<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File No 0-22803
------------------
PROLONG INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 6 Thomas 74-2234246
(State or other jurisdiction of Irvine, CA 92816 (IRS Employer
incorporation or organization) (Address of principal executive offices) (Zip Code) Identification No.)
</TABLE>
(949) 587-2700
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 the past 90 days.
(1) Yes [X] No [_]
(2) Yes [X] No [_]
There were 25,464,800 shares of the registrant's common stock ($0.001 par value)
outstanding as of October 28, 1998.
Page 1 of 14 pages
Exhibit Index on Sequentially Numbered Page 14
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<PAGE>
PROLONG INTERNATIONAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART 1 FINANCIAL INFORMATION Page
Item 1: Financial Information
Consolidated Condensed Balance Sheets-
September 30, 1998 and December 31, 1997....................... 3
Consolidated Statements of Income-Three months
and Nine months ended September 30, 1998 and 1997.............. 4
Consolidated Condensed Statements of Cash Flows-
Nine months ended September 30, 1998 and 1997.................. 5
Notes to Consolidated Condensed Financial Statements........... 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 9
PART II OTHER INFORMATION
Item 1: Legal Proceedings.............................................. 14
Item 6: Exhibits and Reports on Form 8-K............................... 14
Signatures..................................................... 14
2
<PAGE>
Item 1. Financial Information
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 884,203 $ 6,180,983
Accounts receivable, net 7,236,746 3,880,571
Inventories 3,131,850 1,300,691
Prepaid expenses 1,490,292 711,242
Prepaid television time 472,912 1,022,144
Advances to employees 258,008 227,896
------------ -------------
Total current assets 13,474,011 13,323,527
PROPERTY AND EQUIPMENT, net 3,204,754 219,683
OTHER ASSETS 58,171 82,724
DEPOSITS 214,655 122,716
------------ -------------
TOTAL ASSETS $ 16,951,591 $ 13,748,650
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,094,278 $ 1,074,098
Accrued expenses 1,285,471 1,663,321
Notes payable current 42,555 -
Income taxes payable 204,131 1,278,684
Deferred income taxes 23,693 23,693
------------ -------------
Total current liabilities 2,650,128 4,039,796
Notes payable, non-current 2,385,586 -
------------ -------------
Total liabilities 5,035,714 4,039,796
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 50,000,000 shares authorized;
no shares issued or outstanding
Common stock, $0.001 par value; 150,000,000 shares authorized;
25,464,800 shares issued and outstanding 25,465 25,465
Additional paid-in capital 7,394,051 7,393,451
Retained earnings 4,496,361 2,289,938
------------ -------------
Total stockholders' equity 11,915,877 9,708,854
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,951,591 $ 13,748,650
============ =============
</TABLE>
See notes to consolidated condensed financial statements
-3-
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES $ 9,662,580 $ 8,111,300 $28,911,150 $20,883,142
COST OF GOODS SOLD 2,460,591 1,443,856 6,107,805 4,098,139
----------- ----------- ----------- -----------
GROSS PROFIT 7,201,989 6,667,444 22,803,345 16,785,003
OPERATING EXPENSES:
Selling expenses 4,990,880 4,636,836 14,889,967 12,027,154
General and administrative expenses 1,337,663 885,691 4,063,476 2,335,525
----------- ----------- ----------- -----------
Total operating expenses 6,328,543 5,522,527 18,953,443 14,362,679
----------- ----------- ----------- -----------
OPERATING INCOME 873,446 1,144,917 3,849,902 2,422,324
OTHER INCOME, net:
Interest (expense) (42,777) (3,171) (79,486) (4,411)
Interest income 16,482 70,194 105,027 181,438
----------- ----------- ----------- -----------
Total other income, net (26,295) 67,023 25,541 177,027
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 847,151 1,211,940 3,875,443 2,599,351
PROVISION FOR INCOME TAXES 363,020 524,260 1,669,020 1,125,009
----------- ----------- ----------- -----------
NET INCOME $ 484,131 $ 687,680 $ 2,206,423 $ 1,474,342
=========== =========== =========== ===========
NET INCOME PER SHARE:
Basic $ 0.02 $ 0.03 $ 0.09 $ 0.06
=========== =========== =========== ===========
Diluted $ 0.02 $ 0.03 $ 0.09 $ 0.06
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES:
Basic 25,464,575 25,579,391 25,464,525 25,538,823
Diluted options outstanding 97,289 267,028 397,603 197,733
----------- ----------- ----------- -----------
Diluted 25,561,864 25,846,419 25,862,128 25,736,556
=========== =========== =========== ===========
</TABLE>
See notes to consolidated condensed financial statements
-4-
