UNITED STATES SECURITIES AND EXCHANGES COMMISSION
Washington D.C. 20549
________________________
Form 10-QSB/A
(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, 1997 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.)
2300 Tulare Street #210
Fresno, California 93721
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(address of principal executive offices, zip code)
Registrant's telephone number, including area code: (209) 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 are 585,333 shares of the registrant's common stock, no par value
outstanding on June 30, 1997.
ProtoSource Corporation
Index
Page
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Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheet at June 30,1997 3
Condensed Statements of Operations for the
three months ended June 30,1997 and 1996 5
Condensed Statements of Operations for the
six months ended June 30,1997 and 1996 6
Condensed Statements of Cash Flows for the
six months ended June 30,1997 and 1996 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
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
Balance Sheet
June 30, 1997
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 68,733
Accounts receivable 106,629
Inventories 8,980
Prepaid expenses and other 35,181
Current portion of note receivable 47,285
-----------
Total current assets 266,808
-----------
Property and equipment, at cost:
Land 411,176
Building and improvements 1,381,816
Equipment 766,944
Furniture 110,387
Vehicles 10,090
-----------
2,680,413
Less accumulated depreciation
and amortization (597,106)
-----------
Net property and equipment 2,083,307
-----------
Other assets:
Notes Receivable, net of
current portion above 723,565
Goodwill, net of accumulated
amortization of $2,216 19,029
Deferred tax assets 71,550
Deposits and other assets 79,356
Debt issuance costs, net of accumulated
amortization of $-0- 395,500
-----------
Total other assets 1,289,000
-----------
Total assets $ 3,639,115
===========
See accompanying notes
3
ProtoSource Corporation
Balance Sheet
June 30, 1997
(continued)
(unaudited)
Liabilities and shareholders' equity
Current liabilities:
Note Payable, bridge financing $ 350,000
Accounts payable 196,481
Accrued liabilities 29,291
Tenants deposits 1,500
Current portion of long-term debt 39,358
-----------
Total current liabilities 616,630
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Long-term debt, net of current portion above:
Bank 3
Obligations under capital leases 1,871,022
Less current portion above (39,358)
-----------
Total long-term debt 1,831,667
-----------
Shareholders' equity:
Common stock, no par value;
10,000,000 shares authorized,
585,333 shares issued and outstanding 5,190,455
Retained earnings (deficit) (3,999,637)
-----------
Total shareholders' equity 1,190,818
-----------
Total liabilities and
shareholders' equity $ 3,639,115
===========
See accompanying notes
4
ProtoSource Corporation
Statements of Operations
(unaudited)
Three months ended June 30,
--------------------------
1997 1996
--------------------------
Net revenues: $ 171,599 $ 191,957
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Operating expenses:
Cost of revenues 74,351 62,929
Sales and marketing 11,435 20,690
General and Administrative 416,122 210,091
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Total operating expenses 501,908 293,710
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Operating Loss (330,309) (101,753)
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Other income (expenses):
Interest Income 20,441 52
Interest Expense (52,548) (47,772)
Other Income, net 54,974 22,307
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Loss from continuing operations
before provision for income taxes (307,442) (127,166)
Provision for income taxes -- --
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Loss from continuing operations (307,442) (127,166)
Loss from discontinued operations -- (85,372)
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Net Loss $(307,442) $(212,538)
========= =========
Net Loss Per Share of Common Stock:
Loss from continuing operations $ (.60) $ (1.43)
Discontinued operations -- (.97)
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Net Loss $ (.60) $ (2.40)
========= =========
Weighted average number of
common shares outstanding 516,102 88,667
========= =========
See accompanying notes
5
ProtoSource Corporation
Statements of Operations
(unaudited)
Six months ended
June 30,
-------------------------
1997 1996
-------------------------
Net revenues: $ 360,130 $ 377,737
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Operating expenses:
Cost of revenues 116,387 109,224
Sales and marketing 28,808 41,123
General and Administrative 742,690 531,464
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Total operating expenses 887,885 681,811
--------- ---------
Operating Loss (527,755) (304,074)
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Other income (expenses):
Interest Income 73,457 171
Interest Expense (103,828) (88,269)
Other Income, net 154,844 51,260
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Loss from continuing operations before
provision for income taxes (403,282) (340,912)
Provision for income taxes -- --
--------- ---------
