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, 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, Suite 210
Fresno, California 93721-2226
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(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 515,333 shares of the registrant's common stock, no par value
outstanding on March 31, 1997.
<PAGE>
ProtoSource Corporation
Index
Page
----
Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
at March 31,1997 3
Condensed Statements of Operations
for the three months ended March 31,1997 and 1996 5
Condensed Statements of Cash Flows
for the three months ended March 31,1997 and 1996 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
Other Information 11
Signatures 11
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.
2
<PAGE>
ProtoSource Corporation
Balance Sheet
March 31, 1997
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 113,215
Accounts receivable 46,418
Inventories 8,980
Prepaid expenses and other 68,835
Current portion of note receivable 47,285
----------
Total current assets 284,733
----------
Property and equipment, at cost:
Land 411,176
Building and improvements 1,381,816
Equipment 754,991
Furniture 103,187
Vehicles 10,090
----------
2,661,260
Less accumulated depreciation and amortization (538,097)
----------
Net property and equipment 2,123,163
----------
Other assets:
Notes Receivable, net of current portion above 723,565
Goodwill, net of accumulated amortization of $2,111 19,134
Deferred tax assets 71,550
Deposits and other assets 48,506
----------
Total other assets 862,755
----------
Total assets $3,270,651
==========
See accompanying notes
3
<PAGE>
ProtoSource Corporation
Balance Sheet
March 31, 1997
(unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 178,250
Accrued liabilities 51,537
Unearned rent 18,247
Customer deposits 1,500
Current portion of long-term debt 39,358
-----------
Total current liabilities 288,892
-----------
Long-term debt, net of current portion above:
Bank 1,285
Obligations under capital leases 1,872,541
Less current portion above (39,358)
-----------
Total long-term debt 1,834,468
-----------
Commitments and contingencies --
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares --
authorized, none issued and outstanding
Common stock, no par value; 10,000,000 shares
authorized, 515,333 shares issued and outstanding 4,839,485
Accumulated deficit (3,692,194)
-----------
Total shareholders' equity 1,147,291
-----------
Total liabilities and shareholders' equity $ 3,270,651
===========
See accompanying notes
4
<PAGE>
ProtoSource Corporation
Statements of Operations
(unaudited)
Three months ended March 31,
----------------------------
1997 1996
--------- ---------
Net revenues $ 188,531 $ 185,780
--------- ---------
Operating expenses:
Cost of revenues 42,035 46,295
Sales and marketing 17,373 20,433
General and Administrative 326,568 321,373
--------- ---------
Total operating expenses 385,976 388,101
--------- ---------
Operating loss (197,445) (202,321)
--------- ---------
Other income (expense):
Interest Income 53,016 119
Interest Expense (51,280)
Other Income, net 99,870 28,953
--------- ---------
Total other income (expense) 101,606 (11,425)
--------- ---------
Loss from continuing operations
before provision for income taxes (95,839) (213,746)
Provision for income taxes -- --
--------- ---------
Loss from continuing operations (95,839)
Loss from discontinued operations -- (154,746)
--------- ---------
Net Loss $ (95,839) $(368,492)
========= =========
Net loss per share of common stock $ (.19) $ (4.16)
========= =========
Weighted average number of common
shares outstanding 515,333 88,667
========= =========
See accompanying notes
5
<PAGE>
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Three months ended
March 31,
----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss $ (95,839) $(368,942)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 51,761 101,413
Changes in operating assets:
Accounts receivable 4,135 (15,004)
Inventories -- (24,318)
Deposits and other assets (54,248) 6,122
Accounts payable (17,444) 178,105
Accrued liabilities (215,691) 169,495
Customer deposits -- 41,775
Notes payable -- (1,500)
Unearned revenues 18,247 (1,610)
--------- ---------
Net cash provided (used) by
operating activities (309,079) 85,536
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (28,855) (4,471)
Other assets (6,160) 1,029
Software development costs capitalized -- (87,748)
--------- ---------
Net cash (used) by investing activities (35,013) (91,190)
--------- ---------
Cash flows from financing activities:
Payments on notes payable (935) (3,191)
Payments on capital lease obligations (24,115) (27,278)
--------- ---------
Net cash provided by financing activities (25,050) (30,469)
--------- ---------
Net increase (decrease) in cash and cash equivalents (369,142) (36,123)
Cash and cash equivalents at beginning of period 482,357 138,646
--------- ---------
Cash and cash equivalents at end of period $ 113,215 $ 102,523
========= =========
See accompanying notes
6
<PAGE>
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Three months ended
March 31,
------------------
1997 1996
------- -------
Supplemental Disclosure of Cash Flow information
cash paid during the period for:
Interest $51,280 $40,497
Income taxes -- --
Supplemental Disclosure of Non cash
Investing and Financing Activities:
Acquisition of equipment under capital leases $44,573 $ --
See accompanying notes
7
<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, 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 repreent the dilution effect of the assumed exercise of
certain outstanding options and warrants.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended March 31, 1997 vs. Three Months Ended March 31, 1996
Net Sales. For three months ended March 31, 1997, net sales were $188,531
versus $185780 in the same period of the prior year. The lack of growth in
revenues is primarily attributed to lack of capital for marketing and
infrastructure upgrade to attract more Internet subscribers. The Company did not
increase the points of presence (POPs) until February 1997. The Company believes
that revenues will increase as the Company's number of POPs increase.
