<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 June 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)
Nevada 6 Thomas 74-2234246
(State or other Irvine, CA 92618 (IRS Employer
jurisdiction of (Address of principal executive Identification No.)
incorporation or offices) (Zip Code)
organization)
(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 25,464,500 shares of the registrant's common stock ($0.001 par
---------------
value) outstanding as of August 12, 1998.
Page 1 of 16 pages
Exhibit Index on Sequentially Numbered Page 14
<PAGE>
PROLONG INTERNATIONAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
PART 1 FINANCIAL INFORMATION Page
Item 1: Financial Information
Consolidated Condensed Balance Sheets--
June 30, 1998 and December 31, 1997.................... 3
Consolidated Statements of Income--Three months
and Six months ended June 30, 1998 and 1997............ 4
Consolidated Condensed Statements of Cash Flows--
Six months ended June 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 4: Submission of Matters to a Vote of Security Holders.... 14
Item 6: Exhibits and Reports on Form 8-K....................... 14
Signatures............................................. 15
</TABLE>
2
<PAGE>
Item 1. Financial Information
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,377,620 $ 6,180,983
Accounts receivable, net 5,257,834 3,880,571
Inventories 3,859,682 1,300,691
Prepaid expenses 1,140,904 711,242
Prepaid income taxes 157,513 -
Prepaid television time 674,173 1,022,144
Advances to employees 262,232 227,896
----------- -----------
Total current assets 13,729,958 13,323,527
PROPERTY AND EQUIPMENT, net 3,124,399 219,683
OTHER ASSETS 66,355 82,724
DEPOSITS 338,613 122,716
----------- -----------
TOTAL ASSETS $17,259,325 $13,748,650
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,935,296 $ 1,074,098
Accrued expenses 1,451,723 1,663,321
Notes payable current 42,555 -
Income taxes payable - 1,278,684
Deferred income taxes 23,693 23,693
----------- -----------
Total current liabilities 3,453,267 4,039,796
Notes payable, non-current 2,374,912 -
----------- -----------
Total liabilities 5,828,179 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
25,464,500 shares issued and outstanding 25,465 25,465
Additional paid-in capital 7,393,451 7,393,451
Retained earnings 4,012,230 2,289,938
---------- -----------
Total stockholders' equity 11,431,146 9,708,854
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,259,325 $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 Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
NET REVENUES $ 8,399,828 $ 6,987,753 $ 19,248,570 $ 12,771,842
COST OF GOODS SOLD 1,641,800 1,235,259 3,647,214 2,654,283
------------ ------------ ------------- -------------
GROSS PROFIT 6,758,028 5,752,494 15,601,356 10,117,559
OPERATING EXPENSES:
Selling expenses 5,158,486 4,047,077 9,899,087 7,390,318
General and administrative expenses 1,383,109 858,274 2,725,813 1,449,834
------------ ------------ ------------- -------------
Total operating expenses 6,541,595 4,905,351 12,624,900 8,840,152
------------ ------------ ------------- -------------
OPERATING INCOME 216,433 847,143 2,976,456 1,277,407
OTHER INCOME, net:
Interest (expense) (35,732) (490) (36,709) (1,240)
Interest income 28,023 59,065 88,545 111,244
------------ ------------ ------------- -------------
Total other income, net (7,709) 58,575 51,836 110,004
------------ ------------ ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES 208,724 905,718 3,028,292 1,387,411
PROVISION FOR INCOME TAXES 93,000 398,705 1,306,000 600,749
------------ ------------ ------------- -------------
NET INCOME $ 115,724 $ 507,013 $ 1,722,292 $ 786,662
============ ============ ============= =============
NET INCOME PER SHARE:
Basic $ 0.01 $ 0.02 $ 0.07 $ 0.03
============ ============ ============= =============
Diluted $ 0.01 $ 0.02 $ 0.07 $ 0.33
============ ============ ============= =============
WEIGHTED AVERAGE COMMON SHARES:
Basic 25,464,500 25,556,200 25,464,500 25,518,175
Diluted options outstanding 292,329 88,646 362,625 76,864
------------ ------------ ------------- -------------
Diluted 25,756,829 25,644,846 25,827,125 25,595,039
============ ============ ============= =============
</TABLE>
See notes to consolidated condensed financial statements
-4-
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,722,292 $ 786,662
Adjustments to reconcile net income to net cash provided by
(used) in operating activities:
Depreciation and amortization 65,283 37,017
Provision for doubtful accounts 178,571 (33,039)
Reserve for obsolesence 45,000 110,771
Common stock issued in exchange for services - 18,750
Changes in assets and liabilities:
