<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the period ended December 31, 1996.
Commission file number: 33-89384-LA
Prologic Management Systems, Inc.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
Arizona 86-0498857
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2030 East Speedway Blvd., Tucson, Arizona 85719
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone number (520) 320-1000.
(Former address: 2731 East Elvira Road, #151, Tucson, Arizona, 85706
Former telephone number: 520-741-1001)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock and Warrants to Purchase Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 .
--- ---
Number of shares of common stock outstanding on January 31, 1996 was 3,675,395.
Transitional Small Business Disclosure Format:
Yes ; No X.
--- ---
<PAGE> 2
PROLOGIC MANAGEMENT SYSTEMS, INC.
INDEX
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<CAPTION>
Page
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Item 1 Condensed Consolidated Balance Sheets at 3
December 31, 1996 and March 31, 1996
Condensed Consolidated Statements of Operations 4
for the 3 Months Ended December 31, 1996 and 1995, &
the 9 Months Ended December 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows 5
for the 9 Months Ended December 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
Part II Other Information 12
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults upon Senior Securities 12
Item 4 Submission of Matters to a Vote by Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 10-QSB 12
Exhibit 11 14
Exhibit 27 15
Signatures 13
</TABLE>
<PAGE> 3
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
------------------ ---------------
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,612,050 $ 3,426,981
Trade accounts receivable less allowance 3,899,575 480,914
for doubtful accounts of $152,696 at
December 31, 1996 and at March 31, 1996
Inventories 222,319 41,931
Prepaid expenses 71,091 37,639
----------- -----------
Total current assets 5,805,035 3,987,465
Property and equipment, net 445,683 124,642
Software cost, net 460,808 565,812
Goodwill, net 1,580,498 235,806
Other assets 200,950 69,651
----------- -----------
TOTAL ASSETS $ 8,492,974 $ 4,983,376
=========== ===========
LIABILITIES AND EQUITY
Current liabilities
Lines of credit $ 1,616,881 $ 47,367
Current installments of long term debt 109,669 30,018
Notes payable 75,000 892,710
Notes payable to related parties -- 40,000
Accounts payable 2,105,064 322,469
Accrued expenses 783,968 250,486
Deferred maintenance revenue 148,405 107,361
----------- -----------
Total current liabilities 4,838,987 1,690,411
Long term debt, excluding current installments 866,698 187,688
Shareholders' equity
Common stock, no par value, Authorized 10,000,000 shares;
3,328,070 issued at March 31, 1996 and 3,665,395 at 8,012,395 6,595,163
December 31, 1996
Accumulated deficit (5,225,106) (3,489,886)
----------- -----------
Net shareholders' equity 2,787,289 3,105,277
----------- -----------
TOTAL LIABILITIES AND EQUITY $ 8,492,974 $ 4,983,376
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 4
PROLOGIC MANAGEMENT SYSTEMS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
----------------- ------------- ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales
Hardware $ 4,441,796 $ 613,117 $ 7,329,495 $ 655,189
Licenses 793,902 492,027 1,347,728 595,547
Services and Other 727,022 128,263 1,519,411 278,641
------------ ------------ ------------ ------------
5,962,720 1,233,407 10,196,634 1,529,377
Cost of Sales 4,667,923 728,173 7,887,227 899,240
Gross Profit 1,294,797 505,234 2,309,407 630,137
Operating Expenses
Selling and marketing 797,649 200,704 1,224,748 425,648
General and administrative 713,270 172,923 1,937,658 321,022
Research and development 230,943 42,910 412,456 129,147
Expenses associated with raising capital -- 32,715 -- 32,715
------------ ------------ ------------ ------------
Total operating expenses 1,741,862 449,252 3,574,862 908,532
------------ ------------ ------------ ------------
Operating income (loss) (447,065) 55,982 (1,265,455) (278,395)
Interest expense (108,207) (59,967) (503,802) (110,489)
Other income (expense) (40,097) (48,620) 34,037 (73,260)
------------ ------------ ------------ ------------
Net loss before taxes (595,369) (52,605) (1,735,220) (462,144)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (595,369) $ (52,605) $ (1,735,220) $ (462,144)
============ ============ ============ ============
Net loss per common share $ (0.16) $ (0.03) $ (0.47) $ (0.22)
Shares used in computing
net loss per share 3,665,395 2,031,280 3,665,395 2,077,280
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 5
