UNITED STATES SECURITIES AND EXCHANGES COMMISSION
Washington D.C. 20549
________________________
Form 10-QSB
(Mark One)
X Quarterly Report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996 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.)
2580 West Shaw
Fresno, California 93711-2765
(address of principal executive offices, zip code)
Registrant's telephone number, including area code: (209)
448-8040
______________________
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 1,330,001 shares of the registrant's common stock,
no par value outstanding on March 31, 1996.
ProtoSource Corporation
Index
Page
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at June 30,1996 3
Condensed Consolidated Statements of Operations
for the three months ended June 30,1996 and 1995 5
Condensed Consolidated Statements of Operations
for the six months ended June 30,1996 and 1995 6
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30,1996 and 1995 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Signatures 12
ProtoSource Corporation
Balance Sheet
June 30, 1996
June 30,
1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 10,430
Accounts receivable, net of allowance for
doubtful Accounts of $199,848 210,463
Inventories 37,788
Deposits and other current assets 29,837
----------
Total current assets 288,518
----------
Property and equipment, at cost:
Land 411,176
Building and improvements 1,389,590
Equipment 734,431
Furniture 132,750
Vehicles 18,628
-------------
2,686,575
Less accumulated depreciation and amortization 383,915
Net property and equipment -------------
2,302,660
Other assets:
Software development costs, net of accumulated
amortization of $855,866 564,469
Note Receivable 35,000
Deferred tax assets 71,550
Deposits and other assets 74,238
---------------
Total other assets 745,257
---------------
Total assets $3,336,435
==============
<FN>
See accompanying notes
ProtoSource Corporation
Balance Sheet
June 30, 1996
(continued)
June 30,
1996
(unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $443,726
Accrued liabilities 398,526
Customer deposits 37,940
Notes payable 2,000
Current portion of long-term debt 116,008
Unearned customer support revenue 29,840
----------
Total current liabilities 1,028,040
----------
Long-term debt, net of current portion above:
Bank 4,017
Individuals 51,354
Obligations under capital leases
1,827,573
Less current portion above (116,008)
Total long-term debt -----------
1,766,936
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, 900,000 shares issued and outstanding -
Common stock, no par value; 10,000,000 shares
authorized,
1,330,001 shares issued and outstanding
3,309,494
Retained earnings (deficit) (2,768,035)
-------------
Total shareholders' equity 541,459
-------------
Total liabilities and shareholders' equity $3,336,435
=============
<FN>
See accompanying notes
ProtoSource Corporation
Statements of Operations
(unaudited)
Three months ended
June 30,
1996 1995
Net revenues:
Equipment and third party sales 128,419 84,651
Professional service fees 288,137 129,558
--------- --------
Total net revenues 416,556 214,209
Operating expenses:
Cost of product sales 40,089 75,750
Cost of equipment & third party 103,871 75,792
sales
Cost of professional service fees 156,556 61,537
Sales and marketing 133,503 133,538
Research and development 46,249 145,950
General and administrative 123,728 144,451
------- -------
Total operating expenses 603,996 639,018
------- -------
Operating income (loss) (187,440) (424,809)
--------- -------
Other income (expense):
Interest income 367 23,048
Interest expense (47,772) (37,474)
Other, net 22,307 22,037
--------- ---------
Total other income (expense) (25,098) 7,611
--------- ---------
Income before provision for income (212,538) (417,198)
taxes
Provision for income taxes - (100,128)
---------- ----------
Net income (Loss) $(212,538) $(317,070)
=========== ==========
Net income (loss) per share of common $(0.16) $(0.24)
stock =========== ==========
Weighted average number of common 1,330,001 1,330,001
shares outstanding =========== ==========
<FN>
See accompanying notes
ProtoSource Corporation
Statements of Operations
(unaudited)
Six months ended
June 30,
1996 1995
Net revenues:
Product sales - $244,085
Equipment and third party sales 195,276 600,472
Professional service fees 585,868 238,721
--------- --------
Total net revenues 781,144 1,083,278
Operating expenses:
Cost of product sales 92,339 151,500
Cost of equipment & third party 163,172 471,179
sales
Cost of professional service fees 309,328 114,859
Sales and marketing 299,056 255,953
Research and development 169,877 169,551
General and administrative 292,329 240,629
--------- ---------
Total operating expenses 1,326,101 1,403,671
--------- ---------
Operating income (loss) (544,957) (320,393)
--------- -------
Other income (expense):
Interest income 486 37,527
Interest expense (88,269) (84,831)
Other, net 51,260 53,513
--------- ---------
Total other income (expense) (36,523) 6,209
