-----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, IRLywU3gUCooXvIu4U5Rd0Uk9a8gJ/o0dvKW1vUm1CbfWpqMo3xCYYXdQD9cW+tz msJfXR/mbYq5m2V4NJojCg== 0001050502-99-000842.txt : 19991115 0001050502-99-000842.hdr.sgml : 19991115 ACCESSION NUMBER: 0001050502-99-000842 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99746662 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, 1999 { } 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 November 8, 1999 4,036,770 Traditional Small Business Disclosure Format (check one): YES X No ___ 1 POLLUTION RESEARCH AND CONTROL CORP. Form 10-QSB For the Nine-Month Period Ended September 30, 1999 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 Statement of Cash Flows 8 Notes to Financial Statements 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II Other Information 16 Item 1 Legal Proceedings 16 Item 6(b) Reports on Form 8-K 16 2 PART 1 - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) As of 09/30/99 -------- CURRENT ASSETS Cash $ 279,629 Accounts receivable, trade, less allowance for doubtful 2,522,041 accounts of $ 4,734 Inventories (Note 2) 1,784,013 Prepaid expenses (Note 3) 618,994 Other current assets 8,214 ---------- TOTAL CURRENT ASSETS 5,212,891 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated depreciation of $202,653 102,569 ---------- OTHER ASSETS Advances to joint venture 203,938 Technical service center 600,000 Other intangible assets 88,112 Other assets 12,140 ---------- TOTAL OTHER ASSETS 904,190 ---------- TOTAL ASSETS $6,219,650 ========== See notes to financial statements 3 CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) As of CURRENT LIABILITIES 9/30/99 ------- Notes payable $ 1,830,303 Accounts payable 342,787 Accrued expenses (Note 4) 320,993 ----------- TOTAL CURRENT LIABILITIES 2,494,083 ----------- DEFERRED RENT 47,235 ----------- SHAREHOLDERS' EQUITY : (Note 5) Preferred Stock, no par value; 20,000,000 shares authorized, none issued and outstanding Common Stock, no par value; 30,000,000 shares authorized, 4,036,770 issued and outstanding 7,695,420 Other paid in capital 1,106,216 Accumulated deficit (5,123,304) ----------- TOTAL SHAREHOLDERS' EQUITY $ 3,678,332 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,219,650 =========== See notes to financial statements 4
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, -------------------------- 1999 1998 ----------- ----------- Net Revenues $ 2,814,886 $ 944,754 Cost of goods sold 1,504,944 493,412 ----------- ----------- Gross profit 1,309,942 451,342 ----------- ----------- Operating expenses: Selling, general and administrative expenses 860,319 513,687 Research and development 49,866 3,780 ----------- ----------- Total operating expenses 910,185 517,467 ----------- ----------- Income (loss) from operations 399,757 (66,125) Other Income (Expense) Interest Expense (141,096) (7,935) Other income (expense) (5,020) 3,490 ----------- ----------- Income (loss) from continuing operations Before Income Taxes 253,641 (70,570) Provision for income taxes 1,600 -- ----------- ----------- Income (loss) from continuing operations 252,041 (70,570) Discontinued operations (Note 6) Income (loss) from discontinued operations -- 2,712 Loss on disposal -- (503,997) ----------- ----------- -- (501,285) ----------- ----------- Net Income $ 252,041 $ (571,855) =========== =========== Earnings per share Net Income (loss) per share - basic Continuing operations $ .06 $ (.03) =========== =========== Discontinued operations $ -- $ (.21) =========== =========== Net Income (loss) per share - diluted Continuing operations $ .06 $ (.03) =========== =========== Discontinued operations $ -- $ (.21) =========== =========== Weighted Average Shares Basic 3,893,770 2,399,689 =========== =========== Diluted 4,572,578 2,399,689 =========== =========== See notes to financial statements 5
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended September 30, -------------------------- 1999 1998 ----------- ----------- Net Revenues $ 5,756,783 $ 2,174,672 Cost of goods sold 3,213,866 1,288,094 ----------- ----------- Gross profit 2,542,917 886,578 ----------- ----------- Operating expenses: Selling, general and administrative expenses 1,614,993 1,189,877 Research and development 55,576 12,908 ----------- ----------- Total operating expenses 1,670,569 1,202,785 ----------- ----------- Income (loss) from operations 872,348 316,207 Other Income (Expense) Interest Expense (293,578) (19,879) Other income (expense) (114,020) 3,529 ----------- ----------- Income (loss) from continuing operations Before Income Taxes 464,750 (332,557) Provision for income taxes 1,600 -- ----------- Income (loss) from continuing operations 463,150 (332,557) Discontinued operations (Note 6) Income (loss) from discontinued operations -- (108,550) Loss on disposal -- (1,018,411) ----------- -- (1,126,961) ----------- ----------- Net Income $ 463,150 $(1,459,518) =========== =========== Earnings per share Net Income (loss) per share - basic Continuing operations $ .13 $ (.15) =========== =========== Discontinued operations $ -- $ (.50) =========== =========== Net Income (loss) per share - diluted Continuing operations $ .12 $ (.15) =========== =========== Discontinued operations $ -- $ (.50) =========== =========== Weighted Average Shares Basic 3,499,648 2,245,518 =========== =========== Diluted 3,997,402 2,245,518 =========== =========== See notes to financial statements 6
POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Nine Months Ended September 30, 1999 Other Total Series A Preferred Stock Series B Preferred Stock Common Stock Paid In Accumulated Shareholders' Shares Amount Shares Amount Shares Amount Capital Deficit Equity ------------------- ------------------- ----------------------- ------- ------- ------ BALANCE 12/31/98 220,000 $ 2,200 450,000 $ 4,500 2,368,439 $ 6,704,195 $ 928,831 $(5,586,454) $ 2,053,272 Issuance of warrants with note payable and debentures 76,085 76,085 Issuance of 100,000 175,000 20,000 195,000 common stock & warrants under compromise agreement Conversion of (220,000) (2,200) (450,000) (4,500) 670,000 6,700 Series A and Series B preferred stock to common stock Issuance of 848,331 731,375 731,375 common stock net of issuance costs of $ 74,875 Shares & warrants issued for consulting services 50,000 78,150 81,300 159,450 Net Income for -- -- -- -- -- -- -- 463,150 463,150 the nine -------- -------- ---------- -------- ---------- ----------- ----------- ----------- ----------- months Balance September 30, 1999 -0- -0- -0- -0- 4,036,770 $ 7,695,420 $ 1,106,216 $(5,123,304) $ 3,678,332 ======== ======== ========== ======== ========== =========== =========== =========== =========== See notes to financial statements 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30 -------------------------- 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 463,150 $(1,459,518) Adjustments to reconcile net income to net cash used for operating activities: Loss on disposal of subsidiary -- 1,018,411 Losses on disposed subsidiary -- 26,418 Depreciation and amortization 100,156 82,775 Deferred rent 12,112 15,112 Changes in operating assets and liabilities: Accounts receivable, trade, net (2,225,008) 44,545 Inventories 156,858 143,723 Prepaid expenses (454,544) -- Other current assets (4,135) 8,177 Other assets (12,140) 987 Accounts payable 86,095 (60,326) Accrued liabilities 79,316 (12,620) Unearned revenue -- (143,695) ----------- ----------- Net cash used for operating activities (2,111,856) (336,011) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan fees (50,000) -- Proceeds from auction of equipment -- 165,064 Acquisition of property, equipment and leasehold improvements (9,748) (1,919) ----------- ----------- Net cash used for investing activities (59,748) 163,145 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from private placements of stock 731,375 362,070 Advances on notes payable and line of credit 1,237,303 218,125 Increase in amount due under Nutek settlement agreement 118,604 -- Borrowings under long-term debt 300,000 -- Repayments of debt -- (556,835) ----------- ----------- Net cash provided by financing activities 2,387,282 23,360 ----------- ----------- NET INCREASE (DECREASE) IN CASH 215,678 (149,506) CASH AT BEGINNING OF PERIOD 63,951 514,895 ----------- ----------- CASH AT END OF PERIOD $ 279,629 $ 365,389 =========== =========== Supplemental Disclosure: Cash paid for: Interest $ 291,745 $ 19,879 Taxes $ 1,600 $ -- See notes to financial statements 8
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont) (Unaudited) Nine Months Ended September 30 ------------------ 1999 1998 -------- ------- Supplemental disclosure of noncash financing activities: Stock & warrants issued for: Services $ 39,862 $ -- Prepaid consulting services 119,588 -- Loan fees 96,085 -- Debt repayment 175,000 -- 9 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, 1998. 2. Inventories: Inventories at September 30, 1999 consisted of the following: Raw Materials $ 855,394 Work-in-Progress 451,149 Finished Goods 477,470 ----------- $ 1,784,013 =========== 3. Prepaid Expense: Prepaid expense at September 30, 1999 consists of: Prepaid facility fees under China Contract $ 463,611 Prepaid consulting services 150,383 Other 5,000 ----------- $ 618,994 =========== 4. Accrued Expenses: Accrued expenses at September 30, 1999 consisted of the following: Accrued travel and other costs under China Contract $ 100,000 Accrued payroll and related taxes 161,862 Accrued vacation 25,013 Current portion of deferred rent 23,012 Other 11,106 ----------- $ 320,993 =========== 5. Shareholders' Equity: During the third quarter of 1999, the Company received $305,750, net of issuance costs, from the issuance of 260,000 shares of common stock under private placements. As part of the private placements, the Company issued three-year warrants to purchase 75,000 shares of common stock at $.75 and 75,000 shares at $2.40. In addition, the Company issued 50,000 shares of common stock and warrants to purchase 100,000 shares of common stock at $.75 under a consulting agreement. 10 During the second quarter of 1999, the Company received $229,500, net of $25,500 of issuance costs, from the issuance of 300,000 shares of common stock under a private placement. During the first quarter of 1999, the Company received $196,125, net of $20,125 of issuance costs, from the issuance of 288,331 shares of common stock under a private placement. As part of the private placement, the Company issued three-year warrants to purchase 288,331 shares of common stock at $.75 per share. During the first quarter of 1999 all of the holders of the Series A and Series B preferred stock converted their shares to 670,000 shares of common stock in accordance with the original conversion terms. 