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 June 30, 1998
{ } 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 (IRS Employer
incorporation or organization) Identification Number)
506 Paula Avenue, Glendale, California 91201
--------------------------------------------
(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 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
equity, as of the latest practicable date:
Class Date No. of Shares Outstanding
----- ---- -------------------------
Common July 24, 1998 2,399,689
Traditional Small Business Disclosure Format (check one):
YES X No ___
<PAGE>
POLLUTION RESEARCH AND CONTROL CORP.
Form 10-QSB
For the Six-Month Period Ended June 30, 1998
TABLE OF CONTENTS
Page
----
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet 3
Consolidated Statements of Operations 5
Consolidated Statement of Shareholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II Other Information 14
Item 6(b) Reports on Form 8-K 14
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
ASSETS
(Unaudited)
As Of
06/30/98
CURRENT ASSETS --------
Cash $ 315,678
Marketable securities 3,250
Accounts receivable, trade, less allowance for doubtful 377,319
accounts of $ 6,381
Inventories 1,512,117
Net assets of discontinued operations 65,888
Other current assets 7,340
----------
TOTAL CURRENT ASSETS 2,281,592
----------
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, less accumulated depreciation of $169,938 925,536
----------
OTHER ASSETS
Advances to joint venture 187,854
Other intangible assets 23,509
Other assets 1,682
----------
TOTAL OTHER ASSETS 213,045
----------
TOTAL ASSETS $3,420,173
==========
See notes to financial statements
3
<PAGE>
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
As of
6/30/98
CURRENT LIABILITIES -------
Notes payable $ 70,000
Accounts payable 203,921
Accrued liabilities 206,059
-----------
TOTAL CURRENT LIABILITIES 479,980
DEFERRED RENT 65,402
SHAREHOLDERS' EQUITY :
Preferred Stock, 5,000,000 shares authorized:
Series A Preferred Stock, .01 par value,
220,000 shares issued and outstanding 110,000
Series B Preferred Stock, .01 par value,
450,000 shares issued and outstanding 800,000
Common Stock, no par value; 7,500,000 shares
authorized, 2,399,689 shares issued and outstanding 6,815,843
Less notes due from sale of stock (86,857)
Other paid in capital 145,764
Accumulated deficit (4,913,209)
Unrealized gain on marketable securities 3,250
-----------
TOTAL SHAREHOLDERS' EQUITY 2,874,791
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,420,173
===========
See notes to financial statements
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended June 30,
--------------
1998 1997
---- ----
<S> <C> <C>
Net Revenues $ 652,887 $ 914,407
Cost of goods sold 578,585 875,131
----------- -----------
Gross profit 74,302 39,276
----------- -----------
Operating expenses:
Selling, general and administrative expenses 313,924 454,142
Research and development 8,168 16,493
----------- -----------
Total operating expenses 322,092 470,635
----------- -----------
Loss from operations (247,790) (431,359)
Other Income (Expense)
Other income -- --
Interest Income 10 1,105
Interest expense (5,194) (2,369)
Interest expense, related parties (4,336) --
----------- -----------
Total Other Income (Expense) (9,520) (1,264)
----------- -----------
Income (Loss) Before Income Taxes (257,310) (432,623)
Provision (Benefit) For Income Taxes:
Current -- --
Deferred -- --
----------- -----------
Total Provision (Benefit) for Income Taxes -- --
----------- -----------
Income (loss) from continuing operations $ (257,310) $ (432,623)
Discontinued operations
Loss from discontinued operations (84,844) (191,025)
Loss on disposal of discontinued operations (668,989) --
----------- -----------
(753,833) (191,025)
----------- -----------
Net Income (1,011,143) (623,648)
=========== ===========
Earnings per share
Net Income (loss) per share - basic and diluted $ (.47) $ (0.29)
=========== ===========
Weighted average number of common
and common equivalent shares outstanding 2,169,711 2,168,433
=========== ===========
See notes to financial statements
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months
Ended June 30,
--------------
1998 1997
---- ----
<S> <C> <C>
Net Revenues $ 1,229,918 $ 2,081,049
Cost of goods sold 794,683 1,624,786
----------- -----------
Gross profit 435,235 456,263
Operating expenses:
Selling, general and administrative expenses 676,190 887,330
