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, 1998 or
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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
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(exact name of registrant as specified in its charter)
California 77-0190772
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(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 665,333 shares of the registrant's common stock, no par value
outstanding on May 13, 1998.
<PAGE>
ProtoSource Corporation
Index
Page
----
Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
at March 31,1998 3
Condensed Statements of Operations
for the three months ended March 31,1998 and 1997 5
Condensed Statements of Cash Flows
for the three months ended March 31,1998 and 1997 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-lookin 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
Condensed Balance Sheet
March 31, 1998
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 37,202
Accounts receivable - trade net of allowance
for doubtful accounts of $7,500 19,480
Current portion of note receivable 67,000
-----------
Total current assets 123,682
-----------
Property and equipment, at cost:
Land 411,176
Building and improvements 1,381,816
Equipment 853,882
Furniture 110,387
-----------
2,757,261
Less accumulated depreciation and amortization (758,936)
-----------
Net property and equipment 1,998,325
-----------
Other assets:
Goodwill, net of accumulated amortization of $3,777 17,468
Debt issuance costs, net of accumulated amortization
of 489,667 357,833
Note receivable, net of allowance for uncollectibility
of $100,000 and net of current portion above 290,600
Deposits and other assets 55,846
Deferred offering costs 118,581
-----------
Total other assets 840,328
-----------
Total assets $ 2,962,335
===========
See accompanying notes
3
<PAGE>
ProtoSource Corporation
Condensed Balance Sheet
March 31, 1998
(Unaudited)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 124,018
Accrued expenses:
Payroll taxes, wages and other 29,914
Interest 67,549
Current portion of bridge loans 750,000
Current portion of long-term debt 61,926
-----------
Total current liabilities 1,033,407
-----------
Long-term debt, net of current portion above:
Individuals and other 750,000
Obligations under capital leases 1,849,951
Less current portion above (811,926)
-----------
Total long-term debt 1,788,025
-----------
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,
665,333 shares issued and outstanding 5,590,455
Accumulated deficit (5,449,552)
-----------
Total shareholders' equity 140,903
-----------
Total liabilities and shareholders' equity $ 2,962,335
===========
See accompanying notes
4
<PAGE>
ProtoSource Corporation
Condensed Statements of Operations
(Unaudited)
Three months
ended March 31,
------------------------
1998 1997
------------------------
Net revenues $ 210,143 $ 188,531
--------- ---------
Operating expenses:
Cost of revenues 68,747 42,035
Sales and marketing 29,601 17,373
General and Administrative 281,681 326,568
--------- ---------
Total operating expenses 380,029 385,976
--------- ---------
Operating loss (169,886) (197,445)
--------- ---------
Other income (expense):
Interest Income 15 53,016
Interest Expense (258,516) (51,280)
Other Income, net 45,740 99,870
--------- ---------
Total other income (expense) (212,761) 101,606
--------- ---------
Loss before provision (382,647) (95,839)
for income taxes
Provision for income taxes -- --
--------- ---------
Net Loss $(382,647) $ (95,839)
========= =========
Net Income (Loss) Per Share of Common Stock:
Basic $ (.58) $ (.19)
Diluted $ (.58) $ (.19)
Weighted Average Number of Common Shares
Outstanding:
Basic 665,333 515,333
Diluted 665,333 515,333
See accompanying notes
5
<PAGE>
<TABLE>
<CAPTION>
ProtoSource Corporation
Condensed Statements of Cash Flows
(Unaudited)
Three months ended March 31,
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(382,647) $ (95,839)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 227,335 51,761
Changes in operating assets:
Accounts receivable 3,010 4,135
Deposits and other assets (11,499) (54,248)
Accounts payable 27,911 (17,444)
Accrued liabilities 22,201 (215,691)
Unearned revenues -- 18,247
--------- ---------
Net cash (used) by operating activities (113,689) (309,079)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (32,006) (28,853)
Other assets -- (6,160)
Receipt of principal on notes receivable 105,671 --
--------- ---------
Net cash provided (used) by investing activities 73,665 (35,013)
--------- ---------
Cash flows from financing activities:
Payments on notes payable and capital lease obligations (864) (20,050)
Offering costs incurred (20,058) --
--------- ---------
Net cash (used) by financing activities (20,922) (25,050)
--------- ---------
Net (decrease) in cash and cash equivalents (60,946) (369,142)
Cash and cash equivalents at beginning of period 98,148 482,357
--------- ---------
Cash and cash equivalents at end of period $ 37,202 $ 113,215
========= =========
See accompanying notes
6
<PAGE>
ProtoSource Corporation
Condensed Statements of Cash Flows
(Unaudited)
Three months ended March 31,
-----------------------------------
1998 1997
-----------------------------------
Supplemental Disclosure of Cash Flow
information:
Cash paid during the period for:
Interest $66,516 $51,280
Income taxes -- --
Supplemental Disclosure of Non cash
Investing and Financing Activities:
Acquisition of equipment under capital leases $ -- $44,573
</TABLE>
See accompanying notes
7
<PAGE>
ProtoSource Corporation
Notes to Condensed Unaudited 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, 1998 are not necessarily indicative of
results of operations that may be expected for the year ending December 31,
1998. 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, 1997 previously filed with the Securities
and Exchange Commission.
