SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1996 Commission File No. 0-19987
PRISM GROUP INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-0143407
(State or other jurisdiction of I.R.S. (IRS Employer Identification No.)
incorporation or organization Number)
15530 Woodinville-Redmond Road, Woodinville, WA 98072
(Address of principal executive offices)
206/881-1609
(Issuer's telephone number)
Securities registered pursuant to Section 12 (g) of the Act:
Check whether the issuer (1) 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__
APPLICABLE ONLY TO issuers INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes__No__
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 984,057
Transitional Small Business Disclosure Format (check one);
Yes__ No X
1 of a Total of 17 Pages
PART I - FINANCIAL INFORMATION
ITEM I. Financial Statements
Set forth below are the unaudited financial statements reflecting the Company's
financial condition as of June 30,1996, results of operations for the three and
six-month periods ended June 30, 1996, and cash flows for the six-month period
ended June 30, 1996.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
<TABLE>
PRISM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31, (1)
1996 1995
<C> <C> <C>
Cash $ 756 $ 222,713
Accounts Receivable, net 1,496,379 2,298,373
Inventories 832,027 1,294,703
Other current assets 565,157 128,969
------------------ -------------------
Total Current Assets 2,894,318 3,944,758
Equipment - At Cost 5,630,457 5,633,543
Less accumulated depreciation and
amortization (3,976,516) (3,635,449)
------------------ -------------------
1,653,941 1,998,094
Goodwill, net of accumulated amortization 2,559,468 2,635,848
Other 23,901 16,926
------------------ -------------------
$ 7,131,627 $ 8,595,626
================== ===================
LIABILITIES AND STOCK HOLDERS' EQUITY
Note payable $ 1,233,637 $ 913,866
Bank Overdraft $ 254,427
Current maturities of long-term obligations 387,794 335,533
Accounts payable 3,929,910 3,664,551
Put option obligations - 0
Accrued liabilities 658,471 857,250
------------------ -------------------
Total Current Liabilities 6,209,813 6,025,627
Long-term obligations 1,118,476 1,261,274
Minority interest in subsidiary 0 0
Deferred income taxes 0 0
Stockholders' Equity (Deficit)
Preferred stock, $100.00 par value 2,573,500 2,573,500
Common stock, $.01 par value 78,723 78,723
Additional paid-in capital 5,322,744 5,322,744
Retained earnings (deficit) (8,171,630) (6,666,242)
------------------ -------------------
(196,663) 1,308,725
------------------ -------------------
$ 7,131,627 $ 8,595,626
================== ===================
(1) Derived from audited financial statements
See accompanying notes
</TABLE>
<TABLE>
PRISM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<C> <C> <C> <C> <C>
Net sales $ 2,821,848 $ 5,836,738 $ 5,557,926 $ 11,917,566
Cost of goods sold 2,392,681 4,734,478 5,009,919 9,697,002
---------------------------------- ----------------------------------
Gross profit 429,168 1,102,260 548,008 2,220,564
Selling, general and administrative 845,475 1,182,662 1,715,329 2,365,323
---------------------------------- ----------------------------------
Operating loss (416,307) (80,402) (1,167,321) (144,759)
Other Income (Expense):
Interest expense (184,213) (258,582) (338,845) (498,972)
Interest income and other (31,920) 2,140 759 4,232
Gain on sale of assets - 903,593 - 903,593
---------------------------------- ----------------------------------
Earnings (loss) before income taxes and
minority interest (632,440) 566,749 (1,505,407) 264,094
Income tax benefit - - - -
---------------------------------- ----------------------------------
Earnings (loss) before minority interest (632,440) 566,749 (1,505,407) 264,094
Minority interest in net earnings (loss) - - - -
---------------------------------- ----------------------------------
Net earnings (loss) $ (632,440) $ 566,749 $ (1,505,407) $ 264,094
================================== ==================================
Earnings (loss) per common
and common equivalent share (0.64) 0.07 (1.53) 0.03
================================== ==================================
See accompanying notes
</TABLE>
<TABLE>
PRISM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the six months ended
June 30, June 30,
1996 1995
<C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,505,407) $ 264,094
Adjustments to reconcile net earnings (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 417,447 347,853
Increase (decrease) in cash from:
