U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
[_] Transition Report Pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From ____________ to ______________
Commission File number 000-23025
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NOTIFY TECHNOLOGY CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 77-0382248
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1054 South De Anza Blvd.
San Jose, CA 95129
---------------------------------------
(Address of principal executive offices)
(408) 777-7920
(Issuer's telephone number)
============================================================================
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 of 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
As of March 31, 2001 there were 5,266,623 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format
Yes No X
INDEX
-----
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Financial Statements: (unaudited)
Balance Sheets as of March 31, 2001 and as of September 30, 2000...........3
Statements of Operations for the three-month and six-month
periods ended March 31, 2001 and 2000......................................4
Statements of Cash Flows for the six-month periods ended
March 31, 2001 and 2000....................................................5
Notes to the Financial Statements..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................7
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................11
Item 4. Submission of matters to a vote of security holders.......................11
Item 6. Exhibits and Reports on Form 8-K..........................................11
SIGNATURES ........................................................................11
2
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Financial Statements
NOTIFY TECHNOLOGY CORPORATION
BALANCE SHEET
March 31 September 30
2001 2000
(unaudited) (1)
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 705,197 $ 311,795
Restricted cash -- 764,698
Accounts receivable 114,017 411,334
Inventories 284,091 502,660
Other current assets 55,941 50,686
------------ ------------
Total current assets 1,159,246 2,041,173
Property and equipment, net 203,203 276,115
------------ ------------
Total assets $ 1,362,449 $ 2,317,288
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 23,255 302,573
Deferred revenue 317,875 452,690
------------ ------------
Other accrued liabilities 333,232 448,102
------------ ------------
Total current liabilities 674,362 1,203,365
Shareholders' equity:
Common stock 5,267 4,887
Additional paid-in capital 15,057,593 13,842,524
Retained earnings (14,374,773) (12,733,488)
------------ ------------
Total shareholders' equity 688,087 1,113,923
------------ ------------
Total liabilities and shareholders' equity $ 1,362,449 $ 2,317,288
============ ============
(1) The information in this column was derived from the Company's audited
financial statements for the year ended September 30, 2000
See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
Three-Month Periods Six-Month Periods
Ended March 31, Ended March 31,
2001 2000 2001 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Net sales $ 389,791 $ 1,684,603 $ 752,106 $ 2,754,281
Cost of sales 397,445 1,287,101 743,635 2,022,546
----------- ----------- ----------- -----------
Gross profit (7,654) 397,502 8,471 731,735
Operating expenses:
Research & development 241,665 340,537 528,183 719,573
Sales and marketing 203,752 343,601 461,666 661,987
General and administrative 414,224 421,407 765,933 784,668
----------- ----------- ----------- -----------
Total operating expenses 859,641 1,105,545 1,755,782 2,166,228
----------- ----------- ----------- -----------
Loss from operations (867,295) (708,043) (1,747,311) (1,434,493)
Other (income) and expense, net (9,466) (13,592) (106,026) (40,193)
----------- ----------- ----------- -----------
Net loss $ (857,829) $ (694,451) $(1,641,285) $(1,394,300)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.21) $ (0.20) $ (0.42) $ (0.40)
=========== =========== =========== ===========
Weighted average shares outstanding 4,025,977 3,553,612 3,929,852 3,492,949
=========== =========== =========== ===========
See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
Six-Month Periods
Ended March 31,
2001 2000
--------------------------
(Unaudited)
Cash Flows used in operating activities:
Net loss $(1,641,285) $(1,394,300)
Adjustments to reconcile net loss to cash used in
Operating activities:
Depreciation and amortization 74,983 98,056
Changes in operating assets and activities:
Accounts receivable 297,316 (442,562)
Inventories 218,569 (159,428)
Accounts payable (279,317) 148,200
Accrued liabilities (119,870) 151,727
Other current assets (5,256) 76,970
Deferred revenue (129,815) --
--------------------------
Net cash used in operating activities (1,584,675) (1,521,337)
--------------------------
Cash flows used in investing activities:
Expenditures for property & equipment (2,070) (70,147)
Decrease in restricted cash 764,698 --
--------------------------
Net cash used in investing activities 762,628 (70,147)
Cash flows provided by financing activities:
Proceeds from issuance of common stock 1,209,748 --
Proceeds from exercise of options and warrants 5,701 1,696,419
--------------------------
Net cash provided by financing activities 1,215,449 1,696,419
--------------------------
Net increase in cash and cash equivalents 393,402 104,935
Cash and cash equivalents at beginning of period 311,795 2,121,753
--------------------------
Cash and cash equivalents at end of period $ 705,197 $ 2,226,688
==========================
See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Notify Technology
Corporation (referred to as "we", "us" and "our" unless the context otherwise
requires) have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions of Regulation
S-B Item 310(b) and Article 10 of Regulation S-X. The balance sheet as of March
31, 2001, the statements of operations and the statements of cash flows for the
six-month periods ended March 31, 2001 and 2000 are unaudited but include all
adjustments (consisting only of normal recurring adjustments), which we consider
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Although we believe that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
financial statements should be read in conjunction with the financial statements
and notes thereto included in our Annual Report on Form 10-KSB and 10-KSB/A for
the year ended September 30, 2000.
