UNITED STATES
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, 2004
Commission File No. 0-21713
PRISM SOFTWARE CORPORATION
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(Exact name of small business issuer 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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(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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
State 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, 2004
- ----------------------------------- -----------------------------
Common Stock, par value $.01 per share 141,591,534
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
PRISM SOFTWARE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet as of March 31, 2004 (Unaudited) 4
Condensed Statements of Operations for the Three Months
Ended March 31, 2004 and 2003 (Unaudited) 5
Condensed Statements of Cash Flows for the Three Months
Ended March 31, 2004 and 2003 (Unaudited) 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Controls and Procedures 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
3
PRISM SOFTWARE CORPORATION
CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31,
2004
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ASSETS
Current assets
Cash $ 62,032
Accounts receivable, net of allowance
for doubtful accounts of $4,369 75,329
Inventory 231
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Total current assets 137,592
Equipment, net 21,142
Other 20,595
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$ 179,329
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable - stockholders $ 7,789,268
Accrued interest - stockholders 839,979
Accrued expenses - stockholders 30,203
Notes payable - other 38,700
Accounts payable 362,244
Accrued expenses 478,290
Deferred revenue 116,102
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Total current liabilities 9,654,786
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Commitments and contingencies --
Stockholders' deficit
Preferred stock - 5,000,000 shares authorized, $.01 par value;
Series A - 78,800 shares issued and outstanding 788
Common stock - 300,000,000 shares authorized, $.01 par value;
141,591,534 shares issued and outstanding 1,415,915
Additional paid-in capital 11,394,263
Accumulated deficit (22,286,423)
------------
Total stockholders' deficit (9,475,457)
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$ 179,329
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
PRISM SOFTWARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2004 2003
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Net sales
Products $ 99,281 $ 54,405
Services 56,150 66,336
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155,431 120,741
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Cost of sales
Products 16,208 7,935
Services 16,283 17,107
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32,491 25,042
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Gross profit 122,940 95,699
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Operating expenses
Selling and administrative 388,880 452,187
Research and development 58,917 57,781
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447,797 509,968
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Loss from operations (324,857) (414,269)
Interest expense - stockholders (151,475) (2,817,087)
Interest expense (968) (968)
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Net loss $ (477,300) $ (3,232,324)
============== ==============
Basic and diluted net loss per common share $ (0.00) $ (0.02)
============== ==============
Basic and diluted weighted average
number of common shares outstanding 141,591,534 139,591,534
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
PRISM SOFTWARE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (477,300) $(3,232,324)
Adjustments to reconcile net loss to net cash used
by operating activities:
Loss on disposal of assets -- 1,787
Depreciation 3,222 4,710
Amortization of beneficial conversion feature -- 2,699,570
(Increase) decrease in assets
Accounts receivable (28,706) 5,707
Inventory 220 32
Licenses and other assets (11,173) 1,172
Increase (decrease) in liabilities
Accounts payable (41,826) 19,687
Accrued expenses 194,726 142,793
Deferred revenue 10,845 (2,785)
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Net cash used by operating activities (349,992) (359,651)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment -- --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable - stockholders 400,000 371,000
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Net cash provided by financing activities 400,000 371,000
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Net increase (decrease) in cash 50,008 11,349
Cash, beginning of period 12,024 7,778
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Cash, end of period $ 62,032 $ 19,127
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Supplemental disclosures:
Cash paid for interest $ -- $ --
Cash paid for income tax $ -- $ --
Non-cash investing and financing activities:
Conversion of stockholders interest payable
to notes payable $ -- $ 737,938
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, 2004
(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, 2003
audited financial statements. Certain amounts from prior periods have been
reclassified to be consistent with the presentation of the current period.
The results of operations for the interim periods are not necessarily
indicative of the operating results for the full years.
NOTE 2 - STOCK-BASED COMPENSATION
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Stock options issued under stock-based compensation plans are accounted for
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method. Accordingly, compensation is measured as
the excess, if any, of the quoted market price of the Company's common
stock at the date of grant over the amount an employee is required to pay
to acquire the stock. The following compensation costs were incurred in the
interim periods presented.
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2004 2003
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$ -- $ --
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NOTE 3 - BASIC AND DILUTED NET LOSS PER SHARE
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Net loss per common share is calculated in accordance with SFAS No. 128,
Earning per Share. Basic net loss per share is based upon the weighted
average number of common shares outstanding during the period. Diluted loss
per share is based upon the assumption that all dilutive convertible shares
and stock options were converted or exercised. Dilution is computed by
applying the treasury stock method. Under this method, options are assumed
to be exercised at the beginning of the period (or time of issuance, if
later) and as if funds obtained thereby were used to purchase common stock
at the average market price during the period.
The following table illustrates the reconciliation of the numerators and
denominators of the basic and diluted loss per share computations.