6. Discontinued Operations: In September 1999 the Company was advised that Chinese technicians and engineers would not be able to obtain visas to Macau for training in a timely manner. The China State Environmental Protection Agency (SEPA) dictated that training and even future services should be based on a localized six city office network supplied by the Company. Therefore, on October 25, 1999 the Company rescinded the purchase of its Macau training center and retired 450,000 common shares which had been placed in escrow pending completion of the purchase. 7. Notes Payable: On October 7, 1999 the Company obtained an $800,000 working capital loan guaranteed by the California Export Finance Office (CEFO) and provided by World Trade Finance. The loan is at prime plus 3% and requires related fees of approximately $30,000. The expiry date is December 15, 1999 and the loan involves a U.C.C.1 on the assets of the Company and will be repaid with the proceeds of the 4th shipment Letter of Credit on the China project. The Company received a working capital loan of approximately $380,000 from MFR Financial Resources Inc. as interim accounts payable financing with the intention and subsequent actual repayment by the CEFO guaranteed loan as discussed above. The fees for this 30 day loan were an estimated $56,000. On September 1, 1999 the Company entered into 12% subordinated convertible debenture agreements totaling $300,000 due June 1, 2000. 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 80% of the market price of the common stock on the date of conversion or $2.25. In addition, the Company issued warrants to purchase 45,000 shares of the Company's common stock at $2.25 per share to the debenture holders. Additional warrants to purchase 18,000 shares of the Company's common stock at $2.25 were issued as loan fees. In June, 1999 the Company entered into a compromise settlement agreement with Fidelity Federal, the major secured lender of Nutek. Under this agreement, the Company agreed to repay $468,000 through issuance of 100,000 shares of common stock (valued at $1.75 per share on date of issuance) and payment on February 1, 2000 of the remaining balance due, including interest accruing from the settlement date at 12% per annum. The Company is required to register the 100,000 shares and sell them on behalf of Fidelity Federal. The net proceeds from the sale of these shares will be used to reduce the balance owed Fidelity Federal under the settlement agreement. In addition, the Company issued warrants to purchase 20,000 shares of the Company's common stock at $.75 per share to Fidelity Federal as an inducement to enter into this settlement agreement. On May 28, 1999 the Company entered into an 18% subordinated convertible debenture agreement for $500,000 due December 1, 1999. The debenture is convertible into the Company's common stock at any time at the option of the holder. The conversion price is the lesser of 80% of the market price of the common stock on the date of conversion or 115% of the market price of the common 11 stock on May 28, 1999. As part of this agreement, the Company agreed to repay $101,000 received from the debenture holder in 1998 that was previously reported as income in 1998. In addition, the Company paid $50,000 and issued warrants to purchase 105,000 shares of the Company's common stock at $1.50 per share as loan fees. During the first quarter of 1999, the Company borrowed $100,000 under a four-month note, bearing interest at 11% per annum. In conjunction with this loan, the Company issued the note holder three-year warrants to purchase 48,000 shares of common stock at $.75 per share. The Company paid loan fees of $10,000 plus warrants to purchase an additional 5,000 shares of common stock at $.75 per share. This note was subsequently increased to $300,000 with interest at 12% per annum and is due in June, 2000. 12 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 experienced operating losses during the three quarters ending March 31, 1999 as it geared up operations to manufacture and ship product to the People's Republic of China pursuant to a contract signed in June 1998 (The "China Contract"). The Company shipped the first such product in June 1999. The Company shipped the largest portion of the China Contract on September 30, 1999. Successful progress thus far has been largely due to obtaining working capital financing under a State of California (CEFO) guarantee. A relatively minor shipment is due in the middle of November, at which time all equipment due will have been received in China. Training as required under the contract is essentially complete. Installation and start-up is 40% complete. The project status is ahead of schedule. 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; the Company's ability to successfully increase its market share in its core business while expanding its products 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. 