Results for any interim period are not necessarily indicative of
results for any other interim period or for the entire year.
2. FISCAL 2001 FINANCING
Our financial statements are prepared and presented on a basis assuming
we continue as a going concern. At March 31, 2001, we had an accumulated
deficit of $14,374,773 and incurred a net loss of $3,526,452 and $1,641,285 for
the year ended September 30, 2000 and the six-month period ended March 31, 2001,
respectively. Our recurring losses from operations and reduction in liquidity
raise substantial doubt about our ability to continue as a going concern.
During fiscal 2000 and the first six months of fiscal 2001, we
financed our operations through a combination of existing cash balances and the
proceeds from the sale of common stock (see note 7) and exercise of warrants.
Our ability to fund recurring losses from operations depends upon our success in
shifting our product focus into wireless e-mail notification and wireless e-mail
notification market solutions, and/or raising other sources of financing.
Management has entered into and expects to enter into additional arrangements
that will produce revenue from new products during fiscal 2001. We also
continues to pursue other sources of additional financing, including equity
financing. In this respect we have retained a financial advisor to assist us in
evaluating and pursuing options with respect to our capital requirements. If we
are successful in selling these new products and/or raising other sources of
financing, we believe that we will be able to finance our operations during
fiscal 2001 and 2002.
3. NET LOSS PER SHARE
The weighted average number of common shares used in the net loss per
share calculation was reduced by the common stock and potential common shares
placed in escrow in connection with our initial public offering. Options to
purchase 592,952 and 430,618 shares of common stock were outstanding at March
31, 2001 and 2000, respectively, but were not included in the computation of
diluted net loss per share as the effect would be antidilutive.
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NOTIFY TECHNOLOGY CORPORATION
4. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
5. INVENTORIES
Inventories consist principally of raw materials and subassemblies,
which are stated at lower of cost (first-in, first-out) or market.
March 31, September 30,
2001 2000
-----------------------------
Raw Materials $ -- $ 76,662
Work In Process 125,049 197,062
Finished Goods 159,042 228,936
-----------------------------
$ 284,091 $502,660
=============================
6. INCOME TAXES
Due to our loss position, there was no provision for income taxes for
the three-month and six-month periods ended March 31, 2001 and 2000.
7. SHAREHOLDERS' EQUITY
In November 2000, we sold to a private group of investors, which
included Mr. Andrew Plevin, a director of the Company, 376,865 shares of common
stock and issued warrants to purchase an aggregate of 188,424 shares of common
stock for an aggregate consideration of $1,209,748. The exercise price for each
of the warrants is $3.25 per share of common stock. Warrants to purchase an
aggregate of 94,212 shares of common stock expire nine months from the closing
date and warrants to purchase an aggregate of 94,212 shares of common stock
expire three years from the closing date. In the event we issue equity
securities in a financing for an amount of $250,000 or more at a price per share
less than the price per share in this offering, the exercise price of the
outstanding warrants will be reduced to the price per share at which such equity
securities are sold and we will issue additional warrants to purchase common
stock with an exercise price of $0.01 and a term of three years. The warrants
will be exercisable into a number of shares of common stock determined by the
price per share and number of shares issued in the financing.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The following discussion should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I - Item 1 of
this Quarterly Report and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-KSB for the year ended
September 30, 2000 and our amended Form 10-KSB/A filed May 4, 2001.
