SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 22, 2000
---------------
(Date of report)
PROTOSOURCE CORPORATION
-----------------------
(Exact Name of Registrant as Specified in Charter)
CALIFORNIA 33-86242 77-0190772
---------- -------- ----------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
2300 Tulare Street, Suite 210
Fresno, California 93721
(Address of Principal Executive Offices)
(559)-490-8600
--------------
(Registrant's telephone number, including area code)
----------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On August 22, 2000, effective as of August 1, 2000, Protosource Corporation
("Protosource" or the "Company") consummated their acquisition of all of the
outstanding capital stock of Suncoast Automation, Inc., a Delaware corporation
("Suncoast"), in exchange for the issuance of 1,303,072 shares of Protosource
Common Stock and the potential of an additional 1,000,000 shares of Common Stock
based on certain performance criteria. The transaction was completed in
accordance with the terms of the stock exchange agreement, dated as of August
22, 2000, and effective as of August 1,2000, between the Company, Suncoast and
the shareholders of Suncoast.
After the acquisition, Suncoast has become a wholly owned subsidiary of the
Company. Suncoast operates as a Private Cable Operator ("PCO") that builds,
upgrades and maintains cable systems as well as managing programming for the
Multi-housing Industry. This market segment is largely composed of the lodging
industry, specifically the time-share resort niche. As an additional part of the
completed transaction, Protosource has hired Mark Blanchard, Suncoasts's former
Chairman of the Board, as Vice President and General Manager and Theodore
Triantafilu, Suncoast's former Chief Operating Officer, as Director of
Protosource and COO of the Suncoast Division of Protosource.
ITEM 5. Other Events.
NONE
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired
(b) Pro Forma Financial Information
(c) Exhibits
Number Description
------ -----------
10.1 Agreement, dated as of August 22, 2000 and effective as of
August 1, 2000, by and among Protosouce Corporation,
Suncoast Automation, Inc. and the Shareholders of Suncoast
Automation, Inc.
10.2 Form of Employment Agreement, dated as of August 1, 2000,
between Protosource Corporation and Theodore Triantafilu.
10.3 Form of Employment Agreement, dated as of August 1, 2000,
between Protosource Corporation and Mark Blanchard.
10.4 Form of Employment Agreement, dated as of August 1, 2000,
between Protosource Corporation and Kent Spears.
23.2 Consent of Cherry, Bekaert & Holland, L.L.P.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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
-----------------------
(Registrant)
Date: August 28, 2000 /s/ William Conis
-----------------
William Conis, Chief Executive Officer
<PAGE>
SUNCOAST AUTOMATION, INC.
Financial Statements
December 31, 1999 and 1998
Contents
--------
Page
----
Report of Independent Certified Public Accountants 2
Balance Sheets 3
Statements of Operations 4
Statements of Changes in Stockholders' Deficit 5
Statements of Cash Flows 6
Notes to Financial Statements 7 - 12
1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Suncoast Automation, Inc.
Oldsmar, Florida
We have audited the accompanying balance sheets of Suncoast Automation, Inc. as
of December 31, 1999 and 1998 and the related statements of operations, changes
in stockholders' deficit, and cash flows for the year ended December 31, 1999
and the period from inception through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Suncoast Automation, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the year and period then ended, in conformity with generally accepted
accounting principles.
/s/ Cherry, Bekaert & Holland, L.L.P.
St. Petersburg, Florida
May 26, 2000, except Notes 5 and 12
which are dated August 14, 2000
2
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST AUTOMATION, INC.
