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 June 30, 1997 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.)
2300 Tulare Street #210
Fresno, California 93721
(address of principal executive offices, zip code)
Registrant's telephone number, including area code: (209)
490-8600
______________________
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 585,333 shares of the registrant's common stock,
no par value outstanding on June 30, 1997.
<PAGE>
ProtoSource Corporation
Index
Page
Part I Financial Information
Condensed Consolidated Balance Sheet
at June 30,1997 3
Condensed Consolidated Statements of Operations
for the three months ended June 30,1997 and 1996 5
Condensed Consolidated Statements of Operations
for the six months ended June 30,1997 and 1996 6
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30,1997 and 1996 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
Signatures 13
When used in this report, the words "estimate," "project," "intend,"
"believe" and "expect" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risk and
uncertainties that could cause actual results to differ materially,
including competitive pressures, new product introductions by the Company
and its competitors and changes in the rates of subscriber acquisition and
retention. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release updates or revisions
to these statements
<PAGE>
<TABLE>
ProtoSource Corporation
Balance Sheet
June 30, 1997
<CAPTION>
June 30,
1997
(Unaudited)
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 68,733
Accounts receivable 106,629
Inventories 8,980
Prepaid expenses and other 35,181
Current portion of note receivable 47,285
-------------
Total current assets 266,808
-------------
Property and equipment, at cost:
Land 411,176
Building and improvements 1,381,816
Equipment 766,944
Furniture 110,387
Vehicles 10,090
------------
2,680,413
Less accumulated depreciation
and amortization (597,106)
------------
Net property and equipment 2,083,307
------------
Other assets:
Notes Receivable, net of
current portion above 723,565
Goodwill, net of accumulated
amortization of $2,216 19,029
Deferred tax assets 71,550
Deposits and other assets 79,356
------------
Total other assets 893,500
------------
Total assets $3,243,615
============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
ProtoSource Corporation
Balance Sheet
June 30, 1997
(continued)
<CAPTION>
June 30,
1997
(unaudited)
Liabilities and shareholders' equity
<S> <C>
Current liabilities:
Note Payable, bridge financing $ 350,000
Accounts payable 196,481
Accrued liabilities 29,291
Tenants deposits 1,500
Current portion of long-term debt 39,358
--------------
Total current liabilities 616,630
--------------
Long-term debt, net of current portion above:
Bank 3
Obligations under capital leases 1,871,022
Less current portion above (39,358)
---------------
Total long-term debt 1,831,667
---------------
Shareholders' equity:
Common stock, no par value;
10,000,000 shares authorized,
585,333 shares issued and outstanding 5,190,455
Retained earnings (deficit) (4,395,137)
---------------
Total shareholders' equity 795,318
---------------
Total liabilities and s
hareholders' equity $ 3,243,615
===============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Operations
(unaudited)
Three months ended
June 30,
---------------------
1997 1996
---------------------
<S> <C> <C>
Net revenues: $ 171,599 $ 191,957
----------- ----------
Operating expenses:
Cost of revenues 74,351 62,929
Sales and marketing 11,435 20,690
General and Administrative 461,622 210,091
----------- ---------
Total operating expenses 547,408 293,710
----------- ---------
Loss from continuing operations (375,809) (101,753)
----------- ---------
Other income (expenses):
Interest Income 20,441 52
Interest Expense (402,548) (47,772)
Other Income, net 54,974 22,307
----------- ---------
Loss from continuing operations
before provision for income taxes (702,942) (127,166)
Provision for income taxes - -
----------- ----------
Loss from continuing operations (702,942) (127,166)
Loss from discontinued operations - (85,372)
----------- ----------
Net Loss $ (702,942) $(212,538)
============ ===========
Net loss per share of common stock $ (1.36) $ (2.40)
============ ===========
Weighted average number of
common shares outstanding 516,102 88,667
============ ===========
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Operations
(unaudited)
Six months ended
June 30,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
Net revenues: $ 360,130 $ 377,737
------------ ----------
Operating expenses:
Cost of revenues 116,387 109,224
Sales and marketing 28,808 41,123
General and Administrative 788,190 531,464
------------ -----------
Total operating expenses 933,385 681,811
------------ -----------
Loss from continuing operations (573,255) (304,074)
------------ -----------
Other income (expenses):
Interest Income 73,457 171
Interest Expense (453,828) (88,269)
Other Income, net 154,846 51,260
------------ -----------
Loss from continuing operations before
provision for income taxes (798,782) (340,912)
Provision for income taxes - -
Loss from continuing operations (798,782) (340,912)
