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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, 1997
[ ] 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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
California 95-2746949
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
506 Paula Avenue, Glendale, California, 91201
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(Address of Principal Executive Offices)
(818) 247-7601
(Issuer's telephone number, including area code)
Check whether the Small Business Issuer (1) has filed all reports required to be
filed by Section 13or15(d) of the Exchange Act of 1934 during the past 12 months
(or such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements of the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Date No. of Shares Outstanding
------ ---- -------------------------
<S> <C> <C>
Common May 14, 1997 8,673,732
</TABLE>
Traditional Small Business Disclosure Format (check one):
Yes X No
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POLLUTION RESEARCH AND CONTROL CORP.
FORM 10-QSB
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information 10
Item 6(b). Reports on Form 8-K 11
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
CURRENT ASSETS 03/31/97
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<S> <C>
Cash $ 679,848
Marketable securities 99,000
Accounts receivable, trade, less allowance for doubtful
accounts of $41,382 1,821,695
Inventories (Note 2) 2,492,899
Other current assets 14,825
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TOTAL CURRENT ASSETS 5,108,267
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, less accumulated depreciation of 253,461 1,605,568
OTHER ASSETS
Goodwill, less accumulated amortization of $5,974 293,914
Loan costs, less accumulated amortization of $22,706 68,118
Other intangibles, less accumulated amortization of $5,950 34,559
Other 13,630
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TOTAL OTHER ASSETS 410,221
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TOTAL ASSETS $7,124,056
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</TABLE>
See notes to the financial statements
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CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
CURRENT LIABILITIES 3/31/97
----------
<S> <C>
Notes payable (Note 3) $ 744,762
Accounts payable 785,260
Accrued liabilities 201,734
Current portion of long-term debt - related party 8,202
Current portion of long-term debt 178,539
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TOTAL CURRENT LIABILITIES 1,918,497
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LONG-TERM DEBT, less current portion (Note 3) 714,619
LONG-TERM DEBT, related party, less current portion 364,992
DEFERRED RENT, less current portion 101,570
DEFFERED INCOME TAXES 45,000
COMMITMENTS AND CONTINGENCIES (Note 4) --
SHAREHOLDERS' EQUITY (Note 5)
Preferred Stock, no par value; 20,000,000 shares
authorized, no shares issued and outstanding --
Common Stock, no par value; 30,000,000 shares
authorized, 8,549,565 issued and outstanding 6,588,980
Less notes receivable (86,857)
Other paid in capital 145,764
Accumulated deficit (2,792,910)
Unrealized gain on marketable securities 99,000
Unrealized foreign currency translation gain 25,401
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TOTAL SHAREHOLDERS' EQUITY 3,979,378
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,124,056
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</TABLE>
See notes to the financial statements
4
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CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------------
1997 1996
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<S> <C> <C>
Net revenues $ 2,552,366 $ 1,629,046
Costs of good sold 1,828,482 929,056
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Gross profit 723,884 699,990
Operating expenses:
Selling, general and administrative expenses 655,107 403,614
Research and development 6,730 38,022
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Total operating expenses 661,837 441,636
Income from operations 62,047 258,354
Interest expense (71,461) (3,837)
Interest and other income 1,077 4,638
Other income -- --
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Income (loss) before income taxes (8,337) 259,155
Provision for income taxes:
Current -- --
Deferred (Note 6) (10,000) --
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Total provision for income taxes (10,000) --
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Net income 1,663 259,155
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Earnings per Share (Note 10)
Net Income (loss) $ .0002 $ .04
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Weighted Average Number of Common and Common
Equivalent Shares Outstanding 8,739,815 6,941,557
=========== ===========
</TABLE>
See notes to financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,663 $ 259,155
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 58,150 8,004
Deferred income taxes (10,000) --
Deferred rent 25,379 (3,634)
Changes in operating assets and liabilities:
Accounts receivable, trade, net (101,990) (723,118)
Inventories 54,570 --
Other current assets 6,022 (3,112)
Other assets 4,004 --
Accounts payable (200,933) (26,664)
Accrued liabilities (54,482) (31,416)
Unearned revenue (50,820) --
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Net cash used for operating activities (268,437) (520,785)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold
improvements (3,689) (3,759)
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Net cash used for investing activities (3,689) (3,759)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit - advances (repayments) (100,000) 50,000
Net increase in Nutek line of credit 291,104 160,140
Repayments of long-term debt (61,176) --
Additional borrowing under long-term debt 100,000 --
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Net cash provided by financing activities 229,928 210,140
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,124) --
--------- ---------
NET INCREASE (DECREASE) IN CASH (43,322) (314,404)
CASH AT BEGINNING OF PERIOD 723,170 641,695
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CASH AT END OF PERIOD $ 679,848 $ 327,291
========= =========
</TABLE>
See notes to the financial statements
6
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NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The information furnished herein reflects all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of management, necessary
to a fair presentation of the financial statements for the period presented.
Interim results are not necessarily indicative of results for a full year.
The financial statements at March 31, 1997, include the activity of two
subsidiaries, NUTEK, Inc. and LOGAN MEDICAL DEVICES, Inc., which were acquired
by the company in June, 1996. As a result, the statement of operations for March
31, 1996, is not comparable to March 31, 1997, and it is impractical to provide
proforma results in the notes.
The financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1996.