Research and development 9,128 23,223
----------- -----------
Total operating expenses 685,318 910,553
----------- -----------
Loss from operations (250,083) (454,290)
Other Income (Expense)
Other income -- --
Interest Income 39 2,116
Interest expense (5,194) (7,067)
Interest expense, related parties (6,750) --
----------- -----------
Total Other Income (Expense) (11,905) (4,951)
----------- -----------
Income (Loss) Before Income Taxes (261,988) (459,241)
Provision (Benefit) For Income Taxes:
Current -- --
Deferred -- --
----------- -----------
Total Provision (Benefit) for Income Taxes -- --
----------- -----------
Income (loss) from continuing operations $ (261,988) $ (459,241)
Discontinued operations
Loss from discontinued operations (111,262) (162,743)
Loss on disposal of discontinued operations (514,414) --
----------- -----------
(625,676) (162,743)
----------- -----------
Net Income (887,664) (621,984)
=========== ===========
Earnings per share
Net Income (loss) per share - basic and diluted $ (.41) $ (0.29)
=========== ===========
Weighted average number of common
and common equivalent shares outstanding 2,169,711 2,168,433
=========== ===========
See notes to financial statements
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1998
Series A Preferred Stock Series B Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
BALANCE
<C> <C> <C> <C> <C> <C>
12/31/97 -- $ -- -- $ -- 2,168,433 $ 6,588,980
Issuance of
stock in
private
placements,
net of
offering
costs 220,000 110,000 231,256 226,863
Issuance of
common stock
for
building 450,000 800,000 -- --
Change in trans-
lation gain -- -- -- -- -- --
Net loss for
the six
months -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance
6/30/98 220,000 $ 110,000 450,000 $ 800,000 2,399,689 $ 6,815,843
=========== =========== =========== =========== =========== ===========
(Continued)
Notes Due Other Gain on Currency Total
From Sale Paid In Accumulated Marketable Translation Shareholders'
of Stock Capital Deficit Securities Gain Equity
-------- ------- ------- ---------- ---- ------
BALANCE
12/31/97 $ (86,857) $ 145,764 $(4,025,545) $ 3,250 $ 24,587 $ 2,650,179
Issuance of
stock in
private
placements,
net of
offering
costs -- -- -- -- -- 336,863
Issuance of
common stock
for
building -- -- -- -- -- 800,000
Change in trans-
lation gain -- -- -- -- (24,587) (24,587)
Net loss for
the six
months -- -- (887,664) -- -- (887,664)
----------- ----------- ----------- ----------- ----------- -----------
Balance
6/30/98 $ (86,857) $ 145,764 $(4,913,209) $ 3,250 $ -- $ 2,874,791
=========== =========== =========== =========== =========== ===========
7
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30
-------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $(887,664) $(621,984)
Adjustments to reconcile net income to net cash
used for operating activities:
Gain on disposal of subsidiary 514,415 --
Losses on disposed subsidiary 26,418 --
Depreciation and amortization 75,500 116,574
Deferred income taxes -- (10,000)
Deferred rent 18,745 27,745
Inventory reserves 200,000
Changes in operating assets and liabilities:
Accounts receivable, trade, net (142,184) 324,004
Inventories 244,587 151,390
Other current assets 7,436 (10,992)
Other assets 987 (1,221)
Accounts payable (7,765) (288,568)
Accrued liabilities (61,977) (39,492)
Unearned revenue (143,695) (50,820)
--------- ---------
Net cash used for operating activities (355,197) (203,364)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold (1,922) (5,224)
improvements --------- ---------
Net cash used for investing activities (1,922) (5,224)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placements of stock 362,070
Bank line of credit - advances (repayments) (70,000) 5,000
Net increase (decrease) in Nutek line of credit (104,086) 152,342
Repayments of long-term debt (30,082) (95,518)
Additional borrowing under long-term debt -- 100,000
--------- ---------
Net cash provided by financing activities 157,902 161,824
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (1,468)
--------- ---------
NET INCREASE (DECREASE) IN CASH (199,217) (48,232)
CASH AT BEGINNING OF PERIOD 514,895 723,170
--------- ---------
CASH AT END OF PERIOD $ 315,678 $ 674,938
========= =========
Supplemental Disclosure:
Cash paid for:
Interest $ 27,782 --
Taxes $ -- --
See notes to financial statements
8
<PAGE>
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 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, 1997.
