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 June 30, 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 June 30, 2001 there were 5,274,997 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 June 30, 2001 and September 30, 2000......... 3
Statements of Operations for the three-month and
nine-month periods ended June 30, 2001 and 2000................... 4
Statements of Cash Flows for the nine-month periods
ended June 30, 2001 and 2000...................................... 5
Notes to the Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 8
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............... 12
Item 6. Exhibits and Reports on Form 8-K.................................. 13
SIGNATURES...................................................................... 13
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Financial Statements
NOTIFY TECHNOLOGY CORPORATION
BALANCE SHEET
June 30, September 30,
2001 2000
------------ ------------
(unaudited) (1)
Assets
Current assets:
Cash and cash equivalents $ 248,947 $ 311,795
Restricted cash ---- 764,698
Accounts receivable 77,681 411,334
Inventories 174,446 502,660
Other current assets 183,117 50,686
------------ ------------
Total current assets 684,191 2,041,173
Property and equipment, net 180,293 276,115
------------ ------------
Total assets $ 864,484 $ 2,317,288
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 348,087 302,573
Deferred revenue 282,934 452,690
Other accrued liabilities 437,605 448,102
------------ ------------
Total current liabilities 1,068,626 1,203,365
Shareholders' equity:
Common stock 5,275 4,887
Additional paid-in capital 15,059,678 13,842,524
Retained earnings (15,269,095) (12,733,488)
------------ ------------
Total shareholders' equity (204,142) 1,113,923
------------ ------------
Total liabilities and shareholders' equity $ 864,484 $ 2,317,288
============ ============
(1) The information in this column was derived from our 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 Nine-Month Periods
Ended June 30, Ended June 30,
2001 2000 2001 2000
---------- ---------- ----------- ----------
(Unaudited) (Unaudited)
Revenue:
Product sales and service $ 285,539 $ 899,889 $ 921,371 $ 3,585,325
revenue
Royalty revenue 22,302 2,572 138,576 71,417
---------- ---------- ----------- -----------
Total revenue 307,841 902,461 1,059,947 3,656,742
Cost of Sales:
Product cost 122,753 591,315 466,388 2,613,861
Inventory write-downs ------ ------ 400,000 ------
---------- ---------- ----------- -----------
Total cost of sales 122,753 591,315 866,388 2,613,861
---------- ---------- ----------- -----------
Gross profit 185,088 311,146 193,559 1,042,881
Operating expenses:
Research & development 266,309 339,110 794,492 1,058,683
Sales and marketing 188,459 286,654 650,126 948,641
General and administrative 628,334 428,184 1,394,267 1,212,852
---------- ---------- ----------- -----------
Total operating expenses 1,083,102 1,053,948 2,838,885 3,220,176
---------- ---------- ----------- -----------
Loss from operations (898,014) (742,802) (2,645,326) (2,177,295)
Other (income) and expense, net (3,692) (11,387) (109,718) (51,580)
---------- ---------- ----------- -----------
Net loss $ (894,322) $ (731,415) $(2,535,608) $(2,125,715)
========== ========== =========== ===========
Basic and diluted net loss per
share $ (0.22) $ (0.20) $ (0.64) $ (0.60)
========== ========== =========== ===========
Weighted average shares
outstanding 4,027,786 3,652,714 3,962,497 3,546,010
========== ========== =========== ===========
See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
Nine-Month Periods
Ended June 30,
2001 2000
--------------------------------
(Unaudited)
Cash flows used in operating activities:
Net loss $(2,535,608) $(2,125,715)
Adjustments to reconcile net loss to cash used in
Operating activities:
Depreciation and amortization 100,892 141,627
Changes in operating assets and activities:
Accounts receivable 333,653 415,589
Inventories 328,214 (89,743)
Other current assets (132,431) 64,701
Accounts payable 45,514 (226,838)
Deferred revenue (169,756) ---
Other accrued liabilities (10,497) 76,255
----------- -----------
Net cash used in operating activities (2,040,019) (1,744,124)
----------- -----------
Cash flows used in investing activities:
Expenditures for property & equipment (5,070) (105,502)
Decrease in restricted cash 764,698 ---
----------- -----------
Net cash used in investing activities 759,628 (105,502)
Cash flows provided by financing activities:
Proceeds from issuance of common stock 1,209,748 505
Proceeds from exercise of options and warrants 7,795 1,724,260
----------- -----------
Net cash provided by financing activities 1,217,543 1,724,765
----------- -----------
Net increase in cash and cash equivalents (62,848) (124,861)
Cash and cash equivalents at beginning of period 311,795 2,121,753
----------- -----------
Cash and cash equivalents at end of period $ 248,947 $ 1,996,892
=========== ===========
See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPROATION
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 June
30, 2001, the statements of operations for the three and nine-month periods
ended June 30, 2001 and 2000 and the statements of cash flows for the nine-month
periods ended June 30, 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/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 June 30, 2001, we had an accumulated
deficit of $15,269,095 and incurred a net loss of $3,526,452 and $2,535,608 for
the year ended September 30, 2000 and the nine-month period ended June 30, 2001,
respectively. Our recurring losses from operations and a reduction in liquidity
raise substantial doubt about our ability to continue as a going concern.