Balance Sheets
December 31,
June 30, ----------------------
2000 1999 1998
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Current assets
Cash $ 127,651 $ 9,541 $ 102
Accounts receivable 30,857 62,805 --
Inventory 13,783 13,783 --
Prepaid expenses 27,838 17,768 --
--------- --------- ---------
Total current assets 200,129 103,897 102
--------- --------- ---------
Property and equipment - net 645,942 385,247 1,652
Intangible assets - net -- 12,035 --
--------- --------- ---------
Total assets $ 846,071 $ 501,179 $ 1,754
========= ========= =========
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 126,019 $ 113,749 $ 33,222
Accrued payroll 196,221 76,760 --
Deferred revenue 15,299 -- --
Accrued interest 7,500 24,881 --
Notes payable 550,000 715,000 --
Stockholder note payable 60,183 60,183 --
--------- --------- ---------
Total current liabilities 955,222 990,573 33,222
Committments and contingencies -- -- --
Stockholders' deficit
Preferred stock -- -- --
Common stock 119 100 85
Paid in capital 781,147 6,812 --
Accumulated deficit (890,417) (496,306) (31,553)
--------- --------- ---------
Total stockholders' deficit (109,151) (489,394) (31,468)
--------- --------- ---------
Total liabilities and
stockholders' deficit $ 846,071 $ 501,179 $ 1,754
========= ========= =========
See notes to financial statements
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST AUTOMATION, INC.
Statements of Operations
For the period from inception through
For the six-month periods December 31, 1998 and for the
ended June 30, year ended December 31, 1999
------------------------- ----------------------------
2000 1999 1999 1998
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue
Sales $ 102,253 $ 44,841 $ 164,535 $ 16,203
Less cost of goods sold 83,258 1,307 65,236 26,399
--------- --------- --------- ---------
Gross profit (loss) 18,995 43,534 99,299 (10,196)
Operating expenses
Selling, general and
administrative expenses 364,269 80,426 511,785 17,019
--------- --------- --------- ---------
Loss from operations (345,274) (36,892) (412,486) (27,215)
--------- --------- --------- ---------
Other income (expense)
Interest income 2,423 -- 3,718 --
Interest expense (41,964) -- (13,881) --
Other expense (9,296) -- (8,170) --
--------- --------- --------- ---------
Total other
income (expense) (48,837) -- (18,333) --
--------- --------- --------- ---------
Net loss $(394,111) $ (36,892) $(430,819) $ (27,215)
========= ========= ========= =========
See notes to financial statements
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST AUTOMATION, INC.
Statements of Changes in Stockholders' Deficit
Preferred stock Common stock
---------------------- ---------------------- Paid in Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balances -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock -- -- 85,000 85 -- -- 85
Net income (loss) from inception
through December 31, 1998 -- -- -- -- -- (27,215) (27,215)
Distributions in 1998 -- -- -- -- -- (4,338) (4,338)
--------- --------- --------- --------- --------- --------- ---------
Balances, December 31, 1998 -- -- 85,000 85 -- (31,553) (31,468)
Exchange of common stock -- -- (85,000) (85) -- -- (85)
Issuance of common stock -- -- 100,000 100 -- -- 100
Contributions -- -- -- -- 6,812 -- 6,812
Net income (loss) for 1999 -- -- -- -- -- (430,819) (430,819)
Distributions in 1999 -- -- -- -- -- (33,934) (33,934)
--------- --------- --------- --------- --------- --------- ---------
Balances, December 31, 1999 -- -- 100,000 100 6,812 (496,306) (489,394)
Conversion of note payable -- -- 9,728 10 774,335 -- 774,345
Exercise of options -- -- 9,000 9 -- -- 9
Net loss for the six months
ended June 30, 2000 -- -- -- -- -- (394,111) (394,111)
--------- --------- --------- --------- --------- --------- ---------
Balances, June 30,
2000 (unaudited) -- $ -- 118,728 $ 119 $ 781,147 $(890,417) $(109,151)
========= ========= ========= ========= ========= ========= =========
See notes to financial statements
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST AUTOMATION, INC.