2. Recent Developments:
Issuance of Preferred Stock
- ---------------------------
The Company is authorized to issue up to 5,000,000 shares of preferred stock,
$.01 par value per share (the "Preferred Shares"), in series to be designated by
the Board of Directors. The Company has issued an aggregate of 670,000 Preferred
Shares, 220,000 of which shares are designated Series "A" Convertible Preferred
Shares (the "Series "A" Preferred Shares") and 450,000 of which shares are
designated Series "B" Convertible Preferred Shares (the "Series "B" Preferred
Shares"), and may issue additional Preferred Shares from time to time in one or
more series as may be determined by the Board of Directors. The voting powers
and preferences, the relative rights of each such series and the qualifications,
limitations and restrictions thereof shall be established by the Board of
Directors, except that no holder of Preferred Shares shall have preemptive
rights. The Series "A" and "B" Preferred Shares are not entitled to receive
dividends. The offering prices of the Series "A" and "B" Preferred Shares are
$.50 and $1.777 per share, respectively. Each outstanding Series "A" and Series
"B" Preferred Share is convertible by the Company for no additional
consideration into one share of common stock, no par value per share (the
"Conversion Ratio"), subsequent to July 30 and December 31, 1998, respectively,
and each Preferred Share is entitled to one vote at meetings of the Company's
shareholders based upon the Conversion Ratio. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, the shareholders of the
Series "A" and "B" Preferred Shares are entitled to a liquidation preference as
to each share in an amount equal to the offering price thereof, i.e., $.50 and
$1.777 in the case of the Series "A" and "B" Preferred Shares, respectively,
with the Series "A" Preferred Shares ranking senior to the Series "B" Preferred
Shares. The Board of Directors of the Company may use its authority to issue
Preferred Shares to effect the business purposes of the Company and, in
addition, as an "anti-takeover" device as a means of resisting a change of
control of the Company. The Board of Directors has no plan to issue any other
series of Preferred Shares for the foreseeable future unless the issuance
thereof shall be in the best interests of the Company.
Purchase of Building
- --------------------
On June 24, 1998 the Company purchased a building in Macau (a foreign country
located outside of China) in exchange for 450,000 shares of the Company's Series
B Preferred Stock. The Series B Preferred Stock has voting rights, no dividend
rights and is convertible into 450,000 shares of the Company's common stock on
December 31, 1998. The building was valued at $800,000.
The building was purchased from PIC Computers, Ltd., a Macau Corporation.
Subsequent to this purchase, the building was leased back to PIC Computers, Ltd.
under a five year lease requiring monthly payments of $8,000. The lease may be
cancelled after one year if the China jobs are completed (See China Contract).
9
<PAGE>
China Contract
- --------------
During this quarter, the Company's subsidiary, Dasibi Environmental Corp., was
awarded a $5.2 million contract with China to install an eleven city air
monitoring network in China. As a result, the Company entered into an agreement
with PIC Computers, Ltd., to provide and supervise three engineers to perform
work on the Company's behalf under the China contract for $9,000 per month.
Private Placements
- ------------------
On June 30, 1998, the Company issued 231,256 restricted shares of the Company's
common stock under a private placement, receiving net proceeds of $226,863 after
paying a finders fee of $25,207 plus warrants to purchase 23,125 shares of the
Company's common stock at $2.20 per share.
On May 8, 1998, the Company issued 220,000 shares of the Company's Series A
Preferred Stock for a purchase price of $.50 per share, resulting in proceeds to
the Company of $110,000. This stock is convertible into 220,000 shares of common
stock after July 30, 1998. The Series A Preferred Stock has voting rights but no
dividend rights.
Options Issued
- --------------
In May, 1998 the Company entered into a cancelable agreement with a public
relations firm to provide related services to the Company for $2,500 per month
plus options to purchase 50,000 shares of the Company's stock at $2.20 per
share. These options expire May 15, 2001.
Reverse Stock Split
- -------------------
During this quarter, the Company had a 4 to 1 reverse stock split. All shares
within these financial statements have been adjusted to reflect this reverse
stock split.
3. Inventories:
Inventories at June 30, 1998 consisted of the following:
Raw Materials $ 773,603
Work-in-Progress 126,511
Finished Goods 612,003
------------
$ 1,512,117
============
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 June 30, 1998, the Company had 1,090,209 options and warrants outstanding
at exercise prices ranging from $2.20 to $8.00 which, if exercised, would
generate proceeds to the Company of $4,602,832.
10
<PAGE>
6. Discontinued Operations:
Nutek, Inc. filed for protection under Chapter 11 of the Federal Bankruptcy Code
in April, 1998 and continued to operate as Debtor in Possession. In July, 1998,
the Bankruptcy Court ruled that Nutek, Inc. was not a going concern. As a
result, Nutek, Inc. ceased operations and all the operating assets will be
auctioned in late July to satisfy the secured lender. Included in the financial
statements is an estimate of the anticipated loss from the disposal of the
assets and repayment of the obligations of this operation of $780,251. This
subsidiary accounted for 48% of the 1997 consolidated revenues of the Company.
