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 quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 [d] OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 33-48846-NY
BLUE CHIP COMPUTERWARE, INC.
- - - ------------------------------------------------------------------------------
[Exact name of small business issuer as specified in its charter]
DELAWARE 13-3671526
- - - -------------------------------- -------------------------------------------
[State or other jurisdiction of [I.R.S. Employer Identification No]
incorporation or organization]
33 Dubon Court, Farmingdale, New York 11735
------------------------------------------------
[Address of principal executive offices]
[516] 777-1700
------------------------
Issuer's telephone number
Check whether the issuer [1] filed all reports required to be filed by Section
13 or 15[d] of the Exchange Act during the past 12 months [or for such shorter
period that the issuer was required to file such reports], and [2] has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuers common stock, par value $0.01
per share, at July 19, 1996 was 11,671,926 shares.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
ASSETS
March 31, 1996 Dec. 31, 1995
-------------- -------------
[Unaudited]
Current assets:
Cash and cash equivalents $ [32,319] $ 37,630
Equity security, available for sale 2,027,800 1,462,400
Note receivable, current maturity 95,464 113,464
Accounts receivable, net of allowance for uncollectibles 435,304 474,228
Other receivables in litigation, net of allowance for
uncollectibles 1,000,345 1,000,345
Inventories 908,391 1,139,935
Demand loans from officers 308,102 325,801
Prepaid expenses and miscellaneous receivables net of
allowance for uncollectibles 65,574 86,215
Current assets attributable to discontinued operations 1,521,771 1,521,771
---------- ----------
Total current assets 6,330,432 6,161,789
---------- ----------
Property and equipment, net of accumulated depreciation
and amortization 80,846 76,014
Property and equipment net attributable to discontinued
operations 329,895 329,895
---------- ----------
410,741 405,909
---------- ----------
Other assets:
Note receivable, less current maturities and net of a reserve
for uncollectible portion 80,036 80,036
Surety bond and security deposits 94,712 94,712
Goodwill, net of accumulated amortization 496,824 531,486
Other assets attributable to discontinued operations 20,285 20,285
---------- ----------
Total other assets 691,857 726,519
---------- ----------
Total assets $7,433,030 $7,294,217
========== ==========
[Continued]
2
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1996 Dec. 31, 1995
-------------- -------------
[Unaudited]
Current liabilities:
Short-term debt, accounts receivable and inventory
financing $ 1,319,293 $ 1,381,279
Accounts payable 940,526 941,504
Accrued expenses 278,676 257,718
Sales tax payable 79,358 79,358
Notes payable, other 40,000 102,500
Due to related parties 169,561 156,561
Current liabilities attributable to discontinued operations 1,987,791 1,987,791
----------- -----------
Total current liabilities 4,815,205 4,906,711
Long-term liabilities attributable to discontinued operations 74,841 74,841
----------- -----------
Total liabilities 4,890,046 4,981,552
----------- -----------
Stockholders' equity:
Preferred stock, $1.00 par value
Common stock, $.01 par value 118,019 114,019
Additional paid-in capital 11,660,813 11,584,813
[Accumulated deficit] [10,378,444] [9,770,204]
Unrealized gain on equity security 1,432,596 634,037
----------- -----------
2,832,984 2,562,665
Less treasury stock - 130,000 shares, at cost [290,000] [250,000]
----------- -----------
Total stockholders' equity 2,542,984 2,312,665
----------- -----------
Total liabilities and stockholders' equity $ 7,433,030 $ 7,294,217
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL OPERATIONS
3
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS
Three Months Ended
---------------------------------
March 31, 1996 March 31, 1995
[Unaudited] (Unaudited]
--------------- ----------------
Revenues $ 421,941 $1,372,640
Direct Costs 296,357 604,388
------------ ------------
Gross Profit 125,584 768,252
Selling, general and administrative expenses 745,598 942,668
Interest expense [net] 99,567 33,141
------------ ------------
Loss from continuing operations before realized
gain on disposition of equity investment and
income taxes [719,581] [207,557]
Realized gain on disposal of available-for-sale
security 73,841 --
Income taxes -- --