Trade and other receivables 801,994 2,034,143
Inventories and other current assets 26,488 630,720
Accounts payable and accrued expenses 66,580 (2,179,155)
----------------- -----------------
Net cash provided by (used in) operating activities (192,897) 1,097,655
Cash flows from investing activities:
Asset disposition (acquisition) 3,086 231,283
Reduction in other assets (6,975) 50,526
----------------- -----------------
Net cash provided by (used in) investing activities (3,889) 281,809
Cash flows from financing activities:
Net borrowings (reductions) under short-term loans 319,771 (702,892)
Net borrowings (reductions) under long-term obligations (90,536) (825,631)
Principal payments on long-term obligations - 0
Common stock subscriptions - 0
Proceeds from stock option exercises - 0
----------------- -----------------
Net cash provided by (used in) financing activities 229,235 (1,528,523)
Net (decrease) increase in cash 32,450 (149,059)
Cash at beginning of period (31,714) 464,017
----------------- -----------------
Cash at end of period $ $ 314,958
736
================= =================
</TABLE>
PRISM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation The accompanying condensed consolidated financial
statements are unaudited and should be read in conjunction with the financial
statement disclosures included in the Company's fiscal 1995 Annual Report on
Form 10-KSB. Operating results for the three and six-month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the full year. In the opinion of management, all adjustments necessary for a
fair presentation of interim operating results are of a normal recurring nature
and are reflected herein. See form 8K dated August 14, 1996 for pro forma
changes to the financial statements after June 30, 1996.
2. Earnings (Loss) Per Share Net earnings (loss) per share was calculated based
upon common and common equivalent shares outstanding during each period using
the modified treasury method. For the periods ended June 30, 1996 and 1995, no
common stock equivalents were considered to be outstanding as they would be
anti-dilutive. The Company undertook an 8 to 1 reverse stock splite ffective
April 15, 1996. The weighted average and number of common and common equivalent
shares outstanding for 1996 and 1995 has been retroactively adjusted for this
reverse split. The common and common equivalent shares outstanding, after
retroactive adjustment for the split, at June 30, 1996 and June 30, 1995 were
984,057 for both periods.
3. Supplemental Cash Flow Information Interest paid during the six-month periods
ended June 30, 1996 and 1995 totaled approximately $212,000 and $210,000,
respectively. There were no payments for income taxes made for the six-month
periods ended June 30, 1996 and 1995.
4. Inventories Inventories consisted of the following at June 30, 1996 and
December 31, 1995:
June 30, December 31,
1996 1995
Raw materials $399,351 $576,158
Work in process 1,270 7,162
Finished goods 431,406 711,383
$832,027 $1,294,703
On July 30, 1996, most of PSP's inventory and some equipment were sold to a
competitor, PAC Services, Inc. ("PAC"), pursuant to CAPCO's foreclosure rights
under Article 9 of the Uniform Commercial Code. PSP has ceased business
operations and, in fact, is as is the rest of the Company, precluded by the
terms of the sale from competing with the purchaser. After liquidation of assets
not transferred to PAC and after satisfaction from the PAC sale proceeds of
CAPCO's indebtedness from PSP, which totaled $924,477, PSP will have remaining
funds for repayment to unsecured creditors. These funds will be insufficient to
pay creditors in full.
PAC paid $823,781 in cash at closing for the assets and related non-competes and
covenants and in addition, will pay up to an additional $249,000 by December 31,
1997 if sales from PSP customers transferred over to PAC exceed certain
thresholds.
Following this sale of PSP assets and subsequent liquidation of other PSP
assets, the only remaining business unit of the Company, and its only
significant asset, is Prism Direct, Inc. ("PDI"), which is engaged in order
processing and fulfillment services in the software publishing field and which
has its own line of credit with CAPCO. In connection with the sale of PSP assets
to PAC, PDI entered into an agreement with PAC pursuant to which PDI licensed
certain of its technology to PAC, and PDI agreed to give PAC certain rights to
its technology if it goes out of business and rights of first refusal in the
event of certain dispositions of PDI's business.
