UNITED STATES SECURITIES AND EXCHANGES COMMISSION
Washington D.C. 20549
________________________
Form 10-QSB
(Mark One)
X Quarterly Report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996 or
Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
For the transition period from _____ to _____
Commission file number 33-86242
ProtoSource Corporation
(exact name of registrant as specified in its charter)
California 77-0190772
(State of other jurisdiction of (IRS Employer
Incorporation of organization) Identification No.)
2580 West Shaw
Fresno, California 93711-2765
(address of principal executive offices, zip code)
Registrant's telephone number, including area code: (209)
448-8040
______________________
Indicated by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No
___
There are 1,330,001 shares of the registrant's common stock,
no par value outstanding on March 31, 1996.
<PAGE>
ProtoSource Corporation
Index
Page
Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
at March 31,1996 3
Condensed Statements of Operations
for the three months ended
March 31,1996 and 1995 5
Condensed Statements of Cash Flows
for the three months ended
March 31,1996 and 1995 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 9
Part II. Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
ProtoSource Corporation
Balance Sheet
March 31, 1996
<CAPTION>
March 31,
1996
(Unaudited)
Assets
<S> <C>
Current assets:
Cash and cash equivalents $102,523
Accounts receivable, net of allowance for
doubtful Accounts of $199,848 229,113
Inventories 40,377
Deferred tax assets -
Deposits and other current assets 15,130
----------
Total current assets 387,143
----------
Property and equipment, at cost:
Land 411,176
Building and improvements 1,389,590
Equipment 727,642
Furniture 132,750
Vehicles 18,628
-------------
2,679,786
Less accumulated depreciation and amortization 336,592
Net property and equipment -------------
2,343,194
Other assets:
Software development costs, net of accumulated
amortization of $815,864 435,866
Note Receivable 35,000
Deferred tax assets 71,550
Deposits and other assets 74,326
---------------
Total other assets 616,742
---------------
Total assets $3,347,079
==============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
ProtoSource Corporation
Balance Sheet
March 31, 1996
(continued)
<CAPTION>
March 31,
1996
(unaudited)
Liabilities and shareholders' equity
<S> <C>
Current liabilities:
Accounts payable $373,263
Accrued liabilities 247,231
Customer deposits 47,275
Notes payable 3,500
Current portion of long-term debt 116,008
Unearned customer support revenue 32,932
----------
Total current liabilities 820,209
----------
Long-term debt, net of current portion above:
Bank 4,881
Individuals 27,494
Obligations under capital leases
1,856,506
Less current portion above (116,008)
Total long-term debt -----------
1,772,873
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, 900,000 shares issued and outstanding -
Common stock, no par value; 10,000,000 shares
authorized,
1,330,001 shares issued and outstanding
3,309,494
Retained earnings (deficit) (2,555,497)
-------------
Total shareholders' equity 753,997
-------------
Total liabilities and shareholders' equity $3,347,079
=============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Operations
(unaudited)
Three months ended
March 31,
1996 1995
Net revenues:
<S> <C> <C>
Product sales $ - $244,085
Equipment and third party sales 66,857 515,821
Professional service fees 297,731 109,163
Total net revenues 364,588 869,069
Operating expenses:
Cost of product sales 52,250 75,750
Cost of equipment & third party 59,301 395,387
sales
Cost of professional service fees 152,772 53,322
Sales and marketing 165,553 120,415
Research and development 123,628 23,601
General and administrative 168,601 96,178
------- -------
Total operating expenses 722,105 764,653
------- -------
Operating income (loss) (357,517) 104,416
--------- -------
Other income (expense):
Interest income 119 14,479
Interest expense (40,497) (47,357)
Other, net 28,953 31,476
--------- ---------
Total other income (expense) (11,425) (1,402)
--------- ---------
Income before provision for income (368,942) 103,014
taxes
Provision for income taxes - 24,723
---------- ----------
Net income (Loss) $(368,942) $78,291
=========== ==========
Net income (loss) per share of common $(0.28) $0.08
stock =========== ==========
Weighted average number of common 1,330,001 952,168
shares outstanding =========== ==========
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Three months ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $(368,942) $78,291
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization 101,413 102,192
Deferred income taxes - 24,722
Changes in operating assets:
Accounts receivable (15,004) (515,159)
Inventories (24,318) 2,622
Deposits and other assets 6,122 (45,884)
Accounts payable 178,105 (107,520)
Accrued liabilities 169,495 10,175
Customer deposits 41,775 (3,598)
Notes payable (1,500) -
Unearned customer support (1,610) (333)
revenue -------- --------
Net cash provided (used) by 85,536 (454,492)
operating activities
Cash flows from investing activities:
Purchases of property and (4,471) (113,288)
equipment
Software development costs (87,748) (124,998)
capitalized
Other assets 1,029 (315)
-------- ---------
Net cash (used) by investing (91,190) (238,601)
activities
Cash flows from financing activities:
Payments on notes payable (3,191) (523,859)
Payments on capital lease (27,278) 1,529
obligations, net
Proceeds from issuance of common - 3,795,000
stock
Costs relating to issuance of - (630,348 )
common stock -------- -----------
Net cash provided (used) by (30,469) 2,642,322
financing activities
Net increase (decrease) in (36,123) 1,949,229
cash and cash equivalents
Cash and cash equivalents at 138,646 25,882
beginning of quarte --------- ----------
Cash and cash equivalents at $102,523 $1,975,111
end of quarter ========= ============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Three months ended
March 31,
1996 1995
Supplemental Disclosure of Cash Flow information
cash paid during the period for:
<S> <C> <C>
Interest $40,497 $47,357
Income taxes - -
Supplemental Disclosure of Non cash
Investing and Financing Activities:
Acquisition of equipment
under capital lease $90,802 -
<FN>
See accompanying notes
</TABLE>
<PAGE>
ProtoSource Corporation
Notes to Condensed Financial Statements
Basis of Presentation
The accompanying financial information of the Company is
prepared in accordance with the rules prescribed for filing
condensed interim financial statements and, accordingly,
does not include all disclosures that may be necessary for
complete financial statements prepared in accordance with
generally accepted accounting principles. The disclosures
presented are sufficient, in management's opinion, to make
the interim information presented not misleading. All
adjustments, consisting of normal recurring adjustments,
which are necessary so as to make the interim information
not misleading, have been made. Results of operations for
the three months ended March 31, 1996 are not necessarily
indicative of results of operations that may be expected for
the year ending December 31, 1996. It is recommended that
this financial information be read with the complete
financial statements included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995
previously filed with the Securities and Exchange
Commission.
