10QSB 1 prcc10qsb_11192002.txt QUARTERLY REPORT FOR PERIOD ENDED 9.30.2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2002 [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 (I.R.S. Employer Incorporation or Organization) Identification No.) 9300 WILSHIRE BOULEVARD, SUITE 308 BEVERLY HILLS, CALIFORNIA 90212 ---------------------------------------- (Address of Principal Executive Offices) (310) 248-3655 ------------------------------------------------ (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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. Yes [_] No [X] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, no par value, 10,881,100 shares issued and outstanding as of November 12, 2002. Transitional Small Business Disclosure Format (check one): Yes[_] No [X] POLLUTION RESEARCH AND CONTROL CORP. INDEX PAGE PART I FINANCIAL INFORMATION...............................................3 Item 1. Financial Statements................................................3 Consolidated Balance Sheet as of September 30, 2002.................3 Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and September 30, 2001.........4 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the nine months ended September 30, 2002..............5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001.........6 Notes to Consolidated Financial Statements..........................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................10 PART II OTHER INFORMATION..................................................22 Item 2. Legal Proceedings..................................................22 Item 6. Exhibits and Reports on Form 8-K...................................22 Page 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ========================== September 30, 2002 ------------ (Unaudited) ASSETS ------ CURRENT ASSETS: Cash $ 40,434 Accounts receivable 30,000 ------------ Total Current Assets $ 70,434 ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- CURRENT LIABILITIES: Accounts payable $ 400,086 Notes payable and convertible debt 1,487,526 Accrued interest expense 305,268 ------------ Total Current Liabilities 2,192,880 LONG-TERM NOTES PAYABLE AND CONVERTIBLE DEBT 200,000 ------------ Total Liabilities 2,392,880 ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, no par value, 20,000,000 shares authorized, -0- issued and outstanding -- Common stock, no par value, 30,000,000 shares authorized, 9,013,858 issued and outstanding 10,483,230 Additional paid-in capital 2,759,055 Accumulated (deficit) (15,564,731) ------------ Total Stockholders' Equity (Deficit) (2,322,446) ------------ $ 70,434 ============ SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 3 POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September30, September 30, September 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUES $ -- $ -- $ 30,000 $ -- ----------- ----------- ----------- ----------- COST OF GOODS SOLD -- -- 8,600 -- ----------- ----------- ----------- ----------- GROSS PROFIT -- -- 21,400 -- ----------- ----------- ----------- ----------- OPERATING EXPENSES: Selling, general and administrative 162,852 391,565 541,327 1,174,695 Loss on write-down of inventory -- -- 1,914,342 -- ----------- ----------- ----------- ----------- Total Operating Expenses 162,852 391,565 2,455,669 1,174,695 ----------- ----------- ----------- ----------- (LOSS) FROM OPERATIONS (162,852) (391,565) (2,434,269) (1,174,695) ----------- ----------- ----------- ----------- OTHER (EXPENSE): Interest expense (62,882) (56,408) (188,567) (169,224) Beneficial conversion feature of convertible debt -- -- (113,000) -- Amortization of loan fees -- (14,080) -- (326,818) ----------- ----------- ----------- ----------- Net Other (Expense) (62,882) (70,488) (301,567) (496,042) ----------- ----------- ----------- ----------- (LOSS) FROM CONTINUING OPERATIONS (225,734) (462,053) (2,735,836) (1,670,737) ----------- ----------- ----------- ----------- DISCONTINUED OPERATIONS: Gain (Loss) from operations of discontinued subsidiaries -- 389,763 (149,745) (271,695) Gain on disposal of subsidiary -- -- 1,490,553 -- ----------- ----------- ----------- ----------- Total Income (Loss) From Discontinued Operations -- 389,763 1,340,808 (271,695) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (225,734) $ (72,290) $(1,395,028) $(1,942,432) =========== =========== =========== =========== NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED: Continuing operations $ (0.03) $ (0.08) $ (0.37) $ (0.26) Discontinued operations: Gain (Loss) from operations -- 0.07 (0.02) (0.04) Gain on disposal -- -- 0.20 -- ----------- ----------- ----------- ----------- $ (0.03) $ (0.01) $ (0.19) $ (0.30) =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED 8,603,046 5,950,085 7,374,633 6,456,196 =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 4 POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (Unaudited)
Total Common Stock Additional Stockholders' ------------ Paid-In Accumulated Equity Shares Amount Capital (Deficit) (Deficit) ------------------------------------------------------------------------------------------------------------------- - Balances, December 31, 2001 5,949,616 $ 9,789,742 $ 2,485,062 $(14,169,703) $ (1,894,899) Stock issued for consulting services 120,000 43,250 -- -- 43,250 Conversion of convertible debt 2,072,464 505,238 -- -- 505,238 Stock issued in Private Placement 597,222 145,000 -- -- 145,000 Value of stock based compensation issued for sale of Dasibi -- -- 160,993 -- 160,993 Value of beneficial conversion feature of convertible debt -- -- 113,000 -- 113,000 Net (loss) for the period -- -- -- (1,395,028) (1,395,028) ------------------------------------------------------------------------- Balances, September 30, 2002 8,739,302 $ 10,483,230 $ 2,759,055 $(15,564,731) $ (2,322,446) =========================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 5 POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, -------------------------- 2002 2001 ----------- ----------- CASH FLOWS FROM (TO) OPERATING ACTIVITIES: Reconciliation of net (loss) to net cash flows provided by (used in) operating activities: Net (loss) from continuing operations $(2,735,836) $(1,670,737) Depreciation and amortization -- 18,675 Amortization of loan fees -- 423,544 Amortization of consulting fee -- 514,932 Loss from unconsolidated joint venture -- 234,579 Deferred rent -- (10,901) Beneficial conversion feature of convertible debt 113,000 -- Stock issued for services 43,250 -- Changes in assets and liabilities Accounts