During fiscal 2000 and the first nine 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 8) 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. We
closed a financing subsequent to June 30, 2001 for gross proceeds less placement
agent's commission of $4,509,000 (See note 8). We have entered into and expect
to enter into additional arrangements that will produce revenue from products
during the remainder of fiscal 2001. If we are successful in selling these new
products combined with the funds from the July 2001 financing, we believe that
we will be able to finance our operations during the remainder of 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
1,649,285 and 434,430 shares of common stock were outstanding at June 30, 2001
and 2000, respectively, but were not included in the computation of diluted net
loss per share as the effect would be anti-dilutive.
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.
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NOTIFY TECHNOLOGY CORPORATION
5. INVENTORIES
Inventories consist principally of subassemblies and finished goods, which
are stated at lower of cost (first-in, first-out) or market.
June 30, September 30,
2001 2000
--------------------------------------
Raw Materials $ ----- $ 76,662
Work In Process 60,697 197,062
Finished Goods 113,749 228,936
--------------------------------------
$174,446 $502,660
======================================
6. COMMITMENTS
We currently occupy a facility in San Jose, California under an operating
lease that was renewed in April 2001 and expires in March 2003. The future
minimum payments under this lease for the year ended September 30, 2001 are
$65,000. The future minimum payments for the years ending September 30, 2002
and 2003 are $259,000 and $130,000 respectively.
7. INCOME TAXES
Due to our loss position, there was no provision for income taxes for the
three-month and nine-month periods ended June 30, 2001 and 2000.
8. SHAREHOLDERS' EQUITY
On July 20, 2001, we completed a Preferred Stock and warrant financing. In
the financing, we sold shares of Series A Preferred Stock convertible into an
aggregate of 5,010,000 shares of Common Stock and seven-year warrants to
purchase an aggregate of 1,753,500 shares of Common Stock at an exercise price
of $1.00 per share. The proceeds from the financing, net of the placement
agent's commission, were approximately $4,509,000. The proceeds from the
financing enabled us to meet the net tangible asset requirement set by Nasdaq
for the continued listing of our securities on the Nasdaq SmallCap Market.
We issued to ComVest Venture Partners, L.P. a seven year warrant with a per
share exercise price of $1.46 to purchase 118,151 shares of Common Stock on May
15, 2001 in connection with ComVest Venture Partners' commitment to invest in
the financing the difference between $5,000,000 and the aggregate amount of
money invested by all other investors in the financing. The financing triggered
anti-dilution provisions in the warrant causing the per share exercise price to
decrease to $1.00 per share. In addition, we granted Commonwealth Associates,
L.P., the placement agent for the financing, an option to purchase (i) shares of
Series A Preferred Stock convertible into an aggregate of 926,850 shares of
Common Stock and (ii) a seven year warrant to purchase 324,397 shares of Common
Stock at an exercise price of $1.00 per underlying common share.
We have agreed to prepare and file with the Securities and Exchange
Commission a registration statement covering the resale of the shares of Common
Stock underlying all securities issued in connection with the financing. Also,
we have agreed to appoint two designees of Commonwealth Associates, L.P. to our
Board of Directors and to cause the authorized number of directors on our Board
of Directors to be no greater than six prior to our next annual meeting of
shareholders.
