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 April 30, 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.
(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.
1
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 10,000,094
- ---------------------------------- ----------------------
Title of Class Number of Shares outstanding
at May 15, 1997
2
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
April 30, 1997
ASSETS
Cash and cash equivalents 187,597
Accounts Receivable, net of allowance
for doubtful accounts of $143,062 877,080
Notes receivable 137,415
Notes receivable from stockholders 103,596
Prepaid expenses and other assets 256,540
Inventories 953,161
Employee advances 1,865
Total current assets 2,517,252
Property and Equipment, net 672,951
License agreement,
net accumulated amortization of $393,743 3,106,257
Software development costs 97,845
Certificate of deposit 100,000
Covenants not to complete,
net of accumulated amortization of $510,344 479,032
Other assets 72,091
Total assets 7,045,428
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Obligations under capital leases, current 101,703
Accounts payable 672,671
Accrued expenses 26,508
Accrued salaries and wages 120,923
Notes payable 500,000
Accrued settlement expense 116,500
Total current liabilities 1,538,305
7% convertible debentures 1,212,500
Obligations under capital leases, noncurrent 213,390
Total liabilities 2,964,195
Commitments and contingencies
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
CONTINUED
April 30, 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
Note receivable from stockholder (157,500)
Accumulated deficit (8,375,259)
Total stockholders' equity 4,081,233
Total liabilities and stockholders' equity 7,045,428
4
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the For the
Nine Months Ended Three Months Ended
April 30, April 30,
1997 1996 1997 1996
Net revenues - Software $ 2,349,543 $ 6,336,879 $ 510,763 $ 2,701,999
Net revenues - Intranet 216,286 216,286
Total net revenues $ 2,565,829 $ 6,336,879 $ 727,048 $ 2,701,999
Costs and expenses:
Cost of revenues - Software $ 1,074,139 $ 3,241,066 $ 141,222 $ 1,457,655
Cost of revenues - Intranet 0 0
Selling, general and
administrative expenses 3,860,549 2,207,437 984,300 896,951
Total costs and expenses $ 4,934,688 $ 5,448,503 $ 1,125,522 $ 2,354,606
Income (loss) from operations (2,368,859) 888,376 (398,474) 347,393
Nonoperating (expenses) income
Interest income $ 26,804 $ 58,265 $ 7,190 $ 23,749
Interest expense (98,409) (93,247) (28,948) (42,181)
Other 1,883 (27,643) -- (45,083)
Total nonoperating (exp) income (69,723) (62,625) (21,758) (63,515)
Income (loss) before
income taxes (2,438,582) 825,751 (420,231) 283,878
Provision for income taxes 31,707 -- 10,903
Net income (loss) $ (2,438,582) $ 794,044 $ (420,231) $ 272,975
Net income (loss) per share $ (0.27) $ 0.09 $ (0.05) $ 0.03
Weighted average number of
common shares outstanding 8,895,191 8,957,422 8,985,191 8,660,961
5
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the For the
Nine Months Ended Three Months Ended
April 30, 1997 April 30, 1996
Cash flows from operating activities
Net (loss) income $ (2,438,582) $ 794,044
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 622,428 295,935
Amortization of software development
costs 101,336 231,023
Allowance for doubtful accounts 464,591 64,903
Allowance for slow-moving/obsolete
inventories 68,271
Stock issued for services rendered 310,412
Services rendered for stock previously
issued 28,350 77,075
Gain on sale of assets 21,299
Changes in operating assets and liabilities:
Accounts receivable 562,328 (974,839)
Inventories 45,653 (774,597)
Prepaid expenses and other assets 249,141 (132,281)
Accounts payable (770,887) (620,551)
Accrued expenses (460,076) 121,407
Accrued salaries and wages (136,847) (36,449)
Income taxes payable 31,707
Net cash provided (used) by
investing activities (1,732,565) (521,741)
Cash flows from investing activities:
Purchases of property and equipment, net (156,572)
Increase in notes receivable (10,000) (48,001)
Decrease in notes receivable from stockholders 325,000
Decrease in employee advances 47,044 (39,508)
Decrease in other assets 132,878 (156,868)
Capitalized software development costs (515,612)
Net cash provided (used) by
investing activities 169,922 (591,561)
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WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
For the For the
Nine Months Ended Three Months Ended
April 30, 1997 April 30, 1996
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,212,500 500,000
Proceeds from exercise of common stock options 37,500
Principal payments on long-term debt 98,374 (45,524)
Proceeds from issuance of Series A Convertible
Preferred, Net (225,000) 1,800,000
Current maturities of LTD (181,107)
APIC - Common 394,502
Net cash provided by financing activities 1,299,269 2,291,976
Net increase (decrease) in cash (263,374) 1,178,674
Cash at beginning of period 450,971 101,994
Cash at end of period $ 187,597 $ 1,280,668
Supplemental disclosure of cash flows information: Cash paid during the year
for:
Interest $ 69,723 $ 51,996
Income taxes $ 0 $ 0
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WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Nine Months Ended April 30, 1996 and April 30, 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 April
30, 1997, the results of operations for the nine months ended April 30, 1997 and
April 30, 1996, and the cash flows for the three months ended April 30, 1997 and
April 30, 1996. The results of operations for the three and nine months ended
April 30, 1997 are not necessarily indicative of the results of operations to be
expected for the full year ending July 31, 1997.