13 RESULTS OF OPERATIONS Three Months Ended September 30, 1999, versus Three Months Ended September 30, 1998 Net revenues increased 198% from $944,754 during the third quarter of 1998 to $2,814,886 during the third quarter of 1999. The increase was primarily due to shipment of product under the China Contract which substantially exceeded domestic and other international shipments. Gross profit margin was 46% for the third quarter of 1999 versus 48% for the third quarter of 1998, which range is considered normal for the Company's business. Selling, general and administrative expenses increased $346,632, or 67% during the third quarter of 1999, versus the same period in 1998, principally due to a larger workforce required to perform the increased manufacturing demands required by the China Contract. As a result of the foregoing factors, net operating income increased from a net operating loss of ($70,570) during the three months ended September 30, 1998 to a net operating income of $252,041 during the three months ended June 30, 1999. Nine Months Ended September 30, 1999, versus Nine Months Ended September 30, 1998 Net revenues increased 164% from $2,174,672 during the nine months ended September 30, 1998 to $5,756,783 during the nine months ended September 30, 1999. The increase was primarily due to product shipment under the China Contract which substantially exceeded domestic and other international shipments. Gross profit margin was 44% for the nine months ended September 30, 1999 versus 41% for the nine months ended September 30, 1998, primarily because of higher margins on sales under the China Contract, versus margins on domestic shipments. Selling, general and administrative expenses increased $425,116, or 36% during the nine months ended September 30, 1999, versus the same period in 1998, principally due to a larger workforce required to perform the increased manufacturing demands required by the China Contract. As a result of the foregoing factors, net operating income increased from a net operating loss of ($332,557) during the nine months ended September 30, 1998 to a net operating income of $463,150 during the nine months ended September 30, 1999. 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. See Note 7 of Notes to Consolidated Financial Statements for a discussion of borrowings and financings during the nine months ended September 30, 1999. 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 nine months ended September 30, 1999, amounted to $2,111,856, primarily due to expenditures related to the shipment of products to China and contracted installation and training. The Company's cash level increased 337% as compared to December 31, 1998, primarily due to private placements of common stock amounting to $731,000 and additional borrowings of $1,537,000 resulting in a net increase of $215,700. 14 Working capital was $2,718,807 at September 30, 1999. The Company has no material commitments for capital expenditures as of September 30, 1999. The Company has several short term borrowings which on the one hand, have been budgeted for repayment from scheduled payments from its China project and, on the other, have been receptive to extensions if payments are delayed past budget. The Company has experienced a four month delay in its receipt of "down payment deposit" funds on the China Contract equal to $450,000. All other payments have been received on such Contract albeit with delays by the Company's banks. At this time, there are no cash shortfalls in the Company. In this position the Company believes it will be able to meet its current obligations with funds generated from operations during the next twelve months. However, some combinations of significantly longer delay in "clearing" the down payment deposits for the China project, along with no extensions of some repayment loan dates would have a material adverse effect on the Company's business and financial results. In addition, expanded operations will continue to require additional working capital to be provided by additional financing. If such financing cannot be obtained, or can only be obtained at cost-prohibitive rates, the Company's expansion efforts will have to be curtailed or postponed, which have a material adverse effect on the Company's business and financial results. 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. Year 2000 Compliance General. The Company believes it has completed all internal efforts to avoid the adverse effects of the Year 2000 issue. State of Readiness. The Company received certifications of compliance from all vendors deemed material to its business operations during the first quarter of 1999. Contingency Plans. The Company believes it should not rely completely on key vendor compliance certification. Therefore costs are being incurred to enable the Company to utilize alternative design procedures to allow alternate vendor supply. These design changes are on-going and the costs are not expected to be material. Risks. The Company presently does not anticipate any material business disruption will occur as a result of Year 2000 issues. The greatest potential risk appears to be with federal, state and local governments. 15 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 September 30 , 1999. 16 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 8, 1999 By: /s/ Albert E. Gosselin -------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer Date: November 8, 1999 By: /s/ Donald Ford ------------------- Donald Ford Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 280 0 2,527 (5) 1,784 5,213 305 (203) 6,220 (2,494) 0 0 0 8,802 0 6,220 5,757 5,757 3,214 3,214 1,785 0 294 465 (2) 463 0 0 0 463 .13 .12
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