SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
Commission File No. 0-21713
PRISM SOFTWARE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2621719
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23696 Birtcher; Lake Forest, California 92630
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(Address of principal executive offices)
(949) 855-3100
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(Registrant's telephone number, including area code)
Indicate 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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Title of Each Class of Common Stock Outstanding at April 30, 2002
- ----------------------------------- -----------------------------
Common Stock, par value $.01 per share 140,091,534
PRISM SOFTWARE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheet as of March 31, 2002 (Unaudited) 4
Condensed Statements of Operations for the Three
Months Ended March 31, 2002 and 2001 (Unaudited) 5
Condensed Statements of Cash Flows for the Three
Months Ended March 31, 2002 and 2001 (Unaudited) 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
3
PRISM SOFTWARE CORPORATION
CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31,
2002
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ASSETS
Current assets
Cash $ 40,581
Accounts receivable, net of allowance
for doubtful accounts of $4,631 32,391
Inventory 810
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Total current assets 73,782
Equipment 53,961
Licenses and other 131,857
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$ 259,600
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable - stockholders $ 4,141,430
Accrued interest - stockholders 584,325
Accrued expenses - stockholders 30,203
Notes payable 47,787
Accounts payable 226,393
Accrued expenses 287,665
Deferred revenue 127,149
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Total current liabilities 5,444,952
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Commitments and contingencies --
Stockholders' deficit
Preferred stock - 5,000,000 shares authorized,
$.01 par value Series A - 100,000 shares
issued, 78,800 shares outstanding 788
Common stock - 300,000,000 shares authorized,
$.01 par value 140,091,534 shares issued
and outstanding 1,400,915
Additional paid-in capital 8,218,781
Accumulated deficit (14,805,836)
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Total stockholders' deficit (5,185,352)
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$ 259,600
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The accompanying notes are an integral part of these financial statements
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PRISM SOFTWARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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2002 2001
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Net sales
Products $ 98,671 $ 67,000
Services 83,650 64,011
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182,321 131,011
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Cost of sales
Products 33,059 20,616
Services 10,413 1,844
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43,472 22,460
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Gross profit 138,849 108,551
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Operating expenses
Selling and administrative 528,611 435,017
Research and development 84,974 57,097
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613,585 492,114
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Loss from operations (474,736) (383,563)
Gains from legal settlements -- 32,388
Interest expense - stockholders (81,896) (209,690)
Interest expense (1,489) (2,131)
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Net loss $ (558,121) $ (562,996)
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Basic and diluted net loss per common share $ (0.00) $ (0.00)
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Basic and diluted weighted average
number of common shares outstanding 140,091,534 134,334,688
============== ==============
The accompanying notes are an integral part of these financial statements
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PRISM SOFTWARE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(558,121) $(562,996)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 16,670 8,106
Issuance of stock options 13,651 24,271
Amortization of beneficial conversion feature -- 164,125
(Increase) decrease in assets
Accounts receivable 14,252 (86,932)
Inventory 114 8,318
Licenses and other assets (8,171) (1,934)
Increase (decrease) in liabilities
Accounts payable (13,433) 67,248
Accrued expenses 136,339 82,173
Deferred revenue 4,004 (32,209)
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Net cash used by operating activities (394,695) (329,830)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment -- (15,397)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable - stockholders 396,000 332,000
Payments on notes (3,237) (4,109)
Exercise of stock options -- 1,500
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Net cash provided by financing activities 392,763 329,391
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Net decrease in cash (1,932) (15,836)
Cash, beginning of period 42,513 35,424
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Cash, end of period $ 40,581 $ 19,588
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Supplemental disclosure of non-cash investing and
financing activities:
Conversion of notes payable to common stock $ -- $ 7,800
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The accompanying notes are an integral part of these financial statements
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PRISM SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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The accompanying financial statements have been prepared by the Company without
audit. In the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company and the results of its operations and cash flows for the interim periods
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's December 31, 2001 audited financial
statements. The results of operations for the interim periods are not
necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
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The Company's continued operating losses, limited capital and stockholders'
deficit raise substantial doubt about its ability to continue as a going
concern. Management's plans to continue strengthening the Company's financial
condition and operations include: restructuring the Company's debt and other
liabilities, monitoring costs and cash flow activities, expanding operations
through potential joint ventures, continuing to upgrade sales and marketing
efforts and upgrading customer service and product development efforts. The
Company also intends to continue raising capital to fund its operations, but no
assurance can be given that such funding will be available.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Certain of the statements contained in this report, including those under
"Management's Discussion and Analysis or Plan of Operation," and especially
those contained under "Liquidity and Capital Resources" may be "forward-looking
statements" that involve risks and uncertainties. All forward-looking statements
included in this report are based on information available to Prism Software
Corporation ("the Company") on the date hereof and the Company assumes no
obligation to update any such forward-looking statements. The actual future
results of the Company could differ materially from those statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in the Company's Annual Report on Form 10-KSB as well as
risks associated with managing the Company's growth. While the Company believes
that these statements are accurate, the Company's business is dependent upon
general economic conditions and various conditions specific to the document and
content management industry and future trends and results cannot be predicted
with certainty.