Statements of Cash Flows
For the period from
inception through
For the six-month periods December 31, 1998 and for the
ended June 30, year ended December 31, 1999
------------------------- ----------------------------
2000 1999 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities (unaudited) (unaudited)
Reconciliation of net income to net cash
used in operating activities
Net loss $(394,111) $ (36,892) $(430,819) $ (27,130)
Adjustments to reconcile net income to net
cash used in provided by operating activities:
Depreciation and amortization 49,542 216 31,008 43
Decrease (Increase) in accounts receivable 31,948 -- (62,805) --
Increase in inventories -- -- (6,956) --
Increase in prepaid expenses (10,070) (6,000) (17,768) --
Increase (Decrease) in accounts payable 12,270 (32,406) 80,527 33,222
Increase in accrued expenses and other 176,723 -- 101,641 --
--------- --------- --------- ---------
Net cash used in operating activities (133,698) (75,082) (305,172) 6,135
--------- --------- --------- ---------
Cash flows from investing activities
Capital expenditures (298,192) (41,784) (402,568) (1,695)
--------- --------- --------- ---------
Net cash used in investing activities (298,192) (41,784) (402,568) (1,695)
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds from long-term debt borrowings 550,000 80,000 715,000 --
Proceeds from stockholder notes payable -- 83,800 60,183 --
Debt issuance costs -- -- (24,070) --
Distributions to stockholders -- (31,934) (33,934) (4,338)
--------- --------- --------- ---------
Net cash provided by financing activities 550,000 131,866 717,179 (4,338)
--------- --------- --------- ---------
Net increase in cash 118,110 15,000 9,439 102
Cash at beginning of period 9,541 102 102 --
--------- --------- --------- ---------
Cash at end of period $ 127,651 $ 15,102 $ 9,541 $ 102
========= ========= ========= =========
Cash paid for interest $ -- $ -- $ -- $ --
========= ========= ========= =========
Non-cash financing activities
Stockholder contribution of inventory $ -- $ -- $ 6,812 $ --
========= ========= ========= =========
See notes to financial statements
6
</TABLE>
<PAGE>
SUNCOAST AUTOMATION, INC.
Notes to Financial Statements
December 31, 1999 and 1998
Note 1 - Summary of significant accounting policies
---------------------------------------------------
Financial statement presentation
The financial statements include the activities of Suncoast Home Automation,
Inc. (Home) and Suncoast Automation, Inc. (Auto), collectively known as "the
Company", for the period from Home's inception, May 23, 1998 through and as of
December 31, 1998. In 1999, the companies merged as described in Note 2 and,
accordingly, the activities of Home and Auto are included in the 1999 financial
statements.
In management's opinion, the financial information as of and for the six month
period ended June 30, 2000 and 1999 which is unaudited, reflects all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial information for those interim periods. Operating
results for the six month periods ended June 30, 2000 and 1999, are not
necessarily indicative of the results that may be expected in future periods.
Cash equivalents
For the purpose of the statement of cash flows, Suncoast Automation, Inc. (the
Company) considers all short-term debt instruments purchased with a maturity of
three months or less to be cash equivalents. At December 31, 1999, the Company
owned no cash equivalents.
Allowance for uncollectible accounts
The Company provides an allowance for uncollectible accounts based upon prior
experience and management's assessment of the collectibility of specific
accounts.
Inventory
Inventory consists of parts for replacement of existing cable systems and is
stated at the lower of cost (first-in, first-out) or market.
Property and equipment
Property and equipment are stated at cost. Construction costs, including
interest during construction and applicable overhead, are capitalized.
Provisions for depreciation are determined on the straight-line method, over the
estimated useful lives of the related assets ranging from five to seven years.
Maintenance and repairs are charged to operating expenses as incurred, and
renewals and betterments are capitalized. Any gains and losses on the sale of
property are reflected in current operations.
7
<PAGE>
SUNCOAST AUTOMATION, INC.
Notes to Financial Statements - continued
December 31, 1999 and 1998
Note 1 - Summary of significant accounting policies - continued
---------------------------------------------------------------
Intangible assets
Intangible assets consist of debt issuance costs. Amortization of debt issuance
costs is provided over the term of the loan on a straight line basis which is
not materially different from the interest method. Accumulated amortization at
December 31, 1999 is $12,035.
Income taxes
Income taxes are accounted for according to Statement of Financial Accounting
Standards No. 109, (SFAS 109). The statement requires the use of an asset and
liability approach for the recognition of income taxes. Deferred tax assets and
liabilities are recorded for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising
Advertising costs are expensed as incurred and totaled $1,924 and $0 for the
year and period ended December 31, 1999 and 1998, respectively.
