<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
or
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-12641
[LOGO OF PCPI]
PERSONAL COMPUTER PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0021693
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
10865 RANCHO BERNARDO ROAD
SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices)
Issuer's Telephone Number, Including Area Code: (619) 485-8411
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class: Common Stock, $0.005 par Outstanding at May 10, 1995: 16,928,568 Shares
- - - - -------------------------------- ----------------------------------------------
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PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
PAGE NO.
Part I. Financial Information:
<S> <C>
Consolidated Condensed Balance Sheet, March 31, 1995 1
Consolidated Condensed Statement of Operations
Three Months ended March 31, 1995 and 1994 2
Nine Months ended March 31, 1995 and 1994 3
Consolidated Condensed Statement of Cash Flows
Nine Months ended March 31, 1995 and 1994 4
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis or Plan of Operations 7
Part II. Other Information 11
</TABLE>
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<TABLE>
<CAPTION>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited)
MARCH 31, 1995
- - - - -----------------------------------------------------------------------------------------------------------------------------
ASSETS
- - - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Current assets:
Cash $ 128,000
Accounts receivable, net 1,354,000
Inventories 720,000
Other current assets 259,000
----------
Total current assets 2,461,000
Capitalized software, net 1,318,000
Prepaid licenses and royalties, net 595,000
Property and equipment, net 152,000
-----------
$ 4,526,000
===========
- - - - -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - - - -----------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,771,000
Accrued expenses 548,000
Deferred revenues 132,000
Notes payable 741,000
-----------
Total current liabilities 3,192,000
-----------
Shareholders' equity:
5% convertible preferred stock
$1,000 par value, 7,500 shares authorized, issued and outstanding 2,318,000
5% series B convertible preferred stock $1,000 par value, 117 shares authorized, 116.2 issued and outstanding 1,162,000
Preferred stock
$1,000 par value, 2,383 authorized, no shares issued and outstanding
Common stock
$.005 par value, 50,000,000 shares authorized, 16,178,568 shares issued and outstanding 83,000
Paid-in capital 17,554,000
Shareholder loans (10,000)
Accumulated deficit (19,773,000)
------------
Total shareholders' equity 1,334,000
------------
$ 4,526,000
============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(unaudited)
Three months ended March 31,
1995 1994
---------------------------
<S> <C> <C>
(as restated)
Revenues:
Sales of products $ 3,137,000 $ 2,734,000
License fees, royalties, and engineering fees 411,000 116,000
----------- -----------
3,548,000 2,850,000
----------- -----------
Costs and expenses:
Cost of products sold 2,804,000 2,650,000
Selling, general and administrative 753,000 948,000
Amortization of capitalized software development costs 144,000 71,000
Research and development 327,000 124,000
----------- -----------
4,028,000 3,793,000
----------- -----------
Loss from operations (480,000) (943,000)
----------- -----------
Other income (expense):
Interest, net (30,000) (13,000)
Settlement of license agreements 234,000
Loss on conversion of convertible debt (204,000)
Other (1,000) 11,000
----------- -----------
(1,000) (2,000)
----------- -----------
Net loss from continuing operations before provision for
income taxes (481,000) (945,000)
Provision for taxes ----------- -----------
Net loss from continuing operations (481,000) (945,000)
Discontinued operations:
Loss from operations of discontinued subsidiary (25,000) (20,000)
Gain on disposal of subsidiary 227,000
----------- -----------
Net loss before extraordinary item (279,000) (965,000)
Extraordinary gain on the conversion of notes payable into
common stock 209,000
----------- -----------
Net loss $ (70,000) $ (965,000)
----------- -----------
Primary loss per common share from continuing operations $ (0.03) $ (0.08)
----------- -----------
Primary loss per common share before extraordinary item $ (0.02) $ (0.08)
----------- -----------
Primary loss per common share $ (0.00) $ (0.08)
----------- -----------
Weighted average common shares outstanding 15,611,773 12,530,520
See accompanying notes to consolidated condensed financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(unaudited)
- - - - --------------------------------------------------------------------------------------------
Nine months ended March 31,
1995 1994
- - - - --------------------------------------------------------------------------------------------
<S> <C> <C>
(as restated)
Revenues:
Sales of products $ 9,755,000 $ 7,521,000
License fees, royalties, and engineering fees 903,000 274,000
----------- -----------
10,658,000 7,795,000
----------- -----------
Costs and expenses:
Cost of products sold 8,853,000 7,029,000
