<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
___________
Commission File Number: 33-18600-D
QCS CORPORATION
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(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0132465
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
650 CASTRO STREET, SUITE 210, MOUNTAIN VIEW, CA 94041
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(Address of principal executive offices)
(415) 966-1214
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(Issuer's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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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Common stock outstanding as of February 6, 1997: 17,166,531 shares
Transitional Small Business Disclosure Format YES X NO
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QCS CORPORATION
____________
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements (Unaudited)
Consolidated Balance Sheets
December 31, 1996 and June 30, 1996 3
Consolidated Statements of Operations
for the three and six month periods ended
December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the six month periods ended
December 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2 Management's Discussion and Analysis of 7-8
Financial Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings - None
ITEM 2 Changes in Securities - None
ITEM 3 Defaults Upon Senior Securities - None
ITEM 4 Submission of Matters to a Vote of Security
Holders - None
ITEM 5 Other Information 9
ITEM 6 Exhibits and Reports on Form 8K 9
Exhibit 11.1 Computation of Net Loss Per Share
Exhibit 27 Financial Data Schedule
SIGNATURE 10
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QCS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996
(UNAUDITED)
____________
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, JUNE 30,
1996 1996
<S> <C> <C>
Current assets:
Cash $ 2,545,241 $ 2,607,118
Accounts receivable (less allowance for doubtful
accounts of $292,872 and $119,960 at 12/31/96
and 6/30/96, respectively) 320,096 238,202
Other current assets 76,496 23,462
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Total current assets 2,941,833 2,868,782
Fixed assets, net 246,909 229,296
Security deposits 39,197 37,802
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Total assets $ 3,227,939 $ 3,135,880
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 492,214 $ 562,705
Accrued liabilities 490,325 396,617
Preference dividend payable 483,902 362,344
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Total current liabilities 1,466,441 1,321,666
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Capital lease obligations, long-term portion 2,420 3,806
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Total liabilities 1,468,861 1,325,472
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Stockholders' equity:
Common stock, par value $.001 per share:
authorized 40,000,000 shares; issued
and outstanding 17,166,531 and 16,692,531
shares at 12/31/96 and 6/30/96, respectively 17,167 16,693
Series A convertible preferred stock, par
value $.001 per share: authorized 5,000,000
shares; issued and outstanding 4,368,937
shares at 12/31/96 and 6/30/96 (aggregate
liquidation preference: $4,500,005) 4,369 4,369
Paid in capital 10,717,038 9,386,893
Note receivable (200,100) (462,584)
Accumulated deficit (8,790,137) (7,139,967)
Cumulative foreign currency translation
adjustments 10,741 5,004
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Total stockholders' equity 1,759,078 1,810,408
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Total liabilities and stockholders'
equity $ 3,227,939 $ 3,135,880
------------ ------------
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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QCS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
____________
<TABLE>
<CAPTION>
3 MO. ENDED 6 MO. ENDED 3 MO. ENDED 6 MO. ENDED
DEC. 31, 1996 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1995
<S> <C> <C> <C> <C>
Revenue $ 324,941 $ 769,406 $ 310,167 $ 497,760
Cost of sales 238,031 443,276 76,522 177,632
------------ ------------- ------------ ------------
Gross margin 86,910 326,130 233,645 320,128
Depreciation and amortization 19,029 35,125 3,457 19,886
Selling, general and administrative expenses 1,052,795 1,879,912 598,370 1,091,161
------------ ------------- ------------ ------------
Operating loss (984,914) (1,588,907) (368,182) (790,919)
Other income (expense) (1,130) 4,507 - -
Interest income 30,352 55,787 35,341 56,403
------------ ------------- ------------ ------------
Net loss $ (955,692) $ (1,528,613) $ (332,841) $ (734,516)
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Net loss per share of common stock $ (0.06) $ (0.10) $ (0.02) $ (0.05)
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Weighted average number of
common shares outstanding 17,162,292 16,982,711 15,536,000 15,536,000
------------ ------------- ------------ ------------
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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QCS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
____________
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,528,613) $ (734,516)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense 35,125 19,886
Increase in allowance for doubtful accounts 172,912 -
Stock option compensation 168,650 -
Changes in accounts receivable (254,806) (216,146)
Changes in other current assets and security
deposits (54,430) 54,382
Changes in accounts payable (70,491) (64,514)
Changes in accrued and other liabilities 92,324 (77,013)
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Net cash used in operating activities (1,439,329) (1,017,921)
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Cash flows from investing activities:
(Purchases) disposals of fixed assets (52,738) 27,116
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Net cash used in investing activities (52,738) 27,116
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Cash flows from financing activities:
Proceeds from issuance of common stock 1,031,969 -
Common stock subscriptions received 262,484 -
Exercise of stock options 130,000 -
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Net cash provided by financing activities 1,424,453 -
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Net increase (decrease) in cash and
cash equivalents (67,614) (990,805)
Cash and cash equivalents at the beginning of the
period 2,607,118 2,097,833
Effect of exchange rate changes on cash 5,737 (2,855)
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Cash and cash equivalents at the end of the period $ 2,545,241 $ 1,104,173
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Supplementary cash flow information:
Cash paid during the period for interest $ 1,846 $ -
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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QCS CORPORATION
____________
NOTES TO UNAUDITED FINANCIAL STATEMENTS
The consolidated financial statements are unaudited and 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 and operating results for the interim periods. The results of
operations for the three and six months ended December 31, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal
year ending June 30, 1997.