Effective February 28, 1998 the Company disposed of one of its subsidiaries,
Logan Research, Ltd. a private United Kingdom company engaged in the design,
manufacture and marketing of medical instrumentation. This subsidiary accounted
for 7% of the 1997 consolidated revenues of the Company. The disposal was
accomplished through a return of 100% of LRL's stock to the original owner in
exchange for release from a $300,000 note payable, as well as related accrued
interest of $47,250. As a result, the Company realized a gain on disposal of
this operation of $154,575. Prior to the disposal, the Company advanced funds to
this subsidiary. These advances are expected to be repaid from a joint venture
relationship between the Company and LRL.
7. Subsequent Events:
a. Chapter 11
Attempts to sell Nutek, Inc. as a going business failed. Management then decided
that every effort should be made to maximize the liquidated value of fabrication
equipment and that the "printed circuit board" portion of Nutek, Inc. had
operating value as a vehicle to eventually pay off deficiency sums, if any, and
unsecured creditors. Nutek was therefore placed into Chapter 11 reorganization.
The major secured lender has opposed this filing and at a June 19, 1998 hearing
before the Bankruptcy Court, prevailed against Nutek, Inc. in having the
Bankruptcy Code's automatic stay, imposed when the case was filed, vacated, to
permit a secured lender sale of the mortgaged property based principally upon
the secured lender's assertion that the assets of Nutek, Inc. were insufficient
to cover the amount of the secured loans. The assertion was supported by a "new"
appraisal which management of Nutek, Inc. had not seen until the proceedings
were commenced by the secured lender to vacate the automatic stay. From an
original 1996 appraisal which disclosed a forced liquidation value for the
mortgaged property of $1,200,000, the new appraisal indicated an apparent value
of approximately $341,000. Management believes that there is the possibility of
questionable activities in the original 1996 purchase of Nutek, Inc. and the
financing with the secured lender and appraisal obtained and utilized and is
investigating the role of all parties involved in the acquisition and financing.
An auction sale has been scheduled by the secured lender for July 28, 1998.
Management does not believe that the ultimate determined amount of deficiency
will have a material adverse affect on the Company notwithstanding that the
secured lender commenced a Texas state court action on April 7, 1998 against the
Company by filing of an Original Petition which was never served on the Company,
followed by the filing of a First Amended Original Petition on May 8, 1998 which
was never properly effected according to the Company's retained Texas counsel
and thereafter procured the entry of a Default Judgment against the Company. The
Company had no notice or knowledge of the Texas state court action until July 1,
1998, when the Company received by United States Mail, a copy of a Default
Judgment against the Company entered in the Texas state court in the sum of
$766,708.77. The Company's retained Texas counsel filed a Notice of Removal of
the Texas state court case to the United States District Court Northern District
of Texas Dallas Division and has filed a Motion to dismiss and/or quash service
of process and to set aside the Default Judgment. The matter is presently
pending and has not been determined.
b. Negotiations regarding sale of Dasibi and LMD.
11
<PAGE>
Low cash levels resulting from decreasing sales and net income in the third
quarter of 1997, coupled with increasing cash requirements from Nutek, prompted
the adoption of a reorganization plan by the Board of Directors of the Company
to attempt to raise capital through the sale of some or all of the Company's
intangible technology assets. In March 1998 the Company began negotiating an
agreement to sell 100% of the stock of Dasibi and LMD to a third party in
exchange for stock of such party. The intention of both parties is to effect a
Company dividend in kind of approximately 40% in stock face value and retain the
balance of stock in the Company. These negotiations continue at this date, and
the transaction, if completed, must be approved by a majority vote of the
outstanding shares of the Company.
If the transaction is completed, the Company will only own two subsidiaries,
Dasibi Environmental Control Corporation (DECC) and the non-operating Nutek
corporation. Proceeds from the sale of the balance of stock remaining in the
Company should be adequate funding for exploitation of DECC's patent "Flue Gas
Purification System" granted in 1996, contingency funding for Nutek
requirements, working capital for operation of a planned acquisition of a water
monitoring instrumentation company and, funds to initiate a joint venture in
China to exploit the new instrumentation acquisition with the Company's joint
venture partner, PIC Computers, in Macau. Any stock to be received by the
Company in connection with above transaction will be restricted securities under
U. S. Securities laws. The sale of such stock must be registered with the
Securities and Exchange Commission or must occur pursuant to an applicable
exemption from registration. There can be no assurance that such will occur.
8. Supplemental Disclosure of Noncash Investing and Financing Activity:
During the quarter, the Company purchased a building for $800,000 by issuing
450,000 shares of Series B Preferred Stock.