receivable (30,000) (186,743) Inventories 1,914,342 (356,977) Inventory held by joint venture -- (500,000) Other current assets -- (2,190) Accounts payable and accrued expenses 390,398 580,135 Deferred revenue -- 550,000 ----------- ----------- Net cash flows (to) continuing operations (304,846) (405,683) Net cash flows (to) discontinued operations -- (271,695) ----------- ----------- Net Cash (Used in) Operating Activities (304,846) (677,378) ----------- ----------- CASH FLOWS FROM (TO) INVESTING ACTIVITIES: Net Cash (Used in) Investing Activities -- -- ----------- ----------- CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Proceeds from issuance of common stock 150,000 100,000 Payment of offering costs (5,000) -- Capital Contribution -- 250,000 Advances on notes payable 57,526 370,000 Repurchase of common stock -- (12,600) Advances on letter of credit -- 350,000 Repayments under letter of credit -- (350,000) ----------- ----------- Net Cash Provided by Financing Activities 202,526 707,400 ----------- ----------- INCREASE (DECREASE) IN CASH (102,320) 30,022 CASH, beginning of period 142,754 172,306 ----------- ----------- CASH, end of period $ 40,434 $ 202,328 =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 6 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments that, in the opinion of management, are considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements of Pollution Research and Control Corp. included in our Form 10-KSB for the fiscal year ended December 31, 2001. 2. STOCKHOLDERS' EQUITY During the nine months ended September 30, 2002, we sold 597,222 shares of common stock for $150,000, $50,000 of which had been received prior to December 31, 2001 and had been recorded as a liability. We paid a $5,000 placement fee to a company controlled by our President and CEO. The investors will receive warrants to purchase 159,721 shares of common stock at prices ranging from $.027 to $.063 per share. Subsequent to period end and through the date of this report, the Company sold 1,524,100 shares of common stock for $249,000. The investors will receive warrants to purchase 1,055,022 shares of common stock at prices ranging from $.225 to $.60 per share. In addition, the Company issued 410,000 shares of its common stock for services and loan fees subsequent to period-end. 3. SALE OF DASIBI In March 2002, the Company entered into an agreement to sell Dasibi to one of its note holders in exchange for the forgiveness of $1,500,000 of debt, including $1,220,000, which was outstanding at December 31, 2001 then due to that note holder. The purchaser assumed all liabilities of Dasibi as of the date of the closing of the sale and all liabilities of the Company incurred on behalf of Dasibi. As part of the transaction, Dasibi assigned all of its inventory to the Company. The agreement also amended and restated the option grants to purchase common stock of the Company to the purchaser as follows: 50,000 at $0.25 per share, 100,000 at $0.50 per share, 528,571 at $0.875 per share, 100,000 at $1.00 per share and 21,875 at $3.10 per share. The options are vested immediately and expire in March 2005. The options are valued at the fair market value of $160,993 on the date of grant utilizing the Black-Scholes pricing model. The average risk-free interest rate used was 4.73%, volatility was estimated at 99.86%, the expected life was three years. The Company was granted a perpetual non-exclusive license to, among other matters, make use and otherwise exploit all products, software, technologies and other intellectual property (including the use of the name Dasibi and Dasibi Environmental Corp.) of Dasibi throughout the world with the exception of the Peoples Republic of China. The Company recorded a gain on the sale of Dasibi of $1,490,553 because the liabilities assumed by the purchaser exceed the fair market value of the assets transferred in the sale. 4. CONVERTIBLE DEBT During the nine months ended September 30, 2002, certain convertible debt holders converted $435,000 to 1,801,252 shares of the Company's common stock. In addition, certain convertible debt holders converted $70,238 of accrued interest on the convertible debt to 271,212 shares of the Company's common stock. In March 2002, the holder of $450,000 of convertible debt agreed to extend the due date of the debt to February 23, 2004 and the Company agreed to reduce the conversion rate on the convertible debt from 85% of the market price of the Company's common stock to 70% of the market price of the Company's common stock. The Company recorded the $113,000 as an expense for the beneficial conversion feature of the new conversion rate. As of September 30, 2002, $250,000 had been converted and the outstanding balance was $200,000. Page 7 5. BRIDGE NOTES During April 2002, the Company borrowed $22,526, due the earlier of June 29, 2002 or upon the Company raising funds in excess of $30,000. The Company did not raise these funds. The original interest rate was 10% per annum. Pursuant to the terms of the loan, since the loan was not repaid within 30 days after the due date, the loan bears default interest at 14% per annum. The lender has agreed to extend the terms of the note at least until year-end. During June 2002, the Company borrowed $35,000, due the earlier of September 10, 2002 or upon the Company raising funds in excess of $50,000. The original interest rate was 10% per annum. If the loan was not repaid within 30 days after the due date, the holder was to receive 50,000 shares of the Company's common stock. The note has not been repaid and the lender agreed to extend the terms of the note at least until year-end. The 50,000 shares of the Company's common stock have not been issued. 