The Class A Warrants issued in August 1997 in conjunction with our Initial
Public Offering (IPO) have provisions that protect the holders against dilution
by adjustment of the exercise price per share and the number of shares issuable
upon exercise upon certain events, including the issuance of Common Stock at a
price per share that is less than market value which is defined in this
agreement as the 30-day average of the closing bid price on the Nasdaq SmallCap
market. The July 2001 financing triggered these provisions and the exercise
price of the Class A warrants was reduced from $6.50 to $4.96 per share of
common stock and the shares of common stock underlying each warrant has been
increased from one share to 1.309281 shares. The aggregate number of shares of
common stock underlying all Class A warrants is increased from 2,185,000 to
2,860,779, assuming an option to purchase 160,000 IPO Units is exercised. The
number of outstanding Class A warrants effected by this adjustment of the
exercise price are 1,600,000 issued at the IPO
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NOTIFY TECHNOLOGY CORPORATION
plus 425,000 issued in connection with our 1997 bridge financing. The Class A
warrants underlying an option to purchase 160,000 IPO Units at a price per IPO
Unit of $7.00 issued to the underwriter of our initial public offering will also
be adjusted if and when those options are exercised.
At a Special Meeting of Shareholders held on June 29, 2001, our 1997 Stock
Plan was amended to increase the number of shares available for grant by
1,200,000 shares. 1,649,285 options were outstanding as of June 30, 2001 and
subject to vesting requirements. As of June 30, 2001, 730,377 shares of our
common stock are reserved for issuance under our 1997 Stock Plan;
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 was $3.25 per share. 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 adjusted price
per share, 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 July 2001 financing triggered these price based
anti-dilution provisions. As a result, (i) the per share exercise price of the
warrants was reduced to $1.00 per share and (ii) we issued warrants to purchase
an aggregate of 337,439 shares of common stock, with per share exercise price of
$0.01 to these investors, other than Andrew Plevin, who waived his right, for
this financing only, to receive additional warrants.
In March 1999, we issued to David Brewer, a director of the Company, a
warrant to purchase an aggregate of 721,244 shares of common stock at an
original exercise price of $3.60 that was later adjusted to $3.25 in November
2000 as a result of certain anti-dilution rights. The July 2001 financing
triggered price based anti-dilution provisions in the warrant causing the per
share exercise price to decrease to $1.00 per share.
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 amended Annual Report on Form 10-KSB/A for the year
ended September 30, 2000.
RESULTS OF OPERATIONS
Three-Month Periods Ended June 30, 2001 and 2000
Revenue consists primarily of net revenue from the sale of telephony
equipment, service revenue related to the Centrex Receptionist and royalty
revenue. Revenue for the three-month period ended June 30, 2001 decreased to
$307,841 from $902,461 for the three-month period ended June 30, 2000. Revenue
was down from the previous year primarily due to decreased sales of $467,486 in
the Call Manager product line and a reduction of $ 170,825 in Centrex
Receptionist sales. We believe the continued 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 continued to emphasize the sale of key systems as an
alternative to selling our Centrex product. Revenue for the three month period
ended June 30, 2001 includes $44,217 for sales of component inventory which
originally cost $139,455 and had been written off in previous periods. Revenue
for the three-month period ended June 30, 2001 includes royalty revenue of
$22,302 from our multi-sense/stutter-dial patent compared to $2,572 for the
three month period ended June 30, 2000. Sales of the Call Manager product
represented 30% of our revenue in the three month period ended June 30, 2001
compared to 62% in the three month period ended June 30, 2000. Sales of the
Centrex Receptionist hardware and service represented 34% of our revenue in the
three month period ended June 30, 2001 compared to 31% in the three month period
ended June 30, 2000. Sales to telephone companies were 84% and 95% of revenue
for the three-month periods ended June 30, 2001 and 2000, respectively. One
customer accounted for 26% and 27% of total sales in the three-month periods
ended
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NOTIFY TECHNOLOGY CORPORATION
June 30, 2001 and 2000, respectively. Two other customers accounted for 34% and
21% of total sales in the three month period ended June 30, 2001.
Most of the Call Manager revenue in the three-month period ended June 30,
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. Our new wireless
NotifyLink products were in limited release and did not account for significant
sales during the period. 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 $122,753 in the three month period ended June 30,
2001 from $591,315 for the three month period ended June 30, 2000. This decrease
was the result of decreased sales of the Call Manager product line and the
Centrex Receptionist product line.
