U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 33-48846-NY
BLUE CHIP COMPUTERWARE, INC.
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3671526
- ------------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
33 Dubon Court, Farmingdale, New York 11735
-------------------------------------------------------------
(Address of principal executive offices)
(516) 777-1700
------------------------
Issuer's telephone number
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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the issuers common stock, par value $0.01
per share, at August 10, 1996 was 11,671,926 shares.
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 27,083 $ 37,630
Equity security, available for sale 2,437,209 1,462,400
Note receivable, current maturity 91,988 113,464
Accounts receivable, net of allowance for uncollectibles 446,234 474,228
Other receivables in litigation, net of allowance for
uncollectibles 885,452 1,000,345
Inventories 578,038 1,139,935
Demand loans from officers 313,211 325,801
Prepaid expenses and miscellaneous receivables net of
allowance for uncollectibles 197,443 86,215
Current assets attributable to discontinued operations -- 1,521,771
---------- ----------
Total current assets 4,976,658 6,161,789
---------- ----------
Property and equipment, net of accumulated depreciation
and amortization 62,654 76,014
Propery and equipment attributable to discontinued
operations,net -- 329,895
---------- ----------
62,654 405,909
---------- ----------
Other assets:
Note receivable, less current maturities and net of a reserve
for uncollectible portion 80,036 80,036
Surety bond and security deposits 94,712 94,712
Goodwill, net of accumulated amortization 462,162 531,486
Other assets attributable to discontinued operations 20,285
---------- ----------
Total other assets 636,910 726,519
---------- ----------
Total assets $5,676,222 $7,294,217
========== ==========
</TABLE>
(Continued)
2
<PAGE>
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- -----------
(Unaudited)
<C> <S> <S>
Current liabilities:
Short-term debt, accounts receivable and inventory
financing $1,394,583 $1,381,279
Accounts payable 875,560 941,504
Accrued expenses 254,057 257,718
Sales tax payable 33,916 79,358
Notes payable, other 327,869 102,500
Due to related parties 626,990 156,561
Current liabilities attributable to discontinued operations -- 1,987,791
---------- ----------
Total current liabilities 3,512,975 4,906,711
Long term liabilities attributable to discontinued operations -- 74,841
---------- ----------
Total liabilities 3,512,975 4,981,552
---------- ----------
Stockholders' equity:
Preferred stock, $1.00 par value
Common stock, $.01 par value 118,019 114,019
Additional paid-in capital 11,660,813 11,584,813
(Accumulated deficit) (11,425,188) (9,770,204)
Unrealized gain on equity security 2,099,603 634,037
------------ ----------
2,453,247 2,562,665
Less treasury stock - 130,000 shares, at cost (290,000) (250,000)
------------ ----------
Total stockholders' equity 2,163,247 2,312,665
------------ ----------
Total liabilities and stockholders' equity $ 5,676,222 $7,294,217
============ ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL OPERATIONS
3
<PAGE>
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
1996 1995
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 836,274 $3,709,045
Direct Costs 977,959 1,620,641
------------ ----------
Gross Profit (141,685) 2,088,404
Selling, general and administrative expenses 1,531,100 1,909,299
Interest expense (net) 186,289 32,641
------------ ----------
(1,859,074) 146,464
Realized gain on disposal of available-for-sale
security 292,240 --
Income taxes -- --
------------ ----------
Income (loss) from continuing operations (1,566,834) 146,464
Loss from discontinued operations (125,650) (86,720)
------------ ----------
Income (loss) before extraordinary income (1,692,484) 59,744
Extraordinary income, gain on extinguishment
of debt 37,500 --
------------ ----------
Net Income (loss) $ (1,654,984) $ 59,744
============ ==========
Income(loss) per share from continuing operations $ (.14) $ .02
Loss per share from discontinued operations (.01) (.01)
Income per share from extraordinary item -- --
------------ ----------
Net (Loss) income per share $ (.15) $ .01
============ ==========
Weighted average shares outstanding 11,555,442 6,269,427
============ ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL OPERATIONS
4
<PAGE>
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
------------------
JUNE 30, JUNE 30,
1996 1995
---------- ----------
(Unaudited) (Unaudited)