6. TECHNOLOGY AFFILIATES AGREEMENT We entered into a technology affiliates agreement with NASA's Jet Propulsion Laboratory ("JPL") to develop technology for our planned bio-terrorism detection equipment. The agreement provides that JPL will develop its proprietary bacterial spore detection technology for integration into our developing bio-terrorism detection device. The intent is to provide continuous unattended monitoring of airborne bacterial spores in large public places, with real-time automated alert functionality. All related projects are to be completed by September 28, 2003, though we may terminate the agreement at any time with written notice. We are entitled to maintain non-exclusive rights to any technology developed under the terms of the agreement. The estimated cost of the project to us is $249,000. No payments had been made as of September 30, 2002. As of the date of this report, we have paid NASA $80,000 towards the project. In August 2002, we entered into an option agreement with the California Institute of Technology, which granted us an exclusive irrevocable option and right to acquire an exclusive worldwide license to products developed as part of the above technology affiliates agreement. The option is exercisable for a one-year period commencing upon grant. A payment of $2,000 was required within 60 days to exercise the option. We did not make the payment and entered into a new option agreement in October 2002 under the same terms except requiring payment of $2,000 within 30 days of the agreement to exercise the option. Any license agreement that we may enter into upon exercise of the option will provide royalties of 0.5% to 5% for sales of licensed products and 20% to 50% for revenues received from a sub-licensee for consideration of future sale of or sale of licensed products. 7. INVENTORIES Inventories are stated at the lower of cost (first-in first-out) basis or market. At September 30, 2002 a full valuation allowance has been established for the inventory. Following the sale of Dasibi, we arranged with Dasibi that it would continue to house the inventory that Dasibi assigned to us as part of the sale of Dasibi. During the second quarter of 2002, we were informed that Dasibi vacated its manufacturing space, taking the inventory that was assigned to us. We currently are in the process of investigating the location of our inventory and reviewing our rights under the circumstances. Page 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements provided under Part I, Item 1 of this quarterly report on Form 10-QSB. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully herein. The forward-looking information set forth in this quarterly report on Form 10-Q is as of November 12, 2002, and we undertake no duty to update this information. If events occur subsequent to November 12, 2002 that make it necessary to update the forward-looking information contained in this Form 10-QSB, the updated forward-looking information will be filed with the Securities and Exchange Commission in a quarterly report on Form 10-QSB or a current report on Form 8-K. More information about potential factors that could affect our business and financial results is included in the section entitled "Cautionary Statements and Risk Factors." OVERVIEW AND RECENT DEVELOPMENTS We are primarily engaged in the research and development of bio-terrorism detection devices. Historically, our core business has been the design, manufacture and marketing of automated continuous monitoring instruments used to detect and measure various types of air pollution, such as "acid rain," "ozone depletion" and "smog episodes," primarily through our then wholly-owned subsidiary, Dasibi Environmental Corp., which we refer to throughout this report as Dasibi. We also supplied computer-controlled calibration systems that verify the accuracy of our instruments, data loggers to collect and manage pollutant information and our final reporting software for remote centralized applications. We did not recognize material revenues from these products. Beginning in the fourth quarter of fiscal 2001, we began to shift our business focus and strategy to the bio-terrorism detection device and medical diagnostic equipment markets. On March 19, 2002, upon approval by our board of directors, we entered into a binding letter of intent to sell all of the outstanding shares of Dasibi to an individual. Effective March 25, 2002, we consummated the sale pursuant to the terms and conditions of the binding letter of intent. The consideration we received in exchange for the stock of Dasibi included, among other things, cancellation of indebtedness of $1.5 million, a perpetual, nonexclusive license to exploit all of Dasibi's intellectual property rights outside of mainland China, and an assignment by Dasibi of its inventory to us. Our board of directors believed that the sale of Dasibi would assist us in pursuing our business strategy, which emphasizes the research and development of bio-terrorism detection devices and, to a lesser extent, medical diagnostic equipment. In early February 2002, we announced the launch of a pilot program geared towards early adopters of our bio-terrorism detection devices currently in development. Currently, these devices are able to collect particles to view by microscope, but are not capable of differentiating between different types of particles. Under this program, we made available our Model 7001 to select customers for installation and use while we continued our ongoing modification and reengineering of the device to enable real-time detection of airborne biological and chemical agents. We sold our first Model 7001 device to Summit Sportswear, a then existing customer of our air monitoring systems. Subsequently, Anaheim Hilton agreed to participate in our pilot program and we installed a Model 7001 in its facilities. We hope to obtain valuable performance data from these installations, which we believe will assist us in developing collaborative partnerships to develop bio-terrorism detection devices. Moreover, we expect that this performance data will help us determine the type of particles that the device detects in real life settings. After engaging in initial research and development efforts to further develop our bio-terrorism device, we determined to identify and pursue collaborative partners with whom we plan to further enhance our initial bio-terrorism detection device and work together to develop new bio-terrorism detection devices. Consistent with this strategy, in August 2002, we entered into a technology affiliates agreement with NASA's Jet Propulsion Laboratory to develop technology for our bio-terrorism detection equipment. The agreement provides that JPL will develop its proprietary bacterial spore detection technology for integration into our bio-terrorism detection device. The intent of the agreement is to provide continuous unattended monitoring of airborne bacterial spores in large public places, with real-time automated alert functionality. All related projects are to be completed by September 28, 2003, though we may terminate the agreement at any time with written notice. We are entitled to maintain non-exclusive rights to any technology developed under the terms of the agreement. The estimated cost of the project to us is $249,000. No payments had been made as of September 30, 2002. As of the date of this report, we