<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, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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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)
(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 November 20, 1996: 17,266,531 shares
Transitional Small Business Disclosure Format YES X NO
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QCS CORPORATION
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CONTENTS
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PAGE
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements (Unaudited)
Consolidated Balance Sheets
September 30, 1996, June 30, 1996, and
September 30, 1995 3
Consolidated Statements of Operations
for the three month periods ended
September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the three month periods ended
September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2 Management's Discussion and Analysis of 7-9
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 - None
ITEM 6 Exhibits and Reports on Form 8K 10
Exhibit 11.1 Computation of Net Loss Per Share 11
Exhibit 27 Financial Data Schedule
SIGNATURES 12
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QCS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996, JUNE 30, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
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<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, 1996 JUNE 30, 1996 SEPTEMBER 30, 1995
(AS RESTATED)
<S> <C> <C> <C>
Current assets:
Cash $ 2,864,447 $ 2,607,118 $ 1,474,325
Accounts receivable (less allowance for doubtful accounts of
$159,496, $119,960 and $56,655 at 9/30/96, 6/30/96 and 9/30/95,
respectively) 452,998 238,202 341,547
Other current assets 108,546 23,462 277,967
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Total current assets 3,425,991 2,868,782 2,093,839
Fixed assets, net 238,924 229,296 97,311
Security deposits 35,069 37,802 -
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Total assets $ 3,699,984 $ 3,135,880 $ 2,191,150
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 392,693 $ 562,705 $ 282,489
Accrued liabilities 417,273 396,617 238,188
Preference dividend payable 423,123 362,344 -
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Total current liabilities 1,233,089 1,321,666 520,677
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Capital lease obligations, long-term portion 3,155 3,806 -
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Total liabilities 1,236,244 1,325,472 520,677
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Stockholders' equity:
Common stock, par value $.001 per share: authorized 40,000,000
shares; issued and outstanding 17,036,531, 16,692,531 and
15,536,000 shares at 9/30/96, 6/30/96 and 9/30/95, respectively 17,037 16,693 15,536
Series A convertible preferred stock, par value $.001 per share:
authorized 5,000,000 shares; issued and outstanding 4,368,937
shares at 9/30/96, 6/30/96 and 9/30/95 (aggregate liquidation
preference: $4,500,005) 4,369 4,369 4,369
Paid in capital 10,418,518 9,386,893 6,145,468
Common stock subscriptions receivable (200,100) (462,584) -
Accumulated deficit (7,773,667) (7,139,967) (4,467,634)
Cumulative foreign currency translation adjustments (2,417) 5,004 (27,266)
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Total stockholders' equity 2,463,740 1,810,408 1,670,473
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Total liabilities and stockholders' equity $ 3,699,984 $ 3,135,880 $ 2,191,150
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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 MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C>
Revenue $ 444,465 $ 187,593
Cost of sales 205,245 101,110
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Gross margin 239,220 86,483
Depreciation and amortization 21,060 16,429
Selling, general and administrative expenses 822,152 492,791
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Operating loss (603,992) (422,737)
Other income 5,636 -
Interest income 25,435 21,062
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Net loss $ (572,921) $ (401,675)
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Net loss per share of common stock $ (0.04) $ (0.03)
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Weighted average number of common shares outstanding 16,803,129 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 THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (572,921) $ (401,675)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense 21,060 16,429
Increase in allowance for doubtful accounts 39,536 -
Changes in accounts receivable (254,332) (107,422)
Changes in other current assets and security deposits (82,351) 2,980
Changes in accounts payable (170,012) (38,965)
Changes in accrued and other liabilities 20,005 (78,583)
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Net cash used in operating activities (999,015) (607,236)
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Cash flows from investing activities:
Purchases of fixed assets, net (30,688) (15,155)
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Net cash used in investing activities (30,688) (15,155)
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Cash flows from financing activities:
Proceeds from issuance of common stock 1,031,969 -
Common stock subscriptions received 262,484 -
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Net cash provided by financing activities 1,294,453 -
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Net increase (decrease) in cash and cash equivalents 264,750 (622,391)
Cash and cash equivalents at the beginning of the period 2,607,118 2,097,833
Effect of exchange rate changes on cash (7,421) (1,117)
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Cash and cash equivalents at the end of the period $ 2,864,447 $ 1,474,325
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Supplementary cash flow information:
Cash paid during the period for interest $ 461 -
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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QCS CORPORATION
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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 quarter ended September 30, 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.
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. The three month
period ended September 30, 1996 net loss per share is stated after preferred
dividends payable of $60,779 have been deducted from the September 30, 1996
net loss.
RECLASSIFICATION
Certain prior period balances have been reclassified to conform to the
current period's presentation.
SUBSEQUENT EVENT
On October 21, 1996, the Company appointed a new President and Chief
Executive Officer who was also elected to serve as a member of the Board of
Directors. Under the terms of his employment agreement, he was granted
options to purchase 2,858,493 shares of common stock at $2.27 per share,
subject to certain adjustments in the event of the future issuance of shares
of common stock of the Company. Options to purchase 1,372,077 shares
immediately vested with the remaining options to purchase 1,486,416 shares
vesting in the equal blocks of 495,472 on April 11, 1997, October 11, 1997,
and April 11, 1998, respectively.