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,206,423 $ 1,474,342
Adjustments to reconcile net income to net cash provided by (used)
in operating activities:
Depreciation and amortization 106,963 57,841
Provision for doubtful accounts 288,571 2,804
Reserve for obsolesence 67,500 63,271
Common stock issued in exchange for services - 93,750
Changes in assets and liabilities:
Accounts receivable (3,644,746) (1,344,132)
Inventories (1,898,659) 167,957
Prepaid expenses (779,050) (113,138)
Prepaid television time 549,232 (482,406)
Deposits (91,939) -
Accounts payable 20,180 (365,032)
Accrued expenses (377,850) 265,549
Income taxes payable (1,074,553) 799,608
----------- -----------
Net cash (used) provided in operating activities (4,627,928) 620,414
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (646,481) (66,267)
Prepaid advances (30,112) (200,000)
----------- -----------
Net cash used in investing activities (676,593) (266,267)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable 7,141 (28,812)
Proceeds from subscriptions receivable - 189,500
Proceeds from issuance of common stock 600 12,500
----------- -----------
Net cash provided by financing activities 7,741 173,188
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,296,780) 527,335
CASH AND CASH EQUIVALENTS, beginning of period 6,180,983 5,063,585
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 884,203 $ 5,590,920
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 2,743,576 $ 326,000
=========== ===========
Interest paid $ 79,486 $ 4,411
=========== ===========
</TABLE>
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company completed the following transactions:
Issued 87,500 shares of common stock in exchange for services valued at $93,750.
Issued 155,800 shares of common stock previously committed.
Cancelled 330,000 shares of common stock in exchange for cancellation for
a note receivable of $660,000.
During 1998, the Company completed the following transactions:
Financed the purchase of the office and warehouse facility with $2,421,000
in long-term notes payable.
See notes to consolidated condensed financial statements
-5-
<PAGE>
PROLONG INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
Prolong International Corporation (PIC) is a Nevada corporation organized on
August 24, 1981 as Giguere Industries Incorporated (Giguere). PIC remained
dormant from 1987 to June 21, 1995, when, pursuant to stockholders' action,
it acquired 100% of the outstanding stock of Prolong Super Lubricants, Inc.,
a Nevada corporation (PSL), then changed its name to Prolong International
Corporation. In 1997, Prolong Foreign Sales Corporation was formed as a
wholly-owned subsidiary of PIC. PIC, through PSL, is engaged in the
manufacture, sale and worldwide distribution, under a license agreement, of a
patented complete line of high performance lubricants.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
include the accounts of PIC and its wholly-owned subsidiaries, PSL and
Prolong Foreign Sales Corporation. All significant intercompany accounts have
been eliminated in consolidation. These financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments,
including normal recurring accruals, considered necessary for a fair
presentation have been included. Operating results for the three months and
the nine months ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. For
further information, refer to the Form 10-K for the year ended December 31,
1997 filed by the Company with the Securities and Exchange Commission.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Raw materials $ 897,269 $ 415,073
Finished goods 1,780,966 744,595
Promotional items 453,615 141,023
---------- ----------
$3,131,850 $1,300,691
========== ==========
</TABLE>
6
<PAGE>
4. PROPERTY AND EQUIPMENT
The Company purchased the office and warehouse facility at 6 Thomas in
Irvine, California on April 30, 1998 for $2,690,000, which consisted of
$269,000 in cash and loans of $2,421,000. The purchase price of $2,690,000,
less a deferred rent payable balance of $117,295, was allocated to the
building in the amount of $2,034,705 and to land in the amount of $538,000.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Computer equipment $ 202,541 $135,164
Office equipment 26,530 24,319
Furniture and fixtures 11,649 11,649
Automotive equipment 35,925 35,925
Exhibit equipment 19,813 19,813
Machinery and equipment 38,056 0
Building 2,034,705 0
---------- --------
2,369,219 226,870
Less accumulated depreciation (145,853) (63,443)
---------- --------
2,223,366 163,427
Building improvements in progress 443,388 56,256
Land 538,000 0
---------- --------
$3,204,754 $219,683
========== ========
</TABLE>
5. NOTES PAYABLE
On April 30, 1998, the Company obtained loans from Bank of America in the