Accounts receivable (1,555,834) (395,196)
Inventories (2,603,991) (509,150)
Prepaid expenses (429,662) (61,891)
Prepaid television time 347,971 60,001
Deposits (215,897) 25,000
Accounts payable 861,198 (304,902)
Accrued expenses (211,598) (76,205)
Income taxes payable (1,436,197) 323,349
----------- ----------
Net cash used in operating activities (3,232,864) (18,833)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (532,630) (41,667)
Employee advances (34,336) (100,000)
----------- ----------
Net cash used in investing activities (566,966) (141,667)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (3,533) (28,812)
Proceeds from subscriptions receivable - 189,500
Proceeds from issuance of common stock - 12,500
----------- ----------
Net cash (used) provided by financing activities (3,533) 173,188
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,803,363) 12,688
CASH AND CASH EQUIVALENTS, beginning of period 6,180,983 5,063,585
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 2,377,620 $5,076,273
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 2,742,200 $ 278,000
=========== ==========
Interest paid $ 36,709 $ 1,240
=========== ==========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company completed the following transactions:
Issued 37,500 shares of common stock in exchange for services valued at $18,750.
Issued 155,800 shares of common stock previously committed.
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.
</TABLE>
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 six months ended June 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>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Raw materials $1,074,762 $ 415,073
Finished goods 2,497,463 744,595
Promotional items 287,457 141,023
---------- ----------
$3,859,682 $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>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Computer equipment $ 198,669 $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 18,715 0
Building 2,034,705 0
---------- --------
2,346,006 226,870
Less accumulated depreciation (112,897) (63,443)
---------- --------
2,233,109 163,427
Building improvements in progress 353,290 56,256
Land 538,000 0
---------- --------
$3,124,399 $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
June 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. $1,688,467
2) Bridge loan with Bank of America dated April 1, 1998 bearing
7
<PAGE>
interest at 10.25% per annum to be repaid in monthly
interest payments of $6,434.44. The outstanding
principal and accrued interest under the note was paid
in full on July 15, 1998 and replaced with a loan from
CDC Small Business Finance Corporation bearing an interest
rate of 7.65% per annum. This note is required to be
repaid in 240 monthly installments of approximately $6,376
each.
729,000
----------
2,417,467
Less current maturities (42,555)
----------
$2,374,912
==========
Year ending December 31,
1998 $ 42,555
1999 44,978
2000 48,667
2001 52,264
2002 56,133
Thereafter 2,172,870
----------
$2,417,467
==========
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 August 12, 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 Six Months Ended
June 30, June 30,
--------------------- --------------------
1998 1997 1998 1997
--------------------- --------------------
<S> <C> <C> <C> <C>
Net revenues 100.0 100.0 100.0 100.0
Cost of goods sold 19.5 17.7 18.9 20.8
--------------------- --------------------
Gross profit 80.5 82.3 81.1 79.2
Selling expenses 61.4 57.9 51.4 57.9
General and administrative expenses 16.5 12.3 14.2 11.3
--------------------- --------------------
Operating income 2.6 12.1 15.5 10.0
Other income (expense) (0.1) 0.8 0.3 0.9
--------------------- --------------------
Income before income taxes 2.5 12.9 15.8 10.9
Provision for income taxes 1.1 5.7 6.8 4.7
--------------------- --------------------
Net income 1.4 7.2 9.0 6.2
===================== ====================
</TABLE>
Three Months Ended June 30, 1998 vs. Three Months Ended June 30, 1997
Net revenues for the three months ended June 30, 1998 were approximately
$8,400,000 as compared to approximately $6,988,000 for the comparable period of
the prior year, an increase of $1,412,000 or 20.2%. Revenues for the three month
period ended June 30, 1998 were derived from the following sources: Direct
response infomercial sales of $1,385,000; retail sales of $6,151,000; industrial
sales of $297,000; and, international and other sales of $567,000. Revenues for
the three month period ended June 30, 1997 were derived from the following
sources: Direct response infomercial sales of $3,645,000;
9
<PAGE>
retail sales of $2,412,000; industrial sales of $404,000; and, international and
other sales of $527,000.
