-----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, K9VxzCCyV3jC1mEegYWPxWzjGDlVlFxWft/67or7HbPcDWjdp2zQmSzyw7TjA2Qr 54fq5Ln/V/a7Ne3Zedx1+A== 0001050502-98-000196.txt : 19980729 0001050502-98-000196.hdr.sgml : 19980729 ACCESSION NUMBER: 0001050502-98-000196 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980727 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: 98671901 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, 1998 { } 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 July 24, 1998 2,399,689 Traditional Small Business Disclosure Format (check one): YES X No ___ POLLUTION RESEARCH AND CONTROL CORP. Form 10-QSB For the Six-Month Period Ended June 30, 1998 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 7 Consolidated Statements of Cash Flows 8 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II Other Information 14 Item 6(b) Reports on Form 8-K 14 2 PART 1 - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) As Of 06/30/98 CURRENT ASSETS -------- Cash $ 315,678 Marketable securities 3,250 Accounts receivable, trade, less allowance for doubtful 377,319 accounts of $ 6,381 Inventories 1,512,117 Net assets of discontinued operations 65,888 Other current assets 7,340 ---------- TOTAL CURRENT ASSETS 2,281,592 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated depreciation of $169,938 925,536 ---------- OTHER ASSETS Advances to joint venture 187,854 Other intangible assets 23,509 Other assets 1,682 ---------- TOTAL OTHER ASSETS 213,045 ---------- TOTAL ASSETS $3,420,173 ========== See notes to financial statements 3 CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) As of 6/30/98 CURRENT LIABILITIES ------- Notes payable $ 70,000 Accounts payable 203,921 Accrued liabilities 206,059 ----------- TOTAL CURRENT LIABILITIES 479,980 DEFERRED RENT 65,402 SHAREHOLDERS' EQUITY : Preferred Stock, 5,000,000 shares authorized: Series A Preferred Stock, .01 par value, 220,000 shares issued and outstanding 110,000 Series B Preferred Stock, .01 par value, 450,000 shares issued and outstanding 800,000 Common Stock, no par value; 7,500,000 shares authorized, 2,399,689 shares issued and outstanding 6,815,843 Less notes due from sale of stock (86,857) Other paid in capital 145,764 Accumulated deficit (4,913,209) Unrealized gain on marketable securities 3,250 ----------- TOTAL SHAREHOLDERS' EQUITY 2,874,791 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,420,173 =========== See notes to financial statements 4
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30, -------------- 1998 1997 ---- ---- Net Revenues $ 652,887 $ 914,407 Cost of goods sold 578,585 875,131 ----------- ----------- Gross profit 74,302 39,276 ----------- ----------- Operating expenses: Selling, general and administrative expenses 313,924 454,142 Research and development 8,168 16,493 ----------- ----------- Total operating expenses 322,092 470,635 ----------- ----------- Loss from operations (247,790) (431,359) Other Income (Expense) Other income -- -- Interest Income 10 1,105 Interest expense (5,194) (2,369) Interest expense, related parties (4,336) -- ----------- ----------- Total Other Income (Expense) (9,520) (1,264) ----------- ----------- Income (Loss) Before Income Taxes (257,310) (432,623) Provision (Benefit) For Income Taxes: Current -- -- Deferred -- -- ----------- ----------- Total Provision (Benefit) for Income Taxes -- -- ----------- ----------- Income (loss) from continuing operations $ (257,310) $ (432,623) Discontinued operations Loss from discontinued operations (84,844) (191,025) Loss on disposal of discontinued operations (668,989) -- ----------- ----------- (753,833) (191,025) ----------- ----------- Net Income (1,011,143) (623,648) =========== =========== Earnings per share Net Income (loss) per share - basic and diluted $ (.47) $ (0.29) =========== =========== Weighted average number of common and common equivalent shares outstanding 2,169,711 2,168,433 =========== =========== See notes to financial statements 5
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Six Months Ended June 30, -------------- 1998 1997 ---- ---- Net Revenues $ 1,229,918 $ 2,081,049 Cost of goods sold 794,683 1,624,786 ----------- ----------- Gross profit 435,235 456,263 Operating expenses: Selling, general and administrative expenses 676,190 887,330 Research and development 9,128 23,223 ----------- ----------- Total operating expenses 685,318 910,553 ----------- ----------- Loss from operations (250,083) (454,290) Other Income (Expense) Other income -- -- Interest Income 39 2,116 Interest expense (5,194) (7,067) Interest expense, related parties (6,750) -- ----------- ----------- Total Other Income (Expense) (11,905) (4,951) ----------- ----------- Income (Loss) Before Income Taxes (261,988) (459,241) Provision (Benefit) For Income Taxes: Current -- -- Deferred -- -- ----------- ----------- Total Provision (Benefit) for Income Taxes -- -- ----------- ----------- Income (loss) from continuing operations $ (261,988) $ (459,241) Discontinued operations Loss from discontinued operations (111,262) (162,743) Loss on disposal of discontinued operations (514,414) -- ----------- ----------- (625,676) (162,743) ----------- ----------- Net Income (887,664) (621,984) =========== =========== Earnings per share Net Income (loss) per share - basic and diluted $ (.41) $ (0.29) =========== =========== Weighted average number of common and common equivalent shares outstanding 2,169,711 2,168,433 =========== =========== See notes to financial statements 6
POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Six Months Ended June 30, 1998 Series A Preferred Stock Series B Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ BALANCE 12/31/97 -- $ -- -- $ -- 2,168,433 $ 6,588,980 Issuance of stock in private placements, net of offering costs 220,000 110,000 231,256 226,863 Issuance of common stock for building 450,000 800,000 -- -- Change in trans- lation gain -- -- -- -- -- -- Net loss for the six months -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance 6/30/98 220,000 $ 110,000 450,000 $ 800,000 2,399,689 $ 6,815,843 =========== =========== =========== =========== =========== =========== (Continued) Notes Due Other Gain on Currency Total From Sale Paid In Accumulated Marketable Translation Shareholders' of Stock Capital Deficit Securities Gain Equity -------- ------- ------- ---------- ---- ------ BALANCE 12/31/97 $ (86,857) $ 145,764 $(4,025,545) $ 3,250 $ 24,587 $ 2,650,179 Issuance of stock in private placements, net of offering costs -- -- -- -- -- 336,863 Issuance of common stock for building -- -- -- -- -- 800,000 Change in trans- lation gain -- -- -- -- (24,587) (24,587) Net loss for the six months -- -- (887,664) -- -- (887,664) ----------- ----------- ----------- ----------- ----------- ----------- Balance 6/30/98 $ (86,857) $ 145,764 $(4,913,209) $ 3,250 $ -- $ 2,874,791 =========== =========== =========== =========== =========== =========== 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 ------------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $(887,664) $(621,984) Adjustments to reconcile net income to net cash used for operating activities: Gain on disposal of subsidiary 514,415 -- Losses on disposed subsidiary 26,418 -- Depreciation and amortization 75,500 116,574 Deferred income taxes -- (10,000) Deferred rent 18,745 27,745 Inventory reserves 200,000 Changes in operating assets and liabilities: Accounts receivable, trade, net (142,184) 324,004 Inventories 244,587 151,390 Other current assets 7,436 (10,992) Other assets 987 (1,221) Accounts payable (7,765) (288,568) Accrued liabilities (61,977) (39,492) Unearned revenue (143,695) (50,820) --------- --------- Net cash used for operating activities (355,197) (203,364) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold (1,922) (5,224) improvements --------- --------- Net cash used for investing activities (1,922) (5,224) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from private placements of stock 362,070 Bank line of credit - advances (repayments) (70,000) 5,000 Net increase (decrease) in Nutek line of credit (104,086) 152,342 Repayments of long-term debt (30,082) (95,518) Additional borrowing under long-term debt -- 100,000 --------- --------- Net cash provided by financing activities 157,902 161,824 --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (1,468) --------- --------- NET INCREASE (DECREASE) IN CASH (199,217) (48,232) CASH AT BEGINNING OF PERIOD 514,895 723,170 --------- --------- CASH AT END OF PERIOD $ 315,678 $ 674,938 ========= ========= Supplemental Disclosure: Cash paid for: Interest $ 27,782 -- Taxes $ -- -- 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, 1997. 2. Recent Developments: Issuance of Preferred Stock - --------------------------- The Company is authorized to issue up to 5,000,000 shares of preferred stock, $.01 par value per share (the "Preferred Shares"), in series to be designated by the Board of Directors. The Company has issued an aggregate of 670,000 Preferred Shares, 220,000 of which shares are designated Series "A" Convertible Preferred Shares (the "Series "A" Preferred Shares") and 450,000 of which shares are designated Series "B" Convertible Preferred Shares (the "Series "B" Preferred Shares"), and may issue additional Preferred Shares from time to time in one or more series as may be determined by the Board of Directors. