<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 SEPTEMBER 30, 1996
or
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-12641
[Logo]
PERSONAL COMPUTER PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0021693
(State or other jurisdiction of incorporation (IRS Employer ID No.)
or organization)
11031 VIA FRONTERA, SUITE 100
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 NOVEMBER 7, 1996:
34,061,722 SHARES
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.
Part I. Financial Information:
Consolidated Condensed Balance Sheet, September 30, 1996 1
Consolidated Condensed Statement of Operations
Three Months ended September 30, 1996 and 1995 2
Consolidated Condensed Statement of Cash Flows
Three Months ended September 30, 1996 and 1995 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, 1996
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ASSETS
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<TABLE>
<S> <C>
Current assets:
Cash $ 3,469,000
Certificate of deposit 50,000
Accounts receivable, net 2,243,000
Inventories 428,000
Other current assets 229,000
-------
Total current assets 6,419,000
Capitalized software, net 23,000
Prepaid licenses, net 168,000
Property and equipment, net 465,000
-------
$ 7,075,000
===========
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 1,465,000
Accrued expenses 343,000
Deferred revenues 276,000
Notes payable 141,000
-------
Total current liabilities 2,225,000
---------
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, 100,000,000 SHARES AUTHORIZED,
33,894,788 SHARES ISSUED AND OUTSTANDING 169,000
Paid-in capital 24,777,000
Shareholder loans (18,000)
Accumulated deficit (23,558,000)
------------
Total shareholders' equity 4,850,000
---------
$ 7,075,000
===========
</TABLE>
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SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
1
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<TABLE>
<CAPTION>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
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<S> <C> <C>
Revenues:
Sales of products $ 2,132,000 $ 2,471,000
Engineering fees 1,318,000 220,000
License fees and royalties 275,000
--------- ---------
3,725,000 2,691,000
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Costs and expenses:
Cost of products sold 1,795,000 2,275,000
Selling, general and administrative 787,000 737,000
Cost of engineering fees and research and development 756,000 436,000
Amortization of capitalized software development costs 115,000
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3,338,000 3,563,000
--------- ---------
Income (loss) from operations 387,000 (872,000)
Other income (expense):
Interest, net 41,000 (22,000)
--------- ---------
Net income (loss) before provision
for income taxes 428,000 (894,000)
Provision for taxes 3,000 4,000
--------- ---------
Net income (loss) before extraordinary item 425,000 (898,000)
--------- ---------
--------- ---------
Extraordinary gain on conversion of
notes payable into common stock 7,000
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Net income (loss) $ 425,000 $ (891,000)
--------- ---------
--------- ---------
Primary and fully diluted income (loss) per
common share before extraordinary item $ 0.01 $ (0.05)
--------- ---------
--------- ---------
Primary and fully diluted income (loss) per common share $ 0.01 $ (0.05)
--------- ---------
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Average shares outstanding 45,962,000 17,440,000
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</TABLE>
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,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 425,000 $ (891,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH USED
BY OPERATING ACTIVITIES:
Depreciation and amortization of property and equipment 43,000 21,000
Amortization of capitalized software development costs 115,000
Amortization of prepaid licenses and royalties 28,000
Extraordinary gain on conversion of accounts
payable into common stock (7,000)
Changes in assets and liabilities:
Accounts receivable (564,000) 538,000
Inventories (223,000) (104,000)
Other current assets (181,000) (21,000)
Accounts payable and accrued expenses 82,000 (37,000)
Deferred revenues (112,000) 327,000
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NET CASH USED BY OPERATING ACTIVITIES (530,000) (31,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Prepaid licenses and royalties (112,000) (19,000)
Capital expenditures (149,000) (26,000)
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NET CASH USED BY INVESTING ACTIVITIES (261,000) (45,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 11,000
Principal payments under capital lease obligations (6,000) (4,000)
Repayment of line-of-credit (135,000) (286,000)
Proceeds from line-of-credit 255,000
Proceeds from notes payable 25,000
Repayment of notes payable (139,000)
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NET CASH USED BY FINANCING ACTIVITIES (130,000) (149,000)
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Net decrease in cash (921,000) (225,000)
Cash at the beginning of the period 4,390,000 322,000
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Cash at the end of the period $ 3,469,000 $ 97,000
============= ============
NON-CASH FINANCING ACTIVITIES:
Fixed assets acquired under capital leases $ 14,000
============
Conversion of accrued interest to principal on notes payable $ 21,000
============
Conversion of accounts payable and accrued
expenses into 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 $ 5,000 $ 15,000
============= ============
Cash paid during the period for income taxes
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
</TABLE>
3
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PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - PRINCIPLES OF CONSOLIDATION
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, 1996 filed with the Securities and Exchange Commission. Interim operating
results are not necessarily indicative of operating results for the full year.