NOTE 2 - ALLOWANCE FOR DOUBTFUL ACCOUNT
Beginning Balance, February 1, 1997 $ 497,210
Less: Charges 354,148
Additions 0
Ending Balance 143,062
NOTE 3 - INVENTORIES
Inventories consist of
Raw materials: $ 497,210
Finished goods: $ 429,214
Total $ 968,878
Less: Allowance for
Obsolescence $ (15,717)
TOTAL $ 953,161
NOTE 4 - 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.
NOTE 4 - ACCOUNTING POLICY - SEGMENT REPORTING
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On January 31, 1997 the Company sold two of its existing intranet contracts to
American Data Intranet Systems, Inc. (ADIS), an affiliate of American Data
Technology, Inc. (ADTI) for $2,000,000 which includes refinancing a $250,000
receivable recorded in fiscal 1996. ADTI transacts other business with the
Company relating to outside software-fulfillment. The terms of the sale call for
a $450,000 payment due in February 1997, which was paid and applied to the
$250,000 existing receivable, and the balance of $1,550,000 collected over the
next 51 months. The Company will record transactions using the installment
method of accounting which recognizes revenues as cash is received. Monthly
payments will 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
The Company considers this transaction a new source of revenue, reported as a
segment of the Company's business. There are no direct costs associated with
this revenue source. Sales commissions, included in selling, general and
administrative expenses, and amortization of the intranet license agreement are
considered indirect costs of this transaction and are not a part of cost
revenues.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(b) Management's Discussion and Analysis of Financial Condition and Results
of Operations
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. The Company utilizes both in-house and outside sales representatives
who typically are paid a base draw against commissions. Commissions are
generally paid as cash is received from customers. With regards to the intranet
revenues, the Company expects to record revenues as transactions are accessed on
the respective intranet sites and/or from the sale of contracts to third
parties. On-going costs associated with intranet sales are anticipated to
consist of commissions and indirect costs (amortization of the license
agreement). There are no direct costs to the Company associated with this source
of revenue. As previously reported, on January 31, 1997 the Company entered into
a contract to sell two of its existing contracts to a third party. The terms of
the contract are detailed in the footnotes to the financial statements and
revenues will be recognized under the installment method of accounting that
recognizes income as cash is received. During the quarter ended April 30, 1997
the Company received the first payment of $450,000 which was applied to an
existing outstanding receivable of $250,000, with the balance of $200,000
recorded as revenues. Additional revenues were also received during the quarter
ended April 30, 1997 as a result of intranet site installations, and recorded as
well. The Company has other business dealings with an affiliate of American Data
Intranet Systems, (AIDS), the third party purchaser of the Intranet contracts.
See footnotes to the financial statements.
During the quarter ended April 30, 1997 the Company recorded revenues generated
from the sale of intranet contracts and from the contracts themselves. For
reporting purposes this is being treated as a separate segment of Company
operations distinguished from software sales. Software sales declined by 63% for
the nine months ended April 30, 1997 compared to the same period ended April 30,
1996. For the three months ended April 30, 1997 versus April 30, 1996 software
sales declined by 81%. Management attributes this decline to refocusing the
Company's selling effort to a more diverse customer base, albeit smaller
retailers. The Company has found that dealing with some larger retailers proved
unprofitable and led to a concentration of sales which management felt could
lead to a potential problem in the future. Cost of sales for the three-month
period was 54% for 1996 and 28% for the quarter ended April 30, 1997. This is
reflective of the sales to smaller companies during this period for cash and a
decline in the rate of returned merchandise. For the nine months ended April 30,
1997 versus 1996, cost of sales improved to 46% from 51%, respectively. Again,
management attributes this improvement to a reduced return rate and sales to
smaller companies who do not make floor space demands, require advertising
allowances, etc., which the larger retailers practice.
Selling, general and administrative expenses for the nine-month period increased
by 75% from 1996. However, the three-month increase of 10% for the period ended
April 30, 1997 compares favorably to the same period ended April 30, 1996. This
is due to aggressive cost cutting steps taken during the first and second
quarter of fiscal 1997 as previously reported. The year to
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date increase was due to the increased over-head initiated by the purchase of
Q&A Sales and Marketing in the fourth quarter of 1996, also previously reported.
The Company continues to report losses, and expects that trend to continue for
the remainder of the year. The primary objective of the Company at this point is
to find creative ways to sell its product in order to increase the sales-volume
to a level that will generate profits. Management does not expect any further
significant cost-cutting to take effect and expects the current number of
employees at approximately 32 to remain mostly unchanged.
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 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
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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 was 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 has since entered into a repayment agreement with Daisy
whereby the Company will make payments of $5,000 per month beginning February
1997, towards reducing this outstanding liability. Those payments are being made
and the agreement is current as of June 1997.
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 inventory 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 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.
On May 8, 1997 the Company was notified that the Securities and Exchange
Commission is "conducting an informal inquiry concerning Wiz Technology, Inc.
12
to determine whether there have been violations of certain provisions of the
federal securities laws." The Company is cooperating fully in this process.
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
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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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: June 16, 1997
By:
Arthur S. Tendler
President and duly authorized
Officer
Date: June 16, 1997
By:
Richard N. Nance
Chief Financial Officer
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