Selling, general and administrative 2,430,000 2,378,000
Amortization of capitalized software development costs 374,000 151,000
Research and development 866,000 257,000
----------- -----------
12,523,000 9,815,000
----------- -----------
Loss from operations (1,865,000) (2,020,000)
----------- -----------
Other income (expense):
Interest, net (96,000) (32,000)
Settlement of license agreements 234,000
Loss on conversion of convertible debt (204,000)
Other 22,000 12,000
----------- -----------
(44,000) (20,000)
----------- -----------
Net loss from continuing operations before provision for
income taxes (1,909,000) (2,040,000)
Provision for taxes 4,000 8,000
----------- -----------
Net loss from continuing operations (1,913,000) (2,048,000)
Discontinued operations:
Loss from operations of discontinued subsidiary (71,000) (82,000)
Gain on disposal of subsidiary 227,000
----------- -----------
Net loss before extraordinary item (1,757,000) (2,130,000)
Extraordinary gain on the conversion of notes payable into
common stock 209,000
----------- -----------
Net loss $(1,548,000) $(2,130,000)
----------- -----------
Primary loss per common share from continuing operations $(0.14) $(0.18)
----------- -----------
Primary loss per common share before extraordinary item $(0.13) $(0.19)
----------- -----------
Primary loss per common share $(0.11) $(0.19)
----------- -----------
Weighted average common shares outstanding 14,165,641 11,561,984
- - - - --------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
- - - - --------------------------------------------------------------------------------------------------------
Nine months ended March 31,
1995 1994
- - - - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
(as restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,548,000) $(2,130,000)
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation and amortization of equipment 96,000 116,000
Amortization of software development costs 374,000 151,000
Amortization of prepaid licenses and royalties 183,000 198,000
Gain on disposal of subsidiary (227,000)
Loss on conversion of convertible debt 204,000
Extraordinary gain on conversion of notes payable into common stock (209,000)
Changes in assets and liabilities:
Accounts receivable 29,000 565,000
Inventories 492,000 42,000
Other current assets 8,000 186,000
Accounts payable and accrued liabilities 189,000 645,000
Deferred revenue (43,000)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (452,000) (227,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (696,000)
Prepaid licenses and royalties (101,000) (447,000)
Capital expenditures (63,000) (24,000)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (164,000) (1,167,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 116,000 33,000
Proceeds from shareholder loans 109,000 170,000
Principal payments under capital lease obligations (33,000) (26,000)
Proceeds from notes payable 736,000 700,000
Repayment of notes payable (337,000) (749,000)
Net proceeds from sale of common stock 1,824,000
Net proceeds from sale of warrants 50,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 591,000 2,002,000
----------- -----------
Net (decrease) increase in cash (25,000) 608,000
Cash at the beginning of the period 153,000 42,000
----------- -----------
Cash at the end of the period $ 128,000 $ 650,000
----------- -----------
NON-CASH FINANCING ACTIVITIES:
Conversion of notes payable to common stock $ 1,186,000
-----------
Conversion of accounts payable to preferred stock $ 1,162,000
-----------
Common stock options exercised $ 149,000
-----------
Conversion of preferred to common stock $ 93,000 $ 200,000
----------- -----------
Conversion of accrued interest to common stock $ 38,000
-----------
Conversion of accrued interest to principal on notes payable $ 33,000
-----------
Fixed assets acquired under capital leases $ 7,000 $ 25,000
----------- -----------
Prima International assets acquired through debt assumption $ 1,279,000
-----------
Conversion of accounts payable to common stock $ 487,000
-----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 21,000 $ 87,000
----------- -----------
Cash paid during the period for income taxes $ 4,000 $ 9,000
----------- -----------
See accompanying notes to consolidated condensed financial statements
</TABLE>
4
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND RESTATEMENT
The accompanying consolidated condensed financial statements of Personal
Computer Products, Inc. and Subsidiaries (the "Company" or "PCPI") have not been
audited. These financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position, results of operations and
cash flows for the periods presented. These financial statements should be read
in conjunction with the Company's audited financial statements which are
included in the Company's annual report on Form 10-KSB and the Company's Form
10-QSB for the quarters ended September 30, 1994 and December 31, 1994 and the
Company's Form 8-K filed with the Securities and Exchange Commission on February
1, 1995. Interim operating results are not necessarily indicative of operating
results for the full year.