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QCS CORPORATION
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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.
GENERAL
QCS Corporation (the "Company") is an electronic commerce service provider
serving the worldwide retail industry. The Company provides its users with
computer software and related hardware to enable retailers and suppliers to
conduct the purchase and sale of merchandise on a global basis. Using Lotus
Notes-TM- and industry standard networking protocols and transmitting data
over leased "backbone" trunk lines, the Company maintains a secure yet open
electronic network which helps retailers conduct on-line communication and
transactions with their vendors and suppliers (the "QCS Network"). This
communication and trading process is usually referred to in the retail
industry as "sourcing." High volumes of product and transaction data need to
be exchanged between the retailers and their suppliers in order for buy-sell
transactions to be initiated, negotiated and closed. This critical sourcing
process typically requires a substantial amount of time and attention from
both the retail merchandise buyer and the salesperson of a manufacturer or a
distributor. The QCS Network and the Company's related software products and
services are designed to help make this sourcing function substantially more
effective and efficient and to facilitate the workflow management of retail
industry buyers and sellers.
Several important events occurred and were announced recently. On October
21, 1996, subsequent to the closing of Q1, FY1997, the Company announced the
appointment of 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.
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On December 9, 1996, subsequent to the closing of Q1, FY1997, the Company
announced an agreement with IBM to promote international electronic trading
between retailers and their suppliers on IBM's Global Network. Under the
terms of the agreement, IBM and QCS will cooperatively market and support the
QCS Network. IBM will provide a global infrastructure that includes customer
care centers and a worldwide sales force to recruit suppliers onto the
network. The service will operate on IBM's Interconnect Service for Lotus
Notes.
RESULTS OF OPERATIONS
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 137% to $444.5 thousand for the first
quarter of fiscal year 1997 (Q1'97), from $187.6 thousand for the first
quarter of fiscal year 1996 (Q1'96). This increase was primarily
attributable to increases in the number of retail and vendor customers using
the QCS Network and services. Also, some existing customers increased their
amount of usage on the Network.
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 103% to $205.2
thousand for Q1'97 from $101.1 thousand in Q1'96. The gross margin for Q1'97
was $239.2 thousand or 53.8% of revenues compared to the Q1'96 gross margin
of $86.5 thousand or 46.1% of revenues. The increase in cost of sales is
primarily due to the increase in purchased network services reflecting the
growth in the number of customers and the expanded geographic nature of the
customer base. Also, installation and support costs increased primarily due
to the new retail and vendor customers added to the Network. Finally, these
increases in costs were partially offset by improved efficiencies realized as
the Company took over the management of the Network with QCS personnel.
These efficiencies, along with some efficiencies of scale due to growth,
provided the primary basis for the improved gross margin.
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 66% to $843.2 thousand in Q1'97 from $509.2 thousand in Q1'96. 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 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, as well as for external legal and accounting
services.
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As a result of the foregoing, the net loss increased 43% to $572.9 thousand
for Q1'97 from $401.7 thousand in Q1'96.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position improved from $1.5 million at the end of Q1'96 to
$2.9 million at the end of Q1'97. This increase was primarily due to the
receipt of funds from the Common Stock Private Placement that began in the
fourth quarter of fiscal year 1996. This receipt of funds was partially
offset by negative cash flows from operations.
Management feels that the cash on hand at September 30, 1996 will be
sufficient to meet working capital needs for the foreseeable future. The
Company may choose to supplement this cash balance by pursuing a line of
credit from a local bank in the Mountain View area in the future. 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 2 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 first quarter of fiscal 1997.
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QCS CORPORATION
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SIGNATURES
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: January 13, 1997
QCS CORPORATION
(Registrant)
/s/ Todd S. Myhre
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Todd S. Myhre
President, Chief Executive Officer
and Acting Chief Financial Officer
(signing on behalf of Registrant and
as Principal Accounting and
Financial Officer)
/s/ Marcel van Heesewijk
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Marcel van Heesewijk
Chairman and Vice President
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QCS CORPORATION (Exhibit 11.1)
COMPUTATION OF NET LOSS PER SHARE
(Unaudited)
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C>
Net loss $ (572,921) $ (401,675)
Preferred dividend payable not included in net loss (60,779) -
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Net loss for net loss per share computation $ (633,700) $ (401,675)
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Weighted average number of common shares outstanding 16,803,129 15,536,000
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Net loss per share of common stock $ (0.04) $ (0.03)
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</TABLE>
See notes to unaudited consolidated financial statements.
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 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> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2864
<SECURITIES> 0
<RECEIVABLES> 612
<ALLOWANCES> 159
<INVENTORY> 0
<CURRENT-ASSETS> 3426
<PP&E> 314
<DEPRECIATION> 75
<TOTAL-ASSETS> 3700
<CURRENT-LIABILITIES> 1233
<BONDS> 0
0
4
<COMMON> 17
<OTHER-SE> 2442
<TOTAL-LIABILITY-AND-EQUITY> 3700
<SALES> 0
<TOTAL-REVENUES> 444
<CGS> 0
<TOTAL-COSTS> 205
<OTHER-EXPENSES> 812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (573)
<INCOME-TAX> 0
<INCOME-CONTINUING> (573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
