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 September 30, 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 September 30, 1996.
<PAGE>
ProtoSource Corporation
Index
Page
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at September 30,1996 3
Condensed Consolidated Statements of Operations
for the three months ended September 30,1996 and 1995 5
Condensed Consolidated Statements of Operations
for the nine months ended September 30,1996 and 1995 6
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30,1996 and 1995 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 5. Other Events 13
Item 6. Exhibits and Reports on Form 8-K
Signatures 14
<PAGE>
<TABLE>
ProtoSource Corporation
Balance Sheet
September 30, 1996
<CAPTION>
September 30,
1996
(Unaudited)
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 2,370
Accounts receivable, net of allowance for doubtful
accounts of $199,848 178,256
Inventories 50,288
Prepaid Expenses 20,000
Deposits and other current assets 26,775
-------------------
Total current assets 277,689
Property and equipment, at cost:
Land 411,176
Building and improvement 1,389,590
Equipment 738,947
Furniture 132,750
Vehicles 10,090
--------------------
2,682,553
Less accumulated depreciation and amortization 423,789
---------------------
Net property and equipment 2,258,764
Other assets:
Software development costs, net of accumulated
amortization of $895,866 710,215
Note Receivable 35,000
Deferred tax assets 71,550
Deposits and other assets 74,141
-------------------
Total other assets 890,906
--------------------
Total assets $3,427,359
====================
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
ProtoSource Corporation
Balance Sheet
September 30, 1996
(continued)
<CAPTION>
Sept. 30, 1996
(unaudited)
Liabilities and shareholders' equity
<S> <C>
Current liabilities:
Accounts payable $417,194
Accrued liabilities 294,710
Customer deposits 44,415
Notes payable 200,000
Current portion of long-term debt 116,008
Unearned customer support revenue 25,099
----------
Total current liabilities 1,097,426
----------
Long-term debt, net of current portion above:
Bank 3,130
Individuals 45,907
Obligations under capital leases
1,801,161
Less current portion above (116,008)
Total long-term debt -----------
1,734,190
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
3,464,286
Retained earnings (deficit) (2,868,543)
-------------
Total shareholders' equity 595,743
-------------
Total liabilities and shareholders' equity $3,427,359
=============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Operations
(unaudited)
Three months ended
September 30,
1996 1995
Net revenues:
<S> <C> <C>
Product Sales $ 19,120 $ 38,944
Equipment and third party sales 49,090 200,844
Service revenues 223,081 188,242
--------- ---------
Total net revenues 291,291 428,030
Operating expenses:
Cost of product sales 40,000 75,750
Cost of equipment & third party 41,064 161,725
sales
Cost of professional service fees 33,284 94,634
Sales and marketing 85,752 187,575
Research and development 43,249 146,133
General and administrative 123,289 160,795
------- -------
Total operating expenses 370,638 826,612
------- -------
Operating income (loss) (79,347) (398,582)
--------- -------
Other income (expense):
Interest income 654 10,728
Interest expense (48,738) (37,435)
Other, net 26,929 30,380
--------- ---------
Total other income (expense) (21,155) 3,673
--------- ---------
Income before provision for incom (100,502) (394,909)
taxes
Provision for income taxes - (94,778)
-------- ----------
Net income (Loss) $(100,502) $(300,131)
=========== ==========
Net income (loss) per share of common $(0.08) $(0.23)
stock =========== ==========
Weighted average number of common 1,330,001 1,330,001
shares outstanding =========== ==========
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Operations
(unaudited)
Nine months ended
September 30,
1996 1995
Net revenues:
<S> <C> <C>
Product sale s $19,120 $244,085
Equipment and third party sales 244,366 801,316
Service revenues 808,949 426,963
--------- --------
Total net revenues 1,072,435 1,511,308
Operating expenses:
Cost of product sales 132,339 227,250
Cost of equipment & third party 204,236 632,904
sales
Cost of professional service fees 342,612 209,493
