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 October 31, 1996
[ ] 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 0-12726
WIZ TECHNOLOGY, INC.
(Exact Name of Small Business Issuer as specified
in its Charter)
Nevada 33-0560855
State or other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.)
32951 Calle Perfecto, San Juan Capistrano 92675
(Address of principal executive offices) (Zip Code)
(714) 443-3000
(Issuer's telephone number)
Check whether the Issuer (1) 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 No X
Indicate the number of shares outstanding of each of the issuer's
classes of Common Equity, as of the latest practicable date.
Common Stock, $.001 par value 9,087,593
- ---------------------------------- ----------------------
Title of Class Number of Shares outstanding
at October 31, 1996
1
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1996
ASSETS
Current Assets:
Cash and cash equivalents 665,341
Accounts Receivable, net of allowance
for doubtful accounts of $607,653 1,911,002
Notes receivable 137,415
Notes receivable from stockholders 103,596
Prepaid expenses and other assets 510,086
Inventories 987,456
Employees advances 48,406
Total current assets 4,363,302
Property and Equipment net 808,646
License agreement,
net accumulated amortization of $218,745 3,281,255
Software development costs 171,485
Certificate of deposit 100,000
Covenants not to complete,
net of accumulated amortization of $414,608 574,767
Other assets 180,167
Total assets 9,479,622
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Obligations under capital leases, current 101,109
Accounts payable 734,220
Accrued expenses 193,539
Accrued salaries and wages 246,425
Notes payable 500,000
Accrued settlement expense 140,000
Convertible debt to related party 80,000
Total current liabilities 1,995,293
7% convertible debentures 1,212,500
Obligations under capital leases, noncurrent 189,081
Total liabilities 3,396,874
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized
Series A, 1,050 shares issued and outstanding 1
Series B, 1,200,000 shares issued and outstanding 1,200
Common stock, $.001 per value, 50,000,000 shares authorized
8,935,581 shares issued and outstanding 9,067
Additional paid-in capital preferred 3,226,500
Additional paid-in capital-common 9,207,720
Services receivable for common stock issued (18,900)
Note receivable from stockholder (157,500)
Accumulated deficit (6,185,340)
Total stockholders' equity 6,082,748
Total liabilities and stockholders' equity 9,479,622
3
WIZ TECHNOLOGY INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
Three Months Ended Three Months Ended
October 31, 1996 October 31, 1995
Net Revenues 1,319,175 2,046,032
Costs and expenses:
Cost of Revenues 599,689 968,649
Selling, general and administrative expenses 949,857 675,440
Research and development
Total costs and expenses 1,549,546 1,644,089
Income (loss) from operations (230,371) 401,943
Nonoperating expenses (income):
Interest income 8,367 8,100
Interest expense (23,436) (30,275)
Other (3,223) 37,578
Total nonoperating expenses (income) (18,292) 15,403
income (loss) before income taxes (248,663) 417,346
Provision for income taxes 16,694
Net income (loss) (248,663) 400,652
Net income (loss) per share (0.03) 0.05
Weighted average number of common shares outstanding 8,352,183 8,583,253
4
WIZ TECHNOLOGY INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the
Three Months Ended Three Months Ended
October 31, 1996 October 31, 1995
Cash flows from operating activities:
Net (loss) income $ (248,663) $ 400,652
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 219,318 82,774
Amortization of software development costs 33,196 32,185
Allowance for doubtful accounts 29,121
Allowance for slow-moving/obsolete inventories 121,718
Stock issued for services rendered 214,179
Services rendered for stock previously issued 9,450 27,825
Gain on sale of assets 16,489
Additions to software development costs
in exchange for common stock-subscribed 46,875
Changes in operating assets and liabilities:
Accounts receivable (7,003) (400,382)
Inventories 11,358 (284,643)
Prepaid expenses and other assets (4,405) (27,145)
Accounts payable (709,338) 30,355
Accrued expenses (269,547) 56,480
Accrued salaries and wages (11,345) 21,729
Income taxes payable 16,694
Net cash (used) provided by investing activities (976,979) 384,906
Cash flows from investing activities:
Purchases from property and equipment, net (3,318) (25,991)
Increase in notes receivable (10,000)
Decrease in notes receivable from stockholders 75,000
Decrease in employee advances 503 1,925
Increase in other assets 24,802 (8,850)
Capitalized software development costs (5,500) (449,417)
Net cash (used) provided by investing activities 6,487 (407,333)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,212,500 500,000
Principal payment on long term debt (27,638) (13,587)
Net cash provided by financing activities 1,184,862 486,413
Net increase (decrease) in cash 214,370 463.986
Cash at beginning of period 450,971 101,994
Cash at end of period 665,341 565,980
5
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended October 31, 1995 and October 31, 1996
NOTE 1 - UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial statements are unaudited, but, in the opinion of the
management of the Company, contain all adjustments, consisting of only normal
recurring accruals, necessary to present fairly the financial position at
October 31, 1996, the results of operations for the three months ended October
31, 1996 and October 31, 1995, and the cash flows for the three months ended
October 31, 1996 and October 31, 1995. The results of operations for the three
months ended October 31, 1996 are not necessarily indicative of the results of
operations to be expected for the full year ending July 31, 1997.