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NOTIFY TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS
Three-Month Periods Ended March 31, 2001 and 2000
Revenue consists primarily of gross revenue from the sale of telephony
equipment, service revenue related to the Centrex Receptionist and royalty
revenue. Revenue for the three-month period ended March 31, 2001 decreased to
$389,791 from $1,684,603 for the three-month period ended March 31, 2000.
Revenue was down from the previous year primarily due to decreased sales of
$1,170,907 in the Call Manager product line and, to a lesser extent, a reduction
of $ 193,240 in Centrex Receptionist sales. We believe the decline in revenue
from Call Manager products is due to our telephone company customers reducing
the use of adjunct products as a marketing tool. Centrex Receptionist
revenue decreased because telephone companies emphasized the sale of key systems
as an alternative to selling our Centrex product. Revenue for the three-month
period ended March 31, 2001 includes royalty revenue of $77,632 from our
multi-sense/stutter-dial patent compared to $12,729 for the three month period
ended March 31, 2000. Sales of the Call Manager product represented 29% of our
revenue in the three month period ended March 31, 2001 compared to 76% in the
three month period ended March 31, 2000. Sales of the Centrex Receptionist
represented 19% of our revenue in the three month period ended March 31, 2001
compared to 14% in the three month period ended March 31, 2000. Sales to
telephone companies were 66% and 91% of revenue for the three-month periods
ended March 31, 2001 and 2000, respectively. One customer accounted for 25% and
16% of sales in the three-month periods ended March 31, 2001 and 2000,
respectively. Two other customers accounted for 31% and 20% of sales in the
three month period ended March 31, 2001.
Most of the Call Manager revenue in the three-month period ended March
31, 2001 was derived from a single telephone company promotional program
utilizing the Call Manager product as a customer acquisition device. Conversely,
most of the revenue from the Centrex Receptionist came from continuing,
non-promotional telephone company programs resulting in more consistent sales.
The eView product line did not produce significant revenue and our new wireless
NotifyLink products were not yet released for sale except for a limited release
to WebLink of our Web Based product in December 2000. As we expect minimal sales
of our traditional products in the future and our new products are not yet in
full release, we anticipate we will continue to experience substantial variances
in quarterly revenue.
Cost of sales consists primarily of the cost to manufacture our
products. Cost of sales decreased to $397,445 in the three month period ended
March 31, 2001 from $1,287,101 for the three month period ended March 31, 2000.
This decrease was the result of decreased sales of the Call Manager product line
and the Centrex Receptionist product line and was partially offset by recording
an inventory write-down of $200,000 associated with the Call Manager product
line.
Our gross margin, prior to the recording of inventory write-down,
increased to 49.3% in the three-month period ended March 31, 2001 compared to
23.6% in the three-month period ended March 31, 2000. This improvement occurred
because of royalty revenue from our multi-sense/stutter-dial patent and a higher
concentration of our Centrex Receptionist sales. During the second fiscal
quarter of 2001, we experienced a continued trend of lower sales of our Call
Manager product line. We believe that the downward trend in sales of Call
Manager products will continue. However, the decline in Call Manager sales in
the period ended March 31, 2001 was greater than anticipated and, accordingly,
we revised downwards our sales forecast for the remainder of fiscal 2001. This
resulted in excess inventory at March 31, 2001 when considering the inventory of
Call Manager product on hand. Consequently, the Company recorded an inventory
write-down of $200,000 related to Call Manager inventory.
Research and development expenses consist primarily of personnel costs,
testing expenses and supply expenses. Research and development expenses
decreased to $241,665 for the three month period ended March 31, 2001 from
$340,537 for the three month period ended March 31, 2000. This decrease reflects
the reduction in hardware design staff at our California location and lower
material costs of developing software versus hardware.
Sales and marketing expense consists primarily of personnel costs, show
expense, travel costs and sales commissions related to our sales and marketing
efforts. Sales and marketing costs decreased to $203,752 for the three month
period ended March 31, 2001 from $343,601 for the three month period ended March
31, 2000. This decrease is the result of personnel reductions and lower spending
for trade shows.