The Company is currently evaluating PDI and its prospects and is considering a
variety of alternatives with respect to PDI, primarily involving its sale or
disposition in connection with a liquidation of the Company. The Company
believes that the infusion of additional capital, within a very short time
period, is essential to continued PDI operations. The Company itself has
significant liabilities in respect of obligations to certain creditors of MDS
and SPI, as well to its own creditors, and those liabilities will make
difficult, if not impossible, any Company effort to raise capital for PDI. The
Company does not believe that PDI, on an on-going basis or upon its sale, would
gererate sufficient cash or value to satisify the Company's liabilities. As a
result of the liabilities of the Company, and in connection with the liquidation
of the remaining assets of PSP and any possible sale or other arrangement with
PDI, one or more of the Company's subsidiaries, or the Company itself, could be
subject to involuntary bankruptcy proceedings or the Company could commence a
voluntary proceeding.
Item 2. Management Discussion and Analysis
Overview
As more fully described in the Company's 1995 Annual Report on Form 10-KSB, as
amended, the Company consolidated its two software manufacturing operations in
the third quarter of 1995 to reduce underutilized capacity and costs. However,
partly because of a general slowdown in the software publishing business and
partly because the Company's ability to retain and attract customers has been
adversely affected by its financial difficulties, this new entity, Prism
Software Production, L.L.C. ("PSP"), did not experience the needed increased
sales in the first or second quarter of 1996 that are necessary to, among other
things, deal with the obligations to its vendors or the vendors of Microdisk
Services and Software Production, Inc..
On July 30, 1996, most of PSP's inventory and some equipment were sold to a
competitor, PAC Services, Inc. ("PAC"), pursuant to CAPCO's foreclosure rights
under Article 9 of the Uniform Commercial Code. PSP has ceased business
operations and, in fact, is precluded by the terms of the sale from competing
with the purchaser. After liquidition of assets not transferred to PAC and after
satisfaction from the PAC sale proceeds of CAPCO's indebtedness from PSP, which
totaled $924,477, PSP will have remaining funds for repayment to unsecured
creditors. These funds will be insufficient to pay creditors in full.
PAC paid $823,781 in cash at closing for the assets and related non-competes and
covenants and in addition, will pay up to an additional $249,000 by December 31,
1997 if sales from PSP customers transferred over to PAC exceed certain
thresholds.
Following this sale of PSP assets and subsequent liquidation of other PSP
assets, the only remaining business unit of the Company, and its only
significant asset, is Prism Direct, Inc. ("PDI"), which is engaged in order
processing and fulfillment services in the software publishing field and which
has its own line of credit with CAPCO. In connection with the sale of PSP assets
to PAC, PDI entered into an agreement with PAC pursuant to which PDI licensed
certain of its technology to PAC, and PDI agreed to give PAC certain rights to
its technology if it goes out of business and rights of first refusal in the
event of certain dispositions of PDI's business.
The Company is currently evaluating PDI and its prospects and is considering a
variety of alternatives with respect to PDI, primarily involving its sale or
disposition in connection with a liquidation of the Company. The Company
believes that the infusion of additional capital, within a very short time
period, is essential to continued PDI operations. The Company itself has
significant liabilities in respect of obligations to certain creditors of MDS
and SPI, as well to its own creditors, and those liabilities will make
difficult, if not impossible, any Company effort to raise capital for PDI. The
Company does not believe that PDI, on an on-going basis or upon its sale, would
gererate sufficient cash or value to satisify the Company's liabilities. As a
result of the liabilities of the Company, and in connection with the liquidation
of the remaining assets of PSP and any possible sale or other arrangement with
PDI, one or more of the Company's subsidiaries, or the Company itself, could be
subject to involuntary bankruptcy proceedings or the Company could commence a
voluntary proceeding.
Net Sales
Net sales decreased 48% to $2.8 million in the second quarter of 1996 from $5.8
million in the comparable 1995 quarter. For the six-months ended June 30, 1996,
net sales decreased 47% to $5.6 million from $11.9 million for the comparable
period in 1995.
The Company's sales reductions were due primarily to lower than expected
revenues by the software manufacturing subsidiary. Reasons for that decline have
been discussed in previous filings, including the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1996.