Revenues $ 414,333 $2,300,405
Direct Costs 681,602 880,253
----------- ----------
Gross Profit (267,269) 1,420,152
Selling, general and administrative expenses 785,502 1,071,631
Interest expense (net) 86,722 (500)
----------- ----------
(1,139,493) 349,021
Realized gain on disposal of available-for-sale
security 218,399 --
Income taxes -- --
----------- ----------
Income (loss) from continuing operations (921,094) 349,021
Loss from discontinued operations (125,650) (107,913)
----------- ----------
Net Income (loss) $(1,046,744) $ 241,108
=========== ==========
Income (loss) per share from continuing operations $ (.08) $ .05
Loss per share from discontinued operations (.01) (.02)
----------- ----------
Net Income (Loss) income per share $ (.09) $ .03
=========== ==========
Weighted average shares outstanding 11,671,926 6,735,665
=========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL OPERATIONS
5
<PAGE>
BLUE CHIP COMPUTERWARE, INC
AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOW
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1996 1995
---------- ----------
(Unaudited) (Unaudited)
Operating activities
Net loss $(1,654,984) $ 59,744
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for doubtful accounts (32,840) (30,638)
Depreciation and amortization 82,684 117,052
Common stock issued for services 80,000 --
Equity stock transferred for expenses 224,532 --
Realized gain on disposal of equity security (292,240) --
Loss on the sale of TSG (126,650) --
Changes in assets and liabilities:
Decrease in accounts receivable 175,727 117,452
Decrease (Increase) in inventories 561,897 (815,636)
Increase in prepaid expenses and other
current assets (111,228) (431,122)
(Decrease) in notes receivable (400,000)
Security deposits and other assets -- (4,356)
Decrease in Accounts
Payable and accrued expenses (115,047) 339,233
Discontinued operations -- 81,140
---------- ----------
Net cash used by operating activities (955,849) (967,131)
---------- ----------
Investing activities:
Loans to officers 12,590 (8,882)
Notes receivable 21,476 --
Redemption of Equity Investment 401,997 --
Discontinued operations -- (9,911)
---------- ----------
Net cash provided by (used in)
operating activities 436,063 (18,793)
---------- ----------
(Continued)
6
<PAGE>
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOW
(Concluded)
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1996 1995
---------- ----------
(Unaudited) (Unaudited)
Financing activities:
Net proceeds of stock sales $ -- $ 112,874
Net proceeds of short term debt 13,304 1,106,370
Net (payments) of stockholder loa ns -- (318,765)
Net (payments) of long term debt -- (134,204)
Net (payment) of notes payable other 206,576 --
Due to related parties 289,359 --
Discontinued operations -- (143,193)
------------ ----------
Net cash provided by
financing activities 509,239 623,082
------------ ----------
(Decrease) in cash and equivalents (10,547) (362,842)
Cash and equivalents, beginning of period 37,630 586,606
------------ ----------
Cash and equivalents, end of period $ 27,083 $ 223,764
============ ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, KoolGlo Industries, Inc. (KoolGlo) and Voice
Teck Canada, Inc. The Company's Discontinued Operations , Droutman
Enterprises, Inc. (DEI) and Technical Services Group, Inc. (TSG) have been
sold. DEI's operations were sold effective December 31, 1995 and TSG was sold
effective July 12, 1996 and the transaction for the sale of TSG was included
in the second quarter ended June 30, 1996. The financial statements for the
three and six months ended June 30, 1995 have been restateted for the
Discontinued Operations. All significant intercompany balances and
transactions have been eliminated.
The consolidated balance sheet as of June 30, 1996, the related
consolidated statements of operations for the three month and six month
periods ended June 30, 1996 and 1995 and the related consolidated statements
of cash flows for the six month periods ended June 30, 1996 and 1995 are
unaudited. In the opinion of management, all adjustments necessary for a fair
presentation of such consolidated financial statements have been included and
consist only of normal recurring items. The results of operations for the
period presented are not necessarily indicative of the results for the entire
year.
The financial information presented does not include all disclosures
required by generally accepted accounting principles. For further information
concerning the Company's accounting policies and certain transactions, refer
to the Company's annual report on Form 10-KSB.