have paid NASA $80,000 towards the project. In August 2002, we also entered into an option agreement with the California Institute of Technology, which granted us an exclusive irrevocable option and right to acquire an exclusive worldwide license to products developed as part of the technology affiliates agreement. The option is exercisable for a one-year period commencing upon grant. We paid $2,000 for the option, which will be credited to our exercise price of $2,000 if we chose to exercise the option. Any license agreement that we may enter into upon exercise of the option will provide royalties of 0.5% to 5% for sales of licensed products and 20% to 50% for revenues received from a sub-licensee for consideration of future sale of or sale of licensed products. Page 9 To a lesser extent, we also intend to concentrate on further research and development to extend our applications of our nitric oxide machine to the medical diagnostics market. We previously have participated in developing an asthma detection instrument with Logan Research of London England, a research institute, for these applications, but the project was halted due to a lack of funding. We are once again engaging in discussions with potential research partners to pursue this plan. To date, we have not entered into any collaborative relationships with research partners in connection with the development of the nitric oxide machine. Currently, we do not plan to pursue any business in the air pollution monitoring market; however, we may determine to engage in that business at a later date. BIO-TERRORISM DETECTION DEVICE MARKET The attacks of September 11, 2001, and the subsequent spread of anthrax spores have created a new sense of urgency in the public health systems across the world, and especially in the United States. The United States government has responded to this urgent need for preparedness against bio-terrorism by approving federal legislation to spend over $3 billion in 2002 to prepare the country against future bio-terrorist attacks. The objective is to accelerate development of technologies that lead to cost effective and timely detection of biological and chemical warfare agents as well as effective treatments. Spending, as well as additional research and development support, has been allocated to both the private and public sectors. We have retained an outside consultant specialized in government grants, to consistently screen the applicable grants for us. Our consultant identified a grant opportunity and developed and submitted a proposal to the Defense Advanced Research Projects Agency. At this time, we have not received any portion of these grants, and cannot assure you that we will receive any portion in the future. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Under accounting principles generally accepted in the United States, we are required to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Because of the uncertainties inherent in making assumptions and estimates, actual results in future periods may differ significantly from our assumptions and estimates. We base our assumptions and assumptions on historical experience and on various other factors believed to be reasonable under the circumstances. The following represents what we believe are the critical accounting policies most affected by our significant estimates and judgments. CONSOLIDATION The consolidated financial statements include the accounts of Pollution Research and Control Corp. and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. INVENTORIES Inventories are stated at the lower of cost (first-in first-out) basis or market. STOCK-BASED COMPENSATION We account for stock based compensation in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." This standard requires us to adopt the "fair value" method with respect to stock-based compensation of consultants and other non-employees. We did not change our method of accounting with respect to employee stock options; we continue to account for these under the "intrinsic value" method and to furnish the proforma disclosures required by SFAS 123. VALUATION OF THE COMPANY'S COMMON STOCK Unless otherwise disclosed, all stock based transactions entered into by us have been valued at the market value of our common stock on the date the transaction was entered into or have been valued using the Black-Scholes Model to estimate the fair market value. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, "Earnings Per Share." Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, to conform to Statement 128 requirements. Page 10 CASH EQUIVALENTS For purposes of reporting cash flows, we consider all short term, interest bearing deposits with original maturities of three months or less to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable, accounts payable, accrued expenses, notes payable and convertible debt approximate fair value because of the short maturity of these items. IMPAIRMENT OF LONG-LIVED ASSETS We evaluate our long-lived assets by measuring the carrying amounts of assets against the estimated undiscounted future cash flows associated with them. At the time the carrying value of such assets exceeds the fair value of such assets, impairment is recognized. To date, no adjustments to the carrying value of the assets have been made. INCOME TAXES Deferred income taxes are recorded to reflect the tax consequences in future years of temporary differences between the tax basis of the assets and liabilities and their financial statement amounts at the end of each reporting period. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the current period and the change during the period in deferred tax assets and liabilities. The deferred tax assets and liabilities have been netted to reflect the tax impact of temporary differences. At September 30, 2001, a full valuation allowance has been established for the deferred tax asset as management believes that it is more likely than not that a tax benefit will not be realized. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires all business combinations initiated after September 30, 2001 to be accounted for using the purchase method. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after September 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we are required to adopt SFAS 142 effective January 1, 2002. We have determined that the adoption of the provisions of SFAS 142 will have no material impact on our results of operations and financial position. SFAS No. 143, Accounting for Asset Retirement Obligations, addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 will be effective for us for the fiscal year beginning January 1, 2002, and early adoption is encouraged. SFAS No. 143 requires that the fair value of a liability for an asset's retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. We estimate that the new standard will not have a material impact on our financial statements but are still in the process of evaluating the impact on our results of operations and financial position. SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, is effective for the Company for the fiscal year beginning January 1, 2002, and addresses accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 and expands the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. We estimate that the new standard will not have a material impact on our financial statements but are still in the process of evaluating the impact on our results of operations and financial position. Page 11 In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of SFAS Statement No. 13, and Technical Corrections ("SFAS 145"). This statement rescinds the requirement in SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, that material gains and losses on the extinguishment of debt be treated as extraordinary items. The statement also amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the accounting for sale-leaseback transactions and the accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Finally the standard makes a number of consequential and other technical corrections to other standards. The provisions of the statement relating to the rescission of SFAS 4 are effective for fiscal years beginning after May 15, 2002. Provisions of the statement relating to the amendment of SFAS 13 are effective for transactions occurring after May 15, 2002 and the other provisions of the statement are effective for financial statements issued on or after May 15, 2002. We have reviewed SFAS 145 and its adoption is not expected to have a material effect on our consolidated results of operations and financial position. In July 2002 the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities ("SFAS 146"). SFAS 146 applies to costs associated with an exit activity (including restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. SFAS 146 will require a Company to disclose information about its exit and disposal activities, the related costs, and changes in those costs in the notes to the interim and annual financial statements that include the period in which an exit activity is initiated and in any subsequent period until the activity is completed. SFAS 146 supersedes Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), and requires liabilities associated with exit and disposal activities to be expensed as incurred and can be measured at fair value. SFAS 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. We have reviewed SFAS 146 and its adoption is not expected to have a material effect on our consolidated results of operations and financial position. Page 12 RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 The following discussion does not include the discontinued operations of Dasibi, which are discussed later in this section. REVENUES. Revenues were $0 for the three months ended September 30, 2002 and 2001 and were $30,000 for the nine months ended September 30, 2002 compared to $0 for the nine months ended September 30, 2001. This increase was due to the sale of one Model 7001 during the three months ended March 31, 2002. COST OF SALES. Cost of sales were $0 for the three months ended September 30, 2002 and 2001 and were $8,600 or 29% of sales for the nine months ended September 30, 2002 compared to $0 for the nine months ended September 30, 2001. GROSS MARGIN. Gross margin was 71% of net revenues for the nine months ended September 30, 2002. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased $228,713, or 58.4%, to $162,852 for the three months ended September 30, 2002 from $391,565 for the three months ended September 30, 2001 and decreased $633,368, or 53.9%, to $541,327 for the nine months ended September 30, 2002 from $1,174,695 in the nine months ended September 30, 2001. The decrease in selling, general and administrative expense primarily is a result of a substantial reduction in overhead costs, including rent and salaries. Selling, general and administrative costs consisted primarily of accounting fees, legal fees, bio-detection product consulting and other expenses. INCOME (LOSS) FROM CONTINUING OPERATIONS. Operating loss decreased $236,319, or 51.1%, to $225,734 for the three months ended September 30, 2001 as compared to $462,053 for the three months ended September 30, 2001. The decrease is primarily due to a substantial reduction in overhead costs, including rent and salaries. Operating loss increased $1,065,099, or 63.8% to $2,735,836 for the nine months ended September 30, 2002 compared to operating loss of $1,670,737, for the nine months ended September 30, 2001. The increase primarily is due to the loss on write-down of inventory of $1,914,342 during the three months ended June 30, 2002. OPERATIONS OF DASIBI-DISCONTINUED OPERATIONS. We have reported the operations of Dasibi as discontinued operations. We entered into a plan to spin-off Dasibi effective October 1, 2001, but later determined that the spin-off was not in the best interests of the shareholders. We sold Dasibi effective March 25, 2002. Dasibi had assets of approximately $967,000 and liabilities of approximately $2,072,000 as of December 31, 2001 and a loss from operations from October 1, 2001 to December 31, 2001 of approximately $813,770. Dasibi had a loss from operations of approximately $150,000 during the three months ended March 31, 2002. We recognized a gain of approximately $1,491,000 on the sale of Dasibi. LIQUIDITY AND CAPITAL RESOURCES Net cash (used in) our operating activities during the nine months ended September 30, 2002 was ($304,846), primarily attributable to a net loss from continuing operations. Net cash provided by financing activities during the nine months ended September 30, 2002 was $202,526, primarily due to the issuance of the Company's common stock and advances on notes payable. Our total cash and cash equivalent balance at September 30, 2002, was $40,434, as compared to December 31, 2001, which was $142,754. Cash primarily was used for payment of professional fees. Additionally, some of this amount was cash of Dasibi. Because of the reductions in our cash balances and our inability to raise financing during the