amount of $2,421,000 for the partial financing of the purchase of the office
and warehouse facility. The terms of the loans and outstanding balances as of
September 30, 1998 are as follows:
1) Note payable to Bank of America dated April 1, 1998 bearing
interest at 7.875% per annum to be repaid in 119 monthly
principal and interest payments of $13,050.32 each with a
final payment of all remaining unpaid principal and interest
due on May 1, 2008. $1,683,264
2) Loan from CDC Small Business Finance Corporation bearing an
interest rate of 7.65% per annum. This note is required to
7
<PAGE>
<TABLE>
<S> <C>
be repaid in 240 monthly installments of principal and
interest of approximately $6,376 each. 744,877
----------
2,428,141
Less current maturities (42,555)
----------
$2,385,586
==========
</TABLE>
<TABLE>
<S> <C>
Year ending December 31,
1998 $ 42,555
1999 44,978
2000 48,667
2001 52,264
2002 56,133
Thereafter 2,183,544
----------
$2,428,141
==========
</TABLE>
6. CONTINGENCIES
The Company is involved as plaintiff or defendant in various legal actions
incident to its business, none of which is believed by management to be
material to the financial condition of the Company. The AFMT patent, on which
Prolong's products are based, has been the subject of litigation, primarily
suits contesting the ownership thereof. In July 1993, the trial court ruled
in favor of Prolong's licensor, EPL, awarding EPL damages in excess of $15.5
million, and made findings of fact that the defendants had signed certain key
documents which evidenced EPL's ownership of the intellectual property. The
defendants appealed the trial court's findings, arguments relating to which
were heard in June 1997. In January 1998, the court of appeal affirmed the
trial court's decision in favor of EPL. As of October 28, 1998, the
defendants have not appealed the court of appeal's affirmation. Further, EPL
believes that there is no reasonable likelihood of recovering the damages
awarded to EPL because the defendants are effectively insolvent.
8
<PAGE>
ITEM 2:
- -------
PROLONG INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Percentage of Net Revenues
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues 100.0 100.0 100.0 100.0
Cost of goods sold 25.5 17.8 21.1 19.6
----- ----- ----- -----
Gross profit 74.5 82.2 78.9 80.4
Selling expenses 51.6 57.2 51.5 57.6
General and administrative expenses 13.8 10.9 14.1 11.2
----- ----- ----- -----
Operating income 9.1 14.1 13.3 11.6
Other income (expense) (0.3) 0.8 0.1 0.8
----- ----- ----- -----
Income before income taxes 8.8 14.9 13.4 12.4
Provision for income taxes 3.8 6.5 5.8 5.4
----- ----- ----- -----
Net income 5.0 8.4 7.6 7.0
===== ===== ===== =====
</TABLE>
Three Months Ended September 30, 1998 vs. Three Months Ended September 30, 1997
Net revenues for the three months ended September 30, 1998 were approximately
$9,663,000 as compared to approximately $8,111,000 for the comparable period of
the prior year, an increase of $1,552,000 or 19.1%. Revenues for the three month
period ended September 30, 1998 were derived from the following sources: Direct
response infomercial sales of $1,270,000; retail sales of $6,739,000; industrial
sales of $257,000; international sales of $1,249,000; and other sales of
$148,000. Revenues for the three month period ended September 30, 1997 were
derived from the following sources: Direct response infomercial sales of
$4,054,000; retail sales of $3,069,000; industrial sales of $529,000;
international sales of $251,000; and other sales of $208,000.
9
<PAGE>
For the three month period ended September 30, 1998, retail sales were 69.7% of
total revenues, direct response infomercial sales comprised 13.1% of total
revenues and international sales were 12.9% of total revenues. For the three
month period ended September 30, 1997, direct response infomercial sales
comprised 50.0% of total revenues while retail sales were 37.8% and
international sales were 3.1%. This shift in the mix of sales resulted from the
1998 strategy to aggressively pursue sales to retail chain stores and
international distributors, while continuing to air the direct response
infomercial on a less frequent basis.
Cost of goods sold for the three months ended September 30, 1998 was
approximately $2,461,000 as compared to $1,444,000 for the comparable period of
the prior year, an increase of $1,017,000 or 70.4%. This increase was
attributable to the increase in sales, product mix, outsourced processing costs
and new packaging materials. As a percentage of sales, cost of goods sold
increased from 17.8% in 1997 to 25.5% in 1998. This increase was mainly
attributable to the added cost related to the introduction of new packaging
materials for retail products and product mix.