--------- ---------
Income before provision for income (581,480) (314,184)
taxes
Provision for income taxes - (75,405)
---------- ----------
Net income (Loss) $(581,480) $(238,779)
=========== ==========
Net income (loss) per share of common $(0.44) $(0.20)
stock =========== ==========
Weighted average number of common 1,330,001 1,142,128
shares outstanding =========== ==========
<FN>
See accompanying notes
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Six months ended
June 30,
1996 1995
Cash flows from operating activities:
Net income $(581,480) $(238,779)
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization 187,904 217,238
Deferred income taxes - (70,209)
Changes in operating assets:
Accounts receivable 3,646 (460,045)
Inventories (21,729) (18,913)
Deposits and other assets (8,585) (58,760)
Accounts payable 248,568 (250,361)
Accrued liabilities 320,790 (13,687)
Customer deposits 32,440 (5,389)
Unearned customer support (4,702) 3,341
revenue -------- --------
Net cash provided (used) by 176,852 (895,564)
operating activities
Cash flows from investing activities:
Purchases of property and (11,260) (197,628)
equipment
Software development costs (256,440) (315,033)
capitalized
Other assets 1,117 (40,443)
-------- ---------
Net cash (used) by investing (266,583) (553,104)
activities
Cash flows from financing activities:
Increase in notes payable 32,000 -
Decrease in notes payable (15,195) (527,778)
Increase(Decrease)on capital (55,290) (15,166)
lease obligations, net
Proceeds from issuance of common - 3,795,000
stock
Costs relating to issuance of - (619,990)
common stock -------- -----------
Net cash provided (used) by (38,485) 2,632,066
financing activities
Net increase (decrease) in (128,216) 1,183,398
cash and cash equivalents
Cash and cash equivalents at 138,646 25,882
beginning of quarte --------- ----------
Cash and cash equivalents at $ 10,430 $1,209,280
end of quarter ========= ==========
<FN>
See accompanying notes
ProtoSource Corporation
Notes to Condensed Financial Statements
Basis of Presentation
The accompanying financial information of the Company is
prepared in accordance with the rules prescribed for filing
condensed interim financial statements and, accordingly,
does not include all disclosures that may be necessary for
complete financial statements prepared in accordance with
generally accepted accounting principles. The disclosures
presented are sufficient, in management's opinion, to make
the interim information presented not misleading. All
adjustments, consisting of normal recurring adjustments,
which are necessary so as to make the interim information
not misleading, have been made. Results of operations for
the six months ended June 30, 1996 are not necessarily
indicative of results of operations that may be expected for
the year ending December 31, 1996. 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, 1995
previously filed with the Securities and Exchange
Commission.
Per Share Information
Net income (loss) per share is computed using the weighted
average number of common shares and common share equivalents
outstanding during the periods presented. Common share
equivalents result from outstanding options and warrants to
purchase common stock.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended June 30, 1996 vs. Three Months Ended
June 30 1995.
Net Sales. For three months ended June 30, 1996, net sales were $416,556
versus $214,209 in the same period of the prior year, representing an
increase of $202,347. The increase in net sales is primarily attributed
to increases in professional service revenues which increased from $129,558
in 1995 to $288,137 in 1996. The increases in professional services revenues
is the result of increases in Internet division revenues and increases in
demand of professional programming services. Equipment sales also increased
from $84,651 in 1995 to $128,419 in 1996.
Gross Profit. For three months ended June 30, 1996, gross margin was $116,040
versus $1,130 in 1995, representing an increase of $114,910. The increases
in gross profit is resulted from the increases in professional services
revenues, increases in equipment sales and decreases in product costs.
Management believes that the gross margin will increases as software
sales and professional services revenue increases.
Sales and Marketing. Sales and marketing expenses were $133,503 in three
months ended June 30, 1996 versus $135,538 in 1995. The decreases in
sales and marketing expenses were caused by the downsizing in marketing and
sales force. The Company believes that the sales and marketing expenses will
continue to decrease as a result of the overall downsizing of the Company.
Research and Development. Research and development expense decreased from
$145,950 in 1995, to $46,249 in 1996. The decreases in research and
development is attributable to a decrease in the number of full time
equivalent programmers involved in product development activities.
