Form 10QSB for PROFORMIX SYSTEMS INC filed on Aug 18 1998
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT O SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission file number 33-20432
PROFORMIX SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-2228828
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
50 Tannery Road, Branchburg, New Jersey 08876
(Address of Principal Executive Office) (Zip Code)
(908) 534-6400
(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 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 _____
The number of shares of Registrant's Common Stock, $0.0001 par value,
outstanding as of June 30, 1998, was 4,971,982 shares.
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Consolidated Balance Sheet
- June 30, 1998 3
Consolidated Statements of Operations
- Three and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
- Six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-12
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-14
PART II - OTHER INFORMATION 15-16
SIGNATURES 17
2
PART I - Item 1
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1998
ASSETS
Current Assets
Cash ..................................................... $ 3,016
Accounts receivable, net of allowance for
doubtful accounts of 32,315 .............................. 1,251,054
Inventories .............................................. 288,670
Prepaid advertising ...................................... 776,550
Other prepaid expenses ................................... 13,669
-----------
Total Current Assets .................................. 2,332,959
Property, plant and equipment ............................ 507,038
Acquired software assets ................................. 2,335,389
Other assets ............................................. 118,740
-----------
TOTAL ASSETS .................................................. 5,294,126
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses .................... 1,411,342
Dividends payable ........................................ 31,500
Loans and notes payable .................................. 1,306,579
Current maturities long-term debt ........................ 394,081
Current maturities lease obligations ..................... 8,589
-----------
Total Current Liabilities ............................. 3,152,091
Long-term debt, less current portion ..................... 1,572,876
Lease obligations, less current portion .................. 17,975
-----------
TOTAL LIABILITIES ............................................. 4,742,942
STOCKHOLDERS' EQUITY
Preferred Stock Ser.A, $0.01 par value, 3,000,000
shares authorized, 0 and 100,000 shares issued and
outstanding .............................................. --
Cumulative Preferred Stock, $0.001 par value, 2,500
shares authorized, 10 shares issued and outstanding ...... 0
Common Stock, $0.0001 par value, 30,000,000 shares
authorized, 4,971,982 issued and outstanding ............. 497
Contributed capital ...................................... 283,500
Additional paid-in capital ............................... 7,785,531
Accumulated deficit ...................................... (7,518,344)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) .......................... 551,184
-----------
TOTAL LIABILITIES AND EQUITY .................................. $ 5,294,126
===========
See notes to consolidated financial statements
3
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues ................................ $ 1,429,075 $ 1,063,323 $ 2,441,493 $ 1,645,586
Cost of Goods Sold ................. 703,391 432,756 1,195,128 696,696
----------- ----------- ----------- -----------
Gross Profit ............................ 725,684 630,567 1,246,365 948,890
Selling expenses ................... 552,412 342,616 851,609 627,270
General & administrative expenses .. 675,416 326,129 1,123,919 675,908
----------- ----------- ----------- -----------
Operating Income (Loss) ................. (502,144) (38,178) (729,163) (354,288)
Miscellaneous income ............... 333 0 333 0
Interest expense (net) ............. (98,640) (82,131) (179,357) (169,323)
Miscellaneous expenses ............. (10,000) (5,000) (10,000) (5,000)
----------- ----------- ----------- -----------
Non-Operating Income (Expenses) ......... (108,307) (87,131) (189,024) (174,323)
Total Net Loss .......................... $ (610,451) $ (125,309) $ (918,187) $ (528,611)
=========== =========== =========== ===========
Net Loss per Common Share ............... $ (0.12) $ (0.08) $ (0.22) $ (0.40)
=========== =========== =========== ===========
Weighted-Average Number of
Common Shares Outstanding .......... 4,960,143 1,549,184 4,203,492 1,317,857
See notes to consolidated financial statements
4
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1998 1997
----------- -----------
Cash Flows from Operating Activities
Net income (loss) ........................... $ (918,187) $ (528,611)
Adjustments to net income (loss)
Depreciation and Amortization ............ 144,891 53.076
Decreases (increases) in Assets
Accounts receivable ...................... (936,562) 55,659
Inventories .............................. (232,169) 20,900
Prepaid advertising ...................... (776,550) 0
Prepaid expenses ......................... 33,935 8,369
Other assets ............................. 450 474
Increases (decreases) in Liabilities
Accounts payable and accrued expenses .... 202,765 (32,973)
----------- -----------
Net Cash Provided (Used) by Operating Activities . (2,481,427) (423,106)
Cash Flows from Investing Activities
Rolina & Vanity acquisitions ................ (2,404,280) 0
Investment Input Technologies ............... (25,776) 0
Capital expenditures ........................ (147,345) (41,655)
----------- -----------
Net Cash Provided (Used) by Investing Activities . (2,577,401) (41,655)
Cash Flows from Financing Activities
Proceeds from notes payable ................. 225,000 101,849
Conversion of equity subscriptions .......... (275,000) 0
Repayment of notes .......................... (235,000) (50,000)
Repayment of long-term debt ................. (128,584) (30,000)
Change in subordinated debenture ............ 0 (101,849)
Issuance of common stock .................... 5,470,882 544,870
----------- -----------
Net Cash Provided (Used) by Financing Activities . 5,057,298 464,870
Net Increase (Decrease) in Cash .................. (1,530) 109
Cash at Beginning of Period ...................... 4,546 1,507
----------- -----------
Cash at End of Period ............................ $ 3,016 $ 1,616
=========== ===========
See notes to consolidated financial statements
5
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
BACKGROUND
Proformix Systems, Inc. (the "Company" or "Proformix") was incorporated as
a Delaware corporation on April 19, 1988 under the name "Fortunistics,
Inc.", subsequently changed to "Whitestone Industries, Inc."(Whitestone).