Loss from continuing operations (403,282) (340,912)
Loss from discontinued operations -- (240,568)
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Net Loss $(403,282) $(581,480)
========= =========
Net Loss Per Share of Common Stock:
Loss from continuing operations $ (.78) $ (3.85)
Discontinued operations -- (2.71)
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Net Loss $ (.78) $ (6.56)
========= =========
Weighted average number of common
shares outstanding 515,720 88,667
========= =========
See accompanying notes
6
ProtoSource Corporation
Statements of Cash Flows
(unaudited)
Six months ended
June 30,
----------------------
1997 1996
----------------------
Cash flows from operating activities:
Net loss $(403,282) $(581,480)
Adjustments to reconcile
net loss to net cash
Provided (used) by operating activities:
Depreciation and amortization 110,875 187,904
Changes in operating assets:
Accounts receivable (56,076) 3,646
Inventories -- (21,729)
Deposits and other assets (20,593) (8,585)
Accounts payable 787 248,568
Accrued liabilities (237,937) 320,790
Customer deposits -- 32,440
Unearned revenues -- (4,702)
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Net cash provided (used)
by operating activiies (606,226) 176,852
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Cash flows from investing activities:
Purchases of property and equipment (22,620) (11,260)
Other assets (37,011) 1,117
Software development cost capitalized -- (256,440)
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Net cash (used) by
investing activities (59,631) (266,583)
--------- ---------
Cash flows from financing activities:
Increase in notes payable 350,000 32,000
Issuance of common stock 970 --
Payments on notes payable (2,217) (15,195)
Payments on capital lease obligations (51,020) (55,290)
Debt issuance costs incurred (45,500) --
--------- ---------
Net cash provided (used) by
financing activities 252,233 (38,485)
--------- ---------
Net increase (decrease)
in cash and cash equivalents (413,624) (128,216)
Cash and cash equivalents at
beginning of period 482,357 138,646
--------- ---------
Cash and cash equivalents at
end of period 68,733 10,430
========= =========
See accompanying notes
7
ProtoSource Corporation
Statements of Cash Flows
(continued)
Six months ended
June 30,
-----------------------
1997 1996
-----------------------
Supplemental Disclosure of Cash Flow information
cash paid during the period for:
Interest $ 53,828 $ 88,269
Income taxes -- --
Supplemental Disclosure of Non cash
Investing and Financing Activities:
Acquisition of equipment under
capital lease $ 69,959 --
Issuance of common stock in
connection with financing 350,000 --
See accompanying notes
8
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, 1997 are not necessarily indicative of results
of operations that may be expected for the year ending December 31, 1997. 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, 1996 previously filed with the Securities and Exchange
Commission.
Per Share Information
Net 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.
Restatement of Financial Information
The Company has restated its financial statements for the six months ended June
30, 1997 to capitalize the debt issuance costs incurred in connection with its
Bridge Loan financing. The Company had originally expensed the debt issuance
costs as additional interest expense.
In connection with the Bridge Loan, the Company agreed to issue one share of
common stock for each $5 loaned to the Company. The fair market value of the
common stock ($350,000) issued in June 1997 and the commission paid on the
Bridge Loan ($45,500) are capitalized as debt issuance costs and are being
amortized over the 15 month loan as interest expense.
In the opinion of management, all material adjustments necessary to correct the
financial statements have been recorded. the impact of these adjustments on the
Company's financial results as originally reported is summarized below:
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
--------------------------- ----------------------------
As reported As restated As reported As restated
Operating expenses $ 547,408 $ 501,908 $ 933,385 $ 887,885
Interest expense 402,548 52,548 453,828 103,828
Net (loss) (702,942) (307,442) (798,782) (403,282)
Net (loss) per share (1.36) (.60) (1.55) (.78)
9
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended June 30, 1997 vs. Three Months Ended June 30, 1996
Net Sales. For the three months ended June 30, 1997, net sales were
$171,599 versus $191,957 in the same period of the prior year, representing a
decrease of $20,358. The decrease in net sales is primarily attributed to
increased competition in the Internet access industry and the slower growth rate
of the Company's customer base. The Company intends to increase marketing and
offer diversified Internet services to increase revenues.
Gross Profit. For the three months ended June 30, 1997, gross margin was
$97,248 versus $129,028 in 1996, representing a decrease of $31,780. The
decrease in gross profit resulted from a decrease in Internet access revenues, a
decrease in Web production revenues and an increase in the telecommunication
costs. Management believes that the gross margin should increase if Internet
services revenue increases.