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(1,735,220) $ (462,144)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 671,317 228,642
Change in allowance for doubtful accounts -- 10,000
Increase (decrease) in cash due to changes -- --
in operating assets and liabilities:
Trade accounts receivable (3,418,661) (807,193)
Accounts payable and accrued expenses 2,316,077 679,600
Prepaid Expenses (33,452) --
Deposits (131,299) --
Other assets and liabilities (1,586,175) (48,880)
----------- -----------
Total adjustments (2,182,194) 62,169
Net cash provided by (used in) operating activities (3,917,414) (399,975)
----------- -----------
Cash flows from investing activities:
Capitalized software development costs (242,624)
Purchase of property, plant and equipment (713,003) (125,702)
Purchase of Software - inhouse (72,212) --
Payment for purchase of Great River Systems, Inc., net -- (247,956)
of cash acquired
----------- -----------
Net cash provided by (used in) investing activities (785,215) (616,282)
Cash flows from financing activities:
Debt and equity issuance costs -- (70,384)
Deferred loan costs -- (113,554)
Issuance of notes payable and debt 2,517,272 1,590,000
Repayment of debt (1,006,807) (319,000)
Net decrease in related party debt (40,000) 765
Issuance of common stock 1,417,232 40,000
----------- -----------
Net cash provided by (used in) financing activities 2,887,697 1,127,827
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,814,931) 111,570
Cash and cash equivalents, beginning of period 3,426,981 66,744
----------- -----------
Cash and cash equivalents, end of period $ 1,612,050 $ 178,314
=========== ===========
Supplemental statement of cash flow information:
Noncash financing and investing activities:
-----------
Issuance of warrants $ 196,250
===========
Investment in Basis, Inc.
Equity 1,400,000
Note Payable 500,000
-----------
$ 1,900,000
===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Periods
The accompanying condensed consolidated financial statements include
the accounts of Prologic Management Systems, Inc. (the "Company") and
its wholly-owned subsidiaries, Great River Systems, Inc. ("GRSI") and
BASIS Inc. ("BASIS"). All significant intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principals, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying condensed consolidated financial statements include all
adjustments (of normal recurring nature) which are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is
suggested that these financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Company's 1996 Report on Form 10-KSB. The results of operations for
the nine and three months ended December 31, 1996 are not necessarily
indicative of the results to be expected for the full year.
2. Acquisition
In August 1996, the Company acquired BASIS, Inc., a regional systems
integration firm located in Emeryville, California, for $500,000 cash
and 337,349 shares of common stock of the Company valued at $1,400,000.
In addition, the Company will issue to BASIS shareholders an additional
amount of common stock valued up to $1,600,000 if certain post-merger
earn-out targets in the agreement are met during the Company's fiscal
period ending June 30, 1997.
3. Lines of Credit
The Company maintains a $1,000,000 line of credit with its bank subject
to renewal in August 1997. The interest rate on borrowings under the
agreement is the "prime" rate of interest as established by the bank.
The line of credit is secured by the Company's money market accounts.
The credit agreement contains, among other things, restrictive
financial covenants. As of December 31, 1996, the Company had
borrowings totaling $944,562.
In addition, the Company's subsidiary, BASIS Inc., maintains a
$4,000,000 line of credit with Deutsche Financial Services (DFS)
secured by substantially all of the assets of BASIS and guaranteed by
Prologic Management Systems, Inc. The interest rate is at prime plus
1%. As of December 31, 1996, the Company had borrowings on this line of
credit of $672,319.
4. Goodwill
Goodwill arose from the acquisitions of GRSI and BASIS and represents
the excess of the purchase price over the estimated fair value of the
net assets of the entities acquired. Goodwill is being amortized on a
straight-line basis over the period of expected benefit of seven years.
The Company periodically assesses the recoverability of this intangible
asset by determining whether the amortization of this intangible asset
by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through the discontinued future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected cash flows using a
discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved. Accumulated
amortization totaled $126,079 at December 31, 1996.