Per Share Information
Net income (loss) per share is computed using the weighted
average number of common shares and common share equivalents
outstanding during the periods presented. Common share
equivalents result from outstanding options and warrants to
purchase common stock.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended March 31, 1996 vs. Three Months Ended
March 31, 1995
Net Sales. For three months ended March 31, 1996, net
sales were $365,000 versus $869,000 in the same period of
the prior year, representing a decrease of $504,000 or
58.0%. The decrease in net sales is primarily attributed to
decreased software product sales and hardware equipment
sales because of delay in the product releases and
development obstacles encountered during the first release
of the "Classic" products. These decreases were somewhat
offset by an increase in professional services fees and
Internet sales which increased from $110,000 to $298,000.
The revenue generated in Internet services is 179,440.
Management believes that software sales and Internet sales
will increase in the future.
Gross Profit. For three months ended March 31, 1996,
gross profit was $100,000 versus $345,000 in 1995,
representing a decrease of $245,000 or 70.9%. As a
percentage of sales, gross profit decreased to 27.5% in 1996
from 39.7% in 1995. The decrease in gross profit is
attributed to the lack of software package sales, decrease
in equipment margin and increase in software costs.
Management believes that the gross margin will improve as
software sales increases.
Sales and Marketing. Sales and marketing expenses were
$166,000 for three months ended March 31, 1996 versus
$120,000 in 1995. The increases in sales and marketing
expenses were caused by increases in advertising, marketing
and expenses related to trade shows for the "Classic"
product lines. The Company believes that the sales and
marketing expenses will decline as a result of the
downsizing of the Company.
Research and Development. Research and development
expense increased from $24,000 in 1995, to $124,000 in 1996.
The increase in research and development is attributable to
an increase in the number of full time equivalent
programmers involved in product development activities from
ten programmers in 1995 to sixteen programmers in 1996.
Management expects the research and development cost to
decrease as a result of the downsizing of the Company.
General and Administrative. General and administrative
costs were $169,000 in 1996 versus $96,000 in 1995. The
increase in general and administrative costs is the result
of additional facilities for the training center and
Internet division.
Operating Income. For the three months ended March 31,
1996, operating loss was $358,000 compared to an operating
income of $104,000 in 1995. The operating loss in 1996 is
attributed to the significant increases in software
development cost, decrease in hardware margin, lack of
software package sales and increases in fixed costs.
Interest income (expense). Net interest expense increased
to $40,000 in 1996 from $33,000 in 1995. This was primarily
due to interest expense related to the building and other
capital leases. The interest expense is somewhat offset by
the interest earned on cash and short term investments.
Other income. Net other income decreased to $29,000 from
$31,000 for the three months ended March 31, 1996 and same
period of prior year respectively. This is due to the rental
income generated by the new building as well as
miscellaneous sales.
<PAGE>
Liquidity and Capital Resources
For the three months ended March 31, 1996, the Company
generated cash from operating activities of $86,000
primarily due to increases in accounts payable and accrued
liabilities. The Company has a working capital deficiency of
$433,000 at March 31, 1996. The Company intends to reduce
the working capital deficiency by increasing sales,
downsizing and attempt to obtaining long-term financing.
There can be no assurance that the Company will be
successful in such actions in which event it may be
necessary for the Company to substantially reduce its
operations.
Capital expenditures relating primarily to the purchase of
computer equipment, furniture and fixtures and software
amounted to $4,471 for the three months ended March 31,
1996. Software development costs capitalized were $88,000
and $125,000 for the three months ended March 31, 1996 and
1995 respectively. In addition, the Company acquired part of
the equipment through capital leases amounting to $91,000
and repaid $27,000 of obligations under capital leases for
the three months ended March 31, 1996
<PAGE>
Part II. Other Information
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: One Form 8-K was filed during
the first quarter of 1996, which reported a sale of Classic
software to a Canadian limited partnership.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the under signed thereunto duly
authorized.
ProtoSource Corporation.
May 17, 1996 Charles T. Howard
Chief Executive Officer
May 17, 1996 Andrew Chu
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 102,523
<SECURITIES> 0
<RECEIVABLES> 229,113
<ALLOWANCES> 199,848
<INVENTORY> 40,377
<CURRENT-ASSETS> 387,143
<PP&E> 2,679,786
<DEPRECIATION> 336,592
<TOTAL-ASSETS> 3,347,079
<CURRENT-LIABILITIES> 820,209
<BONDS> 0
0
0
<COMMON> 3,309,494
<OTHER-SE> (2,555,497)
<TOTAL-LIABILITY-AND-EQUITY> 3,347,079
<SALES> 66,857
<TOTAL-REVENUES> 364,588
<CGS> 59,301
<TOTAL-COSTS> 722,105
<OTHER-EXPENSES> (29,072)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,497
<INCOME-PRETAX> (368,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (368,942)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
