-----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, M8gJ84Nc8phf3kZv3sunDLzomxK02kR5VxC1wFfNJcdckQhedVTzkxVbfkp5oQbR Qw/xYEXkzR04ODUgvC1AyQ== 0001108890-01-500019.txt : 20010515 0001108890-01-500019.hdr.sgml : 20010515 ACCESSION NUMBER: 0001108890-01-500019 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: 1632641 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 pollution10q033101.txt DATED 03-31-01 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 March 31, 2001 { } 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 (I.R.S. Employer incorporation or organization) Identification Number) 506 Paula Avenue, Glendale, California 91201 -------------------------------------- (Address of Principal Executive Offices) 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 stock equity as of the latest practicable date: Class Date No. of Shares Outstanding ----- ---- ------------------------- Common May 10, 2001 5,916,752 Traditional Small Business Disclosure Format (check one): Yes X No ----- ----- POLLUTION RESEARCH AND CONTROL CORP. Form 10-QSB For the Three Months Ended March 31, 2001 TABLE OF CONTENTS Page Part I Financial Information Item 1. Financial Statements: Consolidated Balance Sheet 3 Consolidated Statement of Operations 5 Consolidated Statement of Shareholders' Equity 6 Consolidated Statement of Cash Flows 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II Other Information Item 1 Legal Proceedings 11 Item 6 Reports on Form 8-K 11 2 PART 1 - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) As of 03/31/01 ---------- CURRENT ASSETS Cash $ 493,875 Accounts receivable, trade, less allowance for doubtful 206,074 accounts of $35,504 Inventories (Note 2) 2,330,708 Prepaid consulting fees (Note 4) 535,068 Other current assets 112,279 ---------- TOTAL CURRENT ASSETS 3,678,004 ---------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 71,154 ---------- OTHER ASSETS Investment in joint venture 600,000 Accounts receivable, related party 203,937 Deferred tax asset, net 3,387,000 Other intangible assets 23,509 Other assets 12,140 ---------- TOTAL OTHER ASSETS 4,226,586 ---------- TOTAL ASSETS $7,975,744 ========== See accompanying notes to financial statements 3 CONSOLIDATED BALANCE SHEET (continued) LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) As of CURRENT LIABILITIES 03/31/01 ------------ Notes payable and convertible debt $ 1,415,000 Note payable, bank (Note 3) 431,021 Accounts payable 186,269 Accrued liabilities 286,149 ------------ TOTAL CURRENT LIABILITIES 2,318,439 ------------ DEFERRED RENT 25,434 ------------ LONG-TERM DEBT 1,275,000 ------------ SHAREHOLDERS' EQUITY: (Note 4) Common Stock, no par value; 30,000,000 shares authorized. 5,916,752 issued and outstanding 11,269,076 Addition paid in capital 2,216,505 Employee stock plan receivable (1,668,600) Accumulated deficit (7,460,110) ------------ TOTAL SHAREHOLDERS' EQUITY 4,356,871 ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,975,744 ============ See accompanying notes to financial statements 4
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended March 31, -------------------------- 2001 2000 ----------- ----------- Net Revenues $ 694,358 $ 428,372 Cost of goods sold 467,262 394,970 ----------- ----------- Gross profit 227,096 33,402 ----------- ----------- Operating expenses: Selling, general and administrative expenses 616,065 686,053 Research and development 7,590 1,405 ----------- ----------- Total operating expenses 623,655 687,458 ----------- ----------- Loss from operations (396,559) (654,056) ----------- ----------- Other Income (Expense) Amortization of loan fees (242,355) -- Interest expense (78,528) (86,046) Interest and other income -- 261 ----------- ----------- Net Other Income (Expense) (320,883) (85,785) ----------- ----------- Loss Before Income Taxes (717,442) (739,841) Provision for income taxes -- -- ----------- ----------- Net Income (loss) $ (717,442) $ (739,841) =========== =========== Earnings per share Net Income (loss) per share-basic and diluted $ (.14) $ (.20) =========== =========== Weighted Average Number of Shares Outstanding 5,282,308 3,721,018 =========== =========== See accompanying notes to financial statements 5