Gross Profits
Gross profit as a percentage of net sales decreased to 12% in the second quarter
of 1996 from 19% in the second quarter of 1995. For the six-months ended June
30, 1996, gross profit, as a percentage of net sales, decreased to 10% from 19%
during the comparable period in 1995. These results are due primarily to lower
than expected revenues at the Company's software manufacturing subsidiary.
Expenses
Selling, general and administrative expenses, as a percentage of net sales,
increased to 30% during the second quarter of 1996 from 20% for the comparable
quarter in 1995. For the six-month period ending June 30, 1996, selling, general
and administrative expenses increased to 31% of net sales from 20% in 1995.
Actual selling, general and administrative expenses were reduced $600 thousand
(27%) for the six month period ending June 30, 1996 compared to the same period
in 1995.
Interest expense decreased from $258 thousand during the second quarter of 1995
to $184 thousand for the second quarter of 1996 and from $499 thousand during
the six-months ended June 30, 1995 to $339 thousand for the comparable period in
1996. The decreased interest expenses is primarily due to reduced borrowings,
despite an increased interest rate.
Net Losses
Net losses increased in the second quarter of 1996 to a loss of $632 thousand
from a gain of $567 thousand in the second quarter of 1995 and losses totaling
$1,505 thousand for the six month period ending June 30, 1996 from earnings of
$264 thousand for the comparable period of 1995. The losses in 1996 are due
primarily to significantly lower revenues in the software manufacturing
subsidiary and the gains in 1995 were due primarily to the sale of the Company's
Corporate Services Division in May of that year.
Liquidity and Capital Resources
Background: The Company has financed its development and operations from the
sale of securities, the issuance of debt, and the sale of assets. As described
in the Company's 1995 Annual Report on Form 10-KSB, as amended, in 1995, the
Company (a) sold the Corporate Services Division of Microdisk Services in May,
(b) repaid lines of credit and term debt with U. S. Bank of Washington, (c)
converted approximately $4.3 million in short-term indebtedness, plus $412
thousand of other obligations accounted for as equity, into preferred and common
stock of the Company, and (d) acquired a new accounts receivable line of credit
from CAPCO Financial Company, Inc. ("CAPCO").
Renaissance Debenture: In connection with the debt resturcturings described
above, $2.5 million in debt owing by the Company to Renaissance Capital Partners
II, Ltd. ("Renaissance") was converted into capital stock of the Company. With
respect to the balance of the debt to Renaissance (including accrued interest),
the Company issued a new 12% Convertible Debenture with a principal amount of
$1,288,516. The unpaid balance of this debenture is convertible into shares of
the Company's common stock at a rate of $4.00 per share, as adjusted for the 8
to 1 reverse stock split undertaken by the Company effective April 15, 1996.
This conversion rate is subject to adjustment if the Company issues common stock
or rights thereto at a price less than $4.00 per share.
On January 1, 1996, the Company began principal payments to Renaissance on the
debenture. However, the Company is in default of certain covenants of the
debenture and is now in payment default as well. Renaissance has granted a
waiver of the covenant defaults through December 31, 1996 in exchange for a four
year warrant to purchase 12,500 shares of the Company's common stock at $4.00
per share. No waiver has been negotiated for the payment default and non has
been suggested by Renaissance.
CAPCO: On December 31, 1995, the Company executed new line of credit agreements
with CAPCO that extended until December 31, 1996. The lines of credit were for
$3.5 million for Prism Software Production, L.L.C. ("PSP") and $500 thousand for
Prism Direct, Inc. ("PDI"). The monthly rate of interest under both lines is
2.7% (32.4% annually) on the first $1.5 million outstanding. This rate
represents a significant increase in the Company's historical cost of borrowing.
As of June 30, 1996, the balance of the combined CAPCO lines was $1,233,637. The
$3.5 million line of credit for PSP was paid off in conjunction with the sale of
some assets of PSP to PAC Services, Inc. on July 30, 1996. The amount of the PSP
line that was paid off was, as of June 30, 1996, $1,004,598.
The Company has been unable to arrange a new line of credit that would reduce
its interest expense and provide it with greater availability.
General; Trade Debt and Other Matters: As of June 30, 1996, the Company had
limited cash available and was relying on, among other things, the CAPCO lines
of credit.