The Company's Form 10-KSB for fiscal 1994 included restated results for fiscal
1993 and the first three quarters of fiscal 1994. The Company reviewed the
application of its revenue recognition principles with respect to its long-term
(generally two to three year) software license contracts and related product
shipments. As prescribed in AICPA Statement of Position 91-1 "Software Revenue
Recognition," such revenues should be deferred and recognized once collection is
made or is "probable." As a result of the Company's review, it determined that a
portion of such revenues, which were previously recognized upon execution of the
related agreement and delivery of applicable software, technology, and products,
should be deferred. Accordingly, the financial information relating to the
quarter and nine months ended March 31, 1994 have been restated for this revenue
recognition adjustment in addition to other less significant items.
NOTE 2- RECLASSIFICATIONS
Certain amounts in the consolidated condensed financial statements for the three
and nine month periods ended March 31, 1994 have been reclassified to conform to
the current year presentation.
NOTE 3- INVENTORIES
Inventories at March 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Materials and supplies $390,000
Work in process 28,000
Finished goods 302,000
--------
$720,000
========
</TABLE>
5
<PAGE>
NOTE 4 - Acquisition of Prima International
Effective October 1, 1993, the Company acquired all of the outstanding stock of
Prima, Inc. ("Prima") doing business as Prima International, a distributor of
computer peripherals and add-on products. The purchase price was $10 plus the
assumption of Prima's liabilities. The transaction was accounted for as a
purchase; accordingly, the results of Prima's operations have been included in
consolidated operations from the date of acquisition. The following are the
unaudited pro forma results of operations for the nine month period ended March
31, 1994 of the Company as though Prima was acquired on July 1, 1993.
<TABLE>
<S> <C>
Revenues $10,297,000
Loss from operations (2,153,000)
Net loss (2,175,000)
Net loss per share (0.19)
</TABLE>
In conjunction with the acquisition, assets acquired and liabilities assumed
were each $1,279,000; no goodwill was recorded in connection with this
transaction.
NOTE 5 - DISCONTINUED OPERATIONS
Effective March 24, 1995, the Company sold 81% of the common stock of its
wholly-owned subsidiary ImageSoft Incorporated ("ImageSoft"), to ImageSoft's
president in consideration of a $100,000 Promissory Note ("Note"). The Note is
secured by the assets and technologies of ImageSoft and matures on March 24,
2000. The Note bears interest at the annual rate of 7%, payable annually and
calls for the principal to be paid at maturity. The Note has not been reflected
in the financial statements and a gain will be recognized as the cash payments
are received. As a result of the sale, the Company will account for its
investment in ImageSoft under the cost method. The balance sheet as of March 31,
1995 and statement of operations for the quarter and nine month periods ended
March 31, 1995 and 1994 reflect the disposal of ImageSoft. As of March 31, 1995,
no assets or liabilities of ImageSoft have been reflected in the Company's
financial statements and the Company's remaining 19% investment is recorded at
zero.
NOTE 6 - EXTRAORDINARY ITEM
In January 1995, the Company converted certain outstanding notes payable into
1,117,197 unregistered shares of the Company's common stock at the conversion
price of $0.625 per share when the market value for the shares was $0.438 per
share. The Company recognized an extraordinary gain on the issuance of these
shares of approximately $209,000 representing the difference in the aggregate
conversion price and the market value of the shares.
6
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations
The Company's recent focus of its business efforts on the development of
Adobe(TM) PostScript(TM)-based controllers and other controllers featuring
PCPI's ImageBase(TM) software platform, has resulted in the recognition in the
third quarter of fiscal 1995, of approximately $406,000 in revenues associated
with contracts to adapt the Company's software products to controllers that will
be integrated with the hardware products of various OEM customers, including
Integrated Device Technology, Inc. (IDT), Matsushita Electric Company, Ltd.
(Panasonic) and Samsung Electronics Company. The Company recognized
approximately $716,000 in such revenues for the nine month period ended March
31, 1995. PCPI's strategy has required the Company to alter its focus away from
some of its traditional revenue sources and to make expenditures in support of
these efforts. As a result, the Company's business continues to be in a
significant transition and there are important short-term operational and
liquidity challenges. Accordingly, year-to-year financial comparisons may be of
limited usefulness now and for the next several quarters due to these important
changes in the Company's business and also due to the Company's strategic
acquisition of Prima in October 1993.
