<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 SEPTEMBER 30, 1997
( ) 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
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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)
(650) 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 November 10, 1997: 17,194,784 shares
Transitional Small Business Disclosure Format YES X NO
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QCS CORPORATION
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of
September 30, 1997 (unaudited) and June 30, 1997 3
Consolidated Statements of Operations
for the three months ended
September 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows
for the three months ended
September 30, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8K 8
SIGNATURE 9
2
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QCS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
ASSETS 1997 1997
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Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 816,561 $ 1,274,157
Accounts receivable (net of allowance for doubtful accounts of
$48,312 on September 30, 1997 and $55,036 on June 30, 1997) 129,809 152,789
Other current assets 29,476 14,896
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Total current assets 975,846 1,441,842
Fixed assets, net of accumulated depreciation and amortization 214,173 242,243
Security deposits 31,418 32,059
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Total assets $ 1,221,437 $ 1,716,144
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LIABILITIES
Current liabilities:
Accounts payable $ 243,036 $ 240,007
Accrued liabilities 518,347 520,305
Capital lease obligations, short-term portion 9,420 9,097
Preference dividends payable 667,724 605,462
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Total current liabilities 1,438,527 1,374,871
Capital lease obligations, long-term portion 12,412 14,892
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Total liabilities 1,450,939 1,389,763
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STOCKHOLDERS' EQUITY (DEFICIT)
Series A convertible preferred stock, par value $.001 per share:
Authorized: 5,000,000 shares; issued and outstanding 4,368,937 shares at
September 30, 1997 and June 30, 1997 (aggregate liquidation preference:
$4,500,005) 4,369 4,369
Common stock, par value $.001 per share: Authorized: 40,000,000 shares;
issued and outstanding 17,136,531 at September 30,
1997 and June 30, 1997 17,137 17,137
Additional paid in capital 10,653,231 10,653,231
Deferred stock compensation (107,250) (107,250)
Subscriptions receivable from stockholders (200,100) (200,100)
Accumulated deficit (10,722,910) (10,160,862)
Cumulative foreign currency translation adjustment 126,021 119,856
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Total stockholders' equity (deficit) (229,502) 326,381
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Total liabilities and stockholders' equity (deficit) $ 1,221,437 $ 1,716,144
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</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
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QCS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
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<S> <C> <C>
Revenue $ 209,971 $ 444,465
Cost of revenue 149,000 205,245
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Gross profit 60,971 239,220
Operating expenses:
Selling, general and administrative 490,915 753,591
Research and development 77,983 89,621
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Total operating expenses 568,898 843,212
Operating loss (507,927) (603,992)
Other income (expense), net (3,317) 5,636
Interest income 11,458 25,435
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Net loss (499,786) (572,921)
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Preferred dividend payable not included in net loss (62,262) (60,779)
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Net loss attributed to common stockholders $ (562,048) $ (633,700)
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Net loss per share $ (0.03) $ (0.04)
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Weighted average number of shares
used in per share calculation 17,136,531 16,803,129
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</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
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QCS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (499,786) $ (572,921)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense 16,654 21,060
Unrealized exchange loss 117 -
Write-off of fixed assets 13,736 -
Change in allowance for doubtful accounts (6,724) 39,536
Changes in operating assets and liabilities:
Changes in accounts receivable 29,704 (254,332)
Changes in other current assets and security deposits (13,939) (82,351)
Changes in accounts payable 3,029 (170,012)
Changes in accrued and other liabilities (1,958) 20,645
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Net cash used in operating activities (459,167) (998,375)
Cash flows from investing activities:
Purchases of fixed assets (1,505) (30,688)
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Net cash used in investing activities (1,505) (30,688)
Cash flows from financing activities:
Proceeds from issuance of common stock - 1,031,969
Common stock subscriptions received - 262,484
Payments on capital leases (2,157) (640)
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Net cash provided by (used in) financing activities (2,157) 1,293,813
Effect of exchange rate changes on cash 5,233 (7,421)
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Net increase (decrease) in cash and cash equivalents (457,596) 257,329
Cash and cash equivalents, beginning of the period 1,274,157 2,607,118
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Cash and cash equivalents, end of the period $ 816,561 $ 2,864,447
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 945 $ 461
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
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, in all material
respects, of the financial position and operating results for the interim
periods. The results of operations for the three months ended September 30,
1997 are not necessarily indicative of the results to be expected for the
entire fiscal year ending June 30, 1998. The year-end balance sheet data was
derived from the audited financial statements.
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, 1997 as filed with the Securities and
Exchange Commission.
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 calculated after preferred dividends payable of $62,262 have been
deducted from the net loss for the three months ended September 30, 1997.
RECLASSIFICATION
Certain prior period balances have been reclassified to conform to the
current period's presentation.
RECENT PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share",
which specifies the computation, presentation and disclosure requirement for
earnings per share. SFAS 128 will become effective for the Company's second
quarter of fiscal 1998. The impact of adopting SFAS 128 on the Company's
financial statements is unlikely to be significant.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
financial statements. The impact of adopting SFAS 130, which is effective in
fiscal 1999, has not been determined.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131) " Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 requires
publicly held companies to report financial and other information about key
revenue-producing segments of the entity for which such information is
available and is utilized by the chief operation decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of
segment information to amounts reported in the financial statements would be
provided. SFAS 131 is effective in fiscal 1999 and the impact has not been
determined.
6
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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 and
the Risk Factor section of the Company's Report on Form 10-KSB for the Fiscal
Year Ended June 30,1997.