POLLUTION RESEARCH AND CONTROL CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three Months Ended March 31, 2001 (Unaudited) Additional Employee Total Common Stock Paid In Stock Plan Accumulated Shareholders' Shares Amount Capital Receivable (Deficit) Equity ------ ------ ------- ---------- --------- ------ Balance 12/31/00 5,116,752 $10,269,076 $2,216,505 $(1,667,400) $(6,742,668) $ 4,075,513 Exercise of Warrants 100,000 50,000 50,000 Stock issued for 700,000 700,000 700,000 consulting services Unissued Common 250,000 250,000 Stock Buyout and redis- (1,200) (1,200) tribution of employee stock Net Loss -- -- -- -- (717,442) (717,442) ----------- ----------- ----------- ----------- ----------- ----------- Balance 03/31/01 5,916,752 $11,269,076 $2,216,505 $(1,668,600) $(7,460.110) $ 4,356,871 See accompanying notes to financial statements 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 ---------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) $(717,442) $(739,841) Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization 248,580 65,795 Amortization of Consulting Fee 164,932 -- Deferred rent (3,634) (3,634) Changes in operating assets and liabilities: Accounts receivable, trade, net 20,348 713,715 Inventories (108,872) (157,364) Other current assets (2,190) (3,997) Accounts payable (28,247) (96,979) Accrued liabilities (31,727) (61,512) --------- --------- Cash flows (used) by operating activities (458,252) (283,817) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan fees -- (50,000) --------- --------- Cash flows (used) by investing activities -- (50,000) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 300,000 404,406 Advances on notes payable 50,000 575,000 Repayments of debt -- (200,000) Employee stock plan receivable (1,200) -- Advances under letter of credit 431,021 -- --------- --------- Cash flows provided by financing activities 779,821 779,406 --------- --------- NET INCREASE (DECREASE) IN CASH 321,569 445,589 CASH AT BEGINNING OF PERIOD 172,306 214,206 --------- --------- CASH AT END OF PERIOD $ 493,875 $ 659,795 ========= ========= Non Cash Transactions: The Company paid $700,000 for prepaid consulting fees by the issuance of stock. Supplemental Disclosure: Cash paid for: Interest $ 59,819 $ 84,608 Taxes $ -- $ -- See accompanying notes to financial statements 7 NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited financial statements have been prepared by us in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information furnished by us reflects all material adjustments, consisting only of normal recurring adjustments, which are, in our opinion, necessary to a fair presentation of the financial statements for the period presented. Interim results are not necessarily indicative of the results of operations for the full year. The financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in our annual report on Form 10-KSB filed with the Securities and Exchange Commission for the year ended December 31, 2000. 2. Inventories: Inventories at March 31, 2001 consisted of the following: Raw Materials $1,030,825 Work-in-Progress 468,912 Finished Goods 830,971 ---------- $2,330,708 ========== 3. Note Payable, Bank In February 2001 we received a letter of credit from our joint venture to buy $600,000 in "parts to build" air pollution instruments in China. Through the efforts of World Trade Finance, we were able to borrow $450,000 on the order. This loan is payable with monthly interest at a rate of 11.50%, and principal is repaid out of shipment. $450,000 of parts were shipped in the middle of April 2001. 4. Shareholders' Equity: On January 25, 2001, we issued 700,000 shares of stock under a one-year consulting agreement. The value of these shares of $700,000 is being amortized as consulting expense over the term of the agreement. At March 31, 2001 $535,068 remains as prepaid consulting fees. 8 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We design, manufacture and market automated continuous monitoring instruments used to detect and measure various types of air pollution through our wholly-owned subsidiary, Dasibi Environmental Corp., and, since January 1998 we have focused our business primarily on the air pollution market of the People's Republic of China. We have experienced operating losses during quarters in which no product was shipped to China due to high staffing and related financing expenses toward maintaining a consistent quality control and manufacturing schedule. The 1999 Phase 1 contract for $5.2 million was essentially completed in a five month schedule ending November 1999. Except for that period, the past three years, including this current quarter, have experienced insufficient revenue to offset our level of staffing and its level of related expenses. Our future operating results may be affected by a number of important factors, including but not limited to our ability to obtain further contracts from China; uncertainties relative to global economic conditions and political stability, industry factors, the availability and cost of components; our ability to develop, manufacture