Sales and Marketing. Sales and marketing expenses were $11,435 in three
months ended June 30, 1997 versus $20,690 in 1996. The decrease in sales and
marketing expenses resulted from lack of working capital and the resulting
downsizing of the Company's marketing and sales force. The Company believes that
the sales and marketing expenses will increase if the liquidity and revenues
increase. Management intends to allocate more resources to sales and marketing
to increase revenues.
General and Administrative. General and administrative expenses were
$416,122 in 1997 versus $210,091 in 1996. The increase in general and
administrative expenses is primarily attributed to a registration of securities
of the Company which were sold in 1996.
Operating Loss. For the three months ended June 30, 1997, the operating
loss was $330,309 compared to an operating loss of $101,753 in 1996. The
increase in the operating loss in 1997 is attributed to the decrease in Internet
services revenues, increase in cost of revenues and increase in general and
administrative expenses. The increase in operating loss was somewhat offset by
the decrease in sales and marketing expenses. The Company is aggressively
reducing costs and seeking to increase revenues in order to minimize the
operating loss in the future.
Interest income (expense). Net interest expense decreased from $47,720 in
1996 to $32,107 in 1997. The decrease was a result of interest earned on cash
and short term investments.
Other income. Net other income increased to $54,974 for the three months
ended June 30, 1997, as a result of rental income generated by the Company's
office building and miscellaneous sales.
10
Results of Operations
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Net Sales. For the six months ended June 30, 1997, net sales were $360,130
versus $377,737 in the same period of the prior year, representing a decrease of
$17,607. The decrease in net sales is primarily attributed to decreases in the
growth of Internet access revenues and the lack of Web production sales in 1997.
Gross Profit. For the six months ended June 30, 1997, gross profit was
$243,743 versus $268,513 in 1996, representing a decrease of $24,770. The
decrease in gross profit is attributed to the decrease in Internet access
revenues and a decrease in Web production revenues.
Sales and Marketing. Sales and marketing expenses were $28,808 for the six
months ended June 30, 1997 versus $41,123 in 1996. The decrease in sales and
marketing expenses were caused by a reduction in the sales force in first half
of 1997 and lack of working capital for marketing purposes. The Company believes
that the sales and marketing expenses will increase if liquidity and revenues
increase.
General and Administrative. General and administrative expenses increased
from $531,464 in 1996 to $742,690 in 1997. The increase in general and
administrative costs is primarily attributed to a registration of the Company's
securities which were sold in 1996.
Operating Loss. For the six months ended June 30, 1997, the operating loss
was $527,755 compared to an operating loss of $304,074 in 1996. The operating
loss in 1997 is attributed to the decreases in Internet service revenues, lack
of Web production sales and significant increases in general and administrative
expenses. The Company is aggressively reducing costs and seeking to increase
revenues in order to minimize the operating loss in the future.
Interest income (expense). Net interest expense decreased from $88,098 in
1996 to $30,371 in 1997. The interest expense was somewhat offset by the
interest earned on cash and short term investments.
Other income. Net other income increased to $154,844 for the six months
ended June 30, 1997, as a result of rental income generated by the Company's
office building and miscellaneous sales.
11
Liquidity and Capital Resources
For the six months ended June 30, 1997, the Company used cash from operating
activities of $606,226 primarily due to decreases in accounts payable and
accrued liabilities, and increases in accounts receivable. The Company had a
working capital deficiency of $349,822 at June 30, 1997. The working capital
deficiency is primarily attributed to the operating loss. The Company intends to
reduce the working capital deficiency by (i) seeking to increase sales, (ii)
reduce certain low margin operations and (iii) obtain 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 other assets amounted to $59,631 and $266,583 for
the six months ended June 30, 1997 and 1996 respectively. The Company acquired
$69,959 of computer equipment for the Internet division during the six months
period ended June 30, 1997 through a capital lease.
In June 1997, Company received an aggregate amount of $350,000 in bridge loan
proceeds from unrelated individuals for working capital, marketing expenses and
the purchase of capital assets. In connection with such bridge loans, the
Company agreed to issue 70,000 restricted shares of common stock, subject to
demand registration and piggy back registration rights at the Company's expense.
The fair market value of the common stock ($350,000) and the commission paid on
the Bridge Loan ($45,500) are capitalized as debt issuance costs and are being
amortized over the 15 month loan as interest expense.
12
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
undersigned thereunto duly authorized.
ProtoSource Corporation
April 14, 1998 /s/ Raymond J. Meyers
--------------------------------------
Raymond J. Meyers
Chief Executive Officer
13