Gross Profit. For three months ended March 31, 1997, gross profit was
$146,496 versus $139,485 in 1996, representing an increase of $7,011 or 5.03%.
As a percentage of sales, gross profit was 78% in 1997 compared to 75% in 1996.
The similar gross profit percentage is attributed to similar variable cost
structure of the Internet industry. The Company believes that gross profit as a
percentage of sales will increase as revenues increases as a result of economies
of scale.
Sales and Marketing. Sales and marketing expenses were $17,373 for three
months ended March 31, 1997 versus $20,433 in 1996. The decreases in sales and
marketing expenses were a result of a reduction of the sales staff in the WEB
department. The Company believes that the sales and marketing expenses will
increase as the Company increases its marketing effort to attract additional
subscribers.
General and Administrative. General and administrative costs were $326,568
for the three months ended March 31, 1997 versus $321,373 in the same period
1996. The increase in general and administrative costs is primarily attributed
to expenses associated with additional facilities for the Internet Division and
increased staff for the Internet Division.
Operating Loss. For the three months ended March 31, 1997, the operating
loss was $197,446 compared to the 1996 same period operating loss of $202,321.
The operating loss in 1997 is attributed to lack of growth in revenues to offset
the fixed costs of the Company.
Interest income (expense). Net interest income was $1,736 in 1997 versus
net interest expense of $40,378 in 1996. The increase in interest income in 1997
was primarily due to interest income related to the note receivable from the
divestiture and other interest income.
Other income. Net other income increased to $99,870 from $28,953 for the
three months ended March 31, 1997 and March 31, 1996, respectively. This is due
to the rental income generated by the building as well as miscellaneous sales.
9
<PAGE>
Liquidity and Capital Resources
For the three months ended March 31,1997, the Company used $309,079 of cash for
operating activities primarily due to decreases in accounts payable and accrued
liabilities. The Company has a working capital deficiency of of $4,159 at March
31, 1997. The Company intends to reduce the working capital deficiency by
increasing sales, downsizing and attempting to 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 software amounted to $28,853 for the three months
ended March 31, 1997. The capital investment is mainly in computer equipment to
sustain future growth of the Company. In addition, the Company acquired
equipment through capital leases amounting to $44,573.
10
<PAGE>
Part II. Other Information
Item 5. Other Information
None
Item 6. Exhibits and Reports on From 8-K
Exhibits: None
Reports on Form 8-K: One form 8-K was filed during the first quarter of
1997, which reported the divestiture of the Software, Training Center and
Market Street divisions.
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
undersigned thereunto duly authorized.
ProtoSource Corporation,
May 15, 1997 /s/ Raymond J. Meyers
-----------------------------------------
Raymond J. Meyers
Chief Executive Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted form Form 10-QSB
March 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 113,215
<SECURITIES> 0
<RECEIVABLES> 46,418
<ALLOWANCES> 0
<INVENTORY> 8,980
<CURRENT-ASSETS> 284,733
<PP&E> 2,661,260
<DEPRECIATION> 538,097
<TOTAL-ASSETS> 3,270,651
<CURRENT-LIABILITIES> 288,892
<BONDS> 1,834,468
0
0
<COMMON> 4,839,485
<OTHER-SE> (3,692,194)
<TOTAL-LIABILITY-AND-EQUITY> 3,270,651
<SALES> 0
<TOTAL-REVENUES> 188,531
<CGS> 0
<TOTAL-COSTS> 385,976
<OTHER-EXPENSES> 101,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,280
<INCOME-PRETAX> (95,839)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,839)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
