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, 2000
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.)
2300 Tulare St., Suite 210
Fresno, CA 93721
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(address of principal executive offices, zip code)
Registrant's telephone number, including area code: (559) 490-8600
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 2,175,395 shares of the registrant's common stock, no par value
outstanding on August 1, 2000.
ProtoSource Corporation
Index
Page
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Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheet at June 30, 2000 3
Condensed Statements of Operations for the
three months ended June 30, 2000 and 1999 5
Condensed Statements of Operations
for the six months ended June 30, 2000 and 1999 6
Condensed Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 7
Notes to Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Other Information 13
Signatures 13
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
June 30, 2000
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 935,454
Accounts receivable - trade net of allowance
for doubtful accounts of $15,000 106,514
Prepaid expenses and other 10,140
Note Receivable 500,000
-----------
Total current assets 1,552,108
-----------
Property and equipment, at cost:
Equipment 979,613
Furniture 147,533
Leasehold improvements 6,462
-----------
1,133,608
Less accumulated depreciation and amortization (919,558)
-----------
Net property and equipment 214,050
-----------
Other assets:
Goodwill, net of accumulated amortization of $110,022 671,711
Investment in Corporation 1,800,000
Debt issuance costs, net of accumulated amortization
of $353,505 1,368,995
Deferred offering costs 35,000
Deposits 20,867
-----------
Total other assets 3,896,573
-----------
Total assets $ 5,662,731
===========
The accompanying notes are an integral part
of these unaudited condensed financial statements.
3
ProtoSource Corporation
Condensed Balance Sheet
June 30, 2000
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,927
Accrued expenses 43,116
Deferred revenue 23,206
Current portion of long-term debt 1,563,441
------------
Total current liabilities 1,633,690
------------
Long-term debt, net of current portion above:
Individuals and other 1,500,000
Obligations under capital leases 90,361
Less current portion above (1,563,441)
------------
Total long-term debt 26,920
------------
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, 2,175,395 shares
issued and outstanding 13,150,885
Additional paid in capital 28,158
Accumulated deficit (9,176,922)
------------
Total stockholders' equity 4,002,121
------------
Total liabilities and stockholders' equity $ 5,662,731
============
The accompanying notes are an integral part
of these unaudited condensed financial statements.
4
ProtoSource Corporation
Condensed Statements of Operations
(unaudited)
Three months ended June 30,
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2000 1999
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Net revenues $ 381,687 $ 244,866
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Operating expenses:
Cost of revenues 175,043 88,299
Sales and marketing 96,438 97,330
General and administrative 834,377 365,487
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Total operating expenses 1,105,858 551,116
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Operating loss (724,171) (306,250)
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Other income (expense):
Interest income 5,536 19,295
Interest expense (33,305) (4,413)
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Total other income (expense) (27,769) 14,882
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Loss before provision for income taxes (751,940) (291,368)
Provision for income taxes -- --
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Net Loss $ (751,940) $ (291,368)
=========== ===========
Net Income (Loss) Per
Share of Common Stock:
Basic $ (.36) $ (.16)
Diluted $ (.36) $ (.16)
Weighted Average Number of Common Shares Outstanding:
Basic 2,114,999 1,772,188
Diluted 2,114,999 1,772,188
The accompanying notes are an integral part
of these unaudited condensed financial statements
5
ProtoSource Corporation
Condensed Statements of Operations
(unaudited)
Six months ended June 30,
-------------------------
2000 1999
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Net revenues $ 751,145 $ 522,687
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Operating expenses:
Cost of revenues 340,065 168,495
Sales and marketing 174,267 144,907
General and administrative 1,335,495 720,415
----------- -----------
Total operating expenses 1,849,827 1,033,817
----------- -----------
Operating loss (1,098,682) (511,130)
----------- -----------
Other income (expense):
Interest income 15,516 60,528
Interest expense (36,982) (15,619)
Other income, net -- 105,000
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Total other income (expense) (21,466) 149,909
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Loss before provision for income taxes (1,120,148) (361,221)
Provision for income taxes -- --
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Net Loss $(1,120,148) $ (361,221)
=========== ===========
Net Income (Loss) Per
Share of Common Stock:
Basic $ (.56) $ (.20)
Diluted $ (.56) $ (.20)
Weighted Average Number of
Common Shares Outstanding:
Basic 2,002,381 1,776,697
Diluted 2,002,381 1,776,697
The accompanying notes are an integral part
of these unaudited condensed financial statements.
6
ProtoSource Corporation
Condensed Statements of Cash Flows
(Unaudited)
Six months ended June 30,
-------------------------
2000 1999
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Cash flows from operating activities:
Net loss $(1,120,148) $ (361,221)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 504,626 92,520
Bad debt recovery -- (105,000)
Changes in operating assets:
Accounts receivable (8,762) (48,374)
Prepaid expenses and other assets 28,311 (20,941)
Accounts payable (53,757) (107,567)
Accrued expenses (53,747) 45,899
Deferred revenue 16,295 (3,995)
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Net cash (used) by operating activities (687,182) (508,679)
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Cash flows from investing activities:
Purchase of property and equipment -- (28,957)
Deposits (3,542) --
Employee receivable 5,000 --
Receipt of principal on notes receivable -- 105,000
Investment in corporation -- (1,800,000)
Loan to corporation (500,000) --
----------- -----------
Net cash (used) by investing activities (498,542) (1,723,957)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowing 1,541,028 --
Payments on notes payable (35,127) (31,667)
Offering costs incurred (35,000) --
Debt issuance costs incurred (222,500) --
Purchase of common stock -- (91,522)
Issuance of common stock 195,458 --
----------- -----------
Net cash provided (used) by financing activities 1,443,859 (123,189)
----------- -----------
Net increase (decrease) in cash and cash equivalents 258,135 (2,355,825)
Cash and cash equivalents at beginning of period 677,319 3,885,884
----------- -----------
Cash and cash equivalents at end of period $ 935,454 $ 1,530,059
=========== ===========
The accompanying notes are an integral part
of these unaudited condensed financial statements.