three months ended March 31, 2002, we ceased most of our operating activities. Currently, we are dependent upon potential financings to meet our operating needs and pay our current liabilities. Our future cash flow is dependent on our ability to raise debt or equity financing to form strategic ventures to jointly develop new products in the bio-terrorism industry in a timely and cost efficient manner, commercial acceptance of our technology and products, collections and the signing of new contracts, and other events and circumstances that also are difficult to predict with accuracy. Historically, we have financed operations through debt financing and the sale of common stock. Since our financial statements have deteriorated, financial institutions have been unwilling to lend to us and the cost of obtaining working capital from investors has been relatively expensive. Our working capital deficit at September 30, 2002, was $2,122,446. We require immediate financing to repay our indebtedness and continue operations. We require at least $1.5 million in the next six to twelve months to develop new products in the bio-terrorism industry, engage in marketing and sales and otherwise continue to execute our business plan. We actively continue to pursue additional equity or debt financings but to date have not received any funding commitments other than as reported in this report. Currently, we have limited cash on hand, and sold only one product in the nine months ended September 30, 2002. We cannot fund future operating losses and capital requirements. Since January 1, 2002 and through the date of this report, we have raised net proceeds of $456,526 in debt and equity financings. If we are unable to obtain additional financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and will be forced to consider steps that would protect our assets against our creditors. Page 13 During the past two fiscal years and through the date of this report, we have received debt financing upon various terms. Several of the debentures issued contain conversion features priced at a discount to the fair market value of our common stock at the time of conversion. Due to our financial condition at the time, including our immediate need for additional capital, and the difficult financing environment generally, we were not able to negotiate minimum conversion prices. We do not have any present plans to issue convertible securities without a minimum conversion price, however, may do so in the future if we otherwise cannot raise financing. (A) Three one-year loans from unaffiliated individuals evidenced by promissory notes with an aggregate face amount of $300,000, maturing June 1, 2001, with interest at the rate of 12% per annum. These loans were initially made in 1999 and restructured in 2000. These notes were due in June 2001 and are currently in default. (B) One subordinated convertible debenture with a face amount of $500,000, due June 2002, with interest at the rate of 12% per annum, convertible at a conversion price of the lesser of $2.16 or 80% of the market price on the date of conversion. As of the date of this report, the outstanding balance is $300,000. The lender has agreed to extend the term of the debenture at least until year-end. (C) One convertible debenture with a face amount of $300,000, due September 30, 2001, with interest at the rate of 12% per annum, convertible at a conversion price of the lesser of $2.25 or 80% of the market price on the date of conversion. As of the date of this report, the outstanding principal balance is $0. (D) One convertible debenture with a face amount of $500,000 was due September 30, 2002, with interest at the rate of 12% per annum, convertible at a conversion price of the lesser of $2.00 or 85% of the market price on the date of conversion. During the first quarter of 2002, the debenture due date was extended to February 2004 and is now convertible at 70% of the market price on the date of conversion. $300,000 of the debt has been converted into 1,175,209 shares of our common stock. As of the date of this report, the outstanding balance is $200,000. (E) One loan to Dasibi China, Inc., a wholly-owned subsidiary of ours, evidenced by a promissory note with a face amount of $75,000, maturing on the extended due date of September 30, 2002, with interest at the rate of 10% per annum. The lender has agreed to extend the term of the debenture at least until year-end. (F) One loan from Delta Capital evidenced by a promissory note with a face amount of $200,000, maturing on the extended due date of June 2002, with interest at the rate of 18% per annum. The lender has agreed to extend the term of the debenture at least until year-end. (G) Eight convertible debentures with a total face amount of $365,000, due July 17, 2002, with interest at the rate of 9% per annum, convertible at a conversion price of the lesser of $2.34 or 80% of the market price on the date of conversion. As of the date of this report, the outstanding balance is $305,000. The lender has agreed to extend the term of the debenture at least until year-end. (H) During April 2002, the Company borrowed $22,526, due the earlier of June 29, 2002 or upon the Company raising funds in excess of $30,000. The Company did not raise these funds. The original interest rate was 10% per annum. Pursuant to the terms of the loan, since the loan was not repaid within 30 days after the due date, the loan bears default interest at 14% per annum. The lender has agreed to extend the terms of the note at least until year-end. (I) During June 2002, the Company borrowed $35,000, due the earlier of September 10, 2002 or upon the Company raising funds in excess of $50,000. The original interest rate was 10% per annum. If the loan was not repaid within 30 days after the due date, the holder was to receive 50,000 shares of the Company's common stock. The note has not been repaid and the lender agreed to extend the terms of the note at least until year-end. The 50,000 shares of the Company's common stock have not been issued. (J) Demand note for $250,000 under Ex-Im Bank authorization at Wall Street Journal Prime +3% per annum, maturing on March 31, 2002. RELATED PARTY TRANSACTIONS During the three months ended March 31, 2002, we sold 250,000 shares of common stock for $100,000. In connection with this financing, we paid a placement fee in the amount of $5,000 to a company controlled by our President and Chief Executive Officer. In connection with current and near-future financing, the Company intends to pay a 10% placement fee to a company