For the three month period ended June 30, 1998, retail sales were 73.2% of total
revenues while direct response infomercial sales comprised 16.5% of total
revenues. For the three month period ended June 30, 1997, direct response
infomercial sales comprised 52.2% of total revenues while retail sales were
34.5%. This shift in the mix of sales resulted from the 1998 strategy to
aggressively pursue sales to retail chain stores, while continuing to air the
direct response infomercial on a less frequent basis.
Cost of goods sold for the three months ended June 30, 1998 was approximately
$1,642,000 as compared to $1,235,000 for the comparable period of the prior
year, an increase of $407,000 or 33.0%. This increase was attributable to the
increase in sales, outsourced processing costs and new packaging materials. As
a percentage of sales, cost of goods sold increased from 17.7% in 1997 to 19.5%
in 1998. This increase was mainly attributable to the added cost related to the
introduction of new packaging materials for retail products.
Selling expenses of approximately $5,158,000 for the three months ended June 30,
1998 represented an increase of $1,111,000 over the comparable period of the
prior year. This 27.5% 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 61.4% for the three months ended
June 30, 1998 versus 57.9% 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 June 30, 1998
were approximately $1,383,000 as compared to $858,000 for the three months ended
June 30, 1997, an increase of $525,000 or 61.2%. This increase is primarily
attributable to salaries and benefits for new employees, costs associated with
the facility relocation, audit fees, bad debt expenses, legal expenses, other
costs associated with the company's obligations as a public company and other
associated costs needed to support the company's growth.
Interest expense of approximately $36,000 for the three months ended June 30,
1998 represented an increase of $35,000 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 June 30, 1998, the Company generated net
interest income of approximately $28,000 as compared to approximately $59,000
for the
10
<PAGE>
comparable period in 1997. The decrease is attributable to the decrease of cash
balances in interest bearing accounts.
Net income for the three month period ended June 30, 1998 was approximately
$116,000 as compared to approximately $507,000 for the comparable period in the
prior year, a decrease of $391,000. The decrease is a result of the factors
discussed above.
Six Months Ended June 30, 1998 vs. Six Months Ended June 30, 1997
Net revenues for the six months ended June 30, 1998 were approximately
$19,249,000 as compared to approximately $12,772,000 for the comparable period
in the prior year, an increase of $6,477,000 or 50.7%. Revenues for the six
month period ended June 30, 1998 were derived from the following sources: Direct
response infomercial sales of $3,342,000; retail sales of $14,206,000;
industrial sales of $613,000; and, international and other sales of $1,088,000.
Revenues for the six month period ended June 30, 1997 were derived from the
following sources: Direct response infomercial sales of $7,402,000; retail
sales of $3,766,000; industrial sales of $848,000; and, international and other
sales of $756,000.
For the six month period ended June 30, 1998, retail sales were 73.8% of total
revenues while direct response infomercial sales comprised 17.4% of total
revenues. For the six month period ended June 30, 1997, direct response
infomercial sales comprised 58.0% of total revenues while retail sales were
29.5%. This shift in mix of sales resulted from the 1998 strategy to
aggressively pursue sales to retail chain stores, while continuing to air the
direct response infomercial on a less frequent basis.
Cost of goods sold for the six months ended June 30, 1998 was approximately
$3,647,000 as compared to $2,654,000 for the comparable period of the prior
year, an increase of $993,000 or 37.4%. The increase is primarily the result of
the purchase of additional materials to meet increased sales demand. Cost of
goods sold, as a percentage of sales, decreased from 20.8% for the six month
period ended June 30, 1997 to 18.9% for the comparable period in 1998. This
improvement was mainly attributable to increased efficiencies in the outside
production processes and volume discounts in the applicable period in 1998
relative to the higher costs of goods associated with start-up levels of
production in 1997. Management does not anticipate that such reductions are
likely in the future.