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NOTIFY TECHNOLOGY CORPORATION
General and administrative expense consists of general management and
finance personnel costs, occupancy expense, investor and public relations costs,
accounting expense and legal expense. General and administrative expenses
decreased to $414,224 for the three month period ended March 31, 2001 from
$421,407 for the three month period ended March 31, 2000. The decrease is
primarily due to reduced spending on investor and public relations offset by
higher costs for professional services.
Six-Month Periods Ended March 31, 2001 and 2000
Sales of the Call Manager represented 32% of our revenue in the six
month period ended March 31, 2001 compared to 66% sales in the six month period
ended March 31, 2000. Sales of the Centrex Receptionist represented 22% of our
revenue in the six month period ended March 31, 2001 compared to 16% in the six
month period ended March 31, 2000. Revenue for the six month period ended March
31, 2001 decreased to $752,106 from $2,754,281 for the six month period ended
March 31, 2000. Revenue was down from the comparable period in the previous year
due to decreased sales of $1,660,701 in our Call Manager product line. Sales to
telephone companies consisted of 72% and 92% of revenue for the six month
periods ended March 31, 2001 and 2000, respectively. One customer accounted for
25% and 21% of sales in the six-month periods ended March 31, 2001 and 2000,
respectively. In addition, two other customers accounted for 25% and 15% of
sales in the six month period ended March 31, 2001
Cost of sales decreased to $743,635 in the six month period ended March
31, 2001 from $2,022,546 for the six month period ended March 31, 2000. This
decrease was the result of decreased sales of the Call Manager product line that
was partially offset by recording inventory write-downs of $400,000 associated
with the Call Manager product line.
Our gross margin, prior to the recording of an inventory write-down,
increased to 54.3% in the six month period ended March 31, 2001 compared to
26.6% in the six month period ended March 31, 2000. This improvement was the
result of royalty revenue from our multi-sense/stutter-dial patent and a higher
concentration of Centrex Receptionist sales. During the six-month period ended
March 31, 2001, we experienced a continued trend of lower sales of our Call
Manager product line. We believe that the downward trend in sales of Call
Manager products will continue. Consequently, we recorded inventory write-downs
of $400,000 during the six month period ended March 31, 2001 of which $200,000
was originally recorded as losses on firm purchase commitments due to excess
inventory of the Call Manager product line as a result of the lower sales
forecast.
Research and development expense decreased to $528,183 for the six
month period ended March 31, 2001 compared to $719,573 for the six month period
ended March 31, 2000. A decrease in hardware design staff in California and cost
containment measures were the major causes of the decrease in the six month
period ended March 31, 2001. This effort at reduced spending in California was
offset by increased staffing in Ohio to support our new NotifyLink software
products.
Sales and marketing costs decreased to $461,666 for the six month
period ended March 31, 2001 compared to $661,987 for the six month period ended
March 31, 2000 due to a decrease in sales personnel and a decreased investment
in the Consumer Electronics Show (CES) in January 2001.
General and administrative expenses decreased to $765,933 for the six
month period ended March 31, 2001 from $784,668 for the six month period ended
March 31, 2000. A decrease in spending on investor relations activities was
responsible for most of this change, partially offset by higher costs for
professional services.
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NOTIFY TECHNOLOGY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
Our financial statements are prepared and presented on a basis assuming
we continue as a going concern. At March 31, 2001, we had an accumulated deficit
of $14,374,773 and incurred a net loss of $3,526,452 and $1,641,286 for the year
ended September 30, 2000 and the six-month period ended March 31, 2001,
respectively. Our recurring losses from operations and reduction in liquidity
raise substantial doubt about our ability to continue as a going concern.
During fiscal 2000 and the first half of fiscal 2001, we financed our
operations through a combination of our existing cash balances and the proceeds
from the sale of common stock (see note 7) and exercise of warrants. Our ability
to fund our recurring losses from operations depends upon our success in
shifting our product focus into wireless e-mail notification and wireless e-mail
notification market solutions, and/or raising other sources of financing.
Management has entered into and expects to enter into additional arrangements
that will produce revenue from new products during fiscal 2001. We also continue
to pursue other sources of additional financing, including equity financing. In
this respect we have retained a financial advisor to assist us in evaluating
and pursuing options with respect to our capital requirements. If we are
successful in selling these new products and/or raising other sources of
financing, we believe that we will be able to finance our operations during
fiscal 2001 and 2002.