Selling expenses of approximately $4,991,000 for the three months ended
September 30, 1998 represented an increase of $354,000 over the comparable
period of the prior year. This 7.6% increase was primarily the result of
salaries and benefits of new employees, marketing allowances to retail
customers, increased endorsement and sponsorship payments, commissions as a
result of increased sales, promotional activities to promote product awareness,
new product development and testing, and expenditures for print and media
advertising. These increases were partially offset by a reduced amount of air
time purchases. Selling expenses as a percentage of sales were 51.6% for the
three months ended September 30, 1998 versus 57.2% for the comparable period of
the previous year. In 1997, selling expenses consisted primarily of purchases
of television air time, royalties and commissions. Selling expenses in 1998
included the expenditures discussed above.
General and administrative expenses for the three months ended September 30,
1998 were approximately $1,338,000 as compared to $886,000 for the three months
ended September 30, 1997, an increase of $452,000 or 51.0%. This increase is
primarily attributable to salaries and benefits for new employees, costs
associated with relocation expenses for employees, bad debt and legal expenses.
Interest expense of approximately $43,000 for the three months ended September
30, 1998 represented an increase of $40,000 over the comparable period of the
prior year. The increase is attributable to the financing related to the
purchase of the Company's new facility in Irvine, California.
For the three month period ended September 30, 1998, the Company generated net
interest income of approximately $16,000 as compared to approximately $70,000
for the comparable period in 1997. The decrease is attributable to the decrease
of cash balances in interest bearing accounts.
10
<PAGE>
Net income for the three month period ended September 30, 1998 was approximately
$484,000 as compared to approximately $688,000 for the comparable period in the
prior year, a decrease of $204,000. The decrease is a result of the factors
discussed above.
Nine Months Ended September 30, 1998 vs. Nine Months Ended September 30, 1997
Net revenues for the nine months ended September 30, 1998 were approximately
$28,911,000 as compared to approximately $20,883,000 for the comparable period
in the prior year, an increase of $8,028,000 or 38.4%. Revenues for the nine
month period ended September 30, 1998 were derived from the following sources:
Direct response infomercial sales of $4,612,000; retail sales of $20,945,000;
industrial sales of $870,000; international sales of $1,891,000; and other
sales of $593,000. Revenues for the nine month period ended September 30, 1997
were derived from the following sources: Direct response infomercial sales of
$11,456,000; retail sales of $6,835,000; industrial sales of $1,326,000;
international sales of $699,000; and other sales of $567,000.
For the nine month period ended September 30, 1998, retail sales were 72.4% of
total revenues while direct response infomercial sales comprised 16.0% of total
revenues and international sales were 6.5%. For the nine month period ended
September 30, 1997, direct response infomercial sales comprised 54.9% of total
revenues, retail sales were 32.7% and international sales were 3.3%. This shift
in mix of sales resulted from the 1998 strategy to aggressively pursue sales to
retail chain stores and international distributors, while continuing to air the
direct response infomercial on a less frequent basis.
Cost of goods sold for the nine months ended September 30, 1998 was
approximately $6,108,000 as compared to $4,098,000 for the comparable period of
the prior year, an increase of $2,010,000 or 49.0%. The increase is primarily
the result of the purchase of additional materials to meet increased sales
demand and product mix. Cost of goods sold, as a percentage of sales, increased
from 19.6% for the nine month period ended September 30, 1997 to 21.1% for the
comparable period in 1998. The increase was mainly attributable to the added
cost related to the introduction of new packaging materials for retail products
and product mix.
Selling expenses of $14,890,000 for the nine months ended September 30, 1998
represented an increase of $2,863,000 over the comparable period of the prior
year. This 23.8% increase was primarily the result of salaries and benefits for
new employees, marketing allowances to retail customers, increased endorsement
and sponsorship payments, commissions as a result of increased sales,
promotional activities and expenditures for print and media advertising. Selling
expenses as a percentage of sales were 51.5% for the nine months ended September
30, 1998 versus 57.6% for the comparable period of the previous year. In 1997,
selling expenses consisted primarily of purchases of television air time,
royalties and commissions. Selling expenses in 1998 included the expenditures
discussed above.
11
<PAGE>
General and administrative expenses for the nine months ended September 30, 1998
were approximately $4.063,000 as compared to $2,336,000 for the nine months
ended September 30, 1997, an increase of $1,727,000 or 73.9%. This increase is
primarily attributable to salaries and benefits for new employees, costs
associated with the facility relocation, increases in bad debt expenses, legal
expenses, and other administrative costs needed to support the Company's growth.