NOTE 2- INVENTORIES
Inventories at September 30, 1996 consisted of the following:
Raw materials and supplies $ 96,000
Finished goods 332,000
--------
$428,000
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NOTE 3- PREFERRED DIVIDENDS
The Company's 5% convertible preferred stock (which ranks prior to the Company's
5% Series B Preferred Stock and common stock) and the Company's 5% Series B
Preferred Stock (which ranks prior to the Company's common stock), carry
cumulative dividends, when and as declared, at an annual rate of $50.00 and
$500.00 per share, respectively. The aggregate amount of such dividends in
arrears at September 30, 1996 were approximately $1,789,000 and $58,000,
respectively. The Company has extended an offer to holders of the Company's 5%
preferred shares to convert the accumulated dividend into unregistered shares of
the Company's common stock at a conversion rate of $1.50.
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 transition period, from older technology and products,
to becoming a leading 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 Interpreter (APSI) project, which
includes the Company's ColorImage-TM- Series controller implementation of
Adobe-Registered Trademark- PostScript-Registered Trademark- software for OEM
customers, and its LaserImage-TM- Series controllers including HP-based (PCL)
multi-function technology is beginning to show promising results.
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 the Company has 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., Matsushita Electric Company, Ltd.
(Panasonic), Minolta Company, Ltd., NEC Electronics, Inc., and Canon USA.
The Company recognized non-recurring engineering fees ("NRE") to adapt the
Company's software products to controllers of its OEM customers of approximately
$1,318,000 for the three month period ended September 30, 1996 compared to
$220,000 for the three month period ended September 30, 1995, an increase of
499%.
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 income of $425,000 for the first quarter of fiscal 1997
compared to a net loss of $891,000 for the first quarter of fiscal 1996. Total
revenues were $3,725,000 for the first quarter of fiscal 1997 versus $2,691,000
for the first quarter of fiscal 1996, an increase of 38%.
REVENUES
Sales of products were $2,132,000 for the first quarter of fiscal 1997 versus
$2,471,000 for the first quarter of fiscal 1996. The Company's sales of products
for the quarters ended September 30, 1996 and 1995 include sales from PCPI's
wholly-owned subsidiary Prima International of $2,132,000 and $2,434,000,
respectively. Prima's business consists of product distribution and integration,
including sales of its PDQ-TM- line of memory storage devices featuring
removable cartridge and magneto optical technologies. The reduction in sales is
attributed to reduced availability of quality products by SyQuest-TM-, a product
transition by Prima that places less reliance on SyQuest's products and
technologies and a shortage of working capital during the quarter which imposed
limitations on Prima's operations. These reductions were partially offset by an
increase in Prima's sales of PCMCIA-based memory and communications products.
5
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The Company has been transitioning from older technology and products, to new
technology-based printer controller products over the past few years. It is
anticipated that certain of these new technology-based products can be
distributed to Prima's customer base. Non-Prima sales of printer products and
accessories for the quarter ended September 30, 1995, which represents sales of
these older technology based products, were $37,000.
During fiscal 1997 and 1996, the Company performed work on engineering projects
that were funded by OEM customers under non-recurring engineering contracts. NRE
revenue for the quarters ended September 30, 1996 and 1995 was $1,318,000 and
$220,000, respectively, which was recognized during the course of development
based on the percentage of completion method.
License fees and royalty revenue for the quarter ended September 30, 1996 was
$275,000 which was derived from "older-technology" based products. In the past,
License fees and royalty revenue have shown significant quarter-to-quarter
fluctuations which may continue in future quarters. PCPI has submitted several
proposals to prospective customers in order to develop Adobe PostScript-based
controllers and other controllers based upon its ImageBase-TM- 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 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.
