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, 2000
{ } 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 11, 2000 4,235,085
Traditional Small Business Disclosure Format (check one):
YES X No ___
1
<PAGE>
POLLUTION RESEARCH AND CONTROL CORP.
Form 10-QSB
For the Three Months Ended March 31, 2000
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 6
Consolidated Statement of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other Information 11
Item 1 Legal Proceedings 11
Item 6 Reports on Form 8-K 11
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
ASSETS
(Unaudited)
As of
3/31/00
---------
CURRENT ASSETS
Cash $ 659,795
Accounts receivable, trade, less
allowance for doubtful 462,981
accounts of $ 33,350
Inventories (Note 2) 1,546,075
Prepaid Loan Fees 551,233
Other current assets 48,997
----------
TOTAL CURRENT ASSETS 3,269,081
----------
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net 96,586
----------
OTHER ASSETS
Advances to joint venture 203,938
Deferred tax asset, net 2,659,000
Other intangible assets 30,009
Other assets 12,140
----------
TOTAL OTHER ASSETS 2,905,087
----------
TOTAL ASSETS $6,270,754
==========
See accompanying notes to financial statements
3
<PAGE>
CONSOLIDATED BALANCE SHEET (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
As of
CURRENT LIABILITIES 03/31/00
-----------
Notes payable (Note 3) $ 385,000
Convertible debt (Note 3) 1,075,000
Accounts payable 120,771
Accrued liabilities 221,998
-----------
TOTAL CURRENT LIABILITIES 1,802,769
-----------
DEFERRED RENT 39,968
-----------
SHAREHOLDERS' EQUITY : (Note 4)
Common Stock, no par value; 30,000,000 shares
authorized, 4,235,085 issued and outstanding 8,507,826
Additional paid in capital 1,120,849
Accumulated (deficit) (5,200,658)
-----------
TOTAL SHAREHOLDERS' EQUITY $ 4,428,017
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,270,754
===========
See accompanying notes to financial statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended March 31,
--------------------------
2000 1999
----------- -----------
Net Revenues $ 428,372 $ 648,921
Cost of goods sold 394,970 542,775
----------- -----------
Gross profit 33,402 106,146
----------- -----------
Operating expenses:
Selling, general and
administrative expenses 686,053 328,667
Research and development 1,405 1,480
----------- -----------
Total operating expenses 687,458 330,147
----------- -----------
Loss from operations (654,056) (224,001)
Other Income (Expense)
Interest Expense (86,046) (18,101)
Interest and other income 261 --
----------- -----------
Net Other Income (Expense) (85,785) (18,101)
Loss Before Income Taxes (739,841) (242,102)
Provision for income taxes -- --
----------- -----------
Net Income (loss) $ (739,841) $ (242,102)
=========== ===========
Earnings per share
Net Income (loss) per share
- basic and diluted $ (.20) $ (.09)
=========== ===========
Weighted Average Number of Shares Outstanding 3,721,018 2,564,072
=========== ===========
See accompanying notes to financial statements
5
<PAGE>
<TABLE>
<CAPTION>
POLLUTION RESEARCH AND CONTROL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2000
(Unaudited)
Additional Total
Common Stock Paid In Accumulated Shareholders'
Shares Amount Capital (Deficit) Equity
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1999 3,672,545 $ 7,840,920 $ 708,167 $(4,460,817) $ 4,088,270
Exercise of
Warrants 429,207 404,406 404,406
Conversion of
debt to common
stock 33,333 75,000 75,000
Increase in amount
realized from stock
issued under settle-
ment agreement 98,949 98,949
Issuance of common
stock to debenture
holder 100,000 187,500 187,500
Issuance of Warrants 313,733 313,733
Net Loss
-- -- -- (739,841) (739,841)
----------- ----------- ----------- ----------- -----------
Balance
March 31,2000 4,235,085 $ 8,507,826 $ 1,120,849 $(5,200,658) $ 4,428,017
=========== =========== =========== =========== ===========
See accompanying notes to financial statements
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended March 31
--------------------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(739,841) $(242,102)
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 65,795 17,849
Deferred rent (3,634) (3,633)
Changes in operating assets and liabilities:
Accounts receivable, trade, net 713,715 20,794
Inventories (157,364) (13,368)
Other current assets (3,997) (5,261)
Other assets -- (12,140)
Accounts payable (96,979) (31,633)
Accrued liabilities (61,512) 30,362
--------- ---------
Cash flows (used) by operating activities (283,817) (239,132)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan fees (50,000) (10,000)
--------- ---------
Cash flows (used) by investing activities (50,000) (10,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 404,406 199,375
Advances on notes payable 575,000 147,343
Repayments of debt (200,000) --
Repayment of advances to related parties -- 19,000
--------- ---------
Cash flows provided by financing activities 779,406 365,718
--------- ---------
NET INCREASE (DECREASE) IN CASH 445,589 116,586
CASH AT BEGINNING OF PERIOD 214,206 63,951
--------- ---------
CASH AT END OF PERIOD $ 659,795 $ 180,537
========= =========
Non Cash Transactions:
The Company paid $ 551,233 for prepaid loan fees by the issuance of stock and warrants.
Supplemental Disclosure:
Cash paid for:
Interest $ 84,608 $ 18,101
Taxes $ -- $ --
See accompanying notes to financial statements 7
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions for Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The information furnished herein reflects all material 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 the results of
operations for the full year.
The financial statements and related footnotes should be read in conjunction
with the financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB filed with the Securities and Exchange Commission
for the year ended December 31, 1999.
