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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DECEMBER 20, 1996
PERSONAL COMPUTER PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 0-12641 33-0021693
(State or other jurisdiction (Commission file No.) (IRS Employer ID No.)
of incorporation or organization)
11031 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices)
Issuer's Telephone Number, Including Area Code: (619) 485-8411
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ITEM 5. OTHER EVENTS
FORWARD LOOKING STATEMENTS
Personal Computer Products, Inc. ("PCPI" or the "Company") from time-
to-time files various documents with the U.S. Securities and Exchange
Commission, issues press releases to inform shareholders and the investment
community of significant operating activities of the Company and discusses
the Company's operating activities with the investment community which may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which reflect the Company's then current
judgment on those issues. In various disclosures, words such as
"gratifying", "highly qualified", "progress", "encouraged", "growth",
"strengthening", "enthusiastic", and other similar expressions are used to
identify forward-looking statements. Because such statements apply to
future events, they are subject to risks and uncertainties that could cause
the actual results to differ materially.
Investors are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date thereof. The Company
undertakes no obligation to publicly release updates or revisions to these
statements.
Important factors which could cause actual results to differ
materially are described in the following paragraphs under RISK FACTORS.
RISK FACTORS
COMPETITION
The Company's results may be adversely affected by the actions of
existing or future competitors. The market for personal computer products,
generally, and laser printers and accessories, in particular, is highly
competitive. The market for laser printers is dominated by Hewlett Packard
Company with approximately 50% of the worldwide market and by large
Japanese manufacturers. These companies are expected to continue to hold
most of the worldwide market for laser printers for several years to come.
The market for Adobe-Registered Trademark- PostScript-Registered
Trademark- based controllers is estimated to encompass 20% of the worldwide
printer market. In addition to Adobe Systems Incorporated, there are other
companies that compete with PCPI to provide customers with controllers
featuring Adobe PostScript. The Company's chief competition in this regard
is Peerless, Inc., that has been an Adobe Co-developer longer than PCPI.
Several other companies provide PostScript compatible controllers with
emulations of Adobe PostScript, creating additional competition for low-
priced printer controllers. While the technology represented by many of the
Company's products is complex, and requires substantial knowledge to
produce and market, the barriers to entry are not such that they would
prevent other companies from competing with the Company. For the Company to
compete effectively, it must aggressively pursue its Adobe co-developer
status with
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customers who wish to include PostScript as part of their printing/imaging
solution to end-users and it must continue to introduce new and enhanced
products at competitive prices. In the event that it is unable to do so,
the Company will be materially and adversely affected.
There can be no assurance PCPI will be able to compete successfully in
the future with existing or future competitors. New entrants, new
technology and new marketing techniques may cause customer confusion,
thereby lengthening the sales cycle process for the Company. Increased
competition may also lead to downward pricing pressure on the Company's
products.
DEPENDENCE ON ADOBE RELATIONSHIP.
The Company's relationship with Adobe Systems Incorporated as an
authorized co-developer to implement the inclusion of Adobe's PostScript
language on printer controllers and in software products is an integral
part of its business strategy. There can be no assurance that this
relationship will be successful or that it will remain in force for some
time to come. Loss of the Adobe relationship would have a substantial
negative effect on future revenues.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The Company's future operating results may be adversely affected by
certain factors and trends of its market which are beyond its control. The
market for the Company's products is characterized by rapidly changing
technology, evolving industry standards, and changing consumer preferences.
Accordingly, the Company believes that its future success will depend, in
part, upon its ability to continue to produce and/or acquire products that
support existing and new laser printer formats and technologies, including
the latest iterations of Adobe PostScript. In order to do so, the Company
must make a significant investment in research and development,
engineering, and marketing to develop new products and maintain a high
profile in industry trade and special-interest publications.
The Company expends significant resources for controller development
under contracts with OEM customers and typically is completed over several
quarters. As noted below under Dependence Upon Suppliers, the Company
relies on outside third parties for certain integral components of the
controller development, which if delayed could jeopardize the development
schedule. In addition, due to the complexities of the development process
various internal factors could also contribute to schedule delays. There
can be no assurance that these delays, if any, during the course of the
development will not result in the customers cancellation of the project.
There can be no assurance that such new products can be developed or
will be available to the Company or available on terms favorable to the
Company. Furthermore, there is no assurance that products, once produced or
obtained by the Company, will be desirable to end-users or attract the
necessary attention by industry publications to promote the products to
users. While the Company believes that its products will continue to be
viable for some time to come, there can be no assurance that future
technological developments will not render current technologies less
desirable or obsolete. Also, technological changes or
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advances by major laser printer manufacturers could adversely affect the
Company and the market for its products.
INTELLECTUAL PROPERTY
The Company does not hold any patents and relies upon copyrights,
trademarks, and trade secret laws to establish proprietary rights to its
products. There is no assurance that such protection would be adequate in
protecting such rights should they be challenged by others and, therefore,
a risk exists that competitors may potentially imitate and/or duplicate the
Company's products at competitive prices.
There has been substantial litigation regarding patent and other
intellectual property rights in the software industry. As is typical in the
software industry, the Company has received from time to time notices from
third parties alleging infringement claims. Although there are currently no
pending lawsuits against PCPI regarding any possible infringement claims,
there can be no assurance infringement claims will not be asserted in the
future or that such assertions will not materially adversely affect the
Company's business, financial condition and results of operations. If any
such claims are asserted against PCPI, the Company may need to seek to
obtain a license under the third party's intellectual property rights.