------------ ------------
Loss from continuing operations [645,740] [207,557]
Income from discontinued operations -- 26,193
------------ ------------
Loss before extraordinary income [645,740] [181,364]
Extraordinary income, gain on extinguishment
of debt 37,500 --
------------ ------------
Net [loss] $ [608,240] $ [181,364]
============ ============
Loss per share from continuing operations $ [.05] $ [.04]
Income per share from discontinued operations -- --
Income from extraordinary item -- --
------------ ------------
Net [Loss] income per share $ [.05] $ [.04]
============ ============
Weighted average shares outstanding 11,438,965 5,558,744
============ =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL OPERATIONS
4
BLUE CHIP COMPUTERWARE, INC
AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOW
Three Months Ended
---------------------------------
March 31, 1996 March 31, 1995
[Unaudited] [Unaudited]
-------------- --------------
Operating activities
Net loss $ [608,240] $ [181,364]
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for doubtful accounts - [17,087]
Depreciation and amortization 44,662 37,933
Common stock issued for services 80,000
Deferred income - 51,497
Changes in assets and liabilities:
Decrease in accounts receivable 38,924 765,653
Decrease [Increase] in inventories 231,544 [719,895]
Decrease in prepaid expenses and other
current assets 20,641 190,472
Security deposits and other assets - 600
Increase [Decrease] in Accounts
Payable and accrued expenses 19,980 [266,311]
Decrease attributable to discontinued operations - [131,186]
--------- ----------
Net cash used by operating activities [172,489] [269,688]
--------- ----------
Investing activities:
Capital expenditures [13,673] [5,102]
Loans to officers 17,699 [39,069]
Notes receivable 18,000 [300,000]
Redemption of Equity Investment 192,000
Decrease attributable to discontinued operations [7,289]
------- ---------
Net cash provided by [used in]
operating activities 214,026 [351,460]
------- ---------
[Continued]
5
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOW
[Concluded]
Three Months Ended
-----------------------------
March 31, 1996 March 31, 1995
[Unaudited] [Unaudited]
------------- --------------
Financing activities:
Net proceeds of stock sales $ $ 731,485
Net [payments] proceeds of short term debt [61,986] 56,279
Net [payments] of stockholder loans [73,104]
Net [payments] of long term debt [70,357]
Net [payment] of notes payable other [62,500]
Due to related parties 13,000
Decrease attributable to discontinued operations [114,755]
------------- -----------
Net cash [used in] provided by
financing activities [111,486] 529,548
------------- -----------
[Decrease] in cash and equivalents [69,949] [91,600]
Cash and equivalents, beginning of period 37,630 381,606
------------- -----------
Cash and equivalents, end of period $ [32,319] $ 290,006
============= ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
BLUE CHIP COMPUTERWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, KoolGlo Industries, Inc. [KoolGlo] and Voice Teck
Canada, Inc. Discontinued Operations include Droutman Enterprises, Inc. [DEI]
and Technical Services Group, Inc. [TSG]. All significant intercompany
balances and transactions have been eliminated.
The consolidated balance sheet as of March 31, 1996, the related
consolidated statements of operations for the three months ended March 31,
1996 and 1995 and the related consolidated statements of cash flows for the
three month period ended March 31, 1996 and 1995 are unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of such
consolidated financial statements have been included and consist only of
normal recurring items. The results of operations for the period presented are
not necessarily indicative of the results for the entire year.
The financial information presented does not include all disclosures
required by generally accepted accounting principles. For further information
concerning the Company's accounting policies and certain transactions, refer
to the Company's annual report on Form 10-KSB.
NOTE 2. SUPPLEMENTARY CASH FLOW INFORMATION
Total interest paid during the three month period ended March 31,1996 and
1995 was $99,567 and $33,141, respectively. No income taxes were paid during
the three month period ended March 31, 1996 and 1995.
Noncash financing activities for the three month period ended March 31,
1996 was the issuance of 400,000 shares of the Company's common stock for
legal services, valued at $80,000, rendered.