As described in Note 5, effective March 24, 1995, the Company sold 81% of the
common stock of ImageSoft Incorporated. The operations of ImageSoft were not
significant. The Company had inadequate working capital to invest additional
funds in ImageSoft and has not provided any significant funding to ImageSoft
operations for the past few years. The disposal of ImageSoft resulted in a gain
of $227,000.
As described in Note 6, in January 1995, the Company converted certain
outstanding notes payable into 1,117,197 unregistered shares of the Company's
common stock. The Company recognized an extraordinary gain on the issuance of
these shares of approximately $209,000 representing the difference in the
aggregate conversion price and the market value of the shares.
The Company had a net loss from continuing operations of $481,000 for the third
quarter of fiscal 1995 compared to $945,000 for the third quarter of fiscal
1994. Total revenues were $3,548,000 for the third quarter of fiscal 1995 versus
$2,850,000 for the third quarter of fiscal 1994.
The Company had a net loss from continuing operations of $1,913,000 on total
revenues of $10,658,000 for the nine month period ended March 31, 1995 compared
to $2,048,000 on total revenues of $7,795,000 for the nine month period ended
March 31, 1994.
The quarter and nine month periods ended March 31, 1995 include non-recurring
gains of $227,000 on the disposal of ImageSoft, $234,000 on the settlement of
license agreements and an extraordinary gain on the conversion of notes payable
into common stock of $209,000 and a loss of $204,000 on the conversion of the 5%
Notes into common stock.
As described in Note 1 to the consolidated condensed financial statements, the
Company has restated the financial information relating to the quarters ended
September 30, 1993, December 31, 1993 and March 31, 1994.
REVENUES
Sales of products from continuing operations were $3,137,000 for the third
quarter of fiscal 1995 versus $2,734,000 for the third quarter of fiscal 1994.
Included in sales of products for the third quarter of fiscal 1995 are
$3,118,000 of sales from Prima, which was acquired by the Company in October
1993. The Company's sales of products for the third quarter of fiscal 1994
include Prima sales of $2,537,000. Prima's business consists of product
distribution and integration, including sales of its PDQ(TM) line of memory
devices featuring SyQuest(TM) removable cartridge technology.
7
<PAGE>
For the nine month period ended March 31, 1995, sales of products from
continuing operations were $9,755,000 versus $7,521,000 for the nine month
period ended March 31, 1994. Sales of products by the Company's Prima subsidiary
were $9,239,000 for the nine month period ended March 31, 1995. Prima sales were
$6,597,000 for the nine months ended March 31, 1994, which only included sales
from the date of acquisition in October 1993.
A shortage of working capital during fiscal 1995 imposed limitations on the
Company's operations, including Prima's business.
The Company's sales of products from continuing operations, other than Prima
sales, for the quarter ended March 31, 1995 were $19,000 compared to $197,000
for the quarter ended March 31, 1994, both of which are far lower than the
Company's historic product sales. Such sales for the nine month period ended
March 31, 1995 were $516,000 versus $924,000 for the nine month period ended
March 31, 1994.
PCPI's printer product sales over the past few years have declined due to strong
worldwide competition from laser printer suppliers with significantly greater
resources than those of the Company and the Company's shift in strategy from
selling laser printers to selling technology licensing and controller boards.
For the quarters and nine month periods ended March 31, 1995 and 1994, PCPI had
no printer product sales. During the nine months ended March 31, 1995, PCPI
sold, to a single customer, $231,000 of laser printer engines.
Sales of printer products other than laser printers, marketed through the
Company's Laser Printer Accessories Corporation ("LPAC") subsidiary, were
$19,000 during the third quarter of fiscal 1995 and were $204,000 for the nine
months ended March 31, 1995. LPAC sales for the quarter and nine month periods
ended March 31, 1994 sales were $72,000 and $589,000, respectively
Royalty, licensing, and engineering revenues from continuing operations for the
third quarter of fiscal 1995 were $411,000 versus $116,000 for the third quarter
of fiscal 1994. This increase is primarily due to work completed on engineering
projects that were funded by OEM customers under non-recurring engineering
contracts (NRE). NRE revenue for the quarter ended March 31, 1995 was $406,000,
which was recognized during the course of development based on the percentage of
completion method. License fees and royalties were $5,000 during the quarter
ended March 31, 1995.
Royalty, licensing, and engineering revenues from continuing operations for the
nine month period ended March 31, 1995 were $903,000 versus $274,000 in the
prior fiscal year period. NRE revenues were $716,000 for the period versus no
NRE revenues for the same period in fiscal 1994. Licensing and royalties for the
nine month period ended March 31, 1995 were $187,000 versus $274,000 for the
nine month period ended March 31, 1994.