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2004 2003
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Numerator
---------
Net loss $ (477,300) $ (3,232,324)
Preferred dividends -- --
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$ (477,300) $ (3,232,324)
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Denominator
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Basic and diluted weighted
average number of common
shares outstanding during
the period 141,591,534 139,591,534
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Basic and diluted net loss per share $ (0.00) $ (0.02)
============== ==============
The following incremental common shares associated with outstanding
options, warrants and convertible debt are not included in the denominators
above as their effect would be anti-dilutive.
EQUIVALENT NUMBER OF
COMMON SHARES
AT MARCH 31,
---------------------------------
2004 2003
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Options 1,800,000 3,229,427
Warrants 2,500,000 5,940,000
Convertible debt 769,867,686 133,607,337
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NOTE 4 - 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 cooperative 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 OR PLAN OF OPERATION.
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, 2004 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2003)
For the quarter ended March 31, 2004, the Company reported a loss of
approximately $477,000, or $0.00 per share, compared with a loss of
approximately $3,232,000, or $0.02 per share, for the quarter ended March 31,
2003. The loss decreased approximately $2,755,000 due primarily to the
following:
o Operating revenue increased approximately $35,000 due
primarily to higher sales of a proprietary product line.
o Due primarily to the increase in operating revenue, cost of
sales increased approximately $7,000 from approximately
$25,000, or about 21% of revenue, to approximately $32,000,
also about 21% of revenue.
o Total operating expenses decreased approximately $62,000 due
primarily to lower expenses for personnel and professional
services.
o Interest expense decreased approximately $2,666,000 due
primarily to the following:
1. An expense of about $2,700,000 was recognized in the
quarter ended March 31, 2003 from amortizing a
beneficial conversion feature on certain convertible
notes. No such expense was incurred in the quarter
ended March 31, 2004. (See "Liquidity and Capital
Resources."
2. An increase of approximately $34,000 in aggregate
face value interest expense due to an increase in the
Company's indebtedness.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004, the Company had cash and cash equivalents of
approximately $62,000. The principal source of liquidity in the three months
ended March 31, 2004 was approximately $400,000 of non-convertible debt.
Approximately $3,997,000 of borrowings made during or prior to the
fiscal year ended December 31, 2003 are convertible into Common Stock at a rate
that is below the quoted market price of the Common Stock at the time the debt
was incurred. The value of this beneficial conversion feature (discount) on each
such loan was limited to being no greater than the face value of such loan and
was fully amortized when the conversion rate went into effect. As of March 31,
2004, the aggregate unamortized discount on such loans was $0 and the Company
had recorded approximately $3,172,000 as additional paid-in capital for the
accumulated amortization of the discount. This non-cash 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, 2004
and March 31, 2003, this amortization expense was $0 and approximately
$2,700,000, respectively.
Management anticipates that additional capital will be required to
finance the Company's operations. The Company believes that expected cash flow
from operations, borrowing, and the possible 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.
ITEM 3. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our Chief Executive
and Financial Officers, we conducted an evaluation of our disclosure controls
and procedures, as such term is defined under Rule 13a-14(c) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90
days of the filing date of this report. Based on this evaluation, our Chief
Executive and Financial Officers concluded that the Company's disclosure
controls and procedures are effective. Disclosure controls and procedures are
designed to ensure that information required to be disclosed in reports under
the Exchange Act are processed and reported within the time periods specified by
law. The design of any such system of controls is based in part on assumptions
about the likelihood of future events, and there can be no assurance that any
such system of controls will succeed in all circumstances.
Since the date of the evaluation described above, there have been no
significant changes in our internal controls or in other factors that could
significantly affect these controls.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently in a dispute with Mr. E Ted Daniels, a former
President and Chief Executive Officer. This dispute is discussed in the "Legal
Proceedings" disclosure of the Company's Form 10-KSB/A (Amendment No. 2) for the
fiscal year ended December 31, 2003, and no material developments have occurred
in this matter since the date of such filing.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In the quarter ended March 31, 2004, the Company borrowed an aggregate
of $400,000 under a non-convertible Consolidated Promissory Note with the Conrad
von Bibra Revocable Trust. The note is secured by the Company's assets, is due
upon demand, and bears interest at the rate of 8% per annum. No commissions were
paid in connection with this transaction. Mr. von Bibra is an affiliate of the
Company by virtue of having beneficial ownership of more than 5% of the
outstanding Common Stock of the Company, and being a director and officer of the
Company.
The Company believes that such transactions 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, 2004, the Company was in default on certain notes
payable totaling approximately $625,000, including accrued interest.
Approximately $285,000 of this amount is convertible into approximately 3.6
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Non-convertible Consolidated Promissory Note dated
March 31, 2004 by and between the Conrad von Bibra
Revocable Trust and Prism Software
31.1 Certificate of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
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.
PRISM SOFTWARE CORPORATION
Dated: May 17, 2004 By: /s/ David Ayres
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David Ayres, Director and President
(Principal Executive Officer)
Dated: May 17, 2004 By: /s/ Michael Cheever
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Michael Cheever, Controller
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