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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
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
Commission File No. 0-21713
PRISM SOFTWARE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2621719
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23696 Birtcher; Lake Forest, California 92630
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(Address of principal executive offices)
(949) 855-3100
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(Registrant's telephone number, including area code)
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 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 [ ] No [X]
Indicate the number of shares outstanding of each of the
issuer's classes of common equity, as of the
latest practicable date:
Title of Each Class of Common Stock Outstanding at July 31, 2000
----------------------------------- ----------------------------
Common Stock, par value $.01 per share 133,638,854
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PRISM SOFTWARE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of June 30, 2000 (Unaudited) 4
Statements of Operations for the Three and Six Months
Ended June 30, 2000 and 1999 (Unaudited) 5
Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (Unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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PRISM SOFTWARE CORPORATION
BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
ASSETS
Current assets:
Cash $ 45,500
Trade accounts receivable, net of allowance for doubtful
accounts of $2,518 141,907
Inventories 20,126
Other 12,344
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Total current assets 219,877
Equipment, net of accumulated depreciation of $217,837 61,415
Other 6,925
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$ 288,217
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 1,732,068
Accounts payable 182,197
Accrued expenses 523,153
Deferred revenue 173,235
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Total current liabilities 2,610,653
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Long-term liabilities:
Deferred revenue 13,240
Notes payable 18,297
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Total long term liabilities 31,537
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Stockholders' deficit:
Preferred stock - 5,000,000 shares authorized, $.01 par value
Series A - 100,000 shares issued, 99,000 shares outstanding 990
Series B - 27,777 shares issued and outstanding 278
Common stock - 200,000,000 shares authorized, $.01 par
value; 131,238,854 shares issued and outstanding 1,312,389
Additional paid-in capital 7,198,679
Unamortized stock options (22,100)
Accumulated deficit (10,844,209)
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Total stockholders' deficit (2,353,973)
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$ 288,217
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The accompanying notes are an integral part of these financial statements.
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PRISM SOFTWARE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue $ 163,367 $ 175,165 $ 246,503 $ 332,227
Cost of sales 40,262 9,608 47,227 33,071
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Gross profit 123,105 165,557 199,276 299,156
Operating expenses:
Selling, general and administrative 444,952 455,917 827,234 903,262
Research and development 34,162 40,260 73,950 59,060
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Total operating expenses 479,114 496,177 901,184 962,322
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Loss from operations (356,009) (330,620) (701,908) (663,166)
Interest expense 50,068 29,703 100,882 57,324
Embedded interest expense 377,462 - 377,462 -
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Net loss $ (783,539) $ (360,323) $ (1,180,252) $ (720,490)
============= ============= ============= =============
Basic and diluted
net loss per common share $ (0.01) $ (0.01) $ (0.02) $ (0.01)
============= ============= ============= =============
Basic and diluted
weighted average number
of common shares outstanding 84,335,725 60,123,272 72,229,499 60,123,272
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
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PRISM SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,180,252) $ (720,490)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation 17,534 23,109
Issuance of stock options 81,932 155,949
Amortization of interest embedded in
convertible notes payable 377,462 -
(Increase) decrease in assets:
Accounts receivable (95,719) 105,957
Inventories (12,335) (2,693)
Other assets (4,132) 271
Increase (decrease) in liabilities:
Accounts payable (23,110) 35,690
Accrued expenses 75,067 68,394
Deferred revenue 37,603 10,264
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Net cash used by operating activities (725,950) (323,549)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (15,531) (6,152)
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Net cash used by investing activities (15,531) (6,152)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 758,000 373,000
Payments on notes payable (4,317) (2,978)
Proceeds from issuance of common stock 15,169 -
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Net cash provided by financing activities 768,852 370,022
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Net increase in cash 27,371 40,321
Cash, beginning of period 18,129 7,491
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Cash, end of period $ 45,500 $ 47,812
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Cash paid for interest $ 3,244 $ 50
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Supplemental disclosure of non-cash investing and
financing activities:
Notes payable and accrued interest converted to stock $ 1,152,938 $ -
============ ============
The accompanying notes are an integral part of these financial statements.
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PRISM SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION
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The accompanying financial statements have been prepared by the Company without
audit. In the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of June 30, 2000 and the results of its operations and cash flows for
the presented interim periods ended June 30, 2000 and 1999 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's December 31, 1999 audited financial
statements. The results of operations for the periods ended June 30, 2000 and
1999 are not necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
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The Company's continued operating losses, limited capital and stockholders'
deficit raise substantial doubt about its ability to continue as a going
concern. Management's plans to continue strengthening the Company's financial
condition and operations include: restructuring the Company's debt and other
liabilities, monitoring costs and cash flow activities, expanding operations
through potential joint ventures, continuing to upgrade sales and marketing
efforts and upgrading customer service and product development efforts. The
Company also intends to continue raising capital to fund its operations, but no
assurance can be given that such funding will be available.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Prism Software Corporation (the "Company") has formulated its business
plans and strategies based on certain assumptions made by the Company's
management regarding the size of the market for the Company's products and
services, the Company's anticipated share of the market and the estimated prices
for and acceptance of the Company's products and services. These plans and
strategies are based on the best estimates of management and are subject to the
assumptions stated therein, so there can be no assurance that these assessments
will prove to be correct. Any future success that the Company might enjoy will
depend upon many factors, including factors which may be beyond the control of
the Company or which cannot be predicted at this time. These factors may include
product obsolescence, increased levels of competition, including the entry of
additional competitors and increased success by existing competitors, changes in
general economic conditions, increases in operating costs including cost of
supplies, personnel and equipment, reduced margins caused by competitive
pressures and other factors, and changes in governmental regulation imposed
under federal, state or local laws.