In the past, licensing and royalty revenue has shown significant quarter-to-
quarter fluctuation. PCPI has submitted several proposals to prospects in order
to develop Adobe PostScript-based controllers and other controllers based upon
its ImageBase technology. While the Company has entered into some contracts with
OEM customers for controller development, there can be no assurance that
additional contracts will be obtained for the development of such controllers,
or that the existing contracts will be completed, or that products will then be
shipped by the customer in order to generate future royalty and license
revenues.
COST OF PRODUCTS SOLD
Cost of products sold from continuing operations for the three months ended
March 31, 1995 and 1994 was $2,804,000 and $2,650,000, respectively,
representing a gross margin of 10.6% and 3.1%, respectively. The increased
margin is attributed to a change in the product mix between the periods and
reduced amortization of prepaid license and royalties. In addition, the product
sales during the quarter ended March 31, 1995 resulted in lower royalty charges
compared to the previous years product sales.
8
<PAGE>
For the nine month period ended March 31, 1995, cost of products sold from
continuing operations was $8,853,000, representing a gross margin of 9.2%. For
the nine month period ended March 31, 1994, cost of products sold from
continuing operations was $7,029,000, representing a gross margin of 6.5%.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses from continuing operations for the
third quarter of fiscal 1995 were $753,000 versus $948,000 for the third quarter
of fiscal 1994. The decrease is due to reductions in force due to attrition,
consolidation of Prima manufacturing at the Company's San Diego facilities and
reductions in selling expenses due primarily to the Company's working capital
shortage.
For the nine month period ended March 31, 1995 and 1994 selling, general and
administrative expenses from continuing operations were $2,430,000 and
$2,378,000, respectively. The change in these expenses was due to the absence of
Prima expenses in the first quarter of fiscal 1994 (the Company acquired Prima
in the second quarter of fiscal 1994), the effect of temporary reductions of
wages and salaries for the first quarter of fiscal 1994 and the reduction in the
Company's rent on its San Diego facilities (from approximately $27,000 to
$11,500 per month) during the second quarter of fiscal 1995.
RESEARCH AND DEVELOPMENT
Research and development expenditures from continuing operations for the third
quarter of fiscal 1995 were $327,000 versus $124,000 for the third quarter of
fiscal 1994. These expenditures consist of engineering expenses associated with
the development of controller technologies and designs for PCPI technology
customers. During the third quarter of fiscal 1995, and for the nine month
period ended March 31, 1995, the Company did not capitalize any costs pursuant
to Financial Accounting Standard No. 86 ("Accounting for Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed") as the Company did not have
any qualifying expenditures. The Company capitalized $204,000 of such costs in
the third quarter of fiscal 1994 and $696,000 of such costs in the nine month
period ended March 31, 1994. The Company's current development projects have
been funded by OEM customers under development contracts.
OTHER INCOME AND LOSS
Interest expense from continuing operations was $30,000 for the third quarter of
fiscal 1995 versus $13,000 for the third quarter of fiscal 1994. Interest
expenses were due to outstanding debt balances. Interest expense for the nine
month period ended March 31, 1995 was $96,000 versus $32,000 for the year-
earlier period.
The quarter and nine month periods ended March 31, 1995 include non-recurring
gains of $234,000 on the settlement of license agreements and $227,000 on the
disposal of ImageSoft (discontinued operations) and a non-cash accounting loss
in accordance with Statement of Financial Accounting Standards No. 84 ("Induced
Conversions of Convertible Debt") of $204,000 on the conversion of the 5% Notes
into common stock. The Company also recognized an extraordinary gain of $209,000
on the conversion of notes payable into common stock representing the difference
in the aggregate conversion price of the shares issued and their market value at
the date of conversion.
The quarter and nine month periods ended March 31, 1994 include non-recurring
gains of $11,000 as the result of the sale of securities.
9
<PAGE>
DISCONTINUED OPERATIONS
Effective March 24, 1995, the Company disposed of its ImageSoft subsidiary.
Operations of ImageSoft have not been material to the consolidated operations of
the Company.
The Company's discontinued ImageSoft subsidiary (software distribution and
publishing) had fiscal 1995 third quarter sales of approximately $30,000 versus
$64,000 for the third quarter of fiscal 1994. For the nine month period ended
March 31, 1995, ImageSoft sales were $93,000 as compared to sales of $242,000
for the nine month period ended March 31, 1994.