<PAGE> 7
5. Property and Equipment
Property and equipment are comprised of the following:
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<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
<S> <C> <C>
Furniture and Fixtures $166,440 $ 39,968
Computer equipment and software $890,933 $232,190
-------- --------
Less accumulated depreciation $611,690 $ 47,516
-------- --------
Net property and equipment $445,683 $124,642
======== ========
</TABLE>
6. Software Costs
A summary of capitalized software follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
<S> <C> <C>
Existing products and enhancements $487,376 $487,376
Purchased software $387,386 $387,386
-------- --------
Less accumulated amortization $413,954 $308,950
-------- --------
Net software costs $460,808 $565,812
======== ========
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements included elsewhere herein. Except for the historical
information contained herein, the matters discussed in this Report are
forward-looking statements that involve a number of risks and uncertainties.
There are certain important factors and risks, including the rapid change in
computer hardware and software technology, market conditions, the anticipation
of growth of certain market segments and the positioning of the Company's
products and services in those segments, seasonality in the buying cycles of
certain of the Company's customers, the timing of product announcements, the
release of new or enhanced products, the introduction of competitive products
and services by existing or new competitors, and the significant risk associated
with the acquisition of new products, product rights, technologies, businesses,
the management of the Company's growth, the Company's ability to attract and
retain highly skilled technical, managerial and sales and marketing personnel,
and the other risks detailed from time to time in the Company's SEC reports,
including its reports on Form 10-KSB and Form 10-QSB, that could cause results
to differ materially from those anticipated by the forward-looking statements
made herein.
Introduction
The Company provides applications software for the commercial market which it
licenses for use to manufacturers and for use in the wholesale distribution
industry. The Company's products are not directed to the retail consumer market.
Additionally, the Company provides systems integration and network services.
These services include consulting, maintenance, training and the installation
and sale of third party computer hardware on which to implement the Company's
and other vendors' software products. Although no assurances can be given, the
Company anticipates that its revenues generated from the sale of third party
hardware will continue to increase as a percentage of total revenues in future
periods, primarily as a result of the acquisitions described below. The Company
hopes that increased sales of third party hardware will help produce additional
software license and software service-related revenues associated with the
Company's applications software products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net Sales. Net sales for the third quarter were approximately $5,963,000 versus
net sales for the same period one year ago of $1,233,000, an increase of
approximately $ 4,730,000. The increase was due to increases in hardware sales
and sales of services, including maintenance, system integration services and
third party software sales. With the increase in total revenues came a change in
the sales mix as sales of hardware increased as a percent of total sales while
sales of software decreased as a percentage of total sales. The increase in net
sales was due to the continued impact of the Company's acquisition strategy,
with hardware and integration service sales from Great River Systems, Inc.
("GRSI") (acquired in September 1995) and BASIS, Inc. ("BASIS") (acquired in
August 1996) reflecting the most significant impact when third quarter 1996
revenues are compared to third quarter 1995 revenues.
Cost of Sales. Cost of sales increased from approximately $728,000, or 59% of
sales, to approximately $4,668,000, or 78% of sales, due to the increased total
sales as well as the change in sales mix (referred to above). The change, as a
percent of total sales, reflects the lower margin that is earned on the sale of
third party hardware compared to the margin earned on the sale of proprietary
software. The Company's strategy is to increase the sales of higher margin
proprietary software products by creating distribution channels through the
acquisition of system integration firms. And, the cost of sales has decreased as
a percentage of sales by 4% (margin has increased) from the second quarter,
ended September 30, 1996. The Company does not expect that increases in the sale
of proprietary software will have a material effect on the operating results of
the Company in the short term. The Company expects that sales of third-party
hardware will predominate the Company's sales mix in the short term.
<PAGE> 9
Selling and Marketing. Selling and marketing expenses in the 1996 quarter
increased by approximately $597,000 from the third quarter of the previous
fiscal year. Selling and marketing expenses were approximately $798,000, or 13%
of net sales, for the quarter ended December 31, 1996 and were approximately
$201,000, or 16% of net sales, for the third quarter last year. The increase is
due to increases in staff and additional advertising and product promotion
including attendance at manufacturing trade shows. The Company plans to continue
to increase spending in the sales and marketing area by adding staff and
continuing to expand product promotion expenses as part of its growth strategy.
General and Administrative. General and administrative expenses increased from
approximately $173,000 during the third quarter one year ago to approximately
$713,000 for the third quarter of the current year. As a percent of net sales
general and administrative expenses decreased from 14% for the third quarter
last year to 12% this year. The increased amount is due, in part, to the
addition of BASIS and the amortization of goodwill relating to the acquisition
of BASIS, as well as the additional expenses attributable to being a public
company. The Company is currently implementing a plan to consolidate and
centralize many of the administrative activities at its Tucson location and is
implementing a program intended to reduce general and administrative expenses as
a percentage of sales during the next twelve months.