Stock option plan
The Company applies the provisions of Accounting Principles Board Opinion No. 25
in accounting for the plan and accordingly, no compensation expense has been
recognized in connection with the granting of the stock options. In accordance
with SFAS No. 123, Accounting for Stock-Based Compensation, the Company adopted
the disclosure - only option and elected to apply the provisions of APB No. 25
for financial statement purposes.
8
<PAGE>
SUNCOAST AUTOMATION, INC.
Notes to Financial Statements - continued
December 31, 1999 and 1998
Note 2 - Organization and merger
--------------------------------
Suncoast Home Automation, Inc. (Home) incorporated in Florida as an "S"
corporation on May 23, 1998. Suncoast Automation, Inc. (Auto) incorporated on
June 29, 1999 as a Delaware "C" corporation. On July 8, 1999 a plan of merger
was effected with Home whereby Auto was the surviving corporation. The
shareholders of Home received one share of Auto for each Home share of stock.
The merger was accounted for as a transfer between entities under common control
similar to a pooling of interests.
Note 3 - Nature of business
---------------------------
The Company, headquartered in Oldsmar, Florida, was incorporated in June 1999 as
a Delaware corporation. The Company provides interactive cable television
systems and services to the timeshare resort industry. Currently, the Company
operates systems, under contracts for generally seven years, in Scottsdale,
Arizona, Williamsburg, Virginia, St. Croix, U.S. Virgin Islands and Sint
Marteen. The Company also has a service agreement with an amusement park in
Orlando, Florida.
Note 4 - Property and equipment
-------------------------------
Property and equipment and related allowance for depreciation are summarized as
follows:
1999 1998
---- ----
Cable system equipment - on site $ 352,758 $ --
Office equipment and furnishings 36,643 1,695
Computers 14,862 --
--------- ---------
404,263 1,695
Less accumulated depreciation (19,016) (43)
--------- ---------
Property and equipment, net $ 385,247 $ 1,652
========= =========
9
<PAGE>
SUNCOAST AUTOMATION, INC.
Notes to Financial Statements - continued
December 31, 1999 and 1998
Note 5 - Note payable
---------------------
Note payable consists of a secured convertible note payable dated July 19, 1999
with interest compounded monthly at 8% per annum. Security for the note includes
the Company's rights to and interests in certain agreements and future income
derived therefrom. No principal or interest payments are due until maturity,
July 19, 2000. The holder of the note has the right to convert the note, any
time prior to the maturity date, into approximately ten percent of the Company's
outstanding shares. In May 2000, the holder converted this debt into 9,728
shares of common stock. The holder of the note also owns a warrant for the
purchase of an additional 6,383 shares of the Company's common stock for $.01
per share. This warrant is exercisable until July, 19, 2009. The holder of the
note also has an option to purchase additional common stock up to approximately
ten percent of the then existing authorized shares for up to $1.1 million.
Interest expense for 1999 was $13,881 which is net of capitalized interest of
$11,000.
In May 2000, the Company entered into a senior secured promissory note agreement
with Protosource, Inc. for $500,000. The note is payable at the earliest of one
year, at the time of any public or private debt offering greater than two
million dollars or if the Company's stock is exchanged for another company's
stock. Interest is accruing at 12% and is payable at maturity. The note is
secured with 91,000 shares of the Company's stock owned by individuals.
Protosource, Inc. has also entered into a binding agreement with the Company for
the purchase of the Company's stock.
Note 6 - Notes payable - stockholder
------------------------------------
A stockholder of the Company advanced funds to the Company for cash flow needs.
There are no stated terms for repayment.
Note 7 - Income taxes
---------------------
The Company has available a net operating loss carryforward, generated in 1999,
of approximately $350,000 which will expire in 2019. This net operating loss can
be carried forward to reduce future taxable income of an equal amount with a
potential tax effect of approximately $140,000. No asset has been recocognized
in these financial statements relating to this carryforward due to the
uncertainty of the ultimate realization and timing of taxable income to offset.
This valuation was recorded because management's estimates of the realization of
the benefits are more likely than not to result in less than full utilization of
the losses due to the start up nature of the business and having no history of
profitable operations. The Company's tax returns, not barred by statute, are
subject to audit and possible adjustment.