NOTE 3. INCOME TAXES
The provision for income taxes for the three month period ended March 31,
1996 and for the three month period ended March 31, 1995 were fully offset by
available net operating loss carryovers.
NOTE 4. NET LOSS PER SHARE
Net loss per share for the three months ended March 31, 1996 and 1995
does not give effect to any common equivalent shares which are dilutive.
7
NOTE 5. CAPITAL TRANSACTIONS
In February, 1996, the Company issued 400,000 shares of its common stock
in exchange for legal services valued at $80,000. Also in February 1996, the
Company agreed to purchase 50,000 shares of Blue Chip stock in exchange for
40,000 shares [ 20,000 common and 20,000 preferred] in All American Food
Group, Inc. ["All American"]. The 50,000 Blue Chip shares had previously been
issued, in February 1995 to convert a$100,000 of KoolGlo's bridge loan. The
offer and agreement to exchange the All American shares allowed this lender to
receive the same treatment offered to and accepted by most of the other bridge
loan lenders. However, since approximately one year had passed since the
issuance of the Blue Chip shares and the extinguishment of the related
$100,000 bridge loan debt had been recorded in 1995, the February 1996
transaction constituted a treasury stock purchase valued at $40,000,
calculated at the Company's then carrying value in the All American stock of
$1.00 per share.
NOTE 6. EQUITY SECURITY, AVAILABLE FOR SALE
During the period ended March 31, 1996, the Company redeemed 192,000
convertible preferred shares in All American for $192,000. In 1995, the
Company had invested $475,000 for 475,000 convertible preferred shares . The
192,000 shares redeemed in the first quarter of 1996 and an additional 283,000
shares in All American aggregating to 475,000 shares reflect the 1995
investment and the 283,000 shares on hand at March 31, 1996 have been valued
at $1.00 per share. In January, 1996, the Company transferred 50,000
non-voting convertible preferred shares in All American as a fee to Magna
Financial Services, Inc. ("Magna") for a $110,000 loan made by Magna to the
Company. The note is due September 30, 1996 and bears interest at prime. The
Company secured the note to Magna with 135,000 convertible preferred shares in
All American. Magna cannot foreclose upon the security in the event of
non-payment by the Company until December 31, 1996.The fee of 50,000 shares
valued at $50,000 will be amortized over the life of the loan. The Company
realized a gain of $32,105 on the transfer of the 50,000 shares reflecting the
excess of the market value over the cost of such shares. This was included as
an unrealized gain on equity security in the equity section of the balance
sheet prior to the transfer of the 50,000 shares.
In February 1996, the Company transferred 25,000 All American shares
[12,500 common shares and 12,500 non-voting convertible preferred shares] for
the extinguishment of $62,500 in convertible debt applicable to the remaining
balance of KoolGlo's bridge loan. The Company realized a gain of $16,052 and
an extraordinary gain of $37,500 in connection with this transaction. In
February 1996, the Company exchanged 40,000 shares in All American for 50,000
shares of Blue Chip (See Note 5 above). The Company realized a gain of $25,684
in connection with this transaction reflecting the excess of the market value
over the cost of such shares. Both the $16,052 gain and the $25,684 gain, were
included as an unrealized gain on equity security in the equity section of the
balance sheet prior the completion of both of these transactions.
