UNITED STATES SECURITIES AND EXCHANGES COMMISSION
Washington D.C. 20549
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Form 10-QSB
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000 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
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(exact name of registrant as specified in its charter)
California 77-0190772
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(State of other jurisdiction of (IRS Employer
Incorporation of organization) Identification No.)
2800 28th Street, Suite 170
Santa Monica, CA 90405
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(address of principal executive offices, zip code)
Registrant's telephone number, including area code: (559) 490-8600
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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 were 2,061,785 shares of the registrant's common stock, no par value
outstanding on April 18, 2000.
ProtoSource Corporation
Index
Page
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Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
at March 31, 2000 3
Condensed Statements of Operations
for the three months ended March 31, 2000 and 1999 5
Condensed Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Other Information 11
Signatures 11
When used in this report, the words "estimate," "project," "intend," "believe"
and "expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risk and uncertainties that could
cause actual results to differ materially, including competitive pressures, new
product introductions by the Company and its competitors and changes in the
rates of subscriber acquisition and retention. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release
updates or revisions to these statements.
2
ProtoSource Corporation
Condensed Balance Sheet
March 31, 2000
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 720,946
Accounts receivable - trade net of allowance
for doubtful accounts of $39,698 82,416
Prepaid expenses and other 16,080
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Total current assets 819,442
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Property and equipment, at cost:
Equipment 979,613
Furniture 147,533
Leasehold improvements 6,462
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1,133,608
Less accumulated depreciation and amortization (882,999)
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Net property and equipment 250,609
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Other assets:
Goodwill, net of accumulated amortization of $71,021 723,164
Investment in Corporation 1,800,000
Debt issuance costs 446,770
Deferred offering costs 35,000
Deposits 19,927
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Total other assets 3,024,861
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Total assets $ 4,094,912
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The accompanying notes are an integral part
of these unaudited condensed financial statements.
3
ProtoSource Corporation
Condensed Balance Sheet
March 31, 2000
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 47,127
Accrued expenses 14,478
Deferred revenue 20,084
Current portion of long-term debt 442,441
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Total current liabilities 524,130
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Long-term debt, net of current portion above:
Individuals and other 379,000
Obligations under capital leases 108,917
Less current portion above (442,441)
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Total long-term debt 45,476
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Commitments and contingencies --
Stockholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized, none issued
and outstanding --
Common stock, no par value; 10,000,000
shares authorized, 1,970,427 shares
issued and outstanding 11,922,130
Additional paid in capital 28,158
Accumulated deficit (8,424,982)
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Total stockholders' equity 3,525,306
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Total liabilities and stockholders' equity $ 4,094,912
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The accompanying notes are an integral part
of these unaudited condensed financial statements.
4
ProtoSource Corporation
Condensed Statements of Operations
(unaudited)
Three months ended March 31,
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2000 1999
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Net revenues $ 369,458 $ 277,821
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Operating expenses:
Cost of revenues 165,022 80,196
Sales and marketing 77,829 47,577
General and Administrative 501,118 354,928
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Total operating expenses 743,969 482,701
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Operating loss (374,511) (204,880)
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Other income (expense):
Interest income 9,980 41,233
Interest expense (3,677) (11,206)
Other income, net -- 105,000
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Total other income (expense) 6,303 135,027
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Loss before provision for income taxes (368,208) (69,853)
Provision for income taxes -- --
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Net Loss $ (368,208) $ (69,853)
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Net Income (Loss) Per
Share of Common Stock:
Basic $ (.19) $ (.04)
Diluted $ (.19) $ (.04)
Weighted Average Number of
Common Shares Outstanding:
Basic 1,889,539 1,781,255
Diluted 1,889,539 1,781,255
The accompanying notes are an integral part
of these unaudited condensed financial statements.
5
ProtoSource Corporation
Condensed Statements of Cash Flows
(Unaudited)
Three months ended March 31,
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2000 1999
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Cash flows from operating activities:
Net loss $ (368,208) $ (69,853)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 75,561 46,260
Bad debt recovery -- (105,000)
Changes in operating assets:
Accounts receivable 15,336 (41,268)
Prepaid expenses and other assets 22,371 27,602
Accounts payable (49,512) (77,166)
Accrued expenses (82,385) (26,891)
Deferred revenue 13,173 (7,480)
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Net cash (used) by operating activities (373,664) (253,796)
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Cash flows from investing activities:
Deposits (2,602) --
Employee receivable 5,000 --
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Net cash provided by investing activities 2,398 --
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Cash flows from financing activities:
Proceeds from borrowing 420,028 --
Payments on notes payable (16,571) (20,470)
Offering costs incurred (35,000) --
Debt issuance costs incurred (67,770) --
Purchase of common stock -- (91,522)
Issuance of common stock 114,206 --
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Net cash provided (used) by financing activities 414,893 (111,992)
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Net increase (decrease) in cash and cash equivalents 43,627 (365,788)
Cash and cash equivalents at beginning of period 667,319 3,885,884
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Cash and cash equivalents at end of period $ 720,946 $ 3,520,096
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The accompanying notes are an integral part
of these unaudited condensed financial statements.
6
ProtoSource Corporation
Condensed Statements of Cash Flows
(Unaudited)
Three months ended March 31,
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2000 1999
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Supplemental Disclosure of Cash Flow information:
Cash paid during the period for:
Interest $ - $11,206
Income taxes - -
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Issuance of common stock in connection $ 379,000 $ -
with financing
The accompanying notes are an integral part
of these unaudited condensed financial statements.