The full time development programmers decreases because the ClassicSQL
product is in the final and testing phase, therefore, the Company shifted
some programming resources into professional services department.
Management believes the research and development cost will decrease further
after the completion of the ClassicSQL product line.
General and Administrative. General and administrative costs were $123,728
in 1996 versus $144,451 in 1995. The decrease in general and administrative
costs is the result of downsizing of the Company.
Operating Income. For the three months ended June 30, 1996, operating
loss was $212,538 compared to an operating loss of $417,198 in 1995. The
decrease in operating loss in 1996 is attributed to the significant increases
in professional services revenues, decreases in general and administrative
expenses, research and development expenses, and sales and marketing expenses.
Interest income (expense). Net interest expense increased to $47,405 in
1996 from $14,426 in 1995. This was primarily due to interest expense related
to the building and other capital leases. The interest expense is
somewhat offset by the interest earned on cash and short term investments.
Other income. Net other income increased to $22,307 for the three months
ended June 30, 1996. This is due to the rental income generated by the
building as well as miscellaneous sales.
Results of Operations
Six Months Ended June 30, 1996 vs. Six Months Ended June 30, 1995
Net Sales. For the six months ended June 30, 1996, net sales were $781,144
versus $1,083,278 in the same period of the prior year, representing a
decrease of $302,134. The decrease in net sales is primarily attributed to
the lack of software product sales in the first quarter of 1996. The
decrease in sales is somewhat offset by the increase in professional
revenues. Hardware equipment sales decreased from $600,472 to $195,276.
The decrease in equipment sales is resulted from the lack of packaged
software sold. Professional services sales increased from $238,721 to
$585,868 due to the shifting of programming and development resources from
ClassicSQL product lines to custom projects as well as revenues from the
Internet division.
Gross Profit. For six months ended June 30, 1996, gross profit was $216,305
versus $345,740 in 1995, representing a decrease of $129,435. The decreases
in gross profit is attributed to the decreases in software package sales,
decreases in equipment sales and increases in professional services costs.
Sales and Marketing. Sales and marketing expenses were $299,056 in six
months ended June 30, 1996 versus $255,953 in 1995. The increases in sales
and marketing expenses were caused by increases in marketing effort for the
ClassicSQL product lines and marketing expenses for the Internet division.
The Company believes that the sales and marketing expenses will decline as a
result of the downsizing of the Company.
Research and Development. Research and development expense increased from
$169,551 in 1995 to $169,877 in 1996. The increase in research and
development is attributable to an increase in the number of full time
equivalent programmers involved in product development activities in the
first quarter of 1996. Management believes that research and development
will decrease after the completion of the ClassicSQL development.
General and Administrative. General and administrative costs increased from
$240,629 in 1995 to $292,329 in 1996. The increase in general and
administrative costs is the result of additional offices for the
Internet division and Computer center division.
Operating Income. For the six months ended June 30, 1996, operating loss
was $544,957 compared to an operating loss of $320,393 in 1995. The
operating loss in 1996 is attributed to the significant decreases
in software sales, increases in general and administrative expenses, and
sales and marketing expenses. The decreases in sales which is resulted from
obstacles encountered in the development of ClassicSQL product lines also
increases the operating loss of 1996.
Interest income (expense). Net interest expense increased to $87,783 in 1996
from $47,304 in 1995. This was primarily due to interest expense related to
the building and other capital leases. The interest expense is somewhat
offset by the interest earned on cash and short term investments.
Other income. Net other income increased to $51,260 for the six months ended
June 30, 1996. This is due to the rental income generated by the principal
building as well as miscellaneous sales.
Liquidity and Capital Resources
For the six months ended June 30, 1996, the Company generated cash from
operating activities of $176,852 primarily due to increases in accounts
payable and accrued liabilities. Working capital deficiency was $739,522 at
June 30, 1996. The working capital deficiency is primarily attributed to
the operating loss and increased allowance for doubtful accounts. The
Company intends to reduce the working capital deficiency by increasing
sales, downsizing and attempt to obtaining 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 and software development
amounted to $266,583 and $553,104 for the six months ended June 30, 1996
and 1995 respectively. The Company also acquired $90,802 of computer
equipment for the Internet division during the six months period ended
June 30, 1996.
Part II. Other Information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the under signed thereunto duly
authorized.
ProtoSource Corporation.
August 13, 1996 Charles T. Howard
Chief Executive Officer
August 13, 1996 Andrew Chu
Chief Financial Officer