NOTE 2. SUPPLEMENTARY CASH FLOW INFORMATION
Total interest paid during the six month period ended June 30,1996
and 1995 was $186,209 and $32,641, respectively. No income taxes were paid
during the six month period ended June 30, 1996 and 1995.
Noncash financing activities for the six month period ended June 30,
1996 was the issuance of 400,000 shares of the Company's common stock for
legal services, valued at $80,000, rendered.
Non cash financing activities for the six month period ended June 30,
1995 was $2,583,262, representing the issuance of 143,000 shares of the
Company's common stock for conversion of deposits received in connection with
a stock subscription, 50,000 shares of the Company's common stock for
conversion of a portion of bridge loan financing, 781,518 shares of the
Company's common stock in payment for convertible notes including interest,
410,000 shares of the Company's common stock for consulting services rendered
and 500,000 shares in payment of a liability of Allied Voice Tech, Inc.
8
<PAGE>
NOTE 3. INCOME TAXES
The provision for income taxes for the six month period ended June
30, 1996 and for the six month period ended June 30, 1995 were fully offset by
available net operating loss carryovers.
NOTE 4. NET LOSS PER SHARE
Net loss per share for the six months ended June 30, 1996 and 1995
does not give effect to any common equivalent shares which are dilutive.
NOTE 5. CAPITAL TRANSACTIONS
In February, 1996, the Company issued 400,000 shares of its common
stock in exchange for legal services valued at $80,000. Also in February 1996,
the Company agreed to purchase 50,000 shares of Blue Chip stock in exchange
for 40,000 shares ( 20,000 common and 20,000 preferred) in All American Food
Group, Inc. ("All American"). The 50,000 Blue Chip shares had previously been
issued, in February 1995 to convert a$100,000 of KoolGlo's bridge loan. The
offer and agreement to exchange the All American shares allowed this lender to
receive the same treatment offered to and accepted by most of the other bridge
loan lenders. However, since approximately one year had passed since the
issuance of the Blue Chip shares and the extinguishment of the related
$100,000 bridge loan debt had been recorded in 1995, the February 1996
transaction constituted a treasury stock purchase valued at $40,000,
calculated at the Company's then carrying value in the All American stock of
$1.00 per share.
NOTE 6. EQUITY SECURITY, AVAILABLE FOR SALE
As of June 30, 1996, the Company owns 576,203 convertible preferred
shares and 236,200 voting common shares . The Company has valued its shares in
All American at June 30, 1996, at $3.00 per share which aggregates to
$2,437,209. There is an unrealized gain in the equity section of the balance
sheet of $2,099,603 at June 30, 1996, which represents the excess of market
value over cost that has not yet been realized in accordance with the
treatment of the investment " Available-for- Sale Equity Security" pursuant to
FAS#115. All American filed its first amendment to Form SB-2 and it is
anticipated that the public offering will be effective in September 1996. The
Company has valued its shares in All American at June 30, 1996, at 50% of the
offering price per share.
As of June 30, 1996, the Company has pledged 412,000 shares of All American
convertible preferred shares in connection with various loans made to the
Company and TSG by third parties. See the Company's Form 10-KSB for the year
ended December 31, 1995 for further information.
9
<PAGE>
NOTE 7. NOTES PAYABLE, OTHER
As of June 30, 1996, the Company owes third parties $327,869 of which
$100,000 is due in the third quarter of 1996 and $227,869 is due in the fourth
quarter of 1996. These notes are secured by 215,000 convertible preferred
shares in All American. See the Company's Form 10-KSB for the year ended
December 31, 1995 for further information.
NOTE 8. DUE TO RELATED PARTIES
With the completion of the sale of TSG effective July 12, 1996, the
Company recorded additional liability of $323,863 due to related parties. On
June 11, 1996, the Company secured these two notes with 62,000 of convertible
preferred shares in All American. These two notes were not purchased by the
buyer in the TSG sale, therefore, they have been recognized in the quarter
ended June 30, 1996. In addition, there is a $110,000 note due to a related
party which is secured with 135,00 shares of convertible preferred shares in
All American. In the aggregate, $433,863 in notes due to related parties is
secured by 197,000 convertible preferred shares in All American.