Selling expenses of $9,899,000 for the six months ended June 30, 1998
represented an increase of $2,509,000 over the comparable period of the prior
year. This 34.0% 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 51.4% for the six months ended June 30,
1998 versus 57.9% for the comparable period of the previous year. In
11
<PAGE>
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 six months ended June 30, 1998 were
approximately $2,726,000 as compared to $1,450,000 for the six months ended June
30, 1997, an increase of $1,276,000 or 88.0%. This increase is primarily
attributable to salaries and benefits for new employees, costs associated with
the facility relocation, increases in audit fees, legal expenses, and other
costs associated with the Company's obligations as a public company, and other
administrative costs needed to support the Company's growth.
Interest expense of approximately $37,000 for the six months ended June 30, 1998
represented an increase of $35,000 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 six months ended June 30, 1998, the Company generated net interest
income of approximately $89,000 as compared to approximately $111,000 for the
comparable period in 1997. During the six months ended June 30, 1998, the
Company maintained an average cash balance of approximately $3,425,000 while the
Company's cash balance averaged $4,350,000 during the comparable period of the
previous year.
Net income for the six month period ended June 30, 1998 was approximately
$1,722,000 as compared to approximately $787,000 for the comparable period in
the prior year, an increase of $935,000. 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 June 30, 1998, the Company had net working capital of $10,277,000 as
compared to $9,284,000 at December 31, 1997 or an increase of $993,000. 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 June 30, 1998.
During the six months ended June 30, 1998, the Company used $3,233,000 to fund
operations, which consisted primarily of increases in receivables and
inventories, and $567,000 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
12
<PAGE>
equipment associated with its new office and warehouse facility. As of August
12, 1998, Prolong had commitments for capital equipment acquisitions in the
amount of approximately $692,000 to furnish its new facilities and to provide
necessary computer and office equipment to its new employees. 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.
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 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on June 15, 1998.
(b) Set forth below is the name of each director elected at the meeting and the
number of votes cast for their election, the number of votes against their
election, the number of votes abstained and the number of non-votes:
<TABLE>
<CAPTION>
Number of Number of Votes Number of Votes Number of
----- -----
Name Class # Votes "For" "Against" "Abstain" "Non-Votes"
- ------------------------- ------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Elton Alderman III 16,230,781 1,037,000 10,400 8,186,319
Thomas C. Billstein III 16,230,781 1,037,000 10,400 8,186,819
Tom T. Kubota II 16,230,781 1,037,000 10,400 8,186,319
Melanie A. McCaffery I 16,205,781 1,037,000 35,400 8,186,319
</TABLE>
(c) Proposal Two to appoint Deloitte & Touche LLP as the Company's independent
auditors resulted in the following number of votes for, against, abstain,
withheld and non-vote:
<TABLE>
<CAPTION>
Number of Number of Number of Number of Number of
Votes "For" Votes "Against" Votes "Abstain" Votes "Withheld" "Non-Votes"
- ---------------------- --------------------- -------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
17,234,894 0 43,287 0 8,186,319
</TABLE>
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.
14
<PAGE>
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: August 12, 1998 /s/ Nicholas Rosier
------------------------------------------
Nicholas Rosier
Chief Financial Officer
15
<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> JUN-30-1998
<CASH> 2,377,620
<SECURITIES> 0
<RECEIVABLES> 5,679,129
<ALLOWANCES> 421,295
<INVENTORY> 3,859,682
<CURRENT-ASSETS> 13,729,958
<PP&E> 3,236,756
<DEPRECIATION> 112,357
<TOTAL-ASSETS> 17,259,325
<CURRENT-LIABILITIES> 3,453,267
<BONDS> 0
0
0
<COMMON> 25,465
<OTHER-SE> 11,405,681
<TOTAL-LIABILITY-AND-EQUITY> 17,259,325
<SALES> 8,399,828
<TOTAL-REVENUES> 8,399,828
<CGS> 1,641,800
<TOTAL-COSTS> 1,641,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 35,732
<INCOME-PRETAX> 208,724
<INCOME-TAX> 93,000
<INCOME-CONTINUING> 115,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,724
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
