-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TMO32Ux8zOR6JblyfCfIJDCVMhkRHtZeyZTmt/G98SJ+WI7yUirt424xLrJPHN0A 8QycYJJnUVI4b6XhBuMaOw== 0001047469-98-007245.txt : 19980224 0001047469-98-007245.hdr.sgml : 19980224 ACCESSION NUMBER: 0001047469-98-007245 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980223 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QCS CORP CENTRAL INDEX KEY: 0000825517 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 841057621 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-18600-D FILM NUMBER: 98547601 BUSINESS ADDRESS: STREET 1: 650 CASTRO STREET SUITE 210 STREET 2: C/O RICHARD S LANE ESQ CITY: MOUNTAIN VIEW STATE: CA ZIP: 94041 BUSINESS PHONE: 4159661214 MAIL ADDRESS: STREET 1: 650 CASTRO ST STREET 2: STE 210 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94041 FORMER COMPANY: FORMER CONFORMED NAME: PARKWAY CAPITAL CORP DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 DECEMBER 31, 1997 ( ) 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: 33-18600-D QCS CORPORATION - ------------------------------------------------------------------------------ (Exact name of small business issuer as specified in its charter) DELAWARE 98-0132465 --------------------------------- ---------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 650 CASTRO STREET, SUITE 210, MOUNTAIN VIEW, CA 94041 - ------------------------------------------------------------------------------ (Address of principal executive offices) (650) 966-1214 - ------------------------------------------------------------------------------ (Issuer's telephone number) 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 ----- ----- Common stock outstanding as of February 13, 1998: 17,269,784 shares Transitional Small Business Disclosure Format YES X NO ----- ----- QCS CORPORATION CONTENTS PAGE PART I FINANCIAL INFORMATION ITEM 1 Consolidated Financial Statements (unaudited): Consolidated Balance Sheets as of December 31, 1997 (unaudited) and June 30, 1997 3 Consolidated Statements of Operations for the three and six month periods ended December 31, 1997 and 1996 (unaudited) 4 Consolidated Statements of Cash Flows for the six month period ended December 31, 1997 and 1996 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 ITEM 2 Management's Discussion and Analysis of 7 Financial Condition and Results of Operations PART II OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8K 10 SIGNATURE 10 2 QCS CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, ASSETS 1997 1997 ------------ ------------ (unaudited) Current assets: Cash and cash equivalents $ 392,164 $ 1,274,157 Accounts receivable (net of allowance for doubtful accounts of $51,142 on December 31, 1997 and $55,036 on June 30, 1997) 102,483 152,789 Other current assets 14,055 14,896 ---------- ------------ Total current assets 508,702 1,441,842 Fixed assets, net of accumulated depreciation and amortization 201,780 242,243 Security deposits 21,205 32,059 ---------- ------------ Total assets $ 731,687 $ 1,716,144 ---------- ------------ ---------- ------------ LIABILITIES Current liabilities: Accounts payable $ 293,584 $ 240,007 Accrued liabilities 642,049 520,305 Capital lease obligations, short-term portion 9,253 9,097 Preference dividends payable 729,428 605,462 ---------- ------------ Total current liabilities 1,674,314 1,374,871 Capital lease obligations, long-term portion 10,345 14,892 ---------- ------------ Total liabilities 1,684,659 1,389,763 STOCKHOLDERS' EQUITY (DEFICIT) Series A convertible preferred stock, par value $.001 per share: Authorized: 5,000,000 shares; issued and outstanding 4,310,684 and 4,368,937 shares at December 31, 1997 and June 30, 1997, respectively (aggregate liquidation preference: $4,440,005) 4,311 4,369 Common stock, par value $.001 per share: Authorized: 40,000,000 shares; issued and outstanding 17,194,784 and 17,136,531 at December 31, 1997 and June 30, 1997, respectively 17,195 17,137 Additional paid in capital 10,653,231 10,653,231 Deferred stock compensation (107,250) (107,250) Subscriptions receivable from stockholders (200,100) (200,100) Accumulated deficit (11,471,181) (10,160,862) Cumulative foreign currency translation adjustment 150,821 119,856 ---------- ------------ Total stockholders' equity (deficit) (952,972) 326,381 ---------- ------------ Total liabilities and stockholders' equity (deficit) $ 731,687 $ 1,716,144 ---------- ------------ ---------- ------------
The accompanying notes are an integral part of these consolidated financial statements. 3 QCS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------- -------------------------- 1997 1996 1997 1996 ---------- ----------- ----------- ----------- Revenue $ 185,195 $ 324,941 $ 395,166 $ 769,406 Cost of revenue 133,732 238,031 282,733 443,276 ---------- ----------- ----------- ----------- Gross profit 51,463 86,910 112,433 326,130 Operating expenses: Selling, general and administrative 624,394 975,863 1,115,309 1,729,455 Research and development 85,580 95,961 163,563 185,582 ---------- ----------- ----------- ----------- Total operating expenses 709,974 1,071,824 1,278,872 1,915,037 Operating loss (658,511) (984,914) (1,166,439) (1,588,907) Other income (expense), net (32,848) (1,130) (36,164) 4,507 Interest income 4,792 30,352 16,250 55,787 ---------- ----------- ----------- ----------- Net loss $ (686,567) $ (955,692) $(1,186,353) $(1,528,613) Preferred dividend payable not included in net loss (61,704) (60,779) (123,966) (121,558) ---------- ----------- ----------- ----------- Net loss attributed to common stockholders $ (748,271) $(1,016,471) $(1,310,319) $(1,650,171) ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Net loss per share basic and diluted $ (0.04) $ (0.06) $ (0.08) $ (0.10) ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Weighted average number of shares used in basic and diluted per share calculation 17,188,452 17,162,292 17,162,492 16,982,711
