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, 1999
{ } 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 May 10, 1999 3,326,770
Traditional Small Business Disclosure Format (check one):
YES X No ___
1
<PAGE>
POLLUTION RESEARCH AND CONTROL CORP.
Form 10-QSB
For the Six-Month Period Ended March 31, 1999
TABLE OF CONTENTS
Page
----
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Consolidated Statement of Shareholders Equity 7
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II Other Information 12
Item 6(b) Reports on Form 8-K 12
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
ASSETS
(Unaudited)
As Of
03/31/99
--------
CURRENT ASSETS
Cash $ 180,537
Accounts receivable, trade, less allowance for doubtful 252,239
accounts of $ 4,734
Inventories (Note 2) 1,640,523
Other current assets 19,340
----------
TOTAL CURRENT ASSETS 2,092,639
----------
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, less accumulated depreciation of $190,203 105,271
----------
OTHER ASSETS
Advances to joint venture 203,938
Technical service center 600,000
Other intangible assets 35,134
Other assets 12,140
----------
TOTAL OTHER ASSETS 851,212
----------
TOTAL ASSETS $3,049,122
==========
See notes to financial statements
3
<PAGE>
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
As of
CURRENT LIABILITIES 3/31/99
-------
Notes payable $ 147,342
Accounts payable 225,060
Accrued liabilities (Note 3) 598,423
-----------
TOTAL CURRENT LIABILITIES 970,825
-----------
DEFERRED RENT 54,502
-----------
SHAREHOLDERS' EQUITY : (Note 4)
Preferred Stock, no par value; 20,000,000
shares authorized, none issued and outstanding
Common Stock, no par value; 30,000,000 shares
authorized, 3,326,770 issued and outstanding 6,910,270
Other paid in capital 942,081
Accumulated deficit (5,828,556)
-----------
TOTAL SHAREHOLDERS' EQUITY $ 2,023,795
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,049,122
===========
See notes to financial statements
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net Revenues $ 648,921 $ 577,031
Cost of goods sold 542,775 216,098
----------- -----------
Gross profit 106,146 360,933
----------- -----------
Operating expenses:
Selling, general and administrative expenses 328,667 362,266
Research and development 1,480 960
----------- -----------
Total operating expenses 330,147 363,226
----------- -----------
Loss from operations (224,001) (2,293)
Other Income (Expense)
Interest Expense (18,101) (2,414)
Interest and other income -- 29
----------- -----------
Loss from continuing operations
Before Income Taxes (242,102) (4,678)
Provision for income taxes -- --
----------- -----------
Income (loss) from continuing operations (242,102) (4,678)
Discontinued operations
Income (loss) from discontinued operations -- (40,796)
Gain on disposal -- 154,575
----------- -----------
-- 113,779
----------- -----------
Net Income ($ 242,102) $ 109,101
=========== ===========
Earnings per share
Net Income (loss) per share - basic and diluted
Continuing operations $ (0.09) $ (.002)
=========== ===========
Discontinued operations $ -- $ .05
=========== ===========
Weighted Average Shares 2,564,072 2,168,433
=========== ===========
See notes to financial statements
5
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended March 31
---------------------
1999 1998
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ($242,102) $ 109,101
Adjustments to reconcile net income to net cash
used for operating activities:
Gain on disposal of subsidiary -- (154,575)
Losses on disposed subsidiary -- 26,418
Depreciation and amortization 17,849 37,917
Deferred income taxes -- --
Deferred rent (3,633) 22,379
Changes in operating assets and liabilities:
Accounts receivable, trade, net 20,794 (56,988)
Inventories (13,368) 224,587
Other current assets (5,261) 9,776
Other assets (12,140) 998
Accounts payable (31,633) (99,011)
Accrued liabilities 30,362 (119,814)
Unearned revenue -- (143,695)
--------- ---------
Net cash used for operating activities (239,132) (142,907)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan fees (10,000) --
Acquisition of property, equipment and leasehold
improvements -- (1,919)
--------- ---------
Net cash used for investing activities (10,000) (1,919)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placements of stock 199,375 --
Advances on notes payable 147,343 (20,000)
Net increase (decrease) in Nutek line of credit -- (104,086)
Repayments of long-term debt -- (30,084)
Repayment of advances to related parties 19,000 --
--------- ---------
Net cash provided by financing activities 365,718 (154,170)
--------- ---------
NET INCREASE (DECREASE) IN CASH 116,586 (298,996)
CASH AT BEGINNING OF PERIOD 63,951 514,895
--------- ---------
CASH AT END OF PERIOD $ 180,537 $ 215,899
========= =========
Supplemental Disclosure:
Cash paid for:
Interest $ 18,101 $ 23,870
Taxes $ -- $ --
See notes to financial statements
6
<PAGE>
<TABLE>
<CAPTION>
POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1999
Series A Preferred Stock Series B Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE
12/31/98 220,000 $ 2,200 450,000 $ 4,500 2,368,439 $ 6,704,195
Issuance of
warrants with
note payable
Conversion of
Series A and
Series B
preferred stock
to common
stock (220,000) $ (2,200) $(450,000) $ (4,500) $ 670,000 $ 6,700
Issuance of
common
stock net
of issuance
costs of
$16,875 288,331 $ 199,375
Net Loss for
the three
months -- -- -- -- -- --
--------- -------- --------- --------- ---------- -----------
Balance
March 31,1999 -0- -0- -0- -0- 3,326,770 $ 6,910,270
========= ======== ========= ========= ========== ===========
Table continued on next page.