Per Share Information
As of December 31, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share", which specifies the method of
computation, presentation and disclosure for earnings per share. SFAS No. 128
requires the presentation of two earnings per share amounts, basic and diluted.
Basic earnings per share is calculated using the average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the average
number of common shares outstanding plus the dilutive effect of outstanding
stock options using the "treasury stock" method.
The basic and diluted earnings per share are the same since the Company had a
net loss for 1998 and 1997 and the inclusion of stock options and other
incremental shares would be antidilutive. Options and warrants to purchase
231,334 and 384,001 shares of common stock at March 31, 1998 and 1997
respectively were not included in the computation of diluted earnings per share
because the Company had a net loss and their effect would be antidilutive.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended March 31, 1998 vs. Three Months Ended March 31, 1997
Net Revenues. For three months ended March 31, 1998 net sales were $210,143
versus $188,531 in the same period of the prior year. The rise in revenues is
primarily attributed to increased marketing efforts resulting in the growth of
Internet subscribers and web development projects. The Company believes that
revenues will continue to increase as additional marketing plans are implemented
that focus on increasing name brand recognition and as the number of network
points of presence (POPs) increase.
Operating Expenses. For three months ended March 31, 1998, total operating
expenses were $380,029 versus $385,976 in the same period of the prior year.
This decrease of $5,947 is primarily attributed to the implementation of several
cost reduction or cost containment steps. The company successfully terminated
its Visalia, California office rental lease resulting in lower operating
expenses. The Company will also seek to reduce operating expenses by
renegotiating or canceling its Shaw Ave Capital Lease. However, the Company
believes that operating expenses will increase as revenues increase.
Operating Loss. The Company's operating loss for the period ending March
31, 1998 totaled $169,886 versus $197,445 in 1997, representing a decrease of
$27,559 or 13.9%. This decrease is due to a rise in revenues coupled with a
decrease in total operating expenses. Management believes that operating results
will continue to improve as revenues increase.
Interest income (expense). Net interest expense totaled $258,501 for the
period ending March 31, 1998 versus net interest income of $1,736 in 1997. The
increase in net interest expense of $260,237 is primarily attributable to the
amortization of debt issuance costs (issuance of 150,000 shares of Common Stock,
commissions and loan interest expense) in connection with the 1997 Bridge Loan
financing.
Other income. Net other income decreased to $45,740 from $99,870 for the
three months ended March 31, 1998 and March 31, 1997, respectively. This
decrease in 1998 is due to lower rental income generated by the Shaw Avenue
building and the absence of miscellaneous sales.
9
<PAGE>
Liquidity and Capital Resources
For the three months ended March 31,1998, the Company used $113,689 of cash for
operating activities primarily as a result of the net loss for the period. The
Company has a working capital deficiency of $909,725 at March 31, 1998. The
Company intends to reduce the working capital deficiency by increasing sales and
attempting to obtain long term financing through the sale of its securities in a
public offering. The Company is offering 1,050,000 units (one share of common
stock and one warrant) at $5.75 through an Underwriter. The Company's
registration statement was declared effective on May 13, 1998 and closing is to
occur on May 19, 1998.
Capital expenditures relating primarily to the purchase of computer equipment,
furniture and fixtures, and software amounted to $32,006 for the three months
ended March 31, 1998. The capital investment is mainly in computer equipment to
sustain future growth of the Company.
10
<PAGE>
Part II. Other Information
Item 5. Other Information
None
Item 6. Exhibits and Reports on From 8-K
None
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, 1998 /s/ Raymond J. Meyers
-----------------------------
Raymond J. Meyers
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 37,202
<SECURITIES> 0
<RECEIVABLES> 26,980
<ALLOWANCES> 7,500
<INVENTORY> 0
<CURRENT-ASSETS> 123,682
<PP&E> 2,757,261
<DEPRECIATION> 758,936
<TOTAL-ASSETS> 2,962,335
<CURRENT-LIABILITIES> 1,033,407
<BONDS> 1,788,025
0
0
<COMMON> 5,590,455
<OTHER-SE> (5,449,552)
<TOTAL-LIABILITY-AND-EQUITY> 2,962,335
<SALES> 0
<TOTAL-REVENUES> 210,143
<CGS> 0
<TOTAL-COSTS> 380,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,516
<INCOME-PRETAX> (382,647)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (382,647)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
</TABLE>