and sell our products profitably. In April 2000 we signed a $13.5 million agreement (the Phase II "China Contract"). In December 2000 our board of directors approved a joint venture to manufacture our product in China. A contract to provide air monitoring networks for cities in China under U.S. Export-Import financing requires a "letter of mandate" from the China bank, which in turn requires China bank credit approval of the cities involved. In the 1998 Phase I contract this approval required approximately six months for eleven cities. In the 2000 Phase II contract, 32 cities are involved. As of April 30, 2001, 27 cities have been approved. Indication from the China side is that a July 2001 project start date is their goal. This start date is critical for us to generate "steady stream" revenues to justify staffing levels and more importantly, eliminate on-going expensive financing requirements. For us to be profitable for 2001, the Phase II project must begin in the third quarter of the current year. RESULTS OF OPERATIONS Three Months Ended March 31, 2001 ("2001") Compared to Three Months Ended March 31, 2000 ("2000") Net revenues for 2001 were $694,358 which represented an increase of $265,986, or 62% over 2000 net revenue of $428,372. The increase was not significant as it represents normal historical revenue per quarter for the past four years. The first quarter 2000 revenue was below normal. Gross profit was $227,096 for 2001, an increase of $193,694 from $33,402 for 2000. The gross profit percentage was 32% in 2001, an increase from 8% in 2000. The increase in the gross profit percentage was primarily attributable to a return to a reasonable profit level. Selling, general and administrative expenses (SG&A) were $616,065, or 89% of sales for 2001, a decrease of $69,988 from $686,053 in 2000. The decrease in SG&A was principally due to a decrease in commissions and other expenses relating to dormant activity in China sales. 9 During the three months ended March 31, 2001 charges related to amortization of loan fees and interest amounted to $320,883. The same period in 2000 did not include this accounting charge for amortization of loan fees. As a result of the foregoing factors we incurred a loss of $717,442 during the three months ended March 31, 2001 as compared to a loss of $739,841 during the three months ended March 31, 2000. Liquidity and Capital Resources We have historically financed our growth and cash needs primarily through borrowings, and the public and private sales of our securities. The low market value of our securities and our unstable operating performance have severely restricted our 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 increased $174,435 in the three months ended March 31, 2000 as compared to March 31, 2000 due to increased inventory purchases. The cash level decreased in the same period by $165,920 primarily due to a decrease in new financing activities. Working capital was $1,359,565 at March 31, 2001. An escrow which began October 19, 2000 intended to increase our working capital level failed to close. During the first quarter of 2001 we entered into a similar net funding escrow with a different unaffiliated corporation as in October, 2000. The escrow has been structured to avoid anti-dilution provisions of convertible bond holders who have again agreed to "pay-off" terms. The escrow is arranged in stages of which the first is release of working capital to us. At this date $250,000 has been released to us. Subsequent stages involve equity exchange to be negotiated so that a minimum common share price of $1.15 per share is maintained. Depending on valuation of asset acquisition in the escrow a possible minimum share value of approximately 97 cents per share may be realized. At this time no formal escrow agreements are in effect. Advances to date are non-refundable and a completion of escrow is not expected before June 1, 2001. A maximum dilutive effect to our company is expected to be in the order of 15% to 17%. Inflation We believe that inflation has not had a material impact on our business. Seasonality We do not believe that our business is seasonal. 10 PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Not applicable (b) We did not file any reports on Form 8-K during the three months ended March 31, 2001. 11 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: May 10, 2001 By: /s/ Albert E. Gosselin -------------------------------- Albert E. Gosselin, Jr., President and Chief Executive Officer Date: May 10, 2001 By: /s/ Donald Ford -------------------------------- Donald Ford Chief Financial Officer 12 -----END PRIVACY-ENHANCED MESSAGE-----