NOTE 9. SALE OF TSG
Effective July 12, 1996, the Company sold its 79% investment in TSG
for $10,000 in cash and a note receivable of $40,000 for an aggregate sales
price of $50,000. The transaction was fully recorded in the quarter ended June
30, 1996 and the Company recognized a loss on the sale of TSG of $125,650 as a
result of recording additional liability of $323,863 for amounts due to
related parties. See Note 8 above.
NOTE 10. SUBSEQUENT EVENTS
In July 1996, the Board of Directors approved the transfer of All
American shares as follows:(1) 10,000 convertible preferred shares to Mr.
Chuck Gitlin who became the Company's President and Chief Executive Officer
effective July 18, 1996, (2) 65,000 convertible preferred shares to KoolGlo's
supplier in the Orient for reduction of $191,000 in liabilities, (3) 25,000
convertible preferred shares to Mr. Victor Caron for his personally
guaranteeing debt to KoolGlo's factor. Mr. Caron is a Director and was the
Company's previous President & CEO until his resignation on June 11, 1996, (4)
25,000 convertible preferred shares to a third pary for full payment of a
$40,000 loan which was outstanding for several years, and (5) 10,000
convertible preferred shares to Steve Caron for his prior loans to TSG.
In July 1996, the Company also agreed to accept $37,500 as full
payment in July for a $75,000 note due September 1996. The funds were needed
to pay KoolGlo's landlord for back rent.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The consolidated loss for the six months ended June 30, 1996 was
$1,654,984 or $.15 per share, compared to a net income of $59,744 or $.01 per
share for the six months ended June 30, 1995. KoolGlo's loss for the six
months ended June 30, 1996 is $1,091,384, compared to profit of $641,000 for
the six months ended June 30, 1995. The loss in KoolGlo for the six months
ended 1996 compared to a profit in the six months ended in 1995 is a result of
lower sales in 1996(See revenues below)and lower prices. Blue Chip, the
Holding Company, had a loss of $563,600 after it realized a loss of $125,650
on the sale of its 79% equity in TSG, a gain of $292,240 and an extraordinary
gain of $37,500 for transfers of All American shares to third parties. For the
six months ended June 30, 1995, the Holding Company incurred a loss of
$494,536 and Discontinued Operations incurred a loss of $86,720.
The consolidated loss for the three months ended June 30, 1996 was
$1,046,744 or $.09 per share, compared to a net income of $241,108 or $.03 per
share for the six months ended June 30, 1995. KoolGlo's loss for the three
months ended June 30, 1996 was $690,858 compared to a net income of $592,000
for the three months ended June 30, 1995. Again, the decline from net income
to a loss reflects significantly lower sales and lower prices. The Holding
Company, had a loss of $355,886 after it realized a loss of $125,650 on the
sale of its 79% equity in TSG and a gain of $218,399 for transfers of All
American shares to third parties. For the three months ended June 30, 1995,
the Holding Company incurred a loss of $242,979 and Discontinued Operations
incurred a loss of $107,913.
Revenues in KoolGlo declined by approximately $2.9 million to $.836
million for the six months ended June 30, 1996 from approximately $3.7 million
for the six months ended June 30, 1995. The decline reflectes significantly
lower demand for KoolGlo's existing products which have resulted in a negative
gross profit due to sale of inventory below cost. The new Deltalite product
line is not anticipated to provide any benefit to the Company until the fourth
quarter of 1996.
Revenues in KoolGlo declined approximately $1.9 million for the three
months ended June 30, 1996 to $.414 million from approximately $2.3 million
for the three months ended June 30, 1995. Again, the decline reflects
significantly lower demand for the Company's products.
Gross profit declined by approximately $2.2 million to a negative
gross profit of $.141 million for the first six months of 1996 from
approximately $2.1 million in the first six months of 1995. The gross profit
margin for the six months ended June 30, 1996 was negative compared to 56.3%
for the six months ended June 30, 1995. Lower demand resulting in decreased
sales of KoolGlo's products, have decreased prices resulting in a
significantly lower gross profit.