At March 31, 2001, we had cash and cash equivalents of $705,197. During
the six month period ended March 31, 2001, the restriction on cash of $764,698,
which was recorded as restricted cash at September 30, 2000 and was securing
outstanding letters to our suppliers issued in connection with commitments to
purchase additional inventory, was released as the inventory was received and
paid for.
Cash used in operating activities increased to $1,584,675 for the six
month period ending March 31, 2001 from $1,521,337 for the six month period
ending March 31, 2000. Cash used in operating activities for the six month
period ending March 31, 2001 was primarily related to operations, a decrease in
Accounts Payable and accrued liabilities of $279,318 offset by reductions in
Accounts Receivable of $297,317 and inventories of $218,569. The decreases are
all a result in the decrease in our existing business.
Cash provided by financing activities for the six month period ending
March 31, 2001 of $1,215,449 relates primarily to the proceeds from a private
offering of 376,865 shares of common stock and warrants to purchase 188,424
shares of common stock.
FORWARD LOOKING STATEMENTS
Statements in this report regarding our ability to successfully sell
our products, to increase our revenue and to finance our operations during
fiscal 2001 are forward-looking statements within the meaning of section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended, including statements that include the words
"believes", "expects", "anticipates" or similar expressions. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to differ
materially from those expressed or implied by such forward-looking statements.
Risk factors include, but are not limited to, lower than expected customer
orders and timing of actual orders of our wireless products; the timing and
extent to which telephone companies adopt, initiate and promote programs
involving our telephony adjunct devices; competition from other suppliers;
changes in product mix or distribution channels; technological difficulties and
resource constraints encountered in developing new products; inability to
attract and retrain key personnel; delisting of our securities by Nasdaq;
changes in regulatory requirements; and lack of growth in the market for
wireless data communications devices. The reader should carefully consider,
together with the other matters referred to herein, additional factors discussed
from time to time in our public reports filed with the Securities and Exchange
Commission. We caution the reader, however, that these factors may not be
exhaustive.
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NOTIFY TECHNOLOGY CORPORATION
PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
(c) Sale of Unregistered Securities
In November 2000, the Company sold to a private group of investors,
which included Mr. Andrew Plevin, a director of the Company, 376,865 shares of
common stock and issued warrants to purchase an aggregate of 188,424 shares of
common stock for an aggregate consideration of $1,209,748. The offer and sale of
the securities were exempt from the registration requirements of the Securities
Act of 1933 pursuant to Section 4 (2) thereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual Meeting of Shareholders on March 8, 2001. Out of
5,264,966 shares of Common Stock entitled to vote at such meeting, there were
present in person or by proxy 4,323,680 shares. At the Annual Meeting, the
shareholders of Notify Technology Corporation approved the following matters:
(a) The elections of Paul F. DePond, Michael K. Ballard, Gaylan I. Larson,
Andrew H. Plevin and David A. Brewer as directors of Notify Technology
Corporation for the ensuing year and until their successors are
elected. The vote for the nominated directors was as follows:
Paul F. DePond, 4,317,872 votes cast for and 5,808 votes against;
Michael K. Ballard, 4,317,872 votes cast for and 5,808 votes against;
Gaylan I. Larson, 4,317,872 votes cast for and 5,808 votes against;
Andrew H. Plevin, 4,317,872 votes cast for and 5,808 votes against;
David A. Brewer, 4,317,872 votes cast for and 5,808 votes against.
(b) To ratify and approve amendments to the Company's 1997 Stock Plan to
increase the number of shares issuable thereunder by 500,000 shares and
to increase the number of shares of Common Stock that can be issued to
current service providers each year from 50,000 shares to 150,000
shares. 2,632,941 votes were cast for and 110,921 votes against with
15,679 votes abstaining.
(c) The ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending September 30, 2001.
4,309,126 votes were cast for and 12,975 votes were cast against with
1,579 votes abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were required to be filed during
the quarter ended March 31, 2001, for which this report is
filed.
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.
NOTIFY TECHNOLOGY CORPORATION
Dated: May 15, 2001
/s/ Gerald W. Rice
Chief Financial Officer
(Principal Financial and Accounting
Officer)
11