The accompanying notes are an integral part of these consolidated financial statements. 4 QCS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED --------------------------------- DECEMBER 31, DECEMBER 31, 1997 1996 -------------- ------------- Cash flows from operating activities: Net loss $(1,186,353) $(1,528,613) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 36,264 35,125 Unrealized exchange loss 28,554 - Write-off of fixed assets 15,181 - Change in allowance for doubtful accounts (3,894) 172,912 Stock option compensation - 168,650 Changes in operating assets and liabilities: Changes in accounts receivable 54,200 (254,806) Changes in other current assets and security deposits 11,696 (54,430) Changes in accounts payable 53,577 (70,491) Changes in accrued and other liabilities 121,744 92,324 ----------- ----------- Net cash used in operating activities (869,031) (1,439,329) Cash flows from investing activities: Purchases of fixed assets (10,991) (52,738) ----------- ----------- Net cash used in investing activities (10,991) (52,738) Cash flows from financing activities: Proceeds from issuance of common stock - 1,031,969 Common stock subscriptions received - 262,484 Exercise of stock options - 130,000 Payments on capital leases (4,391) - ----------- ----------- Net cash provided by (used in) financing activities (4,391) 1,424,453 Effect of exchange rate changes on cash 2,420 5,737 ----------- ----------- Net decrease in cash and cash equivalents (881,993) (61,877) Cash and cash equivalents, beginning of the period 1,274,157 2,607,118 ----------- ----------- Cash and cash equivalents, end of the period $ 392,164 $ 2,545,241 ----------- ----------- ----------- ----------- Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 2,163 $ 1,846
The accompanying notes are an integral part of these consolidated financial statements. 5 NOTES TO UNAUDITED FINANCIAL STATEMENTS The consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods. The results of operations for the three and six month periods ended December 31, 1997 are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 1998. The year-end balance sheet data was derived from the audited financial statements. This financial information should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10-KSB for the fiscal year ended June 30, 1997 as filed with the Securities and Exchange Commission. COMPUTATION OF NET LOSS PER SHARE The Company has adopted the provisions of Statement of Financial Accounting Standard No. 128 (SFAS 128) "Earnings per Share" effective December 31, 1997. SFAS requires the presentation of basic and diluted earning per share. Basic EPS is computed by dividing the income available to common shareholders by weighted average number of common shares outstanding for the period. Diluted EPS is computed by giving effect to all dilutive potential common shares that were outstanding during the period. For the Company, dilative potential common shares consist of incremental common shares issuable upon the exercise of stock options and warrants for all periods. In accordance with SFAS 128, all prior period earnings per share amounts have been restated to reflect this method of calculation. Basis and diluted earning per share are calculated as follows during the three and six month period ended December 31, 1997 and 1996:
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- -------------------------- BASIC: 12/31/97 12/31/96 12/31/97 12/31/96 ----------- ----------- ----------- ----------- Weighted average shares outstanding for the period 17,188,452 17,162,292 17,162,492 16,982,711 ----------- ----------- ----------- ----------- Shares used in per share calculation 17,188,452 17,162,292 17,162,492 16,982,711 Net loss attributed to common shareholders $ (748,271) $(1,016,471) $(1,310,319) $(1,650,171) ----------- ----------- ----------- ----------- Net loss per share $ (0.04) $ (0.06) $ (0.08) $ (0.10) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- DILUTED: Weighted average shares outstanding for the period 17,188,452 17,162,292 17,162,492 16,982,711 Common stock equivalents from stock options and warrants - - - - Convertible preferred stock - - - - ----------- ----------- ----------- ----------- Shares used in per share calculation 17,188,452 17,162,292 17,162,492 16,982,711 Net loss attributed to common shareholders $ (748,271) $(1,016,471) $(1,310,319) $(1,650,171) ----------- ----------- ----------- ----------- Net loss per share $ (0.04) $ (0.06) $ (0.08) $ (0.10) ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