Interest expense of approximately $79,000 for the nine months ended September
30, 1998 represented an increase of $75,000 over the comparable period of the
prior year. The increase is attributable to the financing related to the
purchase of the Company's new facility in Irvine, California.
For the nine months ended September 30, 1998, the Company generated net interest
income of approximately $105,000 as compared to approximately $181,000 for the
comparable period in 1997. The decrease is attributable to the decrease of cash
balances in interest bearing accounts.
Net income for the nine month period ended September 30, 1998 was approximately
$2,206,000 as compared to approximately $1,474,000 for the comparable period in
the prior year, an increase of $732,000 or 49.7%.. The increase is a result of
the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes funds generated from operations to meet its working capital
requirements, which consist mainly of inventory purchases and to support the
increasing receivables balance which is a result of the change in the mix of
sales. At September 30, 1998, the Company had net working capital of
$10,824,000 as compared to $9,284,000 at December 31, 1997 or an increase of
$1,540,000. The Company obtained a $4,000,000 line of credit with a bank in
July 1997, collateralized by inventory and receivables. There were no
borrowings outstanding against this line of credit as of September 30, 1998.
During the nine months ended September 30, 1998, the Company used $4,628,000 to
fund operations, which consisted primarily of increases in receivables and
inventories and also income tax payments, and $677,000 to fund investing
activities, primarily purchases of property and equipment.
The Company does not anticipate the need for any material production-related
capital expenditures as it will continue with its strategy to subcontract all
future manufacturing, bypassing the need for any manufacturing infrastructure
investment. However, the Company does anticipate capital expenditures for tenant
improvements, furniture and equipment associated with its new office and
warehouse facility. As of October 28, 1998, the Company had commitments for
capital equipment acquisitions in the amount of approximately $470,000 to
furnish its new facilities and to provide necessary computer and office
equipment to its new
12
<PAGE>
employees. The Company plans to aggressively reduce its inventories and days
outstanding in accounts receivable and stretch out accounts payable to
improve its cash position. Additionally, the Company plans to significantly
increase its level of operations, and, in particular, plans to increase its
marketing activities to include additional markets in the United States and
abroad. The Company anticipates that all of these activities will be funded by
operations, working capital and existing credit facilities.
RISKS ASSOCIATED WITH POTENTIAL "YEAR 2000" PROBLEMS OF THIRD PARTIES
It is possible that the currently installed computer systems, software products
or other business systems of PIC's suppliers, manufacturers, distributors or
customers, working either alone or in conjunction with other software or
systems, will not accept input of, store, manipulate and output dates in the
year 2000 or thereafter without error or interruption (commonly known as the
"Year 2000 Problem"). PIC's business systems, including its computer systems,
are not subject to the Year 2000 Problem; however, PIC is querying its
suppliers, manufacturers, distributors and customers as to their progress in
identifying and addressing problems that their computer systems may face in
correctly processing date information as the year 2000 approaches and is
reached. However, there can be no assurance that PIC will identify all such Year
2000 Problems in the computer systems of its suppliers, manufacturers,
distributors or customers in advance of their occurrence or that they will be
able to successfully rectify any problems that are discovered. The expenses of
PIC's efforts to identify and address such problems, or the expenses or
liabilities to which PIC may become subject as a result of such problems, are
not expected to have a material adverse effect on PIC's business, operating
results and financial condition. In addition, the purchasing patterns of
existing and potential customers may be affected by the Year 2000 Problem, which
could cause fluctuations in PIC's sales volumes.
RISK FACTORS AND FORWARD LOOKING STATEMENTS
This report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties. In addition, the Company may from time to time make oral forward
looking statements. Actual results are uncertain and may be impacted by the
factors discussed in more detail in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Securities and Exchange
Commission. In particular, certain risks and uncertainties that may impact the
accuracy of the forward looking statements with respect to revenues, expenses
and operating results including without limitation, the risks set forth in the
risk factors section of the Annual Report on Form 10-K for the year ended
December 31, 1997, which risk factors are hereby incorporated into this report
by this reference. As a result, the actual results may differ materially from
those projected in the forward looking statements.
Because of these and other factors that may affect the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods.
13
<PAGE>
PROLONG INTERNATIONAL CORPORATION
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 6 of the notes to consolidated condensed financial
statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROLONG INTERNATIONAL CORPORATION
Date: October 28, 1998 /s/ Nicholas Rosier
-------------------- --------------------------------
Nicholas Rosier
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 884,203
<SECURITIES> 0
<RECEIVABLES> 7,768,041
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0
0
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</TABLE>