10
<PAGE>
SUNCOAST AUTOMATION, INC.
Notes to Financial Statements - continued
December 31, 1999 and 1998
Note 8 - Lease commitments
--------------------------
The Company leases office space in Oldsmar, Florida under an operating lease for
a three year term ending in July 2002 at a base annual rent of $18,000 per year
and increased by five percent in each subsequent year. Minimum lease commitments
are as follows:
Year ending
December 31
-----------
2000 $18,450
2001 19,373
2002 9,922
Note 9 - Capitalization
-----------------------
The Company is authorized to issue 2,000,000 shares of common stock with a par
value of $.001 per share. Common stock issued and outstanding at December 31,
1999 is 100,000 shares. The Company is also authorized to issue 500,000 shares
of preferred stock with a par value of $.001 per share. At December 31, 1999
there were no shares of preferred stock issued or outstanding.
Note 10 - Major customers
-------------------------
Approximately seventy percent of the Company's sales for 1999 were to one
customer. On May 31, 2000 the parent corporation of this customer filed for
protection under current bankruptcy laws. The Company's customer contracts
directly with homeowner associations where the service is provided. Management
believes there will be no significant adverse impact on its operations as a
result of these actions. The remainder of the Company's sales are to another
customer.
Note 11 - Stock option plan
---------------------------
On July 29, 1999, the Company's shareholders approved the Suncoast Automation,
Inc. Formation Stock Incentive Plan that provided the issuance of 9,000 options
for key employees to purchase the Company's common stock. As of December 31,
1999, 9,000 shares had been awarded under the plan at an exercise price of $.001
per share. The exercise price of each option approximates the fair market value
of the Company's common stock at the date of the grants. One half of the options
vest on January 1, 2000 and the remaining half vest on January 1, 2001. Certain
acceleration clauses exist. The options expire on July 27, 2009. Due to the
start up nature of the Company at the grant date of the options, no compensation
expense has been assigned to the options, and the fair value of the options
granted is considered immaterial.
11
<PAGE>
SUNCOAST AUTOMATION, INC.
Notes to Financial Statements - continued
December 31, 1999 and 1998
Note 12 - Liquidity
-------------------
At December 31, 1999, the Company has a deficiency in assets of $490,000,
current liabilities of $990,000 and successive years of losses. However,
management has taken certain actions to obtain additional capital and improve
liquidity. Certain liabilities totaling $740,000 were converted to equity
subsequent to December 31, 1999. Also, additional loans were obtained with
repayment terms extending beyond 2000. In addition, start up costs and
non-recurring expenses were incurred in 1999 which are not anticipated in the
future. The Company also has long term contracts for cable services that will
produce revenues sufficient to cover operating costs at a minimum funding level.
Management has entered into a binding agreement with a third party for the
purchase of its stock which will provide access to additional sources of funds.
Management believes the conversion of debt to equity already completed, along
with existing operating contracts are adequate to fund operations at the current
level. Management also believes that other potential sources of funds will
provide sufficient capital resources to fund expansion. However, there can be no
assurances that such potential sources of funds will be obtained or that they
will be adequate to fund expanded operations.
12
<PAGE>
PROTOSOURCE CORPORATION
UNAUDITED PROFORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 2000
The following unaudited proforma combined balance sheet gives effect to the
acquisition of Suncoast Automation, Inc. ("Suncoast") by ProtoSource Corporation
("Proto") in a transaction accounted for as a purchase. The proforma information
is presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
acquisition had been consummated nor is it necessarily indicative of future
operating results or financial position. The unaudited proforma balance sheet
gives effect to the acquisition as if it had occurred on June 30, 2000. This
proforma balance sheet should be read in conjunction with the accompanying notes
and related historical financial statements and notes thereto of Proto and
Suncoast.