6 Options and warrants to purchase 3,288,048 and 96,894 shares of common stock were at December 31, 1997 and 1996, but were not included in the computation of diluted earnings per share because inclusion of the options and warrants was anti-dilutive. RECLASSIFICATION Certain prior period balances have been reclassified to conform to the current period's presentation. RECENT PRONOUNCEMENTS: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting and display of financial statements. The impact of adopting SFAS 130, which is effective in fiscal 1999, has not been determined. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 requires publicly held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and is utilized by the chief operation decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment information to amounts reported in the financial statements would be provided. SFAS 131 is effective in fiscal 1999 and the impact has not been determined. PART I FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the unaudited Financial Statements and Notes thereto included elsewhere in this Report. This section may contain forward looking statements regarding, among other matters, the Company's future strategy and prospects for growth. The forward looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements address matters that are subject to a number of risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. The factors that might cause this difference include, but are not limited to, those discussed throughout this Report and the Risk Factor section of the Company's Report on Form 10-KSB for the Fiscal Year Ended June 30,1997. OVERVIEW QCS Corporation (the "Company") is an electronic commerce service provider serving the worldwide retail industry. The Company's revenues are derived from its software products and services which include application software for a one time licensing/installation fee and network access for which the Company charges a fixed monthly fee and/or volume-based recurring usage fees. The Company from time to time also derives revenues from consulting services. The Company is continuing to implement its marketing alliance with IBM. The Company believes this alliance to be an important and central component of its business plan. Based on the marketing agreement signed in December of 1996, IBM will assume responsibility for much of the sales, marketing and end user support efforts of the Company's electronic collaboration services. The preparation activities for IBM to assume these tasks were started in the reporting quarter. There can be no assurance that the IBM agreement will continue to be executed. 7 From inception in 1993 through December 31, 1997, the Company has generated an accumulated deficit of $11,471,181. Since inception, the Company has incurred substantial costs to develop and enhance its technology, to create, introduce and enhance its product offerings, to establish marketing and distribution relationships, to recruit and train a sales and marketing group and to build an administrative organization. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new, unproved and rapidly evolving markets. The limited operating history of the Company makes the prediction of future results of operations difficult or impossible, and, therefore, there can be no assurance that the Company will sustain growth or achieve profitability. The Company's success depends to a significant degree upon the continued contributions of key management, engineering, sales and marketing, and finance personnel, certain of whom would be difficult to replace. The loss of the services of any of the key personnel, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel could have a material adverse effect on the Company's business, operating results or financial condition. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 The Company's revenues decreased by 43% to $185,195 for the second quarter of fiscal year 1998 (Q2 98) as compared to $324,941 for the second quarter of fiscal year 1997 (Q2 97). This decrease is primarily attributed to the Company's lower sales of its full Notes based supplier stations and the related installation and monthly subscription fees. The loss of these revenues has not been compensated by revenues of the new Internet based QCS Supplier Stations. In November, the Company reduced its monthly Internet subscription fee from $195 per month to $55 per month. Internet revenue for Q2 98 was $20,175 or 11% of total revenues. Cost of revenues decreased by 44% to $133,732 for Q2 98 from $238,031 in Q2 97 due primarily to the decrease in sales of the full Lotus Notes based product. Cost of sales consists primarily of the cost of purchasing network services, the cost of internal and external labor to install and support customer sites, and third party software and hardware for the existing Lotus Notes based product. In future periods, the Company anticipates that its cost structure may continue to differ significantly from previous periods because of the further transition from the Lotus Notes based product to the Internet based product using Lotus Domino technology, which does not have significant installation and backbone costs. Selling, general and administrative expenses (SG&A) consist primarily of personnel and personnel-related costs in the Company's sales, marketing and general management organizations. Also included are other administrative support costs such as external legal and financial services. SG&A expenses decreased 36% to $624,394 in Q2 98 from $975,863 in Q2 97. The decrease was due to lower payroll, travel, bad debt expense, and a reduction in the use of external consulting services. During Q2 98 the Company recorded a provision to SG&A expenses of $110,256 for the closure of its Nice and Hong Kong offices. The employees and services provided by these offices will be transferred to the local IBM teams in Q3 98. As a result of the foregoing, the net loss decreased 28% to $686,567 for Q2 98 from $955,692 in Q2 97. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 The Company's revenues decreased by 49% to $395,166 for the first six months of fiscal year 1998 as compared to $769,406 for the first half of fiscal year 1997. This decrease is primarily attributed to the Company's lower sales of its full Notes based supplier stations and the related installation and monthly subscription fees. The loss of these revenues has not been compensated by revenues of the new Internet based Supplier Sales Stations. Internet revenue for the first half of fiscal 1998 was $50,625 or 13% of total revenues. Cost of revenues decreased by 36% to $282,733 from $443,276 for the first half of 1998 from the same period in fiscal 1997. This was due primarily to the decrease in sales of the full Lotus Notes based product. Cost of sales consists primarily of the cost of purchasing network services, the cost of internal and external labor to install and support customer sites, and third party software and hardware for the existing Lotus 8 Notes based product. In future periods, the Company anticipates that its cost structure may continue to differ significantly from previous periods because of the further transition from the Lotus Notes based product to the Internet based product using Lotus Domino technology, which does not have significant installation and backbone costs. SG&A consist primarily of personnel and personnel-related costs in the Company's sales, marketing and general management organizations. Also included are other administrative support costs such as external legal and financial services. SG&A expenses decreased 36% to $1,115,309 from $1,729,455 for the first half of fiscal 1998 from the same period in 1997. The decrease was due to lower payroll and related expenses, communications, a reduction of accounting and legal fees and a reduction in the use of external consulting services. As a result of the foregoing, the net loss decreased 22% to $1,186,353 from $1,528,613 for the first half of fiscal 1998 from the same period in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents at December 31, 1997 was $392,164, representing a $881,993 decrease from June 30, 1997. This decrease in working capital was almost entirely from cash used in operating activities. In the first half of fiscal 1997, the Company used $1,439,329 of cash in operating activities. The Company's business plan for fiscal 1998 calls for continued increases in spending for product development and key technical personnel. The Company does not currently have a bank credit line. The Company did not conclude the private placement of common stock during the second quarter of fiscal 1998. The Company is in the process of implementing its working relationship with IBM and believes, that if it is successful in doing so, it will lower its marketing and selling expenses and be in a better situation to successfully raise an equity financing which would be sufficient to fund operations for the next year. While the Company believes it will be successful in implementing its alliance with IBM, there can be no assurance of this result or in successful fund raising efforts. The Company's ability to operate is dependent upon raising additional equity capital until revenues under the IBM relationship develop to a level that will sustain operations. The Company is currently seeking to raise additional capital through a private placement of common stock. As of the filing date, the Company had received $394,715 for 526,500 shares at $0.75 per share and has received signed subscriptions agreements executed by additional investors for another $175,500 for 234,000 shares. The Company has accepted these subscriptions and expects to receive the proceeds in due course. With the capital currently on hand, the Company has resources to fund operations through approximately June 1998. If the implementation of its agreement with IBM and the conclusion of the fund raising efforts are not successful, the Company would have to reduce operating expenses, this reduction would materially and adversely effect the Company's business and raise substantial doubt about its ability to continue as a going concern. The Company does not intend to pay cash dividends with respect to common stock in the foreseeable future. 9 PART II OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS 27 Financial Data Schedule b. REPORTS ON FORM 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the second quarter of fiscal 1998. SIGNATURE 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. Dated: February 23, 1998 QCS CORPORATION (Registrant) By: s/ Marcel van Heesewijk ------------------------- Marcel van Heesewijk, President, Chief Executive Officer, Acting Principal Accounting and Financial Officer and Chairman of the Board of Directors 10 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-1998 OCT-01-1997 DEC-31-1997 392 0 154 51 0 509 335 133 732 1,674 0 0 4 17 (974) (953) 0 185 0 134 743 0 (5) (687) 0 0 0 0 0 (687) (.04) 0
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