On March 31, 1996, the Company valued its shares in All American at $2.00
per share on the basis of sales of 679,150 shares in All American made by All
American to other investors at $2.00 per share. The only exception were the
283,000 preferred share purchased in 1995 at $1.00 (See
8
above ) that were valued at $1.00 at March 31, 1996. As of March 31, 1996, the
Company owns 236,200 voting common shares and 919,200 convertible non-voting
preferred shares in All American. Of the 919,200 convertible non-voting
preferred shares, 283,000 have been valued at $1.00 per share and the balance
of 636,200 shares have a market value of $2.00 per share. The 236,200 common
shares also have a market value of $2.00 per share at March 31, 1996. The
total equity security, available for sale investment in All American as of
March 31, 1996 is $2,027,800, which has an unrealized gain on equity security
in the equity section of the balance sheet of $1,432,596.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated loss for the three months ended March 31, 1996 was
$608,240 or $.05 per share, compared to a loss of $181,364 or $.04 per share
for the three months ended March 31, 1995. The net increase of $426,876 is
comprised of an increase in loss from continuing operations of $438,183,
offset by extraordinary income of $37,500 and income from discontinued
operations in 1995 of $26,193. KoolGlo's loss for the three months ended March
31, 1996 is $400,526, compared to profit of $48,453 for the three months ended
March 31, 1995. The loss in KoolGlo in the first quarter of 1996 compared to a
profit in the first quarter ended in 1995 is a result of lower sales in
1996(See revenues below). Blue Chip, the Holding Company, had a loss of
$207,714 after it realized a gain of $73,841 and an extraordinary gain of
$37,500 for transfers of All American shares for three separate transactions
as described in Note 6. For the three months ended March 31, 1995, the Holding
Company incurred a loss of $256,010.
Revenues in KoolGlo declined by $950,699 to $421,941 for the quarter
ended March 31, 1996 from $1,372,640 in the quarter ended March 31, 1995. The
decline reflected lower demand for KoolGlo's existing products. The new
Deltalite product line was not available for sale in the first quarter of 1996
and the Company does not anticipate any benefit from this new line until the
fourth quarter of 1996.
Gross profit declined by $642,668 to $125,584 in the first quarter of
1996 from $768,252 in the first quarter of 1995. The gross profit percentage
for the first quarter ended March 31, 1996 was 29.76% compared to 55.96% for
the first quarter ended March 31, 1995. Lower demand resulting in decreased
sales of KoolGlo's products, have decreased prices resulting in a
significantly lower gross profit.
Selling, general and administrative expenses declined by $197,070 to
$745,598 in the first quarter of 1996 compared to $942,668 in the first
quarter of 1995. This reflects the Company's effort to reduce cost.
Interest expense increased to $99,567 for the quarter ended March 31,
1996 from $33,141 for the quarter ended March 31, 1995. The $66,426, increase
reflects additional interest being charged to KoolGlo by its factor for the
PHD receivable in litigation.
9
Working capital at March 31, 1996 was $1,515,227 compared to $1,255,078
at December 31, 1995 or an increase of $260,149. Current assets of $6,330,432
include $1,521,771 of assets relating to Discontinued Operations and current
liabilities of $4,815,205 include $1,987,791 of liabilities related to
Discontinued Operations. Current assets related to Continuing Operations were
$4,808,661 and current liabilities related to Continuing Operations were
$2,827,414. Accordingly, working capital attributable to Continuing Operations
was $1,981,247.
The Company's cash and equivalents decreased by $69,949 from $37,630 at
December 31, 1995, to a negative $32,319 at March 31, 1996.
Operating activities required $172,489, Investing activities provided
$214,026, and Financing activities required $111,486 resulting in the decrease
of cash and equivalents of $69,949.
As described in the Company's Form 10-KSB for the year ended December 31,
1995, the Company expects losses for at least the first three quarters of
1996.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Masters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
See the Company's Report on Form 8-K dated February 20, 1996,
reflecting the resignation of M.R. Weiser as its independent
Certified Public Accountant. See M.R. Weiser's letter dated
March 25, 1996 addressed to the Securities and Exchange
Commission and appended as an exhibit to the Company's Form
8-K. See the Company's Report on Form 8-KA dated April 9, 1996,
reflecting that the Company has retained Joel J. Ratzker, CPA,
P.C. as independent certified public accountant.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Blue Chip Computerware, Inc.
- - - ----------------------------
[Registrant]
Date: July 25, 1996 /s/ Chuck Gitlin
-------------------------------
Chuck Gitlin, President,
Treasurer, Chief Executive
Officer and Director
Date: July 25, 1996 /s/ Chris Mallios
------------------------------
Chris Mallios, Secretary
and Chief Financial Officer
12