<TABLE>
<CAPTION>
Proforma Proforma
ASSETS Proto Suncoast Adjustments Combined
------ ----- -------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 935,454 $ 127,651 $ -- $ 1,063,105
Accounts receivable 106,514 30,857 -- 137,371
Inventory -- 13,783 -- 13,783
Prepaid expenses and other 10,140 27,838 -- 37,978
Note receivable 500,000 -- (1)(500,000) --
------------ ------------ ------------ ------------
Total Current Assets 1,552,108 200,129 (500,000) 1,252,237
------------ ------------ ------------ ------------
Property and Equipment, at cost:
Equipment 979,613 657,647 -- 1,637,260
Furniture 147,533 44,818 -- 192,351
Leasehold improvements 6,462 -- -- 6,462
------------ ------------ ------------ ------------
1,133,608 702,465 -- 1,836,073
Less accumulated depreciation (919,558) (56,523) (1)56,523 (919,558)
------------ ------------ ------------ ------------
Net Property and Equipment 214,050 645,942 56,523 916,515
------------ ------------ ------------ ------------
Other Assets:
Intangible assets, net of amortization 2,040,706 -- (1)8,189,618 10,230,324
Investment in Corporation 1,800,000 -- -- 1,800,000
Deposits 20,867 -- -- 20,867
Deferred offering costs 35,000 -- -- 35,000
------------ ------------ ------------ ------------
Total Other Assets 3,896,573 -- 8,189,618 12,086,191
------------ ------------ ------------ ------------
Total Assets $ 5,662,731 $ 846,071 $ 7,746,141 $ 14,254,943
============ ============ ============ ============
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROTOSOURCE CORPORATION
UNAUDITED PROFORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 2000
Proforma Proforma
LIABILITIES AND STOCKHOLDERS' EQUITY Proto Suncoast Adjustments Combined
------------------------------------ ----- -------- ----------- --------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable - trade $ 3,927 $ 126,019 $ -- $ 129,946
Accrued expenses 43,116 203,721 (1)400,000 646,837
Deferred revenue 23,206 15,299 -- 38,505
Notes payable -- 610,183 (1)(500,000) 110,183
Current portion of long-term debt 1,563,441 -- -- 1,563,441
------------ ------------ ------------ ------------
Total Current Liabilities 1,633,690 955,222 (100,000) 2,488,912
------------ ------------ ------------ ------------
Long-Term Debt, net of current portion above 26,920 -- -- 26,920
------------ ------------ ------------ ------------
Commitments and Contingencies -- -- -- --
Stockholders' Equity:
Preferred stock -- -- -- --
Common stock 13,150,885 119 (1)7,736,871 20,887,875
Additional paid in capital 28,158 781,147 (1)(781,147) 28,158
Accumulated deficit (9,176,922) (890,417) (1)890,417 (9,176,922)
------------ ------------ ------------ ------------
Total Stockholders' Equity 4,002,121 (109,151) 7,846,141 11,739,111
------------ ------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 5,662,731 $ 846,071 $ 7,746,141 $ 14,254,943
============ ============ ============ ============
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-2
</TABLE>
<PAGE>
PROTOSOURCE CORPORATION
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
The following unaudited proforma combined statement of operations and per share
data gives effect to the acquisition of Suncoast by Proto in a transaction
accounted for as a purchase. The proforma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the acquisition had
been consummated nor is it necessarily indicative of future operating results or
financial position. The unaudited proforma statement of operations gives effect
to the acquisition as if it had occurred on January 1, 2000. This proforma
statement of operations should be read in conjunction with the accompanying
notes and related historical financial statements and notes thereto of Proto and
Suncoast.
<TABLE>
<CAPTION>
Proforma Proforma
Proto Suncoast Adjustments Combined
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenue $ 751,145 $ 102,253 $ -- $ 853,398
Operating expenses 1,345,201 397,985 -- 1,743,186
(2)634,515
Depreciation and amortization 504,626 49,542 (2)(49,542) 1,139,141
----------- ----------- ----------- -----------
Income (Loss) From Operations (1,098,682) (345,274) (584,973) (2,028,929)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest expense (36,982) (41,964) -- (78,946)
Interest income and other 15,516 (6,873) -- 8,643
----------- ----------- ----------- -----------
Total Other Income (Expense) (21,466) (48,837) -- (70,303)
----------- ----------- ----------- -----------
Net Income (Loss) $(1,120,148) $ (394,111) $ (584,973) $(2,099,232)
=========== =========== =========== ===========
Net Income (Loss) Per Basic and
Diluted Share of Common Stock $ (.56) $ (.64)
Weighted Average Number of Basic and
Diluted Common Shares Outstanding 2,002,381 3,305,453
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-3
</TABLE>
<PAGE>
PROTOSOURCE CORPORATION
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
The following unaudited proforma combined statement of operations and per share
data gives effect to the acquisition of Suncoast by Proto in a transaction
accounted for as a purchase. The proforma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the acquisition had
been consummated nor is it necessarily indicative of future operating results or
financial position. The unaudited proforma statement of operations gives effect
to the acquisition as if it had occurred on January 1, 1999. This proforma
statement of operations should be read in conjunction with the accompanying
notes and related historical financial statements and notes thereto of Proto and
Suncoast.