Loss from discontinued operations - (240,568)
------------- ------------
Net Loss $ (798,782) $ (581,480)
============= ============
Net loss per share of common stock $ (1.55) $ (6.56)
============= ============
Weighted average number of common
shares outstanding 515,720 88,667
============= ============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Six months ended
June 30,
---------------------
1997 1996
---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (798,782) $ (581,480)
Adjustments to reconcile
net loss to net cash
Provided (used) by operating activities:
Depreciation and amortization 110,877 187,904
Issuance of common stock for
cost of financing 350,000 -
Changes in operating assets:
Accounts receivable (56,076) 3,646
Inventories - (21,729)
Deposits and other assets (20,593) (8,585)
Accounts payable 787 248,568
Accrued liabilities (237,937) 320,790
Customer deposits - 32,440
Unearned revenues - (4,702)
----------- ------------
Net cash provided (used)
by operating activiies (651,726) 176,852
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (22,620) (11,260)
Other assets (37,011) 1,117
Software development cost capitalized - (256,440)
----------- ------------
Net cash (used) by
investing activities (59,631 ) (266,583)
----------- ------------
Cash flows from financing activities:
Increase in notes payable 350,000 32,000
Issuance of common stock 970 -
Payments on notes payable (2,217) (15,195)
Payments on capital lease obligations (51,020) (55,290)
----------- ------------
Net cash provided (used) by
financing activities 297,733 (38,485)
----------- ------------
Net increase (decrease)
in cash and cash equivalents (413,624) (128,216)
Cash and cash equivalents at
beginning of quarter 482,357 138,646
----------- ------------
Cash and cash equivalents at
end of quarter 68,733 10,430
=========== ============
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Statements of Cash Flows
(continued)
Six months ended
June 30,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow information
cash paid during the period for:
Interest $53,828 $88,269
Income taxes - -
Supplemental Disclosure of Non cash
Investing and Financing Activities:
Acquisition of equipment under
capital lease $69,959 -
<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 June 30, 1997 are not necessarily
indicative of results of operations that may be expected for
the year ending December 31, 1997. 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, 1996
previously filed with the Securities and Exchange
Commission.
Per Share Information
Net 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 June 30, 1997 vs. Three Months Ended June 30, 1996
Net Sales. For the three months ended June 30, 1997,
net sales were $171,599 versus $191,957 in the same period of
the prior year, representing a decrease of $20,358.
The decrease in net sales is primarily attributed to
increased competition in the Internet access industry and
the slower growth rate of the Company's customer base.
The Company intends to increase marketing and offer
diversified Internet services to increase revenues.
Gross Profit. For the three months ended June 30, 1997, gross
margin was $97,248 versus $129,028 in 1996, representing a
decrease of $31,780. The decrease in gross profit resulted
from decrease in Internet access revenues, decrease in Web
production revenues and increase in the telecommunication costs.
Management believes that the gross margin should increase if
Internet services revenue increases.
Sales and Marketing. Sales and marketing expenses were $11,435
in three months ended June 30, 1997 versus $20,690 in 1996.
The decrease in sales and marketing expenses resulted from lack
of working capital and the resulting downsizing of the Company's
marketing and sales force. The Company believes that the sales and
marketing expenses will increase if the liquidity and revenues increase.
Management intends to allocate more resources to sales and marketing
to increase revenues.
General and Administrative. General and administrative expenses were
$461,622 in 1997 versus $210,091 in 1996. The increase in general and
administrative expenses is primarily attributed to a registration of
securities of the Company which were sold in 1996.
operating Loss. For the three months ended June 30, 1997, operating loss
was $375,809 compared to an operating loss of $101,753 in 1996. The
increase in operating loss in 1997 is attributed to the decrease in
Internet services revenues, increase in cost of revenues and increase
in general and administrative expenses. The increase in operating loss
was somewhat offset by the decrease in sales and marketing expenses. The
Company is aggressively reducing costs and seeking to increase revenues
in order to minimize the operating loss in the future.
Interest income (expense). Net interest expense increased to $382,107
in 1997 from $47,720 in 1996, as a result of a bridge loan of $350,000
obtained in June 1997.
Other income. Net other income increased to $54,974 for the three months
ended June 30, 1997, as a result of rental income generated by the
Company's office building and miscellaneous sales.