2. Inventories:
Inventories at March 31, 2000 consisted of the following:
Raw Materials $ 987,540
Work-in-Progress 153,639
Finished Goods 404,896
------------
$ 1,546,075
3. Notes Payable & Convertible Debt:
On February 23, 2000 the Company entered into 12% subordinated convertible
debenture agreements for $500,000 due February 23, 2001. The debentures are
convertible into the Company's Common Stock at any time at the option of the
holder. The conversion price is the lesser of 85% of the market price of the
Common Stock on the date of conversion or $2.00. As an incentive to enter into
this agreement, the Company issued 100,000 shares of Common Stock plus warrants
to purchase 100,000 shares and 200,000 shares of Common Stock at $2.25 per share
and $4.50 per share, respectively. The fair market value of the 100,000 shares
of Common Stock of $187,500 and the fair market value of the warrants of
$313,733 were capitalized as prepaid loan fees and is being amortized over the
term of the debt. The Company also paid $50,000 of loan fees related to this
debt.
On January 21, 2000 the Company obtained a loan for $75,000 for its wholly owned
subsidiary, Dasibi China Corp.. This loan bears interest at 10% per annum, and
was due March 21, 2000 and is being negotiated for conversion to equity in that
subsidiary.
See accompanying notes to financial statements 8
<PAGE>
4. Shareholders' Equity:
In March 2000 a holder of $150,000 of convertible debentures elected to convert
$75,000 into 33,333 shares of Common Stock in accordance with the terms of the
debentures.
In February 2000 in connection with the issuance of $500,000 of convertible
debentures, the Company issued 100,000 shares of Common Stock and 300,000
warrants as inducement for the loan. The fair value of these shares has been
capitalized as loan fees and is being amortized over the 1-year terms of the
debentures.
On March 31, 2000, warrants to purchase 50,000 shares of Common Stock at $2.40
per share and 379,207 shares of Common Stock at $.75 per share were exercised.
Common Stock issued to Fidelity Federal under a compromise settlement agreement
in June 1999 was used to pay the related debt. The actual proceeds from the sale
of these shares exceeded the amount recorded by $98,949. This increase has been
recorded as additional paid in capital.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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., and, since January 1998
has focused its business primarily on the air pollution market of the People's
Republic of China.
The Company has experienced operating losses during quarters in which no product
was shipped to China. High staffing and related expenses toward maintaining a
consistent quality control and manufacturing schedule. The 1999 Phase I contract
for $5.2 million was essentially completed in a 5 month schedule ending November
1999.
The Company's future operating results may be affected by a number of important
factors, including: but not limited to the ability of the Company to obtain
further contracts for China; 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; In
April 2000 the Company signed a $13.5 million agreement (the Phase II "China
Contract"). In May 2000 the Company's Board of Directors approved signed letters
of intent and a Company proposal for a joint venture to manufacture its product
in China.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 ("2000") Compared To Three Months Ended March
31, 1999 ("1999")
Net revenues for 2000 were $428,372 which represented a decrease of $220,549 or
34% under 1999 net revenue of $648,921. The decrease was primarily due to
ongoing competitive price pressures in the U.S. and Europe. Also there were no
China shipments.
Gross profit was $33,402 for 2000, a decrease of $72,744 from $106,146 for 1999.
The gross profit percentage was 8% in 2000, a decrease from 16% in 1999. The
decrease in the gross profit percentage was primarily attributable to increased
staffing and training in anticipation of the China Phase II Contract.
See accompanying notes to financial statements 9
<PAGE>
Selling, general and administrative expenses (SG&A) were $686,053 or 160% of
sales for 2000, an increase of $357,386 from $328,667 or 109%. The increase in
SG&A was principally due to the related expenses to the above increase in
staffing and training.
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 the Company's access to capital, and when capital has
been obtained it has been necessarily costly due to high interest costs and
related loan fees.
Net cash used in operating activities in the three months ended March 31, 2000
amounted to $283,817, due to the net operating loss of $739,841. The Company's
cash level increased 208% as compared to the end of 1999, a total of $445,509
consisting of $284,000 applied to operating activities, offset by $779,000
raised through issuance of common stock and additional borrowings.
Working capital was $915,709 at March 31, 2000.
The Company currently has $385,000 in term borrowings which mature in early June
2000. Management is negotiating "rollovers" for these loans. There is no
assurance that these rollovers will be accepted, however management also
believes, based on recent experience, that substitute loans can be obtained.
Previously during the 1st quarter of 1999 two similar loans were renegotiated
and a third loan was paid off with a release obtained on May 3, 2000. Management
believes that with the recent signing of the Phase II China contract its
"bankability" has been substantially improved. 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.
See accompanying notes to financial statements 10
<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, 2000.
See accompanying notes to financial statements 11
<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 11, 2000 By: /s/ Albert E. Gosselin, Jr.
--------------------------------------
Albert E. Gosselin, Jr., President and
Chief Executive Officer
Date: May 11, 2000 By: /s/ Donald Ford
--------------------------------------
Donald Ford
Chief Financial Officer
See accompanying notes to financial statements 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 660
<SECURITIES> 0
<RECEIVABLES> 496
<ALLOWANCES> 33
<INVENTORY> 1,546
<CURRENT-ASSETS> 600
<PP&E> 97
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,271
<CURRENT-LIABILITIES> 1,803
<BONDS> 0
0
0
<COMMON> 4,428
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,271
<SALES> 428
<TOTAL-REVENUES> 428
<CGS> 395
<TOTAL-COSTS> 687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (654)
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> (740)
<INCOME-TAX> 0
<INCOME-CONTINUING> (740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (740)
<EPS-BASIC> (.20)
<EPS-DILUTED> (.20)
</TABLE>