controlled by its President and Chief Executive Officer for any money raised. Page 14 CAUTIONARY STATEMENTS AND RISK FACTORS Several of the matters discussed in this document contain forward-looking statements that involve risks and uncertainties. Factors associated with the forward-looking statements that could cause actual results to differ from those projected or forecast are included in the statements below. In addition to other information contained in this report, readers should carefully consider the following cautionary statements and risk factors. OUR INDEPENDENT AUDITORS' REPORT EXPRESSES DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. At December 31, 2001, our independent auditors' report, as prepared by AJ. Robbins, PC and dated March 22, 2002, which appears in our 2001 Form 10-KSB, includes an explanatory paragraph relating to substantial doubt as to our ability to continue as a going concern, due to our working capital deficit at December 31, 2001 and the sale of our operating subsidiary. We have experienced operating losses since the date of the auditor's report and in prior years. Our cash and short-term investment balances have declined since December 31, 2001 to $40,434. We have been unable to pay all of our creditors and certain other obligations in accordance with their terms. We do not expect that cash generated by operations will sufficiently fund future operating losses and capital requirements. We have attempted to raise additional capital through debt or equity financing and to date have had nominal success. If we are unable to obtain financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and could be forced to consider steps that would protect our assets against our creditors WE NEED ADDITIONAL CAPITAL TO FUND OUR RESEARCH AND DEVELOPMENT ACTIVITIES. IF WE OBTAIN FINANCING, EXISTING SHAREHOLDER INTERESTS MAY BE DILUTED AND IF WE CANNOT OBTAIN ADEQUATE FINANCING, WE MAY CEASE OPERATIONS. Recently we shifted our research and development, marketing and business development efforts away from the air pollution market in China towards the research and development of bio-terrorism detection devices and, to a lesser extent, to other medical applications for our products. If we cannot raise additional capital, we will not be able to pursue these strategies as scheduled, or at all, and we may cease operations. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our shareholders will be diluted. In addition, any convertible securities issued may not contain a minimum conversion price, which may make it more difficult for us to raise financing and may cause the market price of our common stock to decline because of the indeterminable overhang that is created by the discount to market conversion feature. In addition, any new securities could have rights, preferences and privileges senior to those of our common stock. Furthermore, we cannot be certain that additional financing will be available when and to the extent we require or that, if available, it will be on acceptable terms. WE HAVE A HISTORY OF LOSSES AND WE DO NOT ANTICIPATE THAT WE WILL BE PROFITABLE IN FISCAL 2002. We have not been profitable in the past years and have an accumulated deficit of $15.6 million. During fiscal 2001 and the nine months ended September 30, 2002, we incurred net losses of $7.4 million and $1.4 million, respectively. Achieving profitability depends upon numerous factors, including out ability to develop, market and sell commercially accepted products timely and cost-efficiently. We do not anticipate that we will be profitable in fiscal 2002. WE HAVE LIMITED RIGHTS TO EXPLOIT THE TECHNOLOGY THAT OUR EXISTING AIR MONITORING PRODUCTS INCORPORATE. AS A RESULT, OUR REVENUES AND PROFITABILITY FROM SALES OF THIS PRODUCT WILL SUBSTANTIALLY DECLINE. As part of the sale of Dasibi, we have obtained a nonexclusive license to exploit all of the technology currently owned by Dasibi anywhere in the universe outside of Mainland China. In recent years, we focused substantially all of our marketing efforts towards, and substantially all of our revenue was derived from, sales of our air pollution product in China. Our agreement not to compete in that market will cause our revenue to decline substantially. WE ARE NOT RETAINING ANY OF THE DASIBI EMPLOYEES WHO HAVE SIGNIFICANT EXPERIENCE AND KNOWLEDGE IN DEVELOPING, ENHANCING OR MARKETING DASIBI'S CURRENT PRODUCTS, AND AS A RESULT, IT MAY BE MORE DIFFICULT TO DEVELOP OUR NEW PRODUCTS. If we cannot effectively manage the design, development, manufacture and marketing of our new bio-terrorism detection products, we will continue to experience losses and will cease operations. Our former employees had extensive experience in the development of the air monitoring systems that we are re-engineering and re-designing for the bio-terrorism detection device industry. Our management team does not have substantial experience in the research and development of bio-terrorism detection devices and may not be able to timely identify or anticipate all of the material risks associated with operating that business. We may not be able to form collaborative partnerships or retain a sufficient number of additional qualified employees on a timely business, or at all. Page 15 OUR PRODUCTS MAY NOT BE COMMERCIALLY ACCEPTED WHICH WILL ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY. Our ability to enter into the bio-terrorism detection device market, establish brand recognition and compete effectively depends upon many factors, including broad commercial acceptance of our products. If our products are not commercially accepted, we will not recognize meaningful revenue and our results of operation will be materially adversely affected. The success of our products will depend in large part on the breadth of the information these products capture and the timeliness of delivery of that information. The commercial success of our products also depends upon the quality and acceptance of other competing products, general economic and political conditions and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. We cannot assure you that our new products will achieve significant market acceptance or will generate significant revenue. If the marketplace does not broadly accept our products, our results of operations and financial condition could be materially and adversely affected. WE HAVE ISSUED DEBENTURES CONVERTIBLE AT A PRICE DISCOUNT TO MARKET AND CONVERSION OF THESE SECURITIES MAY DEPRESS THE MARKET VALUE OF OUR SHARES. As of September 30, 2002, we have outstanding