NOTE 2 - CONVERTIBLE DEBENTURES
On October 14, 1996, the Company issued 7% Convertible Debentures in exchange
for $1,212,500 net of issuance costs. These debentures mature on October 14,
1999. The related interest compounds annually and is payable on a semi-annual
basis commencing six months after the date of the Debentures. The Debentures may
be converted, at the holder's option, up to 33 1/3% of the aggregate original
principal amount beginning after the 90th day following the date of the
issuance; 66 2/3% after the 125th day; and 100% after the 170th day. The
conversion price shall be equal to the: 1) lesser of 110% of the average closing
bid price (as reported on the American Stock Exchange) of the Company's common
stock for the 5 consecutive trading days ending on the trading day immediately
preceding the date of the agreement, or, 2) 82% of the average closing bid price
of the Company's common stock for the 5 consecutive trading days ending on the
trading day immediately preceding a Conversion Date, as defined. In conjunction
with the issuance of the Debentures, the Company granted warrants to purchase
37,500 shares of common stock at an exercise price of $5 per share. These
warrants expire on October 14, 1999.
As the Company failed to file its Form 10-KSB for the year ended July 31, 1996
on a timely basis, these Debentures are technically in default. Management
believes that the default will be cured with the filing of the Form 10-KSB for
the year ended July 31, 1996.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL
CONDITION
(a) Plan of Operation
The Company expects to continue its expansion of its core business of the sale
of low-budget software sales for at least the next twelve months. In addition,
the Company will expand its marketing of the sale of intranet software
applications to other companies. At present the intranet sites which are
currently being developed are expected to be completed by March, 1997.
Currently, the Company has three contracts to develop such sites. Management has
not projected potential revenues of this source of income, has not projected the
effect on operations of this source and is not dependent upon the ultimate
realization of that income. The Company will continue to operate as if its
primary source of income is from the sale of low-budget software.
On October 14, 1996, the Company issued 7% Convertible Debentures in the
principal sum of $1,250,000 which mature on October 14, 1999 (see Notes to
Consolidated Financial Statements). Management believes cash provided by the
issuance of these Debentures combined with other current working capital will be
sufficient to meet all cash needs for on-going operations for at least the next
twelve months. Management has no plans to seek funds from outside sources at the
present.
The Company does not expect to incur material research and development costs for
the next twelve months. Management believes there are sufficient software titles
in the Company's library which can be marketed effectively. The Company also has
no plans to purchase a plant or significant equipment in the foreseeable future,
nor will it add a significant number of employees to the company operations.
(b) Management's Discussion and Analysis of Financial Condition and Results of
Operations
The most significant changes in financial condition from fiscal year end July
31, 1996 to October 31, 1996 include the issuance of the Convertible Debentures
discussed above. At October 31, 1996, capital was $6.1 million to total
liabilities of $3.4 million resulting in an equity to debt ratio of 1.8:1.
Working capital at the same period was $2.4 million. In addition, the Company
reduced trade accounts payable and accrued expenses by approximately $1.0
million.
Sales for the period ended October 31, 1996 vs. October 31, 1995 were $1.3
million to $2.0 million respectively. This is a decline in sales of 35% along
with a decrease in the related cost of sales of 38%. Management believes an
anticipated lackluster Christmas season is the reason for this decline, noting
that retailers are placing these seasonal sales later this year.
The 41% increase in selling, general and administrative expenses is the result
of the additional costs incurred and employees hired associated with the 1996
fourth quarter purchase of Q&A Sales and Marketing previously reported. The
decrease in sales concomitantly with the increase in expenses resulted in the
October 31, 1996 loss reported of approximately $249,000 compared to the
$400,000 profit reported at October 31, 1995. The loss includes non-cash
expenses of $252,000 recorded in the first quarter of 1996 comprised of
depreciation and amortization charges.
Foreign currency fluctuations have not had a material effect on the Company's
results of operations.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Except as set forth below, no material proceedings to which the Company is a
party, or to which any of its properties are subject, are pending or are known
to be contemplated, and the Company knows of no material legal proceedings,
pending or threatened, or judgments entered against any director or officer of
the Company in his capacity as such.