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions thereof shall be established by the Board of Directors, except that no holder of Preferred Shares shall have preemptive rights. The Series "A" and "B" Preferred Shares are not entitled to receive dividends. The offering prices of the Series "A" and "B" Preferred Shares are $.50 and $1.777 per share, respectively. Each outstanding Series "A" and Series "B" Preferred Share is convertible by the Company for no additional consideration into one share of common stock, no par value per share (the "Conversion Ratio"), subsequent to July 30 and December 31, 1998, respectively, and each Preferred Share is entitled to one vote at meetings of the Company's shareholders based upon the Conversion Ratio. Upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, the shareholders of the Series "A" and "B" Preferred Shares are entitled to a liquidation preference as to each share in an amount equal to the offering price thereof, i.e., $.50 and $1.777 in the case of the Series "A" and "B" Preferred Shares, respectively, with the Series "A" Preferred Shares ranking senior to the Series "B" Preferred Shares. The Board of Directors of the Company may use its authority to issue Preferred Shares to effect the business purposes of the Company and, in addition, as an "anti-takeover" device as a means of resisting a change of control of the Company. The Board of Directors has no plan to issue any other series of Preferred Shares for the foreseeable future unless the issuance thereof shall be in the best interests of the Company. Purchase of Building - -------------------- On June 24, 1998 the Company purchased a building in Macau (a foreign country located outside of China) in exchange for 450,000 shares of the Company's Series B Preferred Stock. The Series B Preferred Stock has voting rights, no dividend rights and is convertible into 450,000 shares of the Company's common stock on December 31, 1998. The building was valued at $800,000. The building was purchased from PIC Computers, Ltd., a Macau Corporation. Subsequent to this purchase, the building was leased back to PIC Computers, Ltd. under a five year lease requiring monthly payments of $8,000. The lease may be cancelled after one year if the China jobs are completed (See China Contract). 9 China Contract - -------------- During this quarter, the Company's subsidiary, Dasibi Environmental Corp., was awarded a $5.2 million contract with China to install an eleven city air monitoring network in China. As a result, the Company entered into an agreement with PIC Computers, Ltd., to provide and supervise three engineers to perform work on the Company's behalf under the China contract for $9,000 per month. Private Placements - ------------------ On June 30, 1998, the Company issued 231,256 restricted shares of the Company's common stock under a private placement, receiving net proceeds of $226,863 after paying a finders fee of $25,207 plus warrants to purchase 23,125 shares of the Company's common stock at $2.20 per share. On May 8, 1998, the Company issued 220,000 shares of the Company's Series A Preferred Stock for a purchase price of $.50 per share, resulting in proceeds to the Company of $110,000. This stock is convertible into 220,000 shares of common stock after July 30, 1998. The Series A Preferred Stock has voting rights but no dividend rights. Options Issued - -------------- In May, 1998 the Company entered into a cancelable agreement with a public relations firm to provide related services to the Company for $2,500 per month plus options to purchase 50,000 shares of the Company's stock at $2.20 per share. These options expire May 15, 2001. Reverse Stock Split - ------------------- During this quarter, the Company had a 4 to 1 reverse stock split. All shares within these financial statements have been adjusted to reflect this reverse stock split. 3. Inventories: Inventories at June 30, 1998 consisted of the following: Raw Materials $ 773,603 Work-in-Progress 126,511 Finished Goods 612,003 ------------ $ 1,512,117 ============ 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, 1998, the Company had 1,090,209 options and warrants outstanding at exercise prices ranging from $2.20 to $8.00 which, if exercised, would generate proceeds to the Company of $4,602,832. 10 6. Discontinued Operations: Nutek, Inc. filed for protection under Chapter 11 of the Federal Bankruptcy Code in April, 1998 and continued to operate as Debtor in Possession. In July, 1998, the Bankruptcy Court ruled that Nutek, Inc. was not a going concern. As a result, Nutek, Inc. ceased operations and all the operating assets will be auctioned in late July to satisfy the secured lender. Included in the financial statements is an estimate of the anticipated loss from the disposal of the assets and repayment of the obligations of this operation of $780,251. This subsidiary accounted for 48% of the 1997 consolidated revenues of the Company. Effective February 28, 1998 the Company disposed of one of its subsidiaries, Logan Research, Ltd. a private United Kingdom company engaged in the design, manufacture and marketing of medical instrumentation. This subsidiary accounted for 7% of the 1997 consolidated revenues of the Company. The disposal was accomplished through a return of 100% of LRL's stock to the original owner in exchange for release from a $300,000 note payable, as well as related accrued interest of $47,250. As a result, the Company realized a gain on disposal of this operation of $154,575. Prior to the disposal, the Company advanced funds to this subsidiary. These advances are expected to be repaid from a joint venture relationship between the Company and LRL. 7. Subsequent Events: a. Chapter 11 Attempts to sell Nutek, Inc. as a going business