There can be no assurance a license will be available on reasonable terms
or at all. Failure to obtain a necessary license on commercially reasonable
terms would materially adversely affect the Company's business, financial
condition and results of operations. The Company could decide, in the
alternative, to resort to litigation to challenge such claims. Such
litigation could be expensive and time consuming and could materially
adversely affect the Company's business, financial condition and results of
operations.
DEPENDENCE UPON SUPPLIERS
At present, many of the Company's products use technology licensed
from outside suppliers. The Company relies heavily on Adobe Systems
Incorporated for upgrades and support of the PostScript language. In the
case of its font products, the Company licenses such fonts from outside
suppliers, including Adobe, who also own the intellectual property rights
to such fonts. The reliance on third-party suppliers involves risk,
including limited control over potential hardware and software
incompatibilities with the Company's products. Furthermore, there can be no
assurance that all of the suppliers of products marketed by the Company
will continue to license their products to the Company indefinitely, or
that these suppliers will not license to other companies simultaneously.
KEY PERSONNEL
The success of the Company is dependent, in large part, on Edward W.
Savarese and other key management and technical personnel. The loss of one
or more of these persons could adversely affect the Company's business. The
Company believes that its future success will depend in large part upon its
continued ability to attract, retain, and motivate highly skilled technical
and management employees and consultants who are in great demand. The need
to hire additional qualified technical personnel to perform the business
contemplated
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is another important challenge. Recently, PCPI has noticed an increase in
the demand for qualified engineers in the local market. As a result of this
increased demand, the cost of hiring and maintaining engineers is likely to
continue to increase and PCPI could experience difficulty in obtaining
these resources in the future. Should the local market not be able to
supply the required engineering talent, the Company may be required to hire
individuals from outside the market or consider establishing an engineering
division in an area of the country that could more readily support PCPI's
engineering requirements. There can be no assurance that the Company will
be able to do so.
NEED FOR ADDITIONAL FINANCING
There can be no assurance that the Company's working capital will be
adequate for the Company's long-term future capital needs. Other methods of
financing these capital needs, including funding by public and private
sales of debt or equity securities, may be considered by the Company from
time to time, although such alternatives may not be available to it or, if
utilized, may have a dilutive effect on the ownership interests of the
shareholders. No sources of future financing are presently committed to the
Company and, as a result, it should not be assumed that such financing will
be available at such times and in such amounts as are necessary in the
future to assure the Company's ability to accomplish its operating
objectives.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company has historically experienced fluctuations in its operating
results due to its dependence on revenues from licensing and royalties from
a small number of customers. Future operating results may vary from period
to period depending on such factors as the timing of projects, customer
product plans, increased competition, and changes in product demand and
economic conditions.
The Company is currently dependent upon a limited number of customers
that are either contracting for the Company's engineering services or have
licensed its technologies. Accordingly, the loss of any individual customer
or supplier, entrance of new competitors into specific markets, or decline
in business conditions in particular markets would have a severe impact on
the company's operating results.
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 be shipped
by the customer which may result in the generation of future royalty and
license revenues or that these products, once generating royalties, will
continue to do so.
Variable financial results could adversely affect the price of the
Common Stock and limit the Company's ability to attract additional
financing and expand its operations.
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ABSENCE OF DIVIDENDS; DIVIDENDS IN ARREARS
The Company has not paid any cash dividends and does not anticipate
paying any dividends in the foreseeable future. Earnings, if any, will be
retained to fund development and expansion. There is no assurance that the
Company will pay cash dividends at any time. The Company's 5% Convertible
Preferred Stock and 5% Series B Convertible Preferred carry cumulative
dividends, which are currently in arrears, as more fully described in the
Company's Form 10-KSB and Form 10-QSB filings with the Securities and
Exchange Commission.
PREFERRED STOCK DISTRIBUTION PREFERENCE
In the event of any involuntary or voluntary liquidation, dissolution,
or winding up of the affairs of the Company, the 5% Convertible Preferred
stockholders shall be entitled to receive $1,000 per share, together with
accrued dividends, to the date of distribution or payment, whether or not
earned or declared, prior to any distribution to Common stockholders. The
holders of the 5% Series B Convertible Preferred Stock have a liquidation
preference of $10,000 per Series B share over the common shareholders but
are junior to the liquidation preference of the existing 5% Convertible
Preferred Stock shareholders.
POSSIBLE VOLATILITY IN TRADING PRICE OF COMMON STOCK
The Company's Common Stock is traded over-the-counter on the NASD
Electronic Bulletin Board under the symbol PCPI. In the past, the trading
price of the Company's Common Stock has experienced substantial volatility.
There can be no assurance that such volatility in the trading price of the
Company's Common Stock will not continue in the future, nor can there be
any assurance that the Company may in the future satisfy the requirements
to be relisted on the NASDAQ Small Cap Market System or any other
nationally recognized exchange.
FUTURE SALES OF COMMON STOCK AND PREFERRED STOCK
There can be no assurance that the Company will not issue additional
shares of Common and/or Preferred Stock, which would have a dilutive effect
on current shareholders. The Company is currently authorized to issue
100,000,000 shares of Common Stock and 10,000 shares of its Preferred
Stock.
USE OF ESTIMATES
Management uses estimates in preparing the consolidated financial
statements, in conformity with generally accepted accounting principles.
Significant estimates include collectibility of accounts receivable,
profitability on long-term contracts, as well as recoverability of
capitalized software costs and other intangible assets and long-term fixed
assets and residual values. The Company regularly assesses these estimates
and, while actual results may differ from these estimates, management
believes that material changes will not occur in the near term.
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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: RALPH R. BARRY
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DATE: December 20, 1996 Ralph R. Barry
CHIEF FINANCIAL OFFICER
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