As of June 30, 1996 and December 31,1995, the Company and its subsidiaries had
approximately $1.3 million and $1.7 million, respectively, of accounts payable
that were current; $374 thousand and $483 thousand, respectively, extended to
between 31 and 60 days; and approximately $2.4 million and $1.5 million,
respectively, extended over 61 days. The level of extended accounts payable
results in part from the decision by the Company to manage closely both its cash
resources and accounts payable. As a result of such decision, a number of trade
creditors have experienced significant delays in payment. Some vendors have
required the Company to pay cash upon delivery. The Company however believes
that the delays in paying suppliers made it more difficult to attract new
customers.
The Company has received demand letters from certain vendors requesting
immediate payment of amounts owing to them, aggregating approximately $1.9
million. Many of these initiated lawsuits and new lawsuits continue to be filed.
One such vendor threatened to challenge the formation of PSP. The Company
believes that the formation of PSP complied with applicable law and was a
practical method for eventual payment of vendors of SPI and Microdisk Services,
the entities whose operations were consolidated in connection with the formation
of PSP. Many of the lawsuits and demands, representing about $774 thousand in
claims, were settled with the vendors agreeing to payment over a period of time;
the promised level of payments was based on Company expectations of future
sales, which were not realized in the first or second quarters of 1996.
Particularly in light of the recent sale of PSP assets (discussed below), the
Company will be unable to continue making the required payments and indeed, the
Company has been in default on almost all of these settlement agreements. Under
a bulk of the settlements of the lawsuits, the Company has stipulated to
judgments that can be entered and executed upon if agreed upon payments have not
been made, after in most cases notice and an opportunity to cure. Certain
creditors have commenced such actions.
On July 30, 1996, most of PSP's inventory and some equipment were sold to a
competitor, PAC Services, Inc. ("PAC"), pursuant to CAPCO's foreclosure rights
under Article 9 of the Uniform Commercial Code. PSP has ceased business
operations and, in fact, is as is the rest of the Company, precluded by the
terms of the sale from competing with the purchaser. After liquidation of assets
not transferred to PAC and after satisfaction from the PAC sale proceeds of
CAPCO's indebtedness from PSP, which totaled $924,477, PSP will have remaining
funds for repayment to unsecured creditors. These funds will be insufficient to
pay creditors in full.
PAC paid $823,781 in cash at closing for the assets and related non-competes and
covenants and in addition, will pay up to an additional $249,000 by December 31,
1997 if sales from PSP customers transferred over to PAC exceed certain
thresholds.
Following this sale of PSP assets and subsequent liquidation of other PSP
assets, the only remaining business unit of the Company, and its only
significant asset, is Prism Direct, Inc. ("PDI"), which is engaged in order
processing and fulfillment services in the software publishing field and which
has its own line of credit with CAPCO. In connection with the sale of PSP assets
to PAC, PDI entered into an agreement with PAC pursuant to which PDI licensed
certain of its technology to PAC, and PDI agreed to give PAC certain rights to
its technology if it goes out of business and rights of first refusal in the
event of certain dispositions of PDI's business.
The Company is currently evaluating PDI and its prospects and is considering a
variety of alternatives with respect to PDI, primarily involving its sale or
disposition in connection with a liquidation of the Company. The Company
believes that the infusion of additional capital, within a very short time
period, is essential to continued PDI operations. The Company itself has
significant liabilities in respect of obligations to certain creditors of MDS
and SPI, as well to its own creditors, and those liabilities will make
difficult, if not impossible, any Company effort to raise capital for PDI. The
Company does not believe that PDI, on an on-going basis or upon itssale, would
gererate sufficient cash or value to satisify the Company's liabilities. As a
result of the liabilities of the Company, and in connection with the liquidation
of the remaining assets of PSP and any possible sale or other arrangement with
PDI, one or more of the Company's subsidiaries, or the Company itself, could be
subject to involuntary bankruptcy proceedings or the Company could commence a
voluntary proceeding.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In 1995, the Company received notice from Sony claiming that the Company would
be infringing on Sony's patent for 3 1/2" floppy diskettes, if the Company
purchased diskettes from manufacturers not licensed by Sony. The Company is
still evaluating the claim, but has discovered that one of its vendors for
diskettes is unlicensed. However that vendor is in negotiations with Sony and
the Company has communicated the circumstances to Sony counsel. Because the
negotiations are ongoing, the Company requested several weeks of forbearance
from Sony while the vendor and Sony continued to negotiate a licensing
agreement. The Company also communicated its expectation to the vendor that this
matter be resolved promptly. The Company subsequently ceased buying diskettes
from this manufacturer.