Research and Development. Research and development expenses were approximately
$231,000, or 4% of net sales, in the current period versus approximately
$43,000, or 3% of net sales, for the same period one year ago. The increase of
approximately $188,000 was the result of expensing all development activity
during the current period versus capitalizing development expense during the
prior years' third quarter. In addition, the development staff has been
increased during the period.
Operating Loss. The Company had an operating loss of approximately $447,000 for
the three month period ended December 31, 1996 versus operating income of
approximately $56,000 for the same quarter of the previous fiscal year. The
operating loss was the result of the increased development expense and the
increased operating expenses associated with the acquisitions and growth
strategy.
Interest and Other Income. During the quarter ended December 31, 1996, the
Company incurred approximately $108,000 in interest expense, which was related
to lines of credit and long term debt and included approximately $80,000 of
non-recurring charges. Interest expense for the same period one year ago was
approximately $60,000, all of which was related to bridge financing and repaid
soon after the end of the 1995 quarter.
Income Taxes. The Company had no income tax expense for either the third quarter
of fiscal 1996 or the third quarter of fiscal 1995. As of March 31, 1996, the
Company had Federal net operating loss carryforwards of approximately
$3,260,000. The utilization of net operating loss carryforwards will be limited
as determined pursuant to applicable provisions of the Internal Revenue Code and
Treasury regulations.
Net Loss. The net loss for the quarter ended December 31, 1996 was approximately
$595,000 compared to a loss of approximately $53,000 for the same period of the
prior year. The net loss for the 1996 period is attributable to the increased
development expenses and the increase in operating expenses in selling and
marketing, and general and administrative expenses as the Company continued to
implement its strategic growth plan.
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net Sales. Net sales for the nine months ended December 31, 1996 were
approximately $10,197,000 versus net sales for the same period one year ago of
approximately $1,529,000, an increase of approximately $ 8,668,000. The increase
was due to increases in hardware sales and sales of services, including
maintenance, system integration services and third party software sales,
primarily as a result of
<PAGE> 10
the acquisition of BASIS and GRSI. With the increase in total revenues came a
change in the sales mix as sales of hardware increased as a percent of total
sales from 43% to 72% of total sales and sales of software and services
decreased from 57% to 28% of total sales. The increase in total sales was due to
the impact of the Company's acquisition strategy, with hardware and integration
service sales from the Company's subsidiaries, GRSI and BASIS, driving the
change.
Cost of Sales. Cost of sales increased from approximately $899,000, or 59% of
net sales, to approximately $7,887,000, or 77% of net sales, due to the
increased total sales as well as the change in sales mix. The change, as a
percent of total sales, reflects the lower margin that is earned on the sale of
third party hardware compared to the margin earned on the sale of proprietary
software.
Selling and Marketing. Selling and marketing expenses during the nine months
ended December 31, 1996 increased by approximately $799,000 from the nine month
period ended December 31, 1995. Selling and marketing expenses were
approximately $1,225,000, or 12% of net sales, for the nine month period ended
December 31, 1996 and were approximately $426,000, or 28% of net sales, for the
same period in 1995. The increase is due to increases in staff and additional
advertising and product promotion including attendance at manufacturing trade
shows.
General and Administrative. General and administrative expenses increased from
approximately $321,000 during the nine month period ended December 31, 1995, to
approximately $1,938,000 for the nine months ended December 31, 1996. As a
percent of sales, general and administrative expenses remained decreased from
21% at December 31, 1995 to 19% at December 31, 1996. The increased amount is
due to the addition of the GRSI and BASIS subsidiaries and the amortization of
goodwill, as well as increases related to additional reporting requirements
brought on by the Company's March 1996 initial public offering, expenses
associated with the move to a bigger office space as well as additional expenses
indirectly related to the Company's acquisition strategy.
Research and Development. Research and development was approximately $412,000,
or 4% of net sales for the nine months ended December 31, 1996 versus
approximately $129,000, or 8%, for the same period one year ago. The increased
amount was a result of expensing all development work during the period versus
capitalizing most development expense during the prior fiscal nine month period.
