<PAGE>
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 MARCH 31, 2000
Commission File No. 0-21713
PRISM SOFTWARE CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2621719
-------------------------------- -------------------
(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 April 30, 2000
- ----------------------------------- -----------------------------
Common Stock, par value $.01 per share 60,123,272
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRISM SOFTWARE CORPORATION
BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
ASSETS
Current assets:
Cash $ 72,075
Trade accounts receivable, net of allowance for
doubtful accounts of $2,518 20,889
Inventories 4,826
Other 10,280
-------------
Total current assets 108,070
Equipment, net of accumulated depreciation of $209,253 57,636
Other 7,258
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$ 172,964
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 2,377,211
Accounts payable 176,175
Accrued expenses 643,014
Deferred revenue 135,830
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Total current liabilities 3,332,230
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Long term liabilities:
Deferred revenue 10,113
Notes payable 20,855
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Total long term liabilities 30,968
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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, $.01 par
value; 60,123,272 shares issued and outstanding 601,233
Additional paid-in capital 6,267,935
Accumulated deficit (10,060,670)
-------------
Total stockholders' deficit (3,190,234)
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$ 172,964
=============
The accompanying notes are an integral part of these financial statements.
2
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PRISM SOFTWARE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
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Revenue $ 83,136 $ 157,063
Cost of sales 6,965 23,463
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Gross profit 76,171 133,600
Operating expenses:
Selling, general and administrative 382,282 447,346
Research and development 39,788 18,800
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Total operating expenses 422,070 466,146
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Loss from operations (345,899) (332,546)
Interest expense 50,814 27,621
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Net loss $ (396,713) $ (360,167)
============= =============
Basic and diluted net loss per common share $ (0.01) $ (0.01)
============= =============
Basic and diluted weighted average number
of common shares outstanding 60,123,272 60,123,272
============= =============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PRISM SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (396,713) $ (360,167)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation 7,836 12,432
Issuance of stock options 7,700 60,818
(Increase) decrease in assets:
Accounts receivable 25,299 82,935
Inventories 2,965 (1,093)
Other assets (2,068) 2,902
Increase (decrease) in liabilities:
Accounts payable (29,132) 22,262
Accrued expenses 37,761 64,318
Deferred revenue (2,929) (17,542)
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Net cash used by operating activities (349,281) (133,135)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (2,386) (995)
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Net cash used by investing activities (2,386) (995)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 408,000 148,000
Payments on notes payable (2,387) (2,978)
------------ ------------
Net cash provided by financing activities 405,613 145,022
------------ ------------
Net increase in cash 53,946 10,892
Cash, beginning of period 18,129 7,491
------------ ------------
Cash, end of period $ 72,075 $ 18,383
============ ============
Cash paid for interest $ 1,642 $ 50
============ ============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PRISM SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
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 March 31, 2000 and the results of its operations and cash flows
for the three months ended March 31, 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 March 31, 2000 and
1999 are not necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
- ----------------------
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.
5
<PAGE>
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. The Company continues
to believe its business plans and the assumptions upon which they are based are
valid. Although these plans and assumptions are based on the best estimates of
management, 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 MARCH 31, 2000 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1999)
For the quarter ended March 31, 2000, the Company reported a loss of
approximately $397,000, or $0.01 per share. This compares with a loss of
approximately $360,000, or $0.01 per share, for the quarter ended March 31,
1999. The increase in the loss was due primarily to the following:
o Revenue decrease approximately $74,000 due primarily to a decrease
of about $68,000 in product sales and a decrease of approximately
$6,000 in service revenue.
o The cost of sales decreased approximately $17,000 as a result of the
decrease in product sales.
o Total operating expenses decreased approximately $44,000 due
primarily to a lower book expense accrued on the granting of options
to the Company's President and Chief Executive Officer.
o Interest expense increased approximately $23,000 due to an increase
in the Company's outstanding indebtedness.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2000, the Company had cash and cash equivalents of
approximately $72,000. The principal source of liquidity in the three months
ended March 31, 2000 was additional borrowings. 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.
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 has been selected and a hearing has been scheduled with
the American Arbitration Association for June 2000. 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.
7
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From January to March 2000, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $408,000 to three 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 January to March
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
Third Century II ($20,000), Carl von Bibra ($77,000 in the aggregate) and Conrad
von Bibra ($311,000 in the aggregate). Neither Third Century II, nor any of its
directors, officers or affiliates, is an affiliate (other than as a principal
stockholder) of the Company. 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.
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 April 30, 2000, the Company was in default on various convertible
promissory notes totaling approximately $1.3 million. As provided by the terms
of these notes, the Company is in the process of converting the defaulted
payments into approximately 72 million shares of Common Stock. Not all of the
note holders have formally notified the Company in writing of their intent to
convert.
As of April 30, 2000, the Company was also in default on certain other
promissory notes totaling approximately $283,000.
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 would have a material adverse effect on the business, financial condition
and results of operations of the Company.
8
<PAGE>
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
27. Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
9
<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.
Date: May 19, 2000
Prism Software Corporation
By: /S/ E. Ted Daniels
---------------------------------
E. Ted Daniels, President,
Chief Executive Officer,
Chief Financial Officer and Director
(Principal Executive Officer and
Principal Financial and Principal
Accounting Officer)
10
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<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<SECURITIES> 0
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1,268
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<SALES> 83,136
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