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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 SEPTEMBER 30, 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)
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DELAWARE 33-0021693
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
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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
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State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Class: Common Stock, $0.005 par Outstanding at November 15, 1995: 17,593,610 Shares
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Transitional Small Business Disclosure Format (Check one):
Yes No X
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PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
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INDEX
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PAGE NO.
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Part I. Financial Information:
Consolidated Condensed Balance Sheet, September 30, 1995 1
Consolidated Condensed Statement of Operations
Three Months ended September 30, 1995 and 1994 2
Consolidated Condensed Statement of Cash Flows
Three Months ended September 30, 1995 and 1994 3
Notes to Consolidated Condensed Financial Statements 4
Management's Discussion and Analysis or Plan of Operations 5
Part II. Other Information 8
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PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited)
SEPTEMBER 30, 1995
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ASSETS
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Current assets:
Cash $ 97,000
Accounts receivable, net 712,000
Inventories 625,000
Other current assets 294,000
------------
Total current assets 1,728,000
Capitalized software, net 1,078,000
Prepaid licenses and royalties, net 517,000
Property and equipment, net 165,000
------------
$ 3,488,000
============
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 1,558,000
Accrued expenses 362,000
Deferred revenues 348,000
Notes payable 887,000
------------
Total current liabilities 3,155,000
------------
Shareholders' equity:
5% convertible preferred stock
$1,000 par value, 7,500 shares authorized, 2,318 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, 17,449,298 shares issued and outstanding 87,000
Paid-in capital 18,027,000
Accumulated deficit (21,261,000)
------------
Total shareholders' equity 333,000
------------
$ 3,488,000
============
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See accompanying notes to consolidated condensed financial statements.
1
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PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(unaudited)
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Three months ended September 30,
1995 1994
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Revenues:
Sales of products $ 2,471,000 $ 3,452,000
Engineering fees 220,000 99,000
License fees and royalties 118,000
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2,691,000 3,669,000
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Costs and expenses:
Cost of products sold 2,275,000 3,145,000
Selling, general and administrative 737,000 957,000
Amortization of capitalized software development costs 115,000 115,000
Research and development 436,000 264,000
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3,563,000 4,481,000
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Loss from operations (872,000) (812,000)
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Other income (expense):
Interest, net (22,000) (38,000)
Other 22,000
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(22,000) (16,000)
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Net loss from continuing operations before provision for
income taxes (894,000) (828,000)
Provision for taxes 4,000 4,000
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Net loss from continuing operations (898,000) (832,000)
Discontinued operations:
Loss from operations of discontinued subsidiary (26,000)
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Net loss before extraordinary item (898,000) (858,000)
Extraordinary gain on conversion of accounts payable
into common stock 7,000
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Net loss $ (891,000) $ (858,000)
=========== ===========
Primary loss per common share from continuing operations $ (0.05) $ (0.06)
=========== ===========
Primary loss per common share before extraordinary item $ (0.05) $ (0.06)
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Primary loss per common share $ (0.05) $ (0.07)
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Weighted average common shares outstanding 17,440,000 13,452,000
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See accompanying notes to consolidated condensed financial statements.
