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 January 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 0-12726
WIZ TECHNOLOGY, INC.
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 X No
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 February 10, 1997
1
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
January 31, 1997
ASSETS
Current Assets:
Cash and cash equivalents 189,733
Accounts Receivable, net of allowance
for doubtful accounts of $297,210 1,232,051
Notes receivable 137,415
Notes receivable from stockholders 103,596
Prepaid expenses and other assets 366,617
Inventories 1,005,279
Employee advances 48,305
Total current assets 3,082,995
Contract receivable, net of discount of $1,300,000 700,000
Property and Equipment, net 734,974
License agreement,
net accumulated amortization of $306,243 3,193,757
Software development costs 138,288
Certificate of deposit 100,000
Covenants not to complete,
net of accumulated amortization of $477,062 512,313
Other assets 100,925
Total assets 8,563,252
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Obligations under capital leases, current 101,703
Accounts payable 732,654
Accrued expenses 107,538
Accrued salaries and wages 189,629
Notes payable 500,000
Accrued settlement expense 140,000
Total current liabilities 1,771,524
7% convertible debentures 1,212,500
Obligations under capital leases, noncurrent 242,214
Total liabilities 3,226,238
Commitments and contingencies
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
CONTINUED
January 31, 1997
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
9,067,593 shares issued and outstanding 9,067
Additional paid-in capital preferred 3,537,799
Additional paid-in capital-common 9,065,924
Services receivable for common stock issued (9,450)
Note receivable from stockholder (157,500)
Accumulated deficit (7,110,027)
Total stockholders' equity 5,337,014
Total liabilities and stockholders' equity 8,563,252
3
WIZ TECHNOLOGY INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
Six Months Ended Three Months Ended
January 31, January 31,
1997 1996 1997 1996
Net revenues $ 2,288,781 $ 3,634,881 $ 962,436 $ 1,588,849
Costs and expenses:
Cost of revenues 975,572 1,783,412 261,705 814,762
Selling, general and administrative expenses 2,438,594 1,310,487 1,594,523 635,048
Total costs and expenses $ 3,414,166 $ 3,093,899 $ 1,856,228 $ 1,449,810
Income (loss) from operations (1,125,385) 540,982 (893,792) 139,039
Nonoperating (expenses) income
Interest income 19,613 34,516 11,261 26,416
Interest expense (69,460) (69,816) (44,023) (39,541)
Other 1,883 36,190 1,868 (1,388)
Total nonoperating (expense) income (47,965) 890 (30,895) (14,513)
Income (loss) before income taxes (1,173,350) 541,872 (924,687) 124,526
Provision for income taxes 20,803 4,109
Net income (loss) $(1,173,350) $ 521,069 $ (924,687) $ 120,417
Net income (loss) per share $ (0.13) $ 0.06 $ (0.10) $ 0.01
Weighted average number of common shares outstanding 8,985,191 8,608,766 8,985,191 8,620,541
4
WIZ TECHNOLOGY INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the
Six Months Ended Six Months Ended
January 31, 1997 January 31, 1996
Cash flows from operating activities:
Net (loss) income $ (1,173,350) $ 521,069
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 439,624 173,380
Amortization of software development costs 60,893 96,092
Allowance for doubtful accounts 42,231
Allowance for slow-moving/obsolete inventories 46,719
Stock issued for services rendered 195,640
Services rendered for stock previously issued 18,900 52,900
Gain on sale of assets 15,988
Additions to software development costs
in exchange for common stock-subscribed
Changes in operating assets and liabilities:
Accounts receivable 671,948 (495,625)
Inventories (6,465) (195,963)
Prepaid expenses and other assets 139,064 (93,636)
Accounts payable (710,904) (510,534)
Accrued expenses (355,546) 84,428
Accrued salaries and wages (68,141) (43,950)
Income taxes payable 20,803
Net cash (used) provided by operating activities (983,977) (90,458)
Cash flows from investing activities:
Purchases from property and equipment, net (103,116)
Interest in contract receivable (700,000)
Increase in notes receivable (10,000) 325,000
Decrease in notes receivable from stockholders
Decrease in employee advances 604 4,238
Decrease in other assets 104,044 (21,634)
Capitalized software development costs (501,047)
Net cash (used) provided by investing activities (605,352) (296,559)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,212,500 500,000
Principal payment on long term debt 25,495 (29,462)
Proceeds from issuance of Series A Convertible
Preferred, Net (225,000) 1,800,000
Current maturities of LTD (79,406)
APIC - Common 394,502
Net cash provided by financing activities 1,328,091 2,270,538
Net increase (decrease) in cash (261,238) 1,883,521
Cash at beginning of period 450,971 101,994
Cash at end of period $ 189,733 $ 1,985,515
Supplemental disclosure of cash flows information Cash paid during the year for:
Interest $ 49,847 $ 25,594
Income Taxes $ 0 $ 0
5
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Six Months Ended January 31, 1996 and January 31, 1997
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
January 31, 1997, the results of operations for the six months ended January 31,
1997 and January 31, 1996, and the cash flows for the three months ended January
31, 1997 and January 31, 1996. The results of operations for the six months
ended January 31, 1997 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
112,500 shares of common stock at an exercise price of $5 per share. These
warrants expire on October 14, 1999.