Interest and Other Income. During the nine month period ended December 31, 1996,
the Company incurred approximately $504,000 in interest expense and $34,000 of
other income. The interest is related to the current long term debt and lines of
credit as well as interest and the write-off of discounts, totaling $379,000,
associated with the Company's bridge loans which were paid off during the
quarter ended June 30, 1996. For the same period of the previous fiscal year,
the Company had interest expenses of approximately $111,000 and approximately
$73,000 of other expenses, all of which were associated with the write-off of
discounts on warrants offered to investors in the Company's bridge loan
financings.
Income Taxes. The Company had no income tax expense for the nine months ended
December 31, 1995 and 1996. As of March 31, 1996 the Company had Federal net
operating loss carryforwards of approximately $3,260,000. The utilization of net
operating loss carryforwards will be limited as determined pursuant to
applicable provisions of the Internal Revenue Code and Treasury regulations.
Net Loss. The net loss for the nine months ended December 31, 1996 was
approximately $1,735,000 compared to a loss of approximately $462,000 for the
same period of the prior year. The net loss for the 1996 period is attributable
to the decreased margin and the increase in operating expenses in general and
administrative, sales and marketing, and development expense as the Company
continued to implement its strategic growth plan. In addition, the interest
expense of $504,000, mainly attributable to the repayment of bridge notes and
the write-off of discounts associated with the notes, as well as interest on
long term notes and lines of credit significantly impacted the loss.
<PAGE> 11
The Company believes that, as it continues to execute its business plan, sales
will continue to grow, particularly at its recently acquired subsidiaries, GRSI
and BASIS. However, the Company believes that increases in operating expenses
associated with the development and integration of the acquired companies could,
in the near term, exceed increases in revenues, and thereby continue to have an
adverse impact on operating results.
LIQUIDITY AND CAPITAL RESOURCES
Cash, and cash equivalents totaled $1,612,000 at December 31, 1996 compared to
$3,427,000 at March 31, 1996. The decrease in cash was primarily due to the
funds used by operations to implement the Company's growth and acquisition
strategy. During the month of April 1996 the Company paid off all remaining
bridge notes (totaling approximately $595,000), which carried an interest rate
of 14%, with funds from the Company's line of credit with its bank which was
borrowed at the bank's prime rate. In addition, during the period, the Company
repaid loans to related parties of $40,000 and issued warrants for the purchase
of 157,500 shares of common stock to its underwriter per the Underwriting
Agreement. The Company also finalized the acquisition of BASIS, issuing
$1,400,000 in common stock and paying $500,000 in cash during the second and
third quarters of this fiscal year.
During the quarter ended December 31, 1996, the Company borrowed approximately
$100,000 of current debt due on June 30, 1997 at a rate of 8%. In addition, the
Company borrowed $820,000 in a private offering of 10% Subordinated Convertible
Notes. The Notes are due on December 31, 1999. The Notes and all accrued
interest payable are convertible at any time on or after September 30, 1997 into
Common Stock of the Company. See Item 2 of this Part II, below.
Year to date, the Company has purchased approximately $785,000 in capital
equipment and purchased software, which included approximately $551,000 in
capital assets obtained in the acquisition of BASIS.
Based on the Company's operating plan, management believes that the anticipated
cash flow from operations, the Subordinated Convertible Note Offering described
above, and the use of its lines of credit will be sufficient to meet the
Company's anticipated short term cash needs. In the future, the Company will
require additional financing to achieve its current as well as future plans for
expansion. No assurance can be given of the Company's ability to obtain such
financing on favorable terms, if at all. If the Company is unable to obtain
additional financing, its ability to meet its current and future plans for
expansion could be materially adversely affected. The Company, as part of its
expansion strategy, regularly reviews possible opportunities to acquire systems
integration companies and businesses which would expand the Company's geographic
market presence. The Company is not presently a party to any contract or other
agreement relating to a potential acquisition.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Form 10-QSB may contain forward-looking statements which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve risks and uncertainties,
including, but not limited to, the impact of competitive products and pricing,
product demand and market acceptance risks, the presence of competitors with
greater financial resources, product development and commercialization risks,
costs associated with the integration and administration of acquired operations,
capacity and supply constraints or difficulties, and the results of financing
efforts. Further information regarding these and other risks is described from
time to time in the Company's filings with the Securities and Exchange
Commission, including the Company's 1996 Form 10-KSB.
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date of this filing, neither the Company nor any of its subsidiaries
is a party to any legal proceedings, the adverse outcome of which, in
management's opinion, would have a material adverse effect on the Company's
operations or financial position.