2
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PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
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Three months ended September 30,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(891,000) $(858,000)
Adjustments to reconcile net loss to cash used by operating
activities:
Depreciation and amortization of equipment 21,000 41,000
Amortization of capitalized software development costs 115,000 115,000
Amortization of prepaid licenses and royalties 28,000 89,000
Extraordinary gain on conversion of accounts payable into
common stock (7,000)
Changes in assets and liabilities:
Accounts receivable 538,000 (76,000)
Inventories (104,000) 80,000
Other current assets (21,000) (40,000)
Accounts payable and accrued expenses (37,000) 418,000
Deferred revenues 327,000 77,000
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NET CASH USED BY OPERATING ACTIVITIES (31,000) (154,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Prepaid licenses and royalties (19,000) (52,000)
Capital expenditures (26,000) (6,000)
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NET CASH USED BY INVESTING ACTIVITIES (45,000) (58,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 5,000
Principal payments under capital lease obligations (4,000) (16,000)
Proceeds from notes payable 25,000 400,000
Repayment of notes payable (139,000) (190,000)
Proceeds from line-of-credit 255,000
Repayment of line-of-credit (286,000)
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NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (149,000) 199,000
--------- ---------
Net decrease in cash (225,000) (13,000)
Cash at the beginning of the period 322,000 153,000
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Cash at the end of the period $ 97,000 $ 140,000
========= =========
NON-CASH FINANCING ACTIVITIES:
Conversion of accrued interest to principal on notes payable $ 21,000
=========
Fixed assets acquired under capital leases $ 14,000
=========
Conversion of accounts payable to common stock $ 10,000
=========
Consulting fees paid with common stock $ 5,000
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 15,000 $ 9,000
========= =========
Cash paid during the period for income taxes $ 4,000
=========
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See accompanying notes to consolidated condensed financial statements
3
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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 for the year ended June
30, 1995 filed with the Securities and Exchange Commission. Interim operating
results are not necessarily indicative of operating results for the full year.
NOTE 2- RECLASSIFICATIONS
Certain amounts in the Consolidated Condensed Statement of Operations for the
three month period ended September 30, 1994 have been reclassified to conform to
the current year presentation.
NOTE 3- INVENTORIES
Inventories at September 30, 1995 consisted of the following:
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Materials and supplies $268,000
Work in process 7,000
Finished goods 350,000
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$625,000
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4
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PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
The Company has been in a two-year transition, from older technology and
products, to being a technology-based supplier of state-of-the-art printer
controllers to OEM customers. The implementation of the strategy of the
development of the new Adobe PostScript and HP-based (PCL) multi-function
technology is coming to fruition. The Company has been successful in attracting
several major customers, with substantial resources and marketing capabilities,
that desire to utilize the technologies of the Company which we have developed
over the past few years. Current contracts to adapt the Company's software
products to controllers that will be integrated with the hardware products of
various OEM customers, include Integrated Device Technology, Inc. (IDT),
Matsushita Electric Company, Ltd. (Panasonic), Samsung Electronics Company,
Minolta Company, Ltd. and NEC Electronics, Inc.
The Company recognized approximately $220,000 in non-recurring engineering fees
to adapt the Company's software products to controllers of its OEM customers for
the three month period ended September 30, 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 transitional phase 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.
The Company had a net loss from continuing operations of $898,000 for the first
quarter of fiscal 1996 compared to $832,000 for the first quarter of fiscal
1995. Total revenues were $2,691,000 for the first quarter of fiscal 1996 versus
$3,669,000 for the first quarter of fiscal 1995.
REVENUES
Sales of products from continuing operations, through the Company's Distribution
Division, were $2,471,000 for the first quarter of fiscal 1996 versus
$3,452,000 for the first quarter of fiscal 1995.
The Company's sales of products from continuing operations for the quarters
ended September 30, 1995 and 1994 include Prima sales of $2,434,000 and
$2,966,000, respectively. Prima's business consists of product distribution and
integration, including sales of its PDQ line of memory devices featuring
SyQuest removable cartridge technology. The reduction in sales is attributed to
above historical declines in European sales during the first fiscal quarter and
reduced product availability by SyQuest. In addition, a shortage of working
capital during the quarter ended September 30, 1995, imposed limitations on
Prima's operations.
The Company has been transitioning from older technology and products, to new
technology-based printer controller products over the past two-years. During the
quarters ended September 30, 1995 and 1994 sales of these older technology based
products were $37,000 and $486,000. Product sales during the quarter ended
September 30, 1994 include sales, to a single customer, of $231,000 of laser
printer engines.