This financial information should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Form 10-KSB
for the fiscal year ended June 30, 1996 as filed with the Securities and
Exchange Commission.
On October 11, 1996, the Company entered into an Employment Agreement with
Todd S. Myhre pursuant to which Mr. Myhre became the Company's President and
Chief Executive Officer and a member of the Company's Board of Directors.
The Company and Mr. Myhre entered into an amendment to the Employment
Agreement which amendment rescinded that portion of the Agreement pertaining
to the grant of stock options to purchase shares of common stock of the
Company and provided that the parties shall negotiate in good faith in the
future regarding the grant of stock options in such amounts and on such terms
as shall be agreed upon by the parties and approved by the Company's Board of
Directors.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during each period. Common equivalent shares, consisting
of stock options and convertible preferred stock, are excluded from the
computation because they would have an anti-dilutive effect. Net loss per
share is stated after preferred dividends payable of $60,779 and $121,558,
respectively, have been deducted from the three and six months ended December
31, 1996 net losses.
RECLASSIFICATION
Certain prior period balances have been reclassified to conform to the
current period's presentation.
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QCS CORPORATION
____________
PART I FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the unaudited Financial
Statements and Notes thereto included elsewhere in this Report. This section
may contain forward looking statements regarding, among other matters, the
Company's future strategy and prospects for growth. The forward looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward looking statements address
matters which are subject to a number of risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. The factors that might cause this difference
include, but are not limited to, those discussed throughout this Report.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
The Company's revenues are derived from QCS's software products and services
which include (1) application software and specific image capture hardware
for a one time licensing/installation fee, (2) network access for which the
Company charges a fixed monthly fee and/or volume-based recurring usage fees
and (3) consulting and engineering projects.
The Company's revenues increased by 5% to $324.9 thousand for the second
quarter of fiscal year 1997 (Q2'97) as compared to $310.2 thousand for the
second quarter of fiscal year 1996 (Q2'96). The Q2'97 revenue level
reflected a lower level of growth than anticipated due to the delay of
several installations which could occur in the second half of fiscal 1997.
Cost of sales consists primarily of the cost of purchasing network services,
the cost of QCS and non-QCS labor to install and support customer sites, and
third party software and hardware. Cost of sales increased by 211% to $238.0
thousand for Q2'97 from $76.5 thousand in Q2'96. The gross margin for Q2'97
was $86.9 thousand (or 26.8% of revenues) compared to the Q2'96 gross margin
of $233.6 thousand (or 75.3% of revenues). Costs were incurred in Q2'97 in
anticipation of the aforementioned installations which were subsequently
delayed beyond Q2'97.
Selling, General and Administrative expenses (SG&A) consist primarily of
personnel and personnel-related costs in the Company's sales, marketing and
general management organizations. Also included are other administrative
support costs such as external legal and financial services. SG&A expenses
increased 76% to $1.1 million in Q2'97 from $598.4 thousand in Q2'96. The
increase was due primarily to placing additional infrastructure in the
Company's three sites (Mountain View, California, Hong Kong, and Nice,
France) in order to enable the Company to
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service customers effectively on a worldwide basis. This investment in
infrastructure consists primarily of added personnel and personnel-related
costs for sales, installation, operations, and support. Also, there were
charges for external legal and accounting services. In addition, a one-time
non-cash compensation expense of $168.7 thousand was recorded in Q2'97 as a
result of the vesting of certain stock options granted at less than fair market
value.
As a result of the foregoing, the net loss increased 187% to $955.7 thousand
for Q2'97 from $332.8 thousand in Q2'96.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
The Company's revenues increased 54.6% to $769.4 thousand for the six months
ended December 31, 1996 from $497.8 thousand in the six months ended December
31, 1995. This revenue increase resulted from an expansion of the Company's
customer base and increased usage of the Network by existing customers.
Cost of Sales increased by 150% to $443.3 thousand in the six months ended
December 31, 1996 as compared to $177.6 thousand in the six months ended
December 31, 1995 as a result of an increase in purchased network services and
increased installation and support costs due to the expanded customer base.
Gross margin was $326.1 thousand (or 42% of revenues) compared to $320.1
thousand (or 64% of revenues) for the six months ended December 31, 1996 and
December 31, 1995, respectively.