COST OF PRODUCTS SOLD
Cost of products sold for the quarters ended September 30, 1996 and 1995 were
$1,795,000 and $2,275,000, respectively, representing a gross margin of 15.8%
and 7.9%. The increase in the gross margin is attributed to a change in the
product mix between the periods. During the later part of fiscal 1996 and
through September 30, 1996, sales of higher margin PCMCIA-based memory products
and replacement lines for SyQuest products have been increasing as a percentage
of Prima's sales which has improved the margins. During the quarter ended
September 30, 1995, a majority of the products sales were older-technology based
products and Prima's SyQuest product lines, both of which have experienced
continued decline in the margins over the past several years.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the first quarter of fiscal
1997 were $787,000 versus $737,000 for the first quarter of fiscal 1996. The
increase is primarily the result of an increase in selling expenses in an
attempt to stimulate technology and product sales. This increase was partially
offset by a concerted effort to reduce Prima's administrative overhead.
COST OF ENGINEERING FEES AND RESEARCH AND DEVELOPMENT
Cost of engineering fees and research and development for the first quarter of
fiscal 1997 were $756,000 versus $436,000 for the first quarter of fiscal 1996,
an increase of 73.4%. These expenditures consist of engineering expenses
associated with the development of controller technologies and designs for PCPI
technology customers. Over the past several quarters, PCPI has noticed an
increase in the demand for
6
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qualified engineers in the local market. As a result of this increased
demand, the cost of hiring and maintaining engineers could 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.
OTHER INCOME AND LOSS
Net interest income was $41,000 for the quarter ended September 30, 1996 versus
net interest expense of $22,000 for the quarter ended September 30, 1995. The
reduction in net interest expense is attributed to the reductions in the
outstanding debt and an increase in interest income associated with the
increased cash being invested.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of $4,194,000 compared to
a working capital of $3,976,000 as of June 30, 1996. 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. Although the
Company has improved its cash and liquidity, 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. In addition, as noted above, while the Company has
entered into several 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 that will generate
future royalty and license revenues or that once these products are being
shipped by the Company's customers that they will continue to generate
royalties.
As of September 30, 1996, the Company had no unused lines of credit,
PCPI has no material commitments for capital expenditures.
7
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable matter.
ITEM 2. CHANGES IN SECURITIES
None
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) and the Company's 5%
Series B Preferred Stock (which ranks prior to the Company's common stock),
carry cumulative dividends, when and as declared, at an annual rate of $50.00
and $500.00 per share, respectively. The aggregate amount of such dividends
in arrears at September 30, 1996 were approximately $1,789,000 and $58,000,
respectively.
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:
11.1 Computation of Earnings (loss) Per Common Share
(b) Reports on Form 8-K:
None
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: HARRY J. SAAL
---------------------------------------
DATE: November 8, 1996 Harry J. Saal
CHAIRMAN OF THE BOARD
BY: EDWARD W. SAVARESE
---------------------------------------
DATE: November 8, 1996 Edward W. Savarese
VICE CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
BY: RALPH R. BARRY
---------------------------------------
DATE: November 8, 1996 Ralph R. Barry
CHIEF FINANCIAL OFFICER
9
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EXHIBIT 11 - COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
---------------------------
1996 1995
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<S> <C> <C>
PRIMARY LOSS PER COMMON SHARE:
Net income (loss) before extraordinary item $ 425,000 $ (898,000)
----------- -----------
----------- -----------
Net income (loss) applicable to common
shareholders $ 425,000 $ (891,000)
----------- -----------
----------- -----------
Weighted average number of shares outstanding
Common stock 33,843,000 17,440,000
5% convertible preferred stock 662,000
5% Series B convertible preferred stock 1,107,000
Common stock purchase options and warrants 14,269,000
Assumed repurchase of common stock (3,919,000)
Weighted average number of shares outstanding 45,962,000 17,440,000
------------ -----------
------------ -----------
Primary income (loss) per common share $ 0.01 $ (0.05)
------------ ------------
------------ ------------
</TABLE>
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,519
<SECURITIES> 0
<RECEIVABLES> 2,448
<ALLOWANCES> 205
<INVENTORY> 428
<CURRENT-ASSETS> 6,419
<PP&E> 1,263
<DEPRECIATION> 798
<TOTAL-ASSETS> 7,075
<CURRENT-LIABILITIES> 2,225
<BONDS> 0
0
3,480
<COMMON> 169
<OTHER-SE> 1,201
<TOTAL-LIABILITY-AND-EQUITY> 7,075
<SALES> 2,132
<TOTAL-REVENUES> 3,725
<CGS> 1,795
<TOTAL-COSTS> 2,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 428
<INCOME-TAX> 3
<INCOME-CONTINUING> 425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 425
<EPS-PRIMARY> 0.010
<EPS-DILUTED> 0.010
</TABLE>