During fiscal 1996, the Company performed work on engineering projects that were
funded by OEM customers under non-recurring engineering contracts (NRE). NRE
revenue for the quarters ended September 30, 1995 and 1994 was $220,000 and
$99,000, respectively, which was recognized during the course of development
based on the percentage of completion method.
5
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Licensing and royalties for the three month period ended September 30, 1994 were
$118,000. During the quarter ended September 30, 1995 no such revenues were
realized. In the past, licensing and royalty revenue have shown significant
quarter-to-quarter fluctuations. Fiscal 1995 licensing and royalty revenues were
derived from "older-technology" based products. PCPI has submitted several
proposals to prospective customers 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
September 30, 1995 and 1994 was $2,275,000 and $3,145,000, respectively,
representing a gross margin of 7.9% and 8.9%, respectively. The decreased margin
is attributed to a change in the product mix between the periods and a continued
decline of old-technology based products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses from continuing operations for the
first quarter of fiscal 1996 were $737,000 versus $957,000 for the first quarter
of fiscal 1995. The decrease is the result of reductions in force due to
attrition in personnel and reductions in selling expenses due primarily to the
Company's working capital shortage.
RESEARCH AND DEVELOPMENT
Research and development expenditures from continuing operations for the first
quarter of fiscal 1996 were $436,000 versus $264,000 for the first quarter of
fiscal 1995. These expenditures consist of engineering expenses associated with
the development of controller technologies and designs for PCPI technology
customers. During the first quarters of fiscal 1996 and 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 majority
of the Company's current development projects have been funded by OEM customers
under development contracts.
OTHER INCOME AND LOSS
Net interest expense from continuing operations was $22,000 for the first
quarter of fiscal 1996 versus $38,000 for the first quarter of fiscal 1995.
Interest expenses were due to outstanding debt balances.
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 first quarter sales of approximately $33,000 and
total operating expenses (cost of products sold and selling, general and
administrative expenses) of $59,000.
6
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LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 30, 1995, PCPI's liquidity declined. Despite
the conversions of approximately $2.8 million of outstanding debt into equity
during fiscal 1995 and 1994, at September 30, 1995 the Company had a negative
balance of working capital of $1,425,000 compared to a negative working capital
of $649,000 as of June 30, 1995. During fiscal 1995 and through September 30,
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 1995 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 September 30, 1995, Prima's unused special purpose line of credit was
$245,000.
PCPI has no material commitments for capital expenditures.
7
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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No reportable matter.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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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 September 30, 1995 was approximately
$1,673,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
ITEM 5. OTHER INFORMATION
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None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits:
None.
(b) Reports on Form 8-K:
On August 21, 1995, the Company filed a Form 8-K containing a press release
with regard to a temporary exception from the Minimum Bid Price Requirement
under the Nasdaq Small Cap Market rules. Included in this filing was a pro-
forma balance sheet as of June 30, 1995 to demonstrate that the Company was
in compliance with the Nasdaq Small Cap Market net equity listing
requirements.
On August 29, 1995, the Company filed a Form 8-K dismissing Price
Waterhouse, LLP as its independent accountant. As disclosed therein, In
connection with its audits for the two most recent fiscal years and through
August 25, 1995, there were no disagreements with Price Waterhouse LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Price Waterhouse LLP would have caused them
to make reference thereto in their report on the financial statements for
such years. In addition, the filing disclosed that the Company had engaged
Boros & Farrington, CPAs, APC as its new independent accountants as of
August 25, 1995.
8
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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.
PERSONAL COMPUTER PRODUCTS, INC.
BY: /s/ EDWARD W. SAVARESE
----------------------------------
DATE: November 29, 1995 Edward W. Savarese
Chairman of the Board, President and
Chief Executive Officer
BY: /s/ RALPH R. BARRY
----------------------------------
DATE: November 29, 1995 Ralph R. Barry
Chief Financial Officer
9
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<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
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