OVERVIEW
QCS Corporation (the "Company") is an electronic commerce service provider
serving the worldwide retail industry. The Company's revenues are derived
from its software products and services which include application software
for a one time licensing/installation fee and network access for which the
Company charges a fixed monthly fee and/or volume-based recurring usage fees.
In June 1997, the Company released its new Internet based product for
suppliers. At that time, it changed its sales and marketing focus away from
its full Lotus Notes based supplier stations to the Internet based product.
The Company is currently negotiating a marketing alliance with IBM with
respect to its Internet product. The Company believes this alliance to be a
central component of its business plan. If concluded as currently proposed,
IBM will assume responsibility for much of the sales and marketing efforts of
the Company's Internet product, but a definitive agreement has not been
signed. There can be no assurance that this agreement will be executed.
From inception in 1993 through September 30, 1997, the Company has generated
an accumulated deficit of $10,722,910. Since inception, the Company has
incurred substantial costs to develop and enhance its technology, to create,
introduce and enhance its product offerings, to establish marketing and
distribution relationships, to recruit and train a sales and marketing group
and to build an administrative organization. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new, unproven and rapidly evolving markets. The limited
operating history of the Company makes the prediction of future results of
operations difficult or impossible, and, therefore, there can be no assurance
that the Company will sustain growth or achieve profitability. The Company's
success depends to a significant degree upon the continued contributions of
key management, engineering, sales and marketing, and finance personnel,
certain of whom would be difficult to replace. The loss of the services of
any of the key personnel, the inability to attract or retain qualified
personnel in the future or delays in hiring required personnel could have a
material adverse effect on the Company's business, operating results or
financial condition.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
The Company's revenues decreased by 53% to $209,971 for the first quarter of
fiscal year 1998 (Q1 98) as compared to $444,465 for the first quarter of
fiscal year 1997 (Q1 97). This decrease is primarily attributed to the
Company's lower sales of its full Notes based supplier stations and the
related installation and monthly subscription fees. The loss of these
revenues has not yet been compensated by revenues of the new Internet based
Supplier Sales Stations. The communication revenues for private network use
for Q1 98 showed a small increase of 4% in comparison to Q1 97 and increased
as a percentage of total revenues from 27% to 59%.
7
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Cost of revenues decreased by 27% to $149,000 for Q1 98 from $205,245 in Q1
97 due primarily to the decrease in sales of the full Lotus Notes based
product. Cost of sales consists primarily of the cost of purchasing network
services, the cost of internal and external labor to install and support
customer sites, and third party software and hardware for the existing Lotus
Notes based product. In future periods, the Company anticipates that its cost
structure may continue to differ significantly from previous periods because
of the further transition from the Lotus Notes based product to the Internet
based product using Lotus Domino technology, which does not have significant
installation and backbone costs.
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
decreased 35% to $490,915 in Q1 98 from $753,591 in Q1 97. The decrease was
due to stricter travel and communication policies that have been put into
place, a reduction of accounting and legal fees and a reduction in the use of
external consulting services. During Q1 98, the Company made additional
investments in hiring technical personnel to further develop the Internet
based product.
As a result of the foregoing, the net loss decreased 13% to $499,786 for Q1
98 from $572,921 in Q1 97.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at September 30, 1997 was $816,561,
representing a $457,596 decrease from June 30, 1997. This decrease in
working capital was almost entirely caused from cash used in operating
activities. In the first quarter of fiscal 1997, the Company used $998,375
of cash in operating activities. The Company's business plan for fiscal 1998
calls for continued increases in spending for product development and key
technical personnel. The Company does not currently have a bank credit
line. During the first quarter of fiscal 1998, the Company did not conclude
a planned private placement of common stock under which, it was seeking to
raise additional capital. The Company is in the process of renegotiating its
working relationship with IBM and believes, that if it is successful in doing
so, it will lower its marketing and selling expenses and be in a better
situation to successfully raise either an equity or debt financing which
would be sufficient to fund operations for the next year. While the Company
believes it will be successful in renegotiating this alliance with IBM, there
can be no assurance of this result or in successful fund raising efforts.
The Company currently has resources to fund operations through approximately
the third quarter of fiscal 1998 at its current expense level. If the
renegotiations of its agreement with IBM and fund raising efforts are not
successful, the Company would likely have to reduce operating expenses, this
reduction would materially and adversely effect the Company's business and
raise substantial doubt about its ability to continue as a going concern.
The Company does not intend to pay cash dividends with respect to common
stock in the foreseeable future.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
27 Financial Data Schedule
b. REPORTS ON FORM 8-K
The Company reported the appointment of Johan Vunderink to the Board
of Directors of the Company in a report on Form 8-K filed with the
Securities and Exchange Commission on July 25, 1997.
8
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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: November 11, 1997
QCS CORPORATION
(Registrant)
By: /s/ Marcel van Heesewijk
--------------------------
Marcel van Heesewijk, President, Chief
Executive Officer, Acting Principal
Accounting and Financial Officer and
Chairman of the Board of Directors
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from statements
for the three months ended September 30, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 817
<SECURITIES> 0
<RECEIVABLES> 178
<ALLOWANCES> 48
<INVENTORY> 0
<CURRENT-ASSETS> 976
<PP&E> 332
<DEPRECIATION> 118
<TOTAL-ASSETS> 1,221
<CURRENT-LIABILITIES> 1,439
<BONDS> 0
0
4
<COMMON> 17
<OTHER-SE> (251)
<TOTAL-LIABILITY-AND-EQUITY> 1,221
<SALES> 0
<TOTAL-REVENUES> 210
<CGS> 0
<TOTAL-COSTS> 149
<OTHER-EXPENSES> 572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11)
<INCOME-PRETAX> (500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (500)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