2. INVENTORIES:
Inventories at March 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Raw Materials $ 1,914,569
Work-in-Progress 456,720
Finished Goods 121,610
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$ 2,492,899
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</TABLE>
3. NOTES PAYABLE AND LONG TERM DEBT:
Since the filing of the Company's Annual Report on Form 10-K, the Company has
increased its borrowings under the Nutek working capital facility by $291,104
and increased the term loan by an additional $100,000.
4. COMMITMENTS AND CONTINGENCIES:
In October 1996, the Company terminated its agreement with a public relations
firm and cancelled 1,300,000 options held by the public relations firm. The
matter is presently in dispute. The probability or amount of any loss to the
Company cannot be determined at this time.
5. SHAREHOLDERS' EQUITY:
Options and Warrants
As of March 31, 1997, the Company had 3,205,500 options and 1,275,836 warrants
outstanding at exercise prices ranging from $0.55 to $2.00 which, if exercised,
would generate proceeds to the Company of $4,821,386.
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6. EARNINGS PER SHARE:
Earnings per share is computed by dividing net income or loss by the weighted
average number of common and common equivalent shares (options and warrants)
outstanding during the period. Options and warrants which are dilutive are
included as common equivalents under the treasury stock method, unless the
dilutive options and warrants would, if exercised, generate proceeds sufficient
to repurchase more than 20% of the Company's outstanding common stock at market
prices, in which case the modified treasury stock method applies. During the
quarter ended March 31, 1997, there were not sufficient number of dilutive
options and warrants to cause application of the modified treasury stock method.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
GENERAL
The Company designs, manufactures and markets automated continuous monitoring
instruments used to detect and measure various types of air pollution through
its wholly-owned subsidiary, Dasibi Environmental Corp. The Company currently
derives approximately 50% of its revenue from sales of its instruments and their
replacement parts.
The Company designs, manufactures and markets electrical control panels for
automation use in utility, pulp and paper mill and various other industrial
process applications through its wholly owned subsidiary, NUTEK, Inc.,
("Nutek"), and currently derives approximately 45% of its revenues from Nutek
sales.
The Company designs, manufactures and markets medical instrumentation through
its wholly owned subsidiary, LOGAN MEDICAL DEVICES, Inc. ("LMD"), a start-up
company applying the Company's technology to non-invasive asthma diagnostics.
The Company currently derives approximately 5% of its revenues from medical
sales.
The Company's future operating results may be affected by a number of factors,
including: uncertainties relative to global economic conditions; industry
factors, the availability and cost of components; the Company's ability to
develop, manufacture and sell its products profitably; the Company's ability to
successfully increase its market share in its core business while expanding its
product base into other markets; the strength of its distribution channels; and
the Company's ability to effectively manage expense growth relative to revenue
growth in anticipation of continued pressure on gross margins.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997, VERSUS THREE MONTHS ENDED MARCH 31, 1996
Net revenues increased 57% from $1,629,046 during the first quarter of 1996 to
$2,552,366 during the first quarter of 1997. The increase was primarily due to
the acquisitions of Nutek and LMD, completed in June 1996. Revenues for the core
air pollution decreased $462,000, or 28%, due to on-going competitive price
pressures which directly effect the Company's ability to obtain contracts.
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Gross margin was 28% for the first quarter of 1997 versus 43% for the first
quarter of 1996. Nutek operates at lower margins than the Company's core air
pollution instrument business due to its nonproprietary business.
Selling, general and administrative expenses increased $251,493, or 62% , during
the first quarter of 1997, over the same period in 1996, principally due to the
addition of the expenses of Nutek and LMD.
Research and development declined 31,292, or 82%, during the first quarter of
1997, compared to the first quarter of 1996, due to cost reduction measures.
Interest expense was $71,461 during the first quarter of 1997, compared to
$3,837 during the first quarter of 1996. The increase was due to the debt
incurred in connection with the acquisitions of Nutek and LMD.
As a result of the foregoing factors, net income decreased from a net income of
$259,155 during the three months ended March 31,1996 to net income of $1,663
during the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its growth and cash needs primarily
through borrowings, and the public and private sales of its securities.
Net cash used in operating activities in the three months ended March 31, 1997,
amounted to $268,437, due to a reduction in accounts payable.
Working capital was $3,189,770 at March 31, 1997.
As of March 31, 1997, Nutek had borrowings of $654,762 under its line of credit
which has a maximum of the lesser of $1,000,000 or the borrowing base (as
defined in the loan agreement).
The Company has no material commitments for capital expenditures as of March 31,
1997. The Company believes it will be able to meet its current obligations with
funds generated from operations and the existing credit facilities during the
next twelve months.
INFLATION
The Company believes that inflation has not had a material impact on its
business.
SEASONALITY
The Company does not believe that its business is seasonal.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Not applicable
(b.) The Company did not file any reports on Form 8-K during
the three months ended March 31, 1997.
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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.
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(Registrant)
Date May 14, 1997 By: /s/ Albert E. Gosselin, Jr.
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Albert E. Gosselin, Jr., President
and Chief Executive Officer
Date May 14, 1997 By: /s/ Cynthia L. Gosselin
----------------------- -------------------------------
Cynthia L. Gosselin, Chief Financial Officer
11
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 679
<SECURITIES> 0
<RECEIVABLES> 1,821
<ALLOWANCES> 0
<INVENTORY> 2,492
<CURRENT-ASSETS> 5,108
<PP&E> 1,859
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0
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