failed. Management then decided that every effort should be made to maximize the liquidated value of fabrication equipment and that the "printed circuit board" portion of Nutek, Inc. had operating value as a vehicle to eventually pay off deficiency sums, if any, and unsecured creditors. Nutek was therefore placed into Chapter 11 reorganization. The major secured lender has opposed this filing and at a June 19, 1998 hearing before the Bankruptcy Court, prevailed against Nutek, Inc. in having the Bankruptcy Code's automatic stay, imposed when the case was filed, vacated, to permit a secured lender sale of the mortgaged property based principally upon the secured lender's assertion that the assets of Nutek, Inc. were insufficient to cover the amount of the secured loans. The assertion was supported by a "new" appraisal which management of Nutek, Inc. had not seen until the proceedings were commenced by the secured lender to vacate the automatic stay. From an original 1996 appraisal which disclosed a forced liquidation value for the mortgaged property of $1,200,000, the new appraisal indicated an apparent value of approximately $341,000. Management believes that there is the possibility of questionable activities in the original 1996 purchase of Nutek, Inc. and the financing with the secured lender and appraisal obtained and utilized and is investigating the role of all parties involved in the acquisition and financing. An auction sale has been scheduled by the secured lender for July 28, 1998. Management does not believe that the ultimate determined amount of deficiency will have a material adverse affect on the Company notwithstanding that the secured lender commenced a Texas state court action on April 7, 1998 against the Company by filing of an Original Petition which was never served on the Company, followed by the filing of a First Amended Original Petition on May 8, 1998 which was never properly effected according to the Company's retained Texas counsel and thereafter procured the entry of a Default Judgment against the Company. The Company had no notice or knowledge of the Texas state court action until July 1, 1998, when the Company received by United States Mail, a copy of a Default Judgment against the Company entered in the Texas state court in the sum of $766,708.77. The Company's retained Texas counsel filed a Notice of Removal of the Texas state court case to the United States District Court Northern District of Texas Dallas Division and has filed a Motion to dismiss and/or quash service of process and to set aside the Default Judgment. The matter is presently pending and has not been determined. b. Negotiations regarding sale of Dasibi and LMD. 11 Low cash levels resulting from decreasing sales and net income in the third quarter of 1997, coupled with increasing cash requirements from Nutek, prompted the adoption of a reorganization plan by the Board of Directors of the Company to attempt to raise capital through the sale of some or all of the Company's intangible technology assets. In March 1998 the Company began negotiating an agreement to sell 100% of the stock of Dasibi and LMD to a third party in exchange for stock of such party. The intention of both parties is to effect a Company dividend in kind of approximately 40% in stock face value and retain the balance of stock in the Company. These negotiations continue at this date, and the transaction, if completed, must be approved by a majority vote of the outstanding shares of the Company. If the transaction is completed, the Company will only own two subsidiaries, Dasibi Environmental Control Corporation (DECC) and the non-operating Nutek corporation. Proceeds from the sale of the balance of stock remaining in the Company should be adequate funding for exploitation of DECC's patent "Flue Gas Purification System" granted in 1996, contingency funding for Nutek requirements, working capital for operation of a planned acquisition of a water monitoring instrumentation company and, funds to initiate a joint venture in China to exploit the new instrumentation acquisition with the Company's joint venture partner, PIC Computers, in Macau. Any stock to be received by the Company in connection with above transaction will be restricted securities under U. S. Securities laws. The sale of such stock must be registered with the Securities and Exchange Commission or must occur pursuant to an applicable exemption from registration. There can be no assurance that such will occur. 8. Supplemental Disclosure of Noncash Investing and Financing Activity: During the quarter, the Company purchased a building for $800,000 by issuing 450,000 shares of Series B Preferred Stock. 