Sales and marketing 384,808 443,528
Research and development 213,126 315,684
General and administrative 419,618 401,424
--------- ---------
Total operating expenses 1,696,739 2,230,283
--------- ---------
Operating income (loss) (624,304) (718,975)
--------- -------
Other income (expense):
Interest income 1,140 48,255
Interest expens (137,007) (122,266)
Other, net 78,189 83,893
--------- ---------
Total other income (expense) (57,678) 9,882
--------- ---------
Income before provision for income (681,982) (709,093)
taxes
Provision for income taxes - (170,183)
---------- ----------
Net income (Loss) $(681,982) $(538,910)
=========== ==========
Net income (loss) per share of common $(0.51) $(0.45)
stock =========== ==========
Weighted average number of common 1,330,001 1,205,441
shares outstanding =========== ==========
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income(loss) $(681,982) $(538,910)
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization 268,687 337,933
Deferred income taxes - (164,987)
Changes in operating assets:
Accounts receivable 35,853 (537,852)
Inventories (34,229) (95,083)
Deposits and other assets (5,523) (55,585)
Accounts payable 222,036 (200,303)
Accrued liabilities 371,766 23,760
Customer deposits 38,915 24,254
Unearned customer support (9,443) (3,867)
revenue -------- --------
Net cash provided (used) by 206,080 (1,210,640)
operating activities ----------- -----------
Cash flows from investing activities:
Purchases of property and (7,238) (454,939)
equipment
Software development costs (442,186) (500,781)
capitalized
Other assets 1,214 (11,778)
-------- ---------
Net cash (used) by investing (448,210) (967,498)
activities
Cash flows from financing activities:
Increase in notes payable 232,000 -
Decrease in notes payable (23,529) (531,984)
Increase(Decrease)on capital (82,617) (32,769)
lease obligations, net
Proceeds from issuance of common - 3,795,000
stock
Costs relating to issuance of (20,000) (619,990)
common stock -------- -----------
Net cash provided (used) by 105,854 2,610,257
financing activities --------- -----------
Net increase (decrease) in (136,276) 432,119
cash and cash equivalents
Cash and cash equivalents at 138,646 25,882
beginning of quarte --------- ----------
Cash and cash equivalents at $ 2,370 $458,001
end of quarter ========= ==========
Supplemental Disclosure of Noncash
Investing and Financing Activities
Acquisition of equipment
under capital lease $90,802 -
Capital Contribution
of Officers 154,792
<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 six months ended September 30, 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 September 30, 1996 vs.
Three Months Ended September 30, 1995
Net Sales. For the three months ended September 30, 1996, net sales
were $291,290 versus $428,030 in the same period of the prior year,
representing a decrease of $137,740. The decrease in net sales is
attributed to decreased hardware equipment sales which is somewhat offset
by the increase in service revenues. Hardware sales decreased from $200,840
to 49,090 as a result of the outsourcing of hardware contract to third
party system integrators due to low profit margin in the hardware business.
Services sales increased from $188,242 to $233,081.
Gross Profit. For three months ended September 30, 1996, gross profit was
$176,943 versus $95,921 in 1995, representing an increase of $81,022. The
increase in gross profit resulted from the increases in services revenues
which has a higher profit margin than hardware equipment or software packages.
Sales and Marketing. Sales and marketing expenses were $85,752 in the
three months ended September 30, 1996 versus $185,575 in 1995. The
decrease in sales and marketing expenses were due to the downsizing of the
corporation to improve the profitability of the Company.
Research and Development. Research and development expense decreased
from $146,133 in 1995, to $43,249 in 1996. The decrease in research and
development is attributable to the completion of CLASSIC software packages
and downsizing of the programming staff.
General and Administrative. General and administrative costs were $160,795
in 1995 versus $127,289 in 1996. The decrease in general and administrative
costs is attributed to lower overhead expenses and decreases in personnel.