The Company's operating results may vary significantly due to a variety
of factors including changing customers profiles, the availability and cost of
supplies and equipment, the introduction of new products or services by the
Company or its competitors, the timing of the Company's advertising and
promotional campaigns, pricing pressures, general economic and industry
conditions that affect customer demand and other factors.
RESULTS OF OPERATIONS (THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1999)
For the quarter ended June 30, 2000, the Company reported a loss of
approximately $784,000, or $0.01 per share. This compares with a loss of
approximately $360,000, or $0.01 per share, for the quarter ended June 30, 1999.
The increase in the loss was due primarily to the following:
o Revenue decreased approximately $12,000 due primarily to a
decrease of about $10,000 in product sales.
o The cost of sales increased approximately $30,000 to
approximately $40,000. The cost of sales for the quarter ended
June 30, 2000 was related almost entirely to the software and
hardware required to support one particular sale.
o Total operating expenses decreased approximately $17,000 due
primarily to a lower book expense being accrued on the
granting of options to employees, including the President and
Chief Executive Officer.
o Interest expense increased approximately $20,000 due to an
increase in the Company's average outstanding indebtedness.
o An expense of approximately $377,000 was booked for the
amortization of interest embedded in convertible notes payable
as of June 30, 2000. See "Liquidity and Capital Resources."
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RESULTS OF OPERATIONS (SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1999)
For the six months ended June 30, 2000, the Company reported a loss of
approximately $1,180,000, or $0.02 per share. This compares with a loss of
approximately $720,000, or $0.01 per share, for the six months ended June 30,
1999. The increase in the loss was due primarily to the following:
o Revenue decreased approximately $86,000 due primarily to a
decrease of about $78,000 in product sales. Most of the
decrease in revenue occurred in the three months ended March
31, 2000 and 1999.
o The cost of sales increased approximately $14,000, even though
revenue decreased. This increase was due almost entirely to
the purchase of third-party software required to support one
particular sale in the quarter ended June 30, 2000 (in
addition to the customer's hardware requirements).
o Total operating expenses decreased approximately $61,000 due
primarily to a lower book expense being accrued on the
granting of options to employees, including the President and
Chief Executive Officer.
o Interest expense increased approximately $43,000 due to an
increase in the Company's average outstanding indebtedness.
o An expense of approximately $377,000 was booked for the
amortization of interest embedded in convertible notes payable
as of June 30, 2000. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2000, the Company had cash and cash equivalents of
approximately $45,000. The principal source of liquidity in the six months ended
June 30, 2000 was additional borrowings in the amount of $758,000. This debt is
convertible into Common Stock at $0.05 per share, a conversion rate below the
market price of the Common Stock at the time the loans were made. The discount
on each note will be amortized over one year, which is the holding period until
each note can first be converted. The aggregate unamortized discount on these
notes was $1,372,300. As of June 30, 2000, the Company recorded $377,462 as
additional paid-in capital for the discount related to the amortization of
embedded interest in the convertible debentures. The interest expense is
included in the caption "Embedded interest expense" in the accompanying June 30,
2000 statement of operations.
Management anticipates that additional capital will be required to
finance the Company's operations. The Company believes that expected cash flow
from operations plus the anticipated proceeds from sales of securities will be
sufficient to finance the Company's operations at currently anticipated levels
for a period of at least twelve months. However, there can be no assurance that
the Company will not encounter unforeseen difficulties that may deplete its
capital resources more rapidly than anticipated.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In or about April 1999, Arthur Wilkes, a co-founder and former
President and Chief Executive Officer of the Company, filed a demand for
arbitration against the Company with the American Arbitration Association. Mr.
Wilkes contends that the Company breached the terms of an April 1995 Settlement
Agreement ("1995 Agreement") between him and the Company by (1) failing to make
payments under a Promissory Note for $64,000 and (2) interfering with his
ability to sell his shares in the Company.
The Company responded to the arbitration demand by serving a
counter-demand based on Mr. Wilkes' failure to provide the Company with a copy
of software the Company contends Mr. Wilkes has developed and made available to
his current company, American Printware. Under the terms of the 1995 Agreement,
Mr. Wilkes is obligated to provide the Company with a non-exclusive license to
software and software derivatives based on a product Mr. Wilkes began to develop
while still employed by the Company. Mr. Wilkes has denied the allegations of
the counter-demand.