7
ProtoSource Corporation
Notes to Condensed Unaudited Financial Statements
Basis of Presentation
The accompanying financial information of the Company is prepared in accordance
with the rules prescribed for filing condensed interim financial statements and,
accordingly, does not include all disclosures that may be necessary for complete
financial statements prepared in accordance with generally accepted accounting
principles. The disclosures presented are sufficient, in management's opinion,
to make the interim information presented not misleading. All adjustments,
consisting of normal recurring adjustments, which are necessary so as to make
the interim information not misleading, have been made. Results of operations
for the three months ended March 31, 2000 are not necessarily indicative of
results of operations that may be expected for the year ending December 31,
2000. 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, 1999 previously filed with the Securities
and Exchange Commission.
Per Share Information
As of December 31, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share", which specifies the method of
computation, presentation and disclosure for earnings per share. SFAS No. 128
requires the presentation of two earnings per share amounts, basic and diluted.
Basic earnings per share is calculated using the average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the average
number of common shares outstanding plus the dilutive effect of outstanding
stock options using the "treasury stock" method.
The basic and diluted earnings per share are the same since the Company had a
net loss for all periods presented and the inclusion of stock options and other
incremental shares would be antidilutive. Options and warrants to purchase
1,795,045 and 1,669,833 shares of common stock at March 31, 2000 and 1999,
respectively were not included in the computation of diluted earnings per share
because the Company had a net loss and their effect would be antidilutive.
8
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended March 31, 2000 vs. Three Months Ended March 31, 1999
Net Revenues. For three months ended March 31, 2000 net sales were $369,458
versus $277,821 in the same period of the prior year. The rise in revenues is
primarily attributed to increased marketing efforts resulting in the acquisition
of ISP accounts from Micronet Services, Inc. The Company believes that revenues
will continue to increase as marketing plans are executed that focus on
increasing brand recognition and differentiation of service offerings (i.e.,
Internet access, web site development and electronic commerce), and by entering
into agreements with or acquiring other Internet related companies.
Operating Expenses. For three months ended March 31, 2000, total operating
expenses were $743,969 versus $482,701 in the same period of the prior year.
This increase of $261,268 is primarily attributed to higher network lines,
salary, and amortization costs. The increase in amortization costs of
approximately $39,000 is attributed to the fourth quarter 1999 acquisition of
MicroNet Services, Inc. The increase in network lines expense of approximately
$85,000 is primarily due to network upgrades and increased network usage. The
Company believes that operating expenses will increase as revenues increase.
Operating Loss. The Company's operating loss for the period ending March
31, 2000 totaled $374,511 versus $204,880 in 1999. This increase of $169,631 is
due to an increase in total operating expenses. Management believes that
operating results will improve as revenues increase.
Interest income. Net interest income totaled $6,303 for the period ending
March 31, 2000 versus net interest income of $30,027 in 1999.
Other income. Net other income for the three months ended March 31, 2000
was $0 versus $105,000 for the same period in 1999. The 1999 total of $105,000
was due to collection of a note receivable which was previously written off as
uncollectable.
9
Liquidity and Capital Resources
For the three months ended March 31,2000, the Company used $373,664 of cash for
operating activities. The Company has working capital of $295,312 at March 31,
2000 which is a decrease of $259,356 from December 31, 1999. As of March 31,
2000, the Company had $720,946 in cash and cash equivalents and total
liabilities of $569,606.
On February 22, 2000, the Company executed a letter of intent with an
Underwriter to offer 800,000 shares of the Company's common stock at
approximately $6.25 per share on a firm commitment basis. The Company will also
grant the Underwriter an option to purchase an additional 120,000 shares from
the Company to cover over-allotments for a period of forty-five days from the
effective date of the registration Statement. The Company and the Underwriter
have agreed to delay the public offering for an indeterminate period of time.
The Underwriter has also agreed to act as placement agent for a minimum $250,000
bridge financing on a best efforts basis prior to the public offering described
above. The bridge financing is to be in the form of units containing promissory
notes with interest at 10%. In addition, each $25,000 unit will contain 4,000
shares of the Company's common stock. The promissory notes will be due at the
closing of the above public offering or one year from the date of issuance,
whichever occurs first. The Underwriter will be paid a 10% commission and a 3%
non-accountable expense allowance and warrants to purchase up to 10% of the
common stock issuable as part of the units at an exercise price equal to 120% of
the closing price of the common stock on the day prior to closing.
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Part II. Other Information
Item 5. Other Information
ProtoSource is presently considering two alternative business combinations.
First, ProtoSource is in active discussions with a significantly larger private
company engaged in the development and sale of business-to-business internet
software solutions for the industrial plant and process design market. This
company has invested $2.5m into the development of an online marketplace and
application services portal as a means through which to fully leverage the
benefits of business-to-business e-commerce for the industrial power and process
markets. Although no terms have been finalized, it is contemplated that this
profitable company would become the majority stockholder of ProtoSource.
ProtoSource has also obtained an option to purchase all of the outstanding stock
of Suncoast Automation, Inc. ("Suncoast"), a private company engaged in
providing customized cable television systems for vacation time-share resorts
and planned communities. ProtoSource was granted the option in connection with a
loan to Suncoast in the aggregate amount of $500,000. The loan will be secured
by a lien on a substantial majority of Suncoast's capital stock.
Item 6. Exhibits and Reports on form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ProtoSource Corporation,
May 11, 2000 /s/ William Conis
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William Conis,
Chief Executive Officer/
Principal Accounting Officer
11