Total operating expenses (cost of products sold and selling, general and
administrative expenses) for the three months ended March 31, 1995 and 1994 was
$55,000 and $84,000, respectively. For the nine month period ended March 31,
1995 and 1994, operating expenses were $164,000 and $324,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1995 PCPI's liquidity improved as the result
of converting approximately $2,535,000 of liabilities into common and preferred
stock of the Company. Despite the conversion, at March 31, 1995 the Company had
a negative balance of working capital of $731,000. During fiscal 1995, the
Company has experienced operating difficulties due to its lack of working
capital. The shift in focus toward Adobe co-development projects presents
continuing liquidity problems because, in the short-term, these activities are
net users of working capital. The Company believes its current working capital
and anticipated operating cash flows may not be sufficient to meet its financial
resource requirements. Adequate working capital is necessary to continue the
Company's operations, develop its technology licensing business and to deliver
the resulting products to contract customers in an efficient and timely manner.
Shareholders should note the Company's weak cash position and negative working
capital, and the possibility of continuing operating losses.
Shareholders also should note that the Company's auditors' report on the
Company's fiscal 1994 financial statements expressed uncertainty regarding the
Company's ability to continue as a going concern. The Company is currently
seeking additional financing in order to meet its short-term and long-term
liquidity requirements. However, there can be no assurance that such financing
will be available.
As of March 31, 1995, the Company had no unused lines of credit.
PCPI has no material commitments for capital expenditures.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - - - --------------------------
No reportable matter.
ITEM 2. CHANGES IN SECURITIES
- - - - ------------------------------
In January 1995, the Company designated 117 shares of previously undesignated
Preferred Stock as 5% Series B Convertible Preferred Stock, par value $1,000 per
share ("Series B"). Each Series B shareholder will have a liquidation preference
of $10,000 per Series B share over the common shareholders. Holders of the
Series B will be entitled to receive, when and as declared by the Board of
Directors, but only out of amounts legally available for the payment thereof,
cumulative cash dividends at the annual rate of $500 per share, payable
annually. Dividends on the Series B shall be payable before any dividends on any
junior stock, including the common stock of the Company, but after the 5%
Convertible Preferred Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - - - ----------------------------------------
The Company's 5% convertible preferred stock, which ranks prior to the Company's
5% Series B Preferred Stock and common stock, carries a cumulative dividend,
when and as declared, at an annual rate of $50.00 per share. The aggregate
amount of such dividends in arrears at March 31, 1995 was approximately
$1,612,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - - - ------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- - - - --------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - - - -----------------------------------------
(a) Exhibits:
None.
(b) Reports on Form 8-K:
On February 1, 1995, the Company filed a Form 8-K outlining certain equity
transactions which occurred during January 1995. Included in this filing was a
pro-forma balance sheet noting the effects of these equity transactions on the
December 31, 1994 balance sheet as filed on the Company's Form 10-QSB for the
quarter ended December 31, 1994.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
<TABLE>
<CAPTION>
<S> <C>
PERSONAL COMPUTER PRODUCTS, INC.
BY: EDWARD W. SAVARESE
------------------------------------------------------------
DATE: May 15, 1995 Edward W. Savarese
Chairman of the Board, President and Chief Executive Officer
BY: GERRY B. BERG
------------------------------------------------------------
DATE: May 15, 1995 Gerry B. Berg
Executive Vice President and Chief Financial Officer
BY: RALPH R. BARRY
------------------------------------------------------------
DATE: May 15, 1995 Ralph R. Barry
Controller and Chief Accounting Officer
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 128
<SECURITIES> 0
<RECEIVABLES> 1,354
<ALLOWANCES> 0
<INVENTORY> 720
<CURRENT-ASSETS> 2,461
<PP&E> 152
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,526
<CURRENT-LIABILITIES> 2,451
<BONDS> 741
<COMMON> 83
0
3,480
<OTHER-SE> (2,229)
<TOTAL-LIABILITY-AND-EQUITY> 4,526
<SALES> 9,755
<TOTAL-REVENUES> 10,658
<CGS> 8,853
<TOTAL-COSTS> 8,853
<OTHER-EXPENSES> 374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> (1,909)
<INCOME-TAX> 4
<INCOME-CONTINUING> (1,913)
<DISCONTINUED> 156
<EXTRAORDINARY> 209
<CHANGES> 0
<NET-INCOME> (1,548)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