NOTE 3 - CONTRACT RECEIVABLE
On January 31, 1997 the Company sold two of its existing intranet contracts to a
third party for $2,000,000. The terms of the sale call for a payment due in
February, 1997, which was paid, of $450,000 with the balance collected over the
next 51 months. Monthly payments begin October, 1997 under the following
schedule: 1. Twelve payments of $10,000 per month 2. Twelve payments of $20,000
per month 3. Twelve payments of $30,000 per month 4. Twelve payments of $40,000
per month 5. Seven payments of $50,000 per month
Total Cash Payments: $2,000,000
At January 31, 1997 the Company recognized $450,000 as income and will record
future income from the contract based on the recovery method as cash is
received. The discount on the contract receivable will be amortized over the
life of the contract as interest income.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CONDITION
(a) Plan of Operation
The Company continues to develop and distribute budget computer software to
retail stores throughout the United States and foreign countries. For the near
future the Company's focus to generate revenues will come from the sale of this
software and from the marketing of its intranet software application to other
companies. With regards to the Intranet revenues, the Company expects to receive
revenues as transactions are accessed on the respective intranet sites and/or
from the sale of contracts to third parties. At January 31, 1997 the Company
sold two of its existing contracts to a third party for $2,000,000. The discount
balance will be recognized as interest income over the collection period of the
contract. See footnotes to the financial statements.
(b) Management's Discussion and Analysis of Financial Condition and Results of
Operations
As previously discussed, the most significant change on the Company's balance
sheet for the quarter ended January 31, 1997 is the contact receivable with
regards to the intranet sales discussed above. The Company is currently pursuing
additional contracts to develop intranet sites for other companies, though no
assurances can be given that those contracts will be consummated.
For the six months ended January 31, 1997, net revenues declined by 37% compared
to the same period ended January 31, 1996. Management believes a combination of
slower than expected seasonal sales, competition and returned merchandise were
factors contributing to the decline. Cost of goods sold remained relatively
comparable for the six month periods at 43% and 43% for January 31, 1997 and
1996 respectively. The decrease in cost of sales is due to the inclusion of the
revenue recognized of the intranet sales contract. The offsetting cost of sale
of this contract is reflected in the amortization expense of the intranetlicense
agreement. Selling and G&A expenses rose however by 63% from the prior year due
to
the increase in number of employees and executives as a result of the fourth
quarter 1996 purchase of Q& A Sales & Marketing. Management of the Company has
taken aggressive steps to reduce this increase by bringing the number of
employees more in line with the revenue of the Company. By March, 1997 the
number of full time employees had been reduced to approximately 30, down from
over 50 at the year ended July 31, 1996. Management does not expect any further
significant changes in the number of employees for the foreseeable future.
The net loss reported at January 31, 1997 of $1.2 million compared to profits of
$521,069 reported at the period ended January 31, 1996 resulted form the
combination of slower sales and increased overhead and includes non-cash charges
of depreciation and amortization of nearly $600,000. Management cannot at this
time determine if the trend of losses reported to date for fiscal 1997 will
continue or not for the balance of the fiscal year. Management believes capital
and liquidity are sufficient for the near-future and continues to aggressively
work toward collections of accounts receivable and reducing inventory levels.
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
7
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 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.
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 has been accrued as a liability in the January 31, 1997
financial statements.
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. Additionally, during January,
1997 the Company filed a counter-claim against the plaintiff seeking the return
of over $700,000 in inventor or cash equivalent.
On March 4, 1997 a lawsuit was filed in the Orange County Superior Court of
California by seven shareholders alleging the "issuance of false financial
statements and other positive statements." The action seeks class action status
for purchasers of the Company stock between December 11, 1995 and November 11,
1996. The complaint prays
8
for relief as the court may deem just and proper. The Company intends to
vigorously defend the allegations stated in the complaint, as it believes such
allegations are without merit. As of March 12, 1997 the Company has not yet been
served with this complaint.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
On November 11, 1996 the American stock Exchange (the Exchange) halted trading
of the Company's common stock for failing to file in a timely manner SEC Form
10-KSB for the year ended July 31, 1996. The Exchange subsequently notified the
Company it had fallen below the Exchange's guidelines for continued listing and
subjected the Company to a continued listing revue. On February 10, 1997 the
Exchange notified the Company of its decision to de-list the Company. The
Company chose not to appeal this decision. During February, 1997, the Company's
stock began trading on the Nasdaq Electronic Bulletin Board under the symbol
"WZTC".
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
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.
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: March 14, 1997
By:/s/ Arthur S. Tendler
Arthur S. Tendler
President and duly authorized Officer
Date: March 14, 1997
By:/s/ Richard N. Nance
Richard N. Nance
Chief Financial Officer