7
<PAGE>
POLLUTION RESEARCH AND CONTROL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1999
(Continued)
Other Total
From Sale Paid In Accumulated Shareholders
of Stock Capital Deficit Equity
-------- ------- ------- ------
BALANCE
12/31/98 $ 928,831 $(5,586,454) $ 2,053,272
Issuance of
warrants with
note payable $ 13,250 $ 13,250
Conversion of
Series A and
Series B
preferred stock
to common
stock
Issuance of
common
stock net
of issuance
costs of
$16,875 $ 199,375
Net Loss for
the three
months -- (242,102) (242,102)
--------- ----------- -----------
Balance
March 31,1999 $ 942,081 $ 5,828,556 $ 2,023,795
========= =========== ===========
See notes to financial statements
8
</TABLE>
<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, 1998.
2. Inventories:
Inventories at March 31, 1999 consisted of the following:
Raw Materials $ 842,578
Work-in-Progress 424,234
Finished Goods 373,711
----------
$1,640,523
==========
3. Accrued Expenses:
Accrued expenses at March 31, 1999 consisted of the following:
Accrued settlement loss - Nutek, Inc. $349,397
Accrued payroll and related taxes 190,501
Accrued vacation 25,013
Current portion of deferred rent 23,012
Other 10,500
--------
$598,423
========
4. Shareholders' Equity:
During the first quarter of 1999, the Company received $199,375, net of $16,875
of issuance costs, from the issuance of 288,331 shares of common stock under a
private placement. As part of the private placement, the Company issued
three-year warrants to purchase 288,331 shares of common stock at $.75 per
share.
During the first quarter of 1999 all of the holders of the Series A & Series B
preferred stock converted their shares to 670,000 shares of common stock in
accordance with the original conversion terms.
5. Discontinued Operations:
In April, 1998 and February, 1998 the Company discontinued the operations of two
of its subsidiaries, Nutek, Inc. and Logan Research Limited.
9
<PAGE>
6. Notes Payable:
During the first quarter of 1999, the Company borrowed $100,000 under a
four-month note, bearing interest at 11% per annum. In conjunction with this
loan, the Company issued the note holder three-year warrants to purchase 48,000
shares of common stock at $.75 per share. The Company paid loan fees of $10,000
plus warrants to purchase an additional 5,000 shares of common stock at $.75 per
share.
7. Contingencies:
In connection with the discontinued operations of Nutek, Inc. as discussed in
Note 5, the Company is party to a lawsuit filed by the major secured lender of
Nutek. The Company has accrued a settlement loss of approximately $350,000 as
the probable outcome of this lawsuit. The original claim filed was approximately
$800,000, however, management is in settlement negotiations with the lender
which confirm a maximum possible settlement figure of $450,000.
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 has experienced operating losses during the past three quarters as
it pumps up operations to manufacture and ship product to the People's Republic
of China pursuant to an agreement signed in June 1998. The Company expects to
ship the first such product in May 1999, however performance under the China
contract is dependent on the Company obtaining additional financing. If such
financing is not obtained, the Company may not be able to perform under such
contract which, in turn, could adversely impact the Company's business.
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
products 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, 1999, versus Three Months Ended March 31, 1998
Net revenues increased 12% from $577,031 during the first quarter of 1998 to
$648,921 during the first quarter of 1999. The increase was primarily due to
orders from core customers who are not influenced by competitive price discounts
experienced by the Company during the last four years.
Gross margin was 16% for the first quarter of 1999 versus 62% for the first
quarter of 1998, because of the increased level of staff and operating structure
begun in July 1998 in anticipation of shipment of equipment to China.
10
<PAGE>
Selling, general and administrative expenses decreased $33,599, or 9% during the
first quarter of 1999, versus the same period in 1998, principally due to cost
cutting procedures of reduced travel and administrative salaries to decrease
working capital drain.
As a result of the foregoing factors, net operating loss increased from a net
operating loss of ($4,678) during the three months ended March 31, 1998 to a net
operating loss of ($242,102) during the three months ended March 31, 1999.
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. The low
market value of the Company's securities and its unstable operating performance
has severely restricted access to capital.
Net cash used in operating activities in the three months ended March 31, 1999,
amounted to $239,132, due to the net operating loss of $242,000. The Company's
cash level decreased 16% as compared to the end of the first quarter of 1998, a
total of $35,000 consisting of $239,000 applied to operating activities, offset
by $365,000 raised through a private placement of common stock and additional
borrowings.
Working capital was $1,121,814 at March 31, 1999.
The Company has no material commitments for capital expenditures as of March 31,
1999. The Company believes it would be able to meet its current obligations with
funds generated from operations 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.
Year 2000 Compliance
General. The Company believes it has completed all internal efforts to avoid the
adverse effects of the Year 2000 issue.
State of Readiness. The Company received certifications of compliance from all
vendors deemed material to its business operations during the first quarter of
1999.
Contingency Plans. The Company believes it should not rely completely on key
vendor compliance certification. Therefore costs are being incurred to enable
the Company to utilize alternative design procedures to allow alternate vendor
supply. These design changes are on-going and the costs are not expected to be
material.
Risks. The Company presently does not anticipate any material business
disruption will occur as a result of Year 2000 issues. The greatest potential
risk appears to be with federal, state and local governments.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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, 1999.
12
<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: May 10, 1999 By: /s/ Albert E. Gosselin Jr
------------ ---------------------------------
Albert E. Gosselin, Jr., President
and Chief Executive Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 180
<SECURITIES> 0
<RECEIVABLES> 252
<ALLOWANCES> 0
<INVENTORY> 1640
<CURRENT-ASSETS> 2092
<PP&E> 105
<DEPRECIATION> 6
<TOTAL-ASSETS> 3049
<CURRENT-LIABILITIES> 970
<BONDS> 0
0
0
<COMMON> 6910
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3049
<SALES> 648
<TOTAL-REVENUES> 0
<CGS> 542
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (242)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
