,433) (68,225) Interest income 2,126 2,258 Other income 77,724 267,444 ------------ ------------ Income (Loss) before income taxes (483,536) 366,742 Provision (Benefit) for income taxes: Current -- -- Deferred (Note 6) -- (88,000) ------------ ------------ Total provision (Benefit) for income taxes -- (88,000) ------------ ------------ Net income (loss) $ (483,536) $ 454,742 ============ ============ Earnings per share: Net income (loss) $ (.06) $ .04 ============ ============ Weighted average number of common and common equivalent shares outstanding 8,673,732 10,297,003 ============ ============ 5
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended Sept. 30 -------------- 1997 1996 ----------- ----------- Net revenues $ 5,719,978 $ 6,418,766 Cost of goods sold 4,647,198 4,055,198 ----------- ----------- Gross Profit 1,070,780 2,363,568 ----------- ----------- Operating Expenses: Selling, general and administrative expenses 2,013,765 1,612,869 Research and development 32,532 126,161 Total operating expenses 2,046,297 1,739,030 ----------- ----------- Income (Loss) from operations (975,517) 624,538 Interest expense (224,947) (76,437) Interest income 4,309 4,498 Other income 80,635 270,944 ----------- ----------- Income (Loss) before income taxes (1,115,520) 823,543 Provision (Benefit) for income taxes: Current -- -- Deferred (Note 6) (10,000) (112,000) ----------- ----------- Total provision (Benefit) for income taxes (10,000) (112,000) ----------- ----------- Net income (loss) $(1,105,520) $ 935,543 =========== =========== Earnings per share (Note 10): Net income (loss) $ (.13) $ .12 =========== =========== Weighted average number of common and common equivalent shares outstanding 8,673,732 7,585,481 =========== =========== Fully Diluted: Net income (loss) Not applicable $ .12 =========== Weighted average number of common and common equivalent shares outstanding 7,726,140 =========== 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended Sept 30 ------------- 1997 1996 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (Loss) ($1,105,520) $ 935,543 Adjustments to Reconcile Net Income To Net Cash Used for Operating Activities: Depreciation and Amortization 172,578 72,587 Deferred Income Taxes (10,000) (112,000) Inventory Reserves 200,000 -- Changes in Operating Assets and Liabilities: Accounts Receivable, Trade, Net 388,710 (1,044,708) Inventories 158,056 127,231 Other Current Assets 11,940 (22,521) Other Assets 634 -- Accounts Payable (390,884) (149,749) Accrued Liabilities (28,926) (242,339) Unearned Revenues (50,820) -- Deferred Rent 27,112 (10,900) ----------- ----------- Net Cash Used For Operating Activities (627,120) (446,856) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Property, Equipment, and Leasehold Improvements (12,491) (43,058) Acquisition of Subsidiaries, Net of Cash Acquired of $186,304 -- (433,795) Reduction in Certificate of Deposit -- 21,750 Other assets -- (29,012) ----------- ----------- Net Cash Used for Investing Activities (12,491) (484,115) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase in Bank Line of Credit 18,450 100,000 Proceeds fromCommon Stock (Note 8) -- 1,077,390 Payoff of LRL Secured Overdraft -- (90,942) Net Borrowings (Reduction) in Nutek Line of Credit 133,182 (125,821) Additional Borrowings Under Long-Term Debt 100,000 -- Repayments of long-term debt (53,752) (117,473) ----------- ----------- Net cash provided by financing activities 197,880 843,154 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,524) (1,430) ----------- NET DECREASE IN CASH (443,255) (89,247) CASH AT BEGINNING OF PERIOD 723,170 641,695 CASH AT END OF PERIOD $ 279,915 $ 552,448 =========== ===========
7 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, 1996. 2. Inventories: Inventories at September 30, 1997 consisted of the following: Materials and Supplies $ 1,875,381 Work-in-Process 423,581 Finished Goods 86,014 Reserve (200,000) ------------ $ 2,184,976 ============ 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 $133,182 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 September 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 8 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. 9 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, 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 70% 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 12% 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 decreased 10% from $6,419,000 during the nine month period ended September 30, 1996 to $5,718,000 during the nine month period ended September 30, 1997, primarily as a result of a decline in core business revenues of 56% for the three month period because of fewer orders for Dasibi's instruments as a result of an escalating, ongoing competitive price environment in a reduced overall market. Gross margin declined from 37% to 19% for the nine-month period, and from 35% to 17% for the three month period, primarily due to three factors. First, the Nutek acquisition normally operates at a lower gross margin of less than 20%, secondly, Dasibi operated at lower margins of 21% and 11% for the respective periods due to the ongoing competitive price pressures described above, and finally, the Company wrote off possible obsolete inventory for both Nutek and Dasibi. Selling, general and administrative expenses increased $401,000 from $1,613,000 in the nine months ended September 30, 1996 to $2,014,000 in the nine months ended September 30, 1997, due to the acquisition of Nutek and LMD in fiscal 1996, but decreased $86,000 for the three months ended September 30, 1997 as compared to the same period in 1996. In the core business fixed expenses decreased during the nine-month period from $227,400 per month to $100,000 per month, and fixed expenses for the third quarter of 1997 decreased to approximately $300,000 from approximately $682,000 in the same period of 1996. 10 Research and development expenditures decreased by $94,000 and $37,000 during the nine 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, net income decreased $2,041,000 for the nine-month period ended September 30, 1997 versus the same period in 1996, and decreased $938,000 for the three month period versus 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. During the nine months ended September 30, 1997, operations generated all but $627,000 of the cash needs of the Company. An additional $198,000 was generated through borrowings under the Nutek line of credit and term loan. This resulted in a decrease in cash of $443,000. Working capital at September 30, 1997 was approximately $1,950,000, a decrease of $550,000 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 September 30, 1997, Nutek had borrowings of $597,000 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 September 30, 1997, Dasibi had borrowed $168,000 under this agreement, of which $160,000 was outstanding at November 5, 1997. The Company has no material commitments for capital expenditures as of September 30, 1997. 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. 11 PART II - OTHER INFORMATION 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 September 30, 1997 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: November 14, 1997 By: /s/ Albert E. Gosselin, Jr. --------------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer Date: November 14, 1997 By: /s/ Cynthia L. Gosselin -------------------------------- Cynthia L. Gosselin, Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 SEP-30-1997 279 0 1,329 0 2,184 3,825 1,866 347 5,734 1,876 0 0 0 0 0 5,734 5,719 0 4,647 4,647 2,046 0 220 (1,194) 0 0 0 0 0 (1,105) (.13) (.13)
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