The Company has filed, on March 23, 1994, a lawsuit against $5.99 Store, Craig
Larson and Andrea Larson, former distributors of the Company (collectively, the
"Defendants"), in the Supreme Court of British Columbia, Canada, for the debt
owed by the $5.99 Store to the Company, and breach of the distribution agreement
entered into by the Company and the Defendants. In the lawsuit, the Company
alleges that the Defendants continue to use the Company's trademarks and
represent themselves as the owners of such trademarks without the consent of the
Company. Furthermore, the Company alleges the
7
breach of an agreement with the Defendants, pursuant to which the Company agreed
to extend credit to the Defendants. The Company seeks damages in the amount of
$477,418.75 (Can) for the price of goods sold and delivered to the Defendants
and for the financing charges associated therewith. The lawsuit further alleges
that the Defendants failed to conduct their business affairs in a professional
manner, in breach of the distribution agreement. The Company terminated said
distribution agreement with the Defendants on February 10, 1994. The Company
seeks also an injunction restraining and enjoining the Defendants from selling
and distributing of the Company's goods without the Company's consent. The
Company obtained a judgment in this litigation in the amount of $364,000 (Can),
but collection of the judgment has been stayed pending appeal and resolution of
the counter suit described below. The Defendants have appealed the judgment.
On March 21, 1994, $5.99 Computer Software Store (Canada), Inc. (the
"Plaintiff") filed a lawsuit in the Supreme Court of British Columbia, Canada,
against the Company in which it alleges a breach of the distribution agreement
by the Company. The Plaintiff seeks unspecified damages and an injunction
restraining the Company from distributing its products in Canada. A trial date
has been tentatively scheduled for September, 1998 to resolve outstanding issues
with respect to this matter.
Although the Company believes it has successfully challenged Plaintiff's claims,
in the event the Plaintiff was successful, the Company believes that the impact
would neither be material nor have a material adverse impact on the Company.
There can be no assurance that the Plaintiff and others will not bring claims
against the Company nor that the Company can successfully challenge each such
claim.
On April 1, 1996, the Company was served with a lawsuit filed in Orange County
Superior Court by the underwriter of its 1994 public offering, Strausbourger
Pearson Tulcin Wolff Incorporated (the "Underwriter"). The Underwriter alleges
that the Company's sale of a private placement in November 1995 violated a
covenant in the underwriting agreement for the 1994 public offering not to sell
any of its securities until February 9, 1996 without the Underwriter's consent.
The Company has answered the complaint denying all allegations and has also
filed for arbitration with the NASD. The Company believes the lawsuit is without
merit.
On May 24, 1996, the Underwriter filed an additional complaint in Orange County
Superior Court alleging that the Company had not complied with the Underwriter's
demand to file a registration statement with the Securities and Exchange
Commission to register the shares underlying the Underwriter's 182,000
Underwriter Warrants received in connection with the 1994 public offering. The
complaint seeks damages of not less than $1,000,000. The Company believes the
second lawsuit is without merit and has filed an answer denying all allegations.
The Company has filed a motion to disqualify the Underwriter's legal counsel on
the basis of a conflict of interest.
The Company has been named in a respondent action for breach of contract and
other business-related torts brought by Daisy Software, Inc. The Company filed a
counter-claim alleging numerous business-related torts and seeking punitive
damages. In October, 1996 an arbitrator with the American Arbitration
Association who presided over the hearing awarded $140,000 to Daisy Software.
This amount is accrued as a liability in the October 31, 1996 financial
statements. The Company intends to appeal this judgment.
On October 29, 1996, Platinum Entertainment Partners, II, a Nevada general
partnership, filed in Clark County, Nevada District Court a complaint against
the Company asserting three causes of action based on an alleged breach of
contract. The complaint seeks unspecified damages, or specific performance in
which the Company should provide 240,000 units of the Company's product. The
Company intends to vigorously defend the allegations stated in the complaint, as
it believes such allegations are without merit.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
The Company was notified on November 20, 1996 that a default existed on
the $1,250,000 of 7% convertible debentures previously disclosed. The default
event is the failure to file Form 10-KSB for the year ended July 31, 1996 in a
timely manner. Management has been in close contact with the investors in these
debentures and is of the opinion the default will be cured once the filing has
been accomplished.
8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
As reported on Form 8-K dated September 23, 1996, the Company engaged Grant
Thornton, L.L.P. as its new independent
accountant. On December 12, 1996 Grant Thornton, L.L.P. resigned as the
Company's independent auditors as reported on Form
8-K dated December 12, 1996.
As reported on the same Form 8-K dated December 12, 1996, Cacciamatta
Accountancy Corporation was engaged as the Company's new independent auditor.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K: The Company held an 8-K dated August 21,
1996 to report the resignation of Coopers
& Lybrand, L.L.P. as its independent auditors. The Company filed an 8-K dated
September 23, 1996 to report the engagement
of Grant Thornton, L.L.P. as its new auditors
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.
Date: December 16, 1996
By:/s/ Arthur S. Tendler
Arthur S. Tendler
President and duly authorized Officer
Date: December 16, 1996
By:/s/ Richard N. Nance
Richard N. Nance
Chief Financial Officer