On July 2, 1997, the Company submitted a stock exchange offer to the
shareholders of Proformix, Inc., a Delaware corporation. Prior to this
stock exchange, the Company spun off the shares of its wholly owned
subsidiary Golden Bear Entertainment Corporation to its then current
shareholders in the form of a stock dividend. This distribution effectively
eliminated all assets and liabilities from the books of the Company prior
to the acquisition of Proformix, Inc.
The exchange offer to the Proformix, Inc. shareholders called for the
exchange of the common stock in Proformix, Inc. into newly to be issued
common stock of Whitestone at the rate of 3.4676 shares of Proformix, Inc.
common stock to 1 share of Whitestone common stock, and to holders of
Proformix Cumulative Preferred Stock, to exchange their shares into newly
to be issued Cumulative Preferred Stock of Whitestone at the rate of 1 to
1. Holders of approximately 97% of Proformix, Inc. common stock have agreed
to the stock exchange and tendered their common shares in exchange for
Whitestone common shares. The remaining 3% of Proformix, Inc. stockholders
hold a minority interest which is valued at $0.
For accounting purposes, the acquisition has been treated as an acquisition
of Whitestone by Proformix, Inc. and a recapitalization of Proformix, Inc.
The historical financial statements prior to July 2, 1997 are those of
Proformix, Inc. Proforma information is not presented since the combination
is considered a recapitalization. Subsequent to the exchange, the Company
and Proformix, Inc. remain as two separate legal entities whereby
Proformix, Inc. operates as a subsidiary of the Company, however, the
operations of the newly combined entity are currently comprised solely of
the operations of Proformix, Inc. Concurrent with the stock exchange offer,
the Company changed its name to Proformix Systems, Inc.
Proformix develops, manufactures and markets ergonomically designed
computer keyboard trays, peripheral items and accessories (together, a
"Keyboarding System") designed to alleviate and prevent certain health
problems believed to be related to the use of computers. Proformix also
markets a unique proprietary software suite under the name EMS(TM) which
represents a comprehensive ergonomic-based productivity solution developed
to train people working on computers, monitor computer-use related
activities and evaluate a user's risk exposure and propensity towards
injury or loss of effectiveness in connection with his/her day-to-day work.
Proformix Inc.'s wholly owned subsidiary, Corporate Ergonomic Solutions,
Inc. (Ergonomics) was incorporated in the State of New Jersey during
October 1992. Ergonomics, which commenced operations in September 1997, was
formed primarily to market Proformix's products. To date, its operations
have not been significant.
6
Proformix Systems, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Proformix Systems, Inc. and its subsidiaries, Proformix, Inc. and
Corporate Ergonomic Solutions, Inc. All significant intercompany
balances and transactions have been eliminated.
Inventories
Inventory consists of product components and finished goods which are
stated at the lower of cost (determined by the first-in, first out
method) or market.
Depreciation and Amortization
Property, plant and equipment are recorded at cost. Certain molds were
being depreciated using the units of production method based upon an
estimated useful life of 300,000 units. Depreciation on equipment,
furniture and fixtures and leasehold improvements is computed on the
straight line method over the estimated useful lives of such assets
between 5-10 years. Maintenance and repairs are charged to operations
as incurred.
System design costs are amortized on a straight-line basis over an
estimated useful life of 10 years. Organization costs and deferred
finance charges are amortized using the straight line method over a
period of 4-5 years.
Capitalized acquired software assets are depreciated on a
straight-line basis over an estimated useful life of 10 years (see
"Acquisition of Vanity Software Publishing Corporation").
Securities Issued for Services
The Company accounts for stock options issued for services by
reference to the fair market value of the Company's stock on the date
of stock issuance or option grant. Compensation expense is recorded
for the fair market value of the stock issued, or in the case of
options, for the difference between the stock's fair market value on
the date of grant and the option exercise price.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-based
Compensation". The statement generally suggests, but does not require,
employee stock-based compensation transactions be accounted for based
on the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measurable.
As permitted by the statement, the Company has elected to continue to
follow the requirements of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", which does not require
compensation to be recorded if the consideration to be received is at
least equal to the fair value at the measurement date. The adoption of
SFAS No. 123 does not have a material impact on the financial
statements.
Income Taxes
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