11
<PAGE>
Gross profit declined by approximately $1.7 million to a negative
gross profit of $.277 million for the three months ended June 30, 1996 from
approximately $1.4 million for the three months ended June 30, 1995. The gross
profit margin for the three months ended June 30, 1996 was negative compared
to 61.7% for the three months ended June 30, 1995 reflecting significantly
lower demand for the company's products.
Selling, general and administrative expenses declined by
approximately $.378 million to $1.53 million for the six months ended June 30,
1996 compared to approximately $1.9 million for the six months ended June 30,
1995. This reflects the Company's efforts to reduce cost.
Selling, general and administrative expenses declined by
approximately $.286 million to $.785 million for the three months ended June
30, 1996 compared to approximately $1.1 million for the three months ended
June 30, 1995.
Interest expense for the six months ended June 30, 1996 increased by
approximately $153k to $186k from $33k for the six months ended June 30, 1995.
For the quarter ended June 30, 1996, interest rates increased by approximately
$876k. The increase reflects KoolGlo's interest applicable on its liability to
its factor. The PHD receivables in litigation is the main contributor. See the
Company's Form 10-KSB for the year ended December 31, 1995 for further
information.
The provision for income taxes for the six months ended June 30, 1996
and the three months ended June 30, 1996 were fully offset by available net
operating loss carryovers..
Working capital at June 30, 1996 was $1,463,683 compared to
$1,255,078 at December 31, 1995 or an increase of $208,605. Working capital at
December 31, 1995 excluding Discontinued Operations and attributable to
Continuing Operations was $1,721,098. The main reason for the increase in
working capital is the Company's investment in its equity security. The
Company valued its shares in All American at $3.00 per share on June 30, 1996
compared to $1.00 per share at December 31, 1995.
The Company's cash and equivalents decreased by $10,547 from $37,630
at December 31, 1995, to $27,083 at June 30, 1996.
Operating activities required cash of $1,155,712, Investing
activities provided $436,063 in cash mainly from redemption of All American
shares, and Financing activities provided $509,239 mainly from borrowings
resulting in the decrease of cash and equivalents of $10,547. See the
Statement of Cash Flow for further information.
12
<PAGE>
As described in the Company's Form 10-KSB for the year ended December 31,
1995, the Company expects losses for at least the first three quarters of
1996.The Company anticipates raising cash through the sale of its All American
shares. It is anticipated the All American's public offering will be effective
September 1996. The Company has valued its shares in All American at June 30,
1996 at $3.00 per share which represents 50% of the offering price per share.
There is no assurance that such public offering will be completed. Without the
All American public offering, the Company will have a difficult time funding
future losses.
13
<PAGE>
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 Masters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
14
<PAGE>
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.
Blue Chip Computerware, Inc.
- ----------------------------
(Registrant)
Date: August 13, 1996 /s/ Chuck Gitlin
-------------------------
Chuck Gitlin, President,
Treasurer, Chief Executive
Officer and Director
Date: August 13, 1996 /s/ Chris Mallios
-----------------
Chris Mallios, Secretary
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,083
<SECURITIES> 2,437,209
<RECEIVABLES> 2,033,846
<ALLOWANCES> 702,160
<INVENTORY> 578,038
<CURRENT-ASSETS> 4,976,658
<PP&E> 116,402
<DEPRECIATION> 53,748
<TOTAL-ASSETS> 5,676,222
<CURRENT-LIABILITIES> 3,512,975
<BONDS> 0
0
0
<COMMON> 118,019
<OTHER-SE> 2,045,228
<TOTAL-LIABILITY-AND-EQUITY> 5,676,222
<SALES> 836,274
<TOTAL-REVENUES> 1,128,514
<CGS> 977,959
<TOTAL-COSTS> 977,959
<OTHER-EXPENSES> 1,531,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (186,289)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,566,834)
<DISCONTINUED> 125,650
<EXTRAORDINARY> 37,500
<CHANGES> 0
<NET-INCOME> (1,654,984)
<EPS-PRIMARY> (15)
<EPS-DILUTED> (15)
</TABLE>