RESULTS OF OPERATIONS (THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2001)
For the quarter ended March 31, 2002, the Company reported a loss of
approximately $558,000, or $0.00 per share, compared with a loss of
approximately $563,000, or $0.00 per share, for the quarter ended March 31,
2001. The loss decreased approximately $5,000 due primarily to the following:
o Product and service revenue increased approximately $51,000 due
primarily to an increase in revenue related to the selling of
certain third-party products and services.
o Cost of sales increased approximately $21,000 from approximately
$22,000, or about 17% of revenue, to approximately $43,000, or
about 24% of revenue. This was due primarily to an increase in
revenue related to the selling of certain third-party products and
services which have a cost of sales percentage that is higher than
that of the Company's proprietary products and services.
o Total operating expenses increased approximately $121,000 due
primarily to an increase in personnel costs.
o The Company recognized a gain of approximately $32,000 from a
legal settlement in the quarter ended March 31, 2001.
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o Interest expense decreased approximately $128,000 due primarily to
a decrease of about $164,000 in the expense recognized from
amortizing a beneficial conversion feature on certain convertible
notes. (See "Liquidity and Capital Resources.") This was partially
offset by an increase in aggregate face value interest due to an
increase in the Company's indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, the Company had cash and cash equivalents of
approximately $41,000. The principal source of liquidity in the three months
ended March 31, 2002 was approximately $396,000 of additional borrowings.
Through March 31, 2002, the Company had issued an aggregate of
approximately $1,023,000 in debt that was convertible at the lenders' option
into Common Stock at a conversion rate that was below the market price of the
Common Stock at the time the loans were made. (Approximately $1,003,000 of this
debt was outstanding as of March 31, 2002.) The value of the beneficial
conversion feature (discount) on each such loan was equal to or lesser than the
face value of the loan and was amortized from the date the lender gained the
right to convert the loan through to the loan's earliest possible conversion
date. The amortization period was one year for most of these such loans. As of
March 31, 2002, the aggregate unamortized discount on such loans was $0 and the
Company had recorded approximately $940,000 as additional paid-in capital for
the accumulated amortization of the discount. The amortization expense is
included as part of the caption "Interest expense - stockholders" in the
accompanying statements of operations. For the three months ended March 31, 2002
and March 31, 2001, this amortization expense was $0 and approximately $164,000,
respectively.
Management anticipates that additional capital will be required to
finance the Company's operations. The Company believes that expected cash flow
from operations plus the anticipated proceeds from sales of securities will be
sufficient to finance the Company's operations at currently anticipated levels
for a period of at least twelve months. However, there can be no assurance that
the Company will not encounter unforeseen difficulties that may deplete its
capital resources more rapidly than anticipated.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is the defendant in an action filed in October 2001 by a
customer, arising out of a warranty claim on software sold by the Company in
January 2000. The action was filed in Pierce County Superior Court in the State
of Washington (Case No. 01-2-12488-5). Under local court rules, the plaintiff
elected to arbitrate the matter, which limits potential damages (exclusive of
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attorneys' fees and costs) to a maximum of $35,000. The matter is now awaiting
appointment of an arbitrator. The Company believes the case is without merit and
intends to vigorously contest the matter. The Company does not believe that the
outcome will have a material adverse effect upon its financial position or
results of operations. No liability for this matter is accrued in the
accompanying financial statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In the quarter ended March 31, 2002, the Company borrowed an aggregate
of $396,000 from Carl von Bibra under an Open-Ended Convertible Promissory Note.
The borrowings bear interest at the rate of 8% per annum (with payment of
accrued interest due at maturity) and mature at various dates from January to
March 2003. The borrowings are convertible upon default into shares of Common
Stock at the rate of $0.05 per share (subject to certain anti-dilution
adjustments) at the option of the holder. Upon the conversion of all or any
portion of these borrowings into Common Stock, the Company will also issue to
the holder a warrant to purchase additional shares of Common Stock (equal to the
number of shares issued upon such conversion) at an exercise price of $0.12 per
share (subject to certain anti-dilution adjustments). Mr.von Bibra is not an
affiliate of the Company (other than as a principal stockholder). No commissions
were paid in connection with this transaction.
The Company believes that such sales were exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof or Regulation D promulgated thereunder, as a transaction by an
issuer not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of April 30, 2002, the Company was in default on certain notes
payable totaling approximately $3,013,000, including accrued interest.
Approximately $2,705,000 of this amount is convertible into approximately 52.4
million shares of Common Stock.
As a result of these defaults, each holder of the debt obligations has
the right to demand payment in full of such obligations at any time and exercise
any rights or remedies available under the notes. If holders of any substantial
portion of the notes were to demand payment, the Company does not currently have
sufficient resources to respond to any such demand.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Not applicable
(b) Reports on Form 8-K
Not applicable.
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.
Date: May 20, 2002
Prism Software Corporation
By: /s/ E. Ted Daniels
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E. Ted Daniels, Chief Executive Officer,
President, Chief Financial Officer and
Director (Principal Executive Officer
and Principal Financial and Principal
Accounting Officer)
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