an aggregate of $805,000 in convertible debentures which are convertible into our common stock at 70-85% of the market price on the date of conversion. It may be difficult to raise financing and the market price of our common stock may decline because of the indeterminable overhang that is created by the discount to market conversion feature of these debentures. If the holders of these debentures convert their debentures at the discounted price of 15-30% below the market price the existing shareholders will suffer substantial dilution and our stock price may substantially decline. The following table illustrates the range in number of shares that may be issued upon conversion of our debentures that do not contain minimum conversion prices based on various historical trading prices of our common stock as set forth in the table: ASSUMED CONVERSION PRICE ------------------------------------------- $.10 $.15 $.20 ---- ---- ---- NO. OF SHARES ISSUABLE UPON CONVERSION 8,050,000 5,366,667 4,025,000 PERCENT OF OUTSTANDING COMMON STOCK PRIOR TO ISSUANCE 89.3% 59.5% 44.7% In addition, large numbers of shares purchased at a discount could cause short sales to occur which would lower the bid price of the common stock. The term "short sale" means any sale of our common stock that the seller does not own or any sale that is consummated by the delivery of our common stock borrowed by, or for the account of, the seller. OUR COMMON SHARES HAVE BEEN DELISTED FROM THE NASDAQ STOCK MARKET. On June 11, 2002 we were notified by The Nasdaq Stock Market that we did not meet the continued listing requirements of The Nasdaq Small Capital Market and our common shares were delisted on the close of business on June 19, 2002. Our common stock currently is trading on The Over The Counter Bulletin Board. It may be more difficult to raise additional debt or equity financing while trading on the Over the Counter Bulletin Board. If we are unable to raise additional financing, we will not be able to accomplish our business objectives and may consider steps to protect our assets against creditors. OUR OUTSTANDING OPTIONS AND WARRANTS, AND CONVERTIBLE DEBENTURES MAY DILUTE OUR SHAREHOLDERS' INTERESTS. As of September 30, 2002, we have granted options and warrants to purchase a total of 2,502,905 shares of common stock that have not been exercised and an aggregate of $805,000 outstanding debentures that are convertible based upon a conversion price of 70-85% of the market price on the date of conversion. To the extent these outstanding options and warrants are exercised or the convertible debentures are converted, our shareholder's interests will be diluted. Page 16 THE LOSS OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER MAY DISRUPT OUR BUSINESS. Our success depends in substantial part upon the services of Mr. Jacques Tizabi, our President, Chief Executive Officer and Chairman of the Board of Directors. The loss of or the failure to retain the services of Mr. Tizabi could adversely affect the development of our business and our ability to realize or sustain profitable operations. We do not maintain key-man life insurance on Mr. Tizabi and have no present plans to obtain such insurance. WE HAVE LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS OF OUR PRODUCTS. We regard all or portions of the designs and technologies incorporated into our products as proprietary and attempt to protect them under trade secret laws. It has generally been our policy to proceed without patent protection. It may be possible for unauthorized third parties to copy certain portions of our products or to "reverse engineer" or otherwise obtain and use to our detriment information that we regard as proprietary. We cannot assure you that any of our efforts to protect our proprietary technology will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technologies. WE DO NOT MAINTAIN PRODUCTS LIABILITY INSURANCE. In the event that we experience a material liability as a result of a products liability claim, such a liability could have a material adverse effect on us, as we would have to repair and service the products at our cost. Should our products fail to perform or require repair under warranty, we may not be able to afford such repairs or to do so in a timely manner, which could adversely affect our relations with our customers. OUR STOCK PRICE IS VOLATILE. The trading price of our common stock has from time to time fluctuated widely and in the future may be subject to similar fluctuations in response to quarter-to-quarter variations in our operating results, announcements of technological innovations or new products by us or our competitors, general conditions in the bio-terrorism detection device industry in which we compete and other events or factors. In addition, in recent years, broad stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations. Such broad market fluctuations also may adversely affect the future trading price of our common stock. WE HAVE NEVER PAID DIVIDENDS ON OUR COMMON STOCK. We have never paid dividends on the shares of our common stock and do not intend to pay any dividends in the foreseeable future. Page 17 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. WALT DISNEY WORLD CO. V. POLLUTION RESEARCH AND CONTROL CORP. AND DASIBI ENVIRONMENTAL CORP. (CASE NO. BC 274013 LOS ANGELES SUPERIOR COURT) On May 15, 2002, the above plaintiff filed a lawsuit alleging a single cause of action for unlawful detainer against us and our former wholly-owned subsidiary, Dasibi Environmental Corp. The complaint alleges that pursuant to a lease agreement, we owe the plaintiff unpaid rent in the amount of $249,366.85, and damages at the rate of $1,272.50 for each day Dasibi continues possession of premises commencing May 1, 2002. Plaintiffs also seek immediate possession of the premises, reasonable attorneys' fees and costs. As of the date of this report, no discovery has taken place. We plan to vigorously defend the litigation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 12, 2002. 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 12, 2002. (b) Reports on Form 8 K Current Report on Form 8-K filed April 9, 2002, Items 2 and 7. Current Report on Form 8-K/A filed May 24, 2002, Item 7. Current Report on Form 8-K filed June 20, 2002, Items 5 and 7. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POLLUTION RESEARCH AND CONTROL CORP. Date November 12, 2002 /S/ JACQUES TIZABI ------------------------------------------- By: Jacques Tizabi Its: President, Chief Executive Officer and Chairman of the Board Page 18