Operating Income. For the three months ended September 30, 1996, operating
loss was $79,347 compared to an operating loss of $398,582 in 1995. The
decrease in operating loss in 1996 is attributed to the increases in profit
margin, decreases in research and development expenses, general and
administrative expenses, and sales and marketing expenses.
Interest income (expense). Net interest expense increased to $48,084 in
1996 from $26,707 in 1995. This was primarily due to interest expense
related to the Company's equipment capital leases and the building.
Other income. Net other income is $26,929 for the three months ended
September 30, 1996. This is due to the rental income generated by the
building as well as miscellaneous sales.
<PAGE>
Results of Operations
Nine Months Ended September 30, 1996 vs. Nine Months Ended September 30, 1995
Net Sales. For the nine months ended September 30, 1996, net sales were
$1,072,435 versus $1,511,308 in the same period of the prior year,
representing a decrease of $438,873. The decrease in net sales is primarily
attributed to obstacles encountered in the development of the CLASSIC product
lines in first half of 1996 and decreases in hardware equipment sales. The
decreases is somewhat offset by the increase in the services revenues.
Gross Profit. For the nine months ended September 30, 1996, gross profit was
$393,248 versus $441,661 in 1995, representing a decrease of $48,413. The
decreases in gross profit is attributed to the decreases in software package
sales and equipment sales. The decrease is somewhat offset by increase in
services revenues.
Sales and Marketing. Sales and marketing expenses were $384,808 in the nine
months ended September 30, 1996 versus $443,528 in 1995. The decreases in
sales and marketing expenses were caused by decreases in marketing expenses
and decreases in the Company's sales force.
Research and Development. Research and development expense decreased from
$315,684 in 1995, to $213,126 in 1996, a decrease of $102,558. The decrease
in research and development is attributable to a decrease in the number of
full time programmers involved in product development resulted from the
completion of the CLASSIC products.
General and Administrative. General and administrative costs were $419,618
in 1996 versus $401,424 in 1995. The increase in general and administrative
costs is the result of increases in expenses.
Operating Income. For the nine months ended September 30, 1996, the
operating loss was $624,304 compared to an operating loss of $718,975 in
1995. The operating loss in 1996 is attributed to the decreases in sales.
The operating loss is somewhat decreased by increases in services revenues
and decreases in expenses.
Interest income (expense). Net interest expense increased to $135,867 in
1996 from $74,011 in 1995. This was primarily due to interest expense related
to the Company's building and other capital leases. The interest expense was
somewhat offset by the interest earned on cash and short term investments.
Other income. Net other income is $78,189 for the nine months ended
September 30, 1996. This is due to the rental income generated by the new
building as well as miscellaneous sales.
<PAGE>
Liquidity and Capital Resources
For the nine months ended September 30, 1996, the Company generated cash from
operating activities of $51,288 primarily due to increases in accounts
payable and accrued liabilities. The Company has a working capital
deficiencies of $819,737 as of September 30, 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, acquisition, and software development amounted to
$448,210 for the nine months ended September 30, 1996. Software development
costs capitalized were $442,186 for the nine months ended September 30, 1996.
<PAGE>
Part II. Other Information
ITEM 5. Other Events
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None.
<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.
November 8, 1996 Andrew Chu
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-31-1996
<CASH> 2,370
<SECURITIES> 0
<RECEIVABLES> 178,256
<ALLOWANCES> 199,848
<INVENTORY> 50,288
<CURRENT-ASSETS> 277,689
<PP&E> 2,258,764
<DEPRECIATION> 423,789
<TOTAL-ASSETS> 3,427,359
<CURRENT-LIABILITIES> 1,097,426
<BONDS> 0
0
0
<COMMON> 3,464,286
<OTHER-SE> (2,868,543)
<TOTAL-LIABILITY-AND-EQUITY> 3,427,359
<SALES> 19,120
<TOTAL-REVENUES> 1,072,435
<CGS> 679,187
<TOTAL-COSTS> 1,696,739
<OTHER-EXPENSES> (57,678)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,007
<INCOME-PRETAX> (681,982)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (681,982)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