Beginning in the fall of 1995, a number of lawsuits were brought by vendors to
Microdisk Services (MDS), Software Production, Inc. (SPI) and Prism Software
Productions, L.L.C. (PSP), claiming a total of approximately $1.3 million. These
lawsuits were brought in courts in the Seattle area. Approximately $774 thousand
in claimswere resolved through settlements in which the Company agreed to make
payments over time, all as further discussed in the Management's Discussion and
Analysis. Because the Company is not making required payments, litigation to
enforce the settlements has been and can be expected to continue to be
initiated, as noted in the Management's Discussion and Analysis. In addition, as
discussed in the Management's Discussion and Analysis, the Company has received
demand letters from a number of other vendors and new lawsuits continue to be
filed.
Item 2. Changes in Securities.
The Company's stock was listed on the NASDAQ Small Cap Market. The past trading
market for the Company's common stock could be characterized as volatile and
from time to time of low volume. Under NASDAQ listing rules, to remain listed,
the Company must maintain a minimum bid price of $1 per share (together with
other applicable requirements, including $1 million in capital and surplus and
$2 million in assets) or, as an alternative, if the bid price is less than $1
per share, the Company must maintain capital and surplus of $2,000,000 and a
market value of public float of $1,000,000. In 1995, the Company was subject to
delisting proceedings by NASDAQ but averted delisting by converting much of its
debt to equity. Because the Company's stock traded at less than $1 per share
during much of the fourth quarter of 1995 and the Company's capital and surplus
were less than $2,000,000, the Company was once again subject to delisting
proceedings. On March 28, 1996, NASDAQ advised the Company that it would be
delisted on April 12, 1996. The Company appealed the NASDAQ decision. As part of
that appeal strategy, the Company undertook an 8 to 1 reverse stock split,
effective April 15, 1996. After a hearing before NASDAQ on May 14, 1996 the
Company was told it would have to maintain capital and surplus of $2,000,000 in
order to remain listed after June 14, 1996. The Company was unable to meet this
requirement and was delisted as of that date. The Company's stock is now posted
on the pink sheet under the symbol PRSM. There is very limited trading in the
stock.
Item 3. Defaults Upon Senior Securities.
On June 30, 1995 the Company issued 25,735 shares of Series A Convertible
Preferred Stock with a par value of $100.00 per share. The holders of the Series
A Stock are entitled to a 4% cumulative dividend and certain liquidation and
redemption preferences. In addition, in the event that the Company for any two
consecutive quarters fails to declare and pay the cumulative dividends, such
holders shall have the right to vote as a class to elect directors to two new
director positions, that the Company is then obligated to create. The Company
has determined that it would not be prudent to pay dividends while it has
non-current obligations in light of provisions of law that prohibit the payment
of dividends by a corporation, if after giving affect to the dividend, the
corporation would not be able to pay debts as they come due in the usual course
of business. Accordingly, dividends for the quarters ended September 30 and
December 31, 1995, and March 31 and June 30, 1996 totaling $102,940, have not
been declared or paid by the Company and the Company does not expect to make
such dividend payments in the future.
The Company has failed to make principal and interest payments on the 12%
Convertible Debenture of $25,325.18 per month to Renaissance Capital Partners
II, Ltd., since the payment due on May 10, 1996 and does not expect to resume
such payments.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8K
(1) The Company filed a Current Report on Form 8K, dated August 14, 1996
announcing the foreclosure and sale of some of the assets of Prism Software
Production, L.L.C., Company's software manufacturing subsidiary.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PRISM GROUP, INC.
August 19, 1996 By /s/ K.C. Aly
Date K.C. Aly
Chief Executive Officer
August 19, 1996 By /s/ N. M. Morris
Date N. M. Morris
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 756
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<RECEIVABLES> 1,496,379
<ALLOWANCES> 73,382
<INVENTORY> 832,027
<CURRENT-ASSETS> 565,157
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0
2,573,500
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