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 for sales of Dasibi's instruments and their replacement parts, referred to as the "core business". Until the second quarter of 1998, the Company realized revenue from two other wholly owned subsidiaries, Nutek Inc. ("Nutek") and Logan Research Ltd. ("Logan"). Due to declining sales and operating problems the Logan subsidiary was sold back to the original owner and Nutek operations were discontinued. These actions were part of a reorganization of the Company intended to limit cash drain. The reorganization also contemplated selling Dasibi on the basis of its intangible design technology capabilities, and restructuring the Company to pursue new, but related pollution measurement and control work on an adequately funded basis. As of this date, the financial condition and results primarily reflect the initial disposition of assets described above while the Dasibi operation has remained intact in a downsized, on-going, highly competitive price pressure environment. The sale of Dasibi remains in a negotiation stage which management believes is very positive for completion. 12 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; the Company's ability to effectively manage expense growth relative to revenue growth in anticipation of continued pressure on gross margins, and whether or not a sale of its Dasibi subsidiary can be successfully concluded. RESULTS OF OPERATIONS Six Months Ended June 30, 1998, versus Six Months Ended June 30, 1997 Net revenues decreased 40% from $2,081,049 during the first half of 1997 to $1,229,918 during the first half of 1998. The decrease was primarily due to a decrease of Dasibi revenue, resulting from a continuation of price pressure levels realized in the third and fourth quarters of 1997. Gross margin was 35% for the first half of 1998 versus 22% for the first half of 1997, because the Company downsized in accordance with the indicated revenues of the third and fourth quarters of 1997. Selling, general and administrative expenses decreased $211,140, or 23%, during the first half of 1998,over the same period in 1997, principally due to the downsizing discussed above. As a result of the foregoing factors, net operating loss decreased from a net operating loss of ($459,241) during the six months ended June 30, 1997 to a net operating loss of ($261,988) during the six months ended June 30, 1998. Three Months Ended June 30, 1998, versus Three Months Ended June 30, 1997 Net revenues decreased 28% from $914,407 during the second quarter of 1997 to $652,887 during the second quarter of 1998. The decrease was primarily due to a decrease of $583,000 of Dasibi revenue, resulting from a continuation of price pressure levels realized in the third and fourth quarters of 1997. Gross margin was 11% for the second quarter of 1998 versus 4% for the second quarter of 1997, but they do not reflect an accurate comparison since 1997 was a result of a sharp decline in revenues with no downsizing and 1998 includes start-up expenses for anticipated and awarded contracts. Selling, general and administrative expenses decreased $140,218, or 31%, during the second quarter of 1998, over the same period in 1997, principally due to the downsizing discussed above. As a result of the foregoing factors, net operating loss decreased from a net operating loss of ($432,632) during the six months ended June 30, 1997 to a net operating loss of ($257,310) during the three months ended June 30, 1998. 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, 1998, operations depleted cash $355,000 which required two private placements totalling $362,000. During the same period the Nutek working capital line was reduced by $104,000, the Dasibi line of credit was paid down $70,000 and long-term debt was paid down $30,000 resulting in a net cash decrease of $199,000. 13 Working capital at June 30, 1998 was $1,801,612, an increase of $524,516 from the previous due to the disposition of the Nutek subsidiary. Dasibi was unable to renew its line of credit with a bank and the existing line has been paid down to $70,000 from $200,000, as of June 30, 1998. As of June 30, 1998 the Company has no access to financing any potential growth through borrowings and its depressed stock price precludes any generation of cash through public or private sales. Management believes that the current negotiated sale of Dasibi would provide adequate funding to meet all reorganization goals. Management also believes that it will be able to meet its current and contingent obligations with funds generated from operations connected with the recently awarded, twelve month 5 million dollar (5,000,000) contract, should the negotiated sale not be successfully concluded. 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. 14 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 June 30, 1998. 15 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: July 24, 1998 By: /s/ Albert E. Gosselin Jr ------------- ------------------------------------ Albert E. Gosselin, Jr., President and Chief Executive Officer Date: July 24, 1998 By: /s/ Donald Ford ------------- ------------------------------------ Donald Ford, Chief Financial Officer 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 316 3 383 (6) 1,512 2,282 1,095 (170) 3,420 480 0 0 910 6,816 0 3,420 1,230 0 795 0 685 0 12 0 0 (262) (625) 0 0 (888) (.41) 0
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