ITEM 2. CHANGE IN SECURITIES
During the quarter ended December 31, 1996, the Company offered and sold an
aggregate of $820,000 in principal amount of its 10% Subordinated Convertible
Notes due December 31, 1999. The offering was conducted in reliance upon
exemptions from the registration requirements of the Securities Act of 1933 (the
"Act") afforded by Section 4(2) of such Act. The eleven (11) purchasers of the
Notes were "accredited investors" (as the term is defined in Rule 501(a) under
the Act). The Notes are convertible into shares of common stock at any time
beginning on September 30, 1997 through maturity, if not previously pre-paid or
redeemed. The conversion price of the shares equals the closing price of the
stock on the conversion date, less a discount which ranges from approximately
13% on September 30, 1997, to 37.5% on December 31, 1999.
In addition, during the quarter ended December 31, 1996, the Company borrowed
approximately $100,000 of current debt due on June 30, 1997 at a rate of 8% and
issued 10,000 shares of restricted common stock, in January 1997, to the lender.
The shares were issued to one (1) "accredited investor" in reliance upon
exemptions from the registration requirements of the Securities Act of 1933 (the
"Act") afforded by Section 4(2) of such Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 10QSB
Exhibit:
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<CAPTION>
Exhibit Number Document Page
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<S> <C> <C>
11 Schedule of Computation of Net Loss Per Share 14
27 Financial Data Schedule 15
</TABLE>
B. Reports on Form 8K:
No reports on Form 8-K were filed during the quarter ended December 31, 1996.
<PAGE> 13
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROLOGIC MANAGEMENT SYSTEMS, INC.
Dated: February 14, 1997 By: /s/ James M. Heim
-----------------------------------------
James M. Heim
President and Chief Executive Officer
By: /s/ William E. Wallin
-----------------------------------------
William E. Wallin
Vice President, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)
<PAGE> 1
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss $ (595,371) $ (52,605) $(1,735,220) $ (462,144)
Weighted average number of common shares equivalent:
Common shares outstanding 3,665,395 2,031,280 3,665,395 2,031,280
Common equivalent shares representing shares
issuable upon exercise of stock warrants (1) -- -- -- --
----------- ----------- ----------- -----------
Total weighted average shares-primary 3,665,395 2,031,280 3,665,395 2,031,280
Incremental common equivalent shares (calculated
using the higher of end of period or average fair market value) -- -- -- 69,126
----------- ----------- ----------- -----------
Total weighted average shares - fully diluted 3,665,395 2,031,280 3,665,395 2,100,406
Primary net loss per common and equivalent share $ (0.16) $ (0.03) $ (0.47) $ (0.23)
Fully diluted loss per common and equivalent share $ (0.16) $ (0.03) $ (0.47) $ (0.22)
Additional adjustment to fully diluted weighted average
shares (2)
Total weighted average shares - fully diluted 3,665,395 2,031,280 3,665,395 2,077,280
Common equivalent shares representing shares
issuable upon exercise of stock warrants (2) 66,374 -- 66,374 --
----------- ----------- ----------- -----------
Total weighted average shares - fully
diluted as adjusted 3,731,769 2,031,280 3,731,769 2,077,280
Fully diluted net loss per common and $ (0.16) $ (0.03) $ (0.46) $ (0.22)
equivalent share, as adjusted (2)
</TABLE>
(1) Amount calculated using the treasury stock method and fair market value
(2) This calculation is submitted in accordance with regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
(3) These shares of common stock equivalents were included in the calculation
even though they produced an antidilutive effect in accordance with SAB 83.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1612050
<SECURITIES> 0
<RECEIVABLES> 4052271
<ALLOWANCES> 152696
<INVENTORY> 222319
<CURRENT-ASSETS> 5805035
<PP&E> 1057373
<DEPRECIATION> 611690
<TOTAL-ASSETS> 8492974
<CURRENT-LIABILITIES> 4838987
<BONDS> 866698
0
0
<COMMON> 8012395
<OTHER-SE> (5225106)
<TOTAL-LIABILITY-AND-EQUITY> 8492974
<SALES> 10196634
<TOTAL-REVENUES> 10196634
<CGS> 11462089
<TOTAL-COSTS> 3574862
<OTHER-EXPENSES> 503802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 503802
<INCOME-PRETAX> (1735220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1735220)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1735220)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.46)
</TABLE>