<PAGE>
Results of Operations
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Net Sales. For the six months ended June 30, 1997, net sales
were $360,130 versus $377,737 in the same period of the prior year,
representing a decrease of $17,607. The decrease in net sales is
primarily attributed to decreases in the growth of Internet access
revenues and the lack of Web production sales in 1997.
Gross Profit. For the six months ended June 30, 1997, gross
profit was $243,743 versus $268,513 in 1996, representing a decrease
of $24,770. The decrease in gross profit is attributed to the
decrease in Internet access revenues and decrease in Web production
revenues.
Sales and Marketing. Sales and marketing expenses were $28,808
for the six months ended June 30, 1997 versus $41,123 in 1996.
The decrease in sales and marketing expenses were caused by a reduction
in the sales force in first half of 1997 and lack of working capital
for marketing purposes. The Company believes that the sales and marketing
expenses will increase if liquidity and revenues increase.
General and Administrative. General and administrative expenses
increased from $531,464 in 1996 to $788,190 in 1997. The increase in
general and administrative costs is primarily attributed to a registration
of the Company's securities which were sold in 1996.
Operating Loss. For the six months ended June 30, 1997, operating
loss was $573,255 compared to an operating loss of $304,074 in 1996.
The operating loss in 1997 is attributed to the decreases in Internet
service revenues, lack of Web production sales and significant increases
in general and administrative expenses. The Company is aggressively
reducing costs and seeking to increase revenues in order to minimize the
operating loss in the future.
Interest income (expense). Net interest expense increased to $380,371
in 1997 from $88,098 in 1996, as a result of a bridge loan of $350,000
obtained in June 1997. The interest expense was somewhat offset by the
interest earned on cash and short term investments.
Other income. Net other income increased to $154,846 for the six months
ended June 30, 1997, as a result of rental income generated by the
Company's office building and miscellaneous sales.
<PAGE>
Liquidity and Capital Resources
For the six months ended June 30, 1997, the Company used cash from
operating activities of $651,726 primarily due to decreases in
accounts payable and accrued liabilities, and increases in accounts
receivable. The Company had a working capital deficiency of $349,822 at
June 30, 1997. The working capital deficiency is primarily attributed
to the operating loss. The Company intends to reduce the working
capital deficiency by (i) seeking to increase sales, (ii) reduce certain
low margin operations and (iii) obtain 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 other assets amounted to $59,631
and $266,583 for the six months ended June 30, 1997 and 1996 respectively.
The Company acquired $69,959 of computer equipment for the Internet
division during the six months period ended June 30, 1997 under capital
lease.
In June 1997, Company received an aggregate amount of $350,000 in bridge
loan proceeds from unrelated individuals for working capital, marketing
expenses and the purchase of capital assets. In connection with such
bridge loans, the Company agreed to issue 70,000 restricted shares of
common stock, subject to demand registration and piggy back registration
rights at the Company's expense. The fair value of the common stock issued
was charged to operations as an additional financing expense for the six
months ended June 30, 1997.
<PAGE>
Part II. Other Information
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.
August 07, 1997 Raymond J. Meyers
Chief Executive Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 68,733
<SECURITIES> 0
<RECEIVABLES> 106,629
<ALLOWANCES> 0
<INVENTORY> 8,980
<CURRENT-ASSETS> 266,808
<PP&E> 2,680,413
<DEPRECIATION> 597,106
<TOTAL-ASSETS> 3,243,615
<CURRENT-LIABILITIES> 616,630
<BONDS> 1,831,667
0
0
<COMMON> 5,190,455
<OTHER-SE> [BLANK]
<TOTAL-LIABILITY-AND-EQUITY> 3,243,615
<SALES> [BLANK]
<TOTAL-REVENUES> 360,130
<CGS> 116,387
<TOTAL-COSTS> 933,385
<OTHER-EXPENSES> 154,846
<LOSS-PROVISION> [BLANK]
<INTEREST-EXPENSE> (380,371)
<INCOME-PRETAX> (581,480)
<INCOME-TAX> [BLANK]
<INCOME-CONTINUING> [BLANK]
<DISCONTINUED> [BLANK]
<EXTRAORDINARY> [BLANK]
<CHANGES> [BLANK]
<NET-INCOME> (798,782)
<EPS-PRIMARY> (1.55)
<EPS-DILUTED> [BLANK]
</TABLE>