Selling, General and Administrative expenses (SG&A) increased 72% to
$1.9 million from $1.1 million in the six months ended December 31, 1996 and
December 31, 1995, respectively, mainly due to the investment in additional
infrastructure, non-cash stock option compensation as described previously, and
legal and accounting fees.
The Company's net loss increased 108% to $1.5 million from $734.5 thousand in
the six months ended December 31, 1996 and December 31, 1995, respectively, as
a result of the above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash on hand at December 31, 1996 was $2.5 million. Proceeds
from the July 1996 Common Stock private placement and the exercise of stock
options essentially negated the negative cash flows from operations sustained
in the six months ended December 31, 1996.
Management feels that the cash on hand at December 31, 1996 will be sufficient
to meet working capital needs for the foreseeable future. Management's
assumption is based on certain revenue growth plans. There is no assurance
that these plans will be met. The Company may seek to supplement this cash
balance by pursuing a line of credit from a local bank in the Mountain View
area in the future, although there is no assurance that a line of credit will
be obtained on terms acceptable to the Company. The Company does not intend to
pay cash dividends with respect to common stock in the foreseeable future.
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QCS CORPORATION
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PART II OTHER INFORMATION
ITEM 5 OTHER INFORMATION
On October 21, 1996, the Company appointed Todd S. Myhre as President and Chief
Executive Officer and a member of the Company's Board of Directors. In his new
positions, Mr. Myhre has succeeded the Company founder, Marcel van Heesewijk
who remains as Chairman of the Board and Executive VP of Business Strategies
and Alliances.
On November 23, 1996, the Company entered into a Services Agreement and certain
related agreements (the "IBM Agreement") with International Business Machines
Corporation ("IBM"), whereby the Company, effective on December 2, 1996, has
agreed to establish its electronic trading network on the IGN network service
provided by IBM and utilizing the IBM InterConnect for Lotus Notes Service and
IBM has agreed, in its sole and absolute discretion, to market and install the
QCS Software to suppliers worldwide and to assist QCS in marketing its services
to retailers. It is intended that IBM will provide a global infrastructure
that includes customer care centers and a worldwide sales force to recruit
suppliers onto the QCS network. IBM will also assume responsibility within six
months for supplying, installing and packaging the QCS Supplier Installation
Kit and to provide telephone support maintenance for Lotus notes and the QCS
Software to suppliers. The Company has agreed to pay to IBM a set up fee and
certain frame relay surcharges for access to and ongoing use of the IBM IGN
network and to make certain revenue based payments to IBM for its sales and
marketing services.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 11.1 Computation of Net Loss Per Share
Exhibit 27 Financial Data Schedule
b. REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the second quarter of fiscal 1997.
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QCS CORPORATION
____________
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 25, 1997
QCS CORPORATION
(Registrant)
/s/ Todd S. Myhre
______________________________
Todd S. Myhre
President, Chief Executive Officer
and Acting Chief Financial Officer
(signing on behalf of Registrant and
as Principal Accounting and
Financial Officer)
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(Exhibit 11.1)
QCS CORPORATION
COMPUTATION OF NET LOSS PER SHARE
(UNAUDITED)
____________
<TABLE>
<CAPTION>
3 MO. ENDED 6 MO. ENDED 3 MO. ENDED 6 MO.ENDED
DEC. 31, 1996 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1995
<S> <C> <C> <C> <C>
Net loss $ (955,692) $ (1,528,613) $ (332,841) $ (734,516)
Preferred dividend payable not included
in net loss (60,779) (121,558) - -
------------- ------------ ----------- -----------
Net loss for net loss per share computation $ (1,016,471) $ (1,650,171) $ (332,841) $ (734,516)
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
Weighted average number of common
shares outstanding 17,162,292 16,982,711 15,536,000 15,536,000
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
Net loss per share of common stock $ (0.06) $ (0.10) $ (0.02) $ (0.05)
------------- ------------ ----------- -----------
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</TABLE>
See notes to unaudited consolidated financial statements.
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,545
<SECURITIES> 0
<RECEIVABLES> 613
<ALLOWANCES> 293
<INVENTORY> 0
<CURRENT-ASSETS> 2,942
<PP&E> 339
<DEPRECIATION> 92
<TOTAL-ASSETS> 3,228
<CURRENT-LIABILITIES> 1,466
<BONDS> 0
0
4
<COMMON> 17
<OTHER-SE> 1,738
<TOTAL-LIABILITY-AND-EQUITY> 3,228
<SALES> 0
<TOTAL-REVENUES> 325
<CGS> 0
<TOTAL-COSTS> 238
<OTHER-EXPENSES> 1,043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (956)
<INCOME-TAX> 0
<INCOME-CONTINUING> (956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (956)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