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.("Dasibi"). The Company
currently derives the majority of its revenue for sales of Dasibi's instruments
and their replacement parts, referred to as the "core business".
Until the second quarter of 1998, the Company realized revenue from two other
wholly owned subsidiaries, Nutek Inc. ("Nutek") and Logan Research Ltd.
("Logan"). Due to declining sales and operating problems the Logan subsidiary
was sold back to the original owner and Nutek operations were discontinued.
These actions were part of a reorganization of the Company intended to limit
cash drain.
The reorganization also contemplated selling Dasibi on the basis of its
intangible design technology capabilities, and restructuring the Company to
pursue new, but related pollution measurement and control work on an adequately
funded basis.
As of this date, the financial condition and results primarily reflect the
initial disposition of assets described above while the Dasibi operation has
remained intact in a downsized, on-going, highly competitive price pressure
environment. The sale of Dasibi remains in a negotiation stage which management
believes is very positive for completion.
12
<PAGE>
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; the
Company's ability to effectively manage expense growth relative to revenue
growth in anticipation of continued pressure on gross margins, and whether or
not a sale of its Dasibi subsidiary can be successfully concluded.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998, versus Six Months Ended June 30, 1997
Net revenues decreased 40% from $2,081,049 during the first half of 1997 to
$1,229,918 during the first half of 1998. The decrease was primarily due to a
decrease of Dasibi revenue, resulting from a continuation of price pressure
levels realized in the third and fourth quarters of 1997.
Gross margin was 35% for the first half of 1998 versus 22% for the first half of
1997, because the Company downsized in accordance with the indicated revenues of
the third and fourth quarters of 1997.
Selling, general and administrative expenses decreased $211,140, or 23%, during
the first half of 1998,over the same period in 1997, principally due to the
downsizing discussed above.
As a result of the foregoing factors, net operating loss decreased from a net
operating loss of ($459,241) during the six months ended June 30, 1997 to a net
operating loss of ($261,988) during the six months ended June 30, 1998.
Three Months Ended June 30, 1998, versus Three Months Ended June 30, 1997
Net revenues decreased 28% from $914,407 during the second quarter of 1997 to
$652,887 during the second quarter of 1998. The decrease was primarily due to a
decrease of $583,000 of Dasibi revenue, resulting from a continuation of price
pressure levels realized in the third and fourth quarters of 1997.
Gross margin was 11% for the second quarter of 1998 versus 4% for the second
quarter of 1997, but they do not reflect an accurate comparison since 1997 was a
result of a sharp decline in revenues with no downsizing and 1998 includes
start-up expenses for anticipated and awarded contracts.
Selling, general and administrative expenses decreased $140,218, or 31%, during
the second quarter of 1998, over the same period in 1997, principally due to the
downsizing discussed above.
As a result of the foregoing factors, net operating loss decreased from a net
operating loss of ($432,632) during the six months ended June 30, 1997 to a net
operating loss of ($257,310) during the three months ended June 30, 1998.
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.
During the six months ended June 30, 1998, operations depleted cash $355,000
which required two private placements totalling $362,000. During the same period
the Nutek working capital line was reduced by $104,000, the Dasibi line of
credit was paid down $70,000 and long-term debt was paid down $30,000 resulting
in a net cash decrease of $199,000.
13
<PAGE>
Working capital at June 30, 1998 was $1,801,612, an increase of $524,516 from
the previous due to the disposition of the Nutek subsidiary.
Dasibi was unable to renew its line of credit with a bank and the existing line
has been paid down to $70,000 from $200,000, as of June 30, 1998.
As of June 30, 1998 the Company has no access to financing any potential growth
through borrowings and its depressed stock price precludes any generation of
cash through public or private sales. Management believes that the current
negotiated sale of Dasibi would provide adequate funding to meet all
reorganization goals. Management also believes that it will be able to meet its
current and contingent obligations with funds generated from operations
connected with the recently awarded, twelve month 5 million dollar (5,000,000)
contract, should the negotiated sale not be successfully concluded.
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.
14
<PAGE>
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 June 30, 1998.
15
<PAGE>
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: July 24, 1998 By: /s/ Albert E. Gosselin Jr
------------- ------------------------------------
Albert E. Gosselin, Jr.,
President and Chief Executive
Officer
Date: July 24, 1998 By: /s/ Donald Ford
------------- ------------------------------------
Donald Ford, Chief Financial
Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 316
<SECURITIES> 3
<RECEIVABLES> 383
<ALLOWANCES> (6)
<INVENTORY> 1,512
<CURRENT-ASSETS> 2,282
<PP&E> 1,095
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0
910
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</TABLE>