7
ProtoSource Corporation
Condensed Statements of Cash Flows
(Unaudited)
Six months ended June 30,
-------------------------
2000 1999
---- ----
Supplemental Disclosure of Cash Flow information:
Cash paid during the period for:
Interest $ 7,387 $15,619
Income taxes -- --
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Issuance of common stock in connection $1,500,000 $--
with financing
Issuance of common stock for additional $ 26,503 $--
consideration for an acquisition
The accompanying notes are an integral part
of these unaudited condensed financial statements.
8
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 six months ended June 30, 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
1,773,378 and 1,669,833 shares of common stock at June 30, 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.
9
Managements Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months ended June 30, 2000 vs. Three Months ended June 30, 1999
Net Revenues. For the three months ended June 30, 2000 net sales were
$381,687 versus $244,866 in the same period of the prior year. The increase in
revenues is attributed to acquisition of ISP accounts from Micronet Services,
Inc., new reseller accounts and completed web development projects. The Company
believes that revenues will continue to increase as marketing plans are executed
that focus on DSL, Web development and outsourcing technical support for other
ISP's, and by entering into agreements with or acquiring other Internet related
companies.
Operating Expenses. For the three months ended June 30, 2000, total
operating expenses were $1,105,858 versus $551,116 in the same period of the
prior year. This increase of $554,742 is primarily attributed to higher network
lines, salary, and amortization costs. The increase in amortization costs is
attributed to the amortization of debt issuance costs from the bridge loan
consummated during the second quarter and amortization of the goodwill from the
MicroNet acquisition in late 1999. The increase in cost of revenues is a result
of an increase in network lines expense of approximately $86,744 which 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 June 30,
2000 totaled $724,171 versus $306,250 in 1999. This increase of $417,921 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 $(27,769) for the period
ending June 30, 2000 versus net interest income of $14,882 in 1999. The increase
in interest expense is a result of interest expense associated with the bridge
loans completed in May 2000.
10
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Six Months Ended June 30, 2000 vs. Six Months Ended June 30, 1999
Net Revenues. For the six months ended June 30, 2000 net sales were
$751,145 versus $522,687 in the same period of the prior year. The increase in
revenues is attributed to acquisition of ISP accounts from MicroNet Services,
Inc., new reseller accounts, and completed web development projects. The Company
believes that revenues will continue to increase as marketing plans are executed
that focus on increasing DSL, Web development and outsourcing technical support
for other ISPs and by entering into agreements with or acquiring other Internet
related companies.
Operating Expenses. For the six months ended June 30, 2000, total operating
expenses were $1,849,827 versus $1,033,817 in the same period of the prior year.
This increase of $816,010 is primarily attributed to higher network lines,
salary, and amortization costs. The increase in amortization costs of
approximately $431,296 is attributed to amortization of debt issuance costs from
the bridge loan consummated during the second quarter and amortization of the
goodwill from the MicroNet acquisition in late 1999. The increase in cost of
revenues is a result of an increase in network lines expense of approximately
$171,570 which 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 June 30,
2000 totaled $1,098,682 versus $511,130 in 1999. This increase of $587,552 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 $(21,466) for the period
ending June 30, 2000 versus net interest income of $44,909 in 1999. The increase
in interest expense is a result of interest expense associated with the bridge
loans completed in May 2000.
Other income. Net other income for the six months ended June 30, 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.
11
Liquidity and Capital Resources
For the six months ended June 30, 2000, the Company used $687,182 of cash for
operating activities. The Company has a working capital deficit of $81,582 at
June 30, 2000 which is a decrease of $636,250 from December 31, 1999. As of June
30, 2000, the Company had $935,454 in cash and cash equivalents and total
liabilities of $1,660,610.
The Company executed a letter of intent with an Underwriter to offer 1,166,666
units of the Company's securities at approximately $6.00 per unit on a firm
commitment basis. The Company will also grant the Underwriter an option to
purchase an additional 175,000 units 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 are preparing a registration
statement which will be submitted in late August.
The Underwriter also acted as placement agent for $1,500,000 of bridge
financing. The bridge financing was in the form of units containing promissory
notes with interest at 10%. In addition, each $25,000 unit consisted of 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 was paid a 10% commission and a 3%
non-accountable expense allowance and was issued 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.
12
Part II. Other Information
Item 5. Other Information
ProtoSource has also executed its 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 was secured by a
lien of a substantial majority of Suncoast's stock. The transaction will be
completed in August.
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,
August 14, 2000 /s/ William Conis
-------------------------------------
William Conis,
Chief Executive Officer/
Principal Accounting Officer
13