An arbitrator had been selected and a hearing had been scheduled with
the American Arbitration Association for June 2000. That hearing has since been
postponed and a new arbitrator is being selected. No new date for the hearing
has been set. The Company believes that Mr. Wilkes' allegations concerning
interference with his ability to sell his stock in the Company are without
merit, and intends to vigorously defend those claims. The Company has not paid
Mr. Wilkes the payments described in the $64,000 Promissory Note, and contends
that any amounts owing under that Note must be offset by damages caused by Mr.
Wilkes' breach of the Settlement Agreement. The liability for the $64,000
Promissory Note is already accrued in the Company's financial statements.
Management does not believe that the outcome of this action will have a material
adverse effect upon the financial position or results of operations of the
Company.
Other than with respect to the foregoing matter, the Company does not
believe that it is or has been involved in any litigation or proceeding that
will, individually or in the aggregate, have a material adverse effect on its
financial condition, results of operations or cash flow.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June 2000, the Company sold 250,000 shares of Common Stock for
$25,000, or $0.10 per share, and issued a warrant to purchase an additional
250,000 shares of Common Stock at an exercise price of $0.12 per share to an
individual investor. In connection with this transaction, the Company paid a
finder's fee of $3,000 and will issue a warrant to the finder to purchase an
additional 25,000 shares of Common Stock at an exercise price of $0.l25.
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In the quarter ended June 30, 2000, the Company issued Convertible
Promissory Notes in the aggregate principal amount of $350,000 to two investors.
The notes bear interest at the rate of 8% per annum (with payment of accrued
interest due at maturity) and mature at various dates from April to June 2001.
The notes are convertible upon maturity into shares of Common Stock at the rate
of $0.05 per share at the option of the holders. The notes were issued to Carl
von Bibra ($30,000 in the aggregate) and Conrad von Bibra ($320,000 in the
aggregate). Carl von Bibra is the son of Conrad von Bibra. The von Bibra family
is not an affiliate (other than as a principal stockholder) of the Company. No
commissions were paid in connection with these transactions.
In May 2000, approximately $1,153,000 of debt was converted into
70,865,582 shares of Common Stock. The shares were issued to Capital Investment
Partners (approximately $109,000 converted into 10,468,075 shares), Northstar
Capital Partners (approximately $138,000 converted into 13,373,436 shares), Jean
Tarr (approximately $29,000 converted into 2,007,761 shares), Eric Nickerson
(approximately $12,000 converted into 1,175,000 shares), Third Century II
(approximately $170,000 converted into 16,091,965 shares), Carl von Bibra
(approximately $115,000 converted into 6,961,500 shares) and Conrad von Bibra
(approximately $580,000 converted into 20,787,845 shares). James Martin is the
owner of Martin Management, which is the general partner of both Capital
Investment Partners and Northstar Capital Partners. Eric Nickerson is the
managing partner of Third Century II. Carl von Bibra is the son of Conrad von
Bibra. Jean Tarr is neither an affiliate nor a principal stockholder of the
Company. Neither Third Century II, nor any of its directors, officers or
affiliates, is an affiliate (other than as a principal stockholder) of the
Company. Neither James Martin nor the von Bibra family is an affiliate (other
than as a principal stockholder) of the Company. No commissions were paid in
connection with these transactions.
The Company believes that such sales were exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof or Regulation D promulgated thereunder, as a transaction by an
issuer not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of August 14, 2000, the Company was in default on certain notes
payable totaling approximately $705,000. Approximately $415,000 of these notes
are convertible into approximately 6.8 million shares of Common Stock. Of the
past due convertible notes, the Company believes that approximately $265,000
will be converted within 60 days and the holders of the remaining $150,000 will
agree to extend the due dates, but no agreements are in place as of the date of
this Form 10-QSB.
The defaults are primarily attributable to the former and current
financial instability of the Company, which has rendered the Company unable to
make the payments and other expenditures necessary in order to comply with all
of the provisions of the notes. As a result of these defaults, each holder of
such defaulted debt obligations has the right to demand payment in full of such
obligations.
While no such holder has made any presentment or demand for payment as
of the date of this Form 10-QSB, there can be no assurance that any such holder
will not make a presentment or demand for payment in the future or otherwise
exercise any rights or remedies it may have with respect to such obligations. If
any or all of such holders were to make any such presentment or demand or
otherwise exercise any rights or remedies available to them under their
respective debt obligations and/or related agreements with the Company, such
action could have a material adverse effect on the business, financial condition
and results of operations of the Company.
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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
(a) Exhibits
10.1 Prism Software Corporation 2000 Nonstatutory Stock
Option Plan
10.2 Form of Stock Option Agreement pertaining to the 2000
Nonstatutory Stock Option Plan
27. Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
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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.
Date: August 18, 2000
Prism Software Corporation
By: /s/ E. Ted Daniels
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E. Ted Daniels, President, Chief
Executive Officer, Chief Financial
Officer and Director (Principal
Executive Officer and Principal
Financial and Principal Accounting
Officer)
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