<TABLE>
<CAPTION>
Proforma Proforma
Proto Suncoast Adjustments Combined
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenue $ 1,125,225 $ 164,535 $ -- $ 1,289,760
Operating expenses 2,348,141 546,013 -- 2,894,154
(2)1,200,954
Depreciation and amortization 218,077 31,008 (2)(31,008) 1,419,031
------------ ------------ ------------ ------------
Income (Loss) From Operations (1,440,993) (412,486) (1,169,946) (3,023,425)
------------ ------------ ------------ ------------
Other Income (Expense):
Interest expense (16,763) (13,881) -- (30,644)
Interest income and other 164,116 (4,452) -- 159,664
------------ ------------ ------------ ------------
Total Other Income (Expense) 147,353 (18,333) -- 129,020
------------ ------------ ------------ ------------
Net Income (Loss) $ (1,293,640) $ (430,819) $ (1,169,946) $ (2,894,405)
============ ============ ============ ============
Net Income (Loss) Per Basic and
Diluted Share of Common Stock $ (.72) $ (.94)
Weighted Average Number of Basic and
Diluted Common Shares Outstanding 1,789,453 3,092,525
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-4
</TABLE>
<PAGE>
PROTOSOURCE CORPORATION
NOTES TO UNAUDITED PROFORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. Basis of Presentation
------------------------
On August 15, 2000, Proto executed a Stock Exchange Agreement (the
"Agreement") to purchase all of the outstanding common stock of Suncoast.
The assets acquired consist of property and equipment, accounts receivable,
subscriber base, intellectual property rights and various other assets. The
purchase price was $7,736,990 consisting of 1,303,072 shares of the
Company's common stock. The acquisition will be accounted for as a
purchase. In addition, Proto shall deposit 1,000,000 shares of its common
stock (the "Earnout Shares") with an Escrow Agent. The shares will be held
for a maximum of twenty seven months from the date of the acquisition. The
Earnout Shares may be earned by Suncoast's shareholders upon meeting
certain subscriber and cash flow provisions over a twenty seven month
period.
The proforma combined condensed balance sheet gives effect to the
acquisition of Suncoast in a transaction accounted for as a purchase. The
transaction is reflected in the proforma balance sheet as if it occurred on
June 30, 2000.
The proforma combined condensed statement of operations gives effect to the
acquisition of Suncoast in a transaction accounted for as a purchase. The
transaction is reflected in the proforma statement of operations as if it
occurred at the beginning of the period presented.
2. Proforma Net Income (Loss) Per Share of Common Stock
-------------------------------------------------------
The proforma net income (loss) per share of common stock is based on the
weighted average number of common shares outstanding after giving effect to
the shares issued for the acquisition.
3. Proforma Adjustments
-----------------------
Adjustments to present the proforma combined condensed financial statements
are as follows:
1. Record the acquisition of Suncoast for $7,736,990 in common stock of
the Company. The Company also paid a finders fee of approximately
$315,000 in connection with the acquisition and estimates legal
expenses and other direct costs of the acquisition to be approximately
$85,000 which are added to the cost of the assets acquired.
2. Record amortization expense of goodwill and depreciation of property
and equipment recorded in the acquisition. The goodwill is amortized
over a seven year life. Also includes reversal of depreciation and
amortization expense of Suncoast for the periods presented.
F-5