Our gross margin increased to 60.1% in the three-month period ended June
30, 2001 compared to 34.5% in the three-month period ended June 30, 2000. This
improvement occurred because of royalty revenue from our multi-sense/stutter-
dial patent, a higher concentration of our Centrex Receptionist sales that have
higher gross margins and the sale of component parts which had been written off
in prior periods.
Research and development expenses consist primarily of personnel
costs, testing expenses and supply expenses. Research and development expenses
decreased to $266,309 for the three month period ended June 30, 2001 from
$339,110 for the three month period ended June 30, 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 $188,459 for the three month
period ended June 30, 2001 from $286,654 for the three month period ended June
30, 2000. This decrease is the result of personnel reductions, lower travel
expense and lower commission expense.
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
increased to $628,334 for the three month period ended June 30, 2001 from
$428,184 for the three month period ended June 30, 2000. This increase is
primarily due to higher legal and accounting expense related to the successful
appeal against a Nasdaq ruling to delist the Company from the Nasdaq Small Cap
Market and other regulatory matters, higher rent expense on our Californian
facility and higher printing expense related to our annual report to
shareholders and proxies related to our Special Meeting of Shareholders.
Nine-Month Periods Ended June 30, 2001 and 2000
Sales of the Call Manager represented 31% of our revenue in the nine month
period ended June 30, 2001 compared to 67% sales in the nine month period ended
June 30, 2000. Sales of the Centrex Receptionist represented 33% of our revenue
in the nine month period ended June 30, 2001 compared to 24% in the nine month
period ended June 30, 2000. Revenue for the nine month period ended June 30,
2001 includes royalty revenue of $138,576 from our multi-sense/stutter-dial
patent compared to $72,417 for the nine month period ended June 30, 2000.
Revenue for the nine month period ended June 30, 2001 decreased to $1,059,947
from $3,656,742 for the nine month period ended June 30, 2000. Revenue was down
from the comparable period in the previous year due to decreased sales of
$2,128,188 in our Call Manager product line. Sales to telephone companies
consisted of 75% and 93% of revenue for the nine-month periods ended June 30,
2001 and 2000, respectively. One customer accounted for 24% and 27% of sales in
the nine-month periods ended June 30, 2001 and 2000, respectively. In addition,
two other customers accounted for 27% and 13% of sales in the nine month period
ended June 30, 2001
Cost of sales decreased to $866,388 in the nine month period ended June 30,
2001 from $2,613,861 for the nine month period ended June 30, 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
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NOTIFY TECHNOLOGY CORPORATION
with the Call Manager product line during the six months ended March 31, 2001.
No inventory write-downs occurred in the three month period ended June 30, 2001.
Our gross margin, prior to the recording of inventory write-downs,
increased to 56.0% in the nine month period ended June 30, 2001 compared to
28.5% in the nine month period ended June 30, 2000. This improvement was the
result of royalty revenue from our multi-sense/stutter-dial patent and a higher
concentration of Centrex Receptionist sales that have higher gross margins.
During the nine-month period ended June 30, 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 nine month period ended
June 30, 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 $794,492 for the nine month
period ended June 30, 2001 compared to $1,058,683 for the nine month period
ended June 30, 2000. A decrease in hardware design staff in California and cost
containment measures were the major causes of the decrease.
Sales and marketing costs decreased to $650,126 for the nine month period
ended June 30, 2001 compared to $948,641 for the nine month period ended June
30, 2000 due to a decrease in sales personnel and decreased show, travel and
commission expense.
General and administrative expenses increased to $1,394,267 for the nine
month period ended June 30, 2001 from $1,212,852 for the nine month period ended
June 30, 2000. This increase is primarily due to higher legal and accounting
expense related to the successful appeal against a Nasdaq ruling to delist the
Company from the Nasdaq Small Cap Market and other regulatory matters, higher
rent expense on our Californian facility and higher printing expense related to
our annual report to shareholders and proxies related to our Special Meeting of
Shareholders.
LIQUIDITY AND CAPITAL RESOURCES
Our financial statements are prepared and presented on a basis assuming we
continue as a going concern. At June 30, 2001, we had an accumulated deficit of
$15,269,095 and incurred a net loss of $3,526,452 and $2,535,608 for the year
ended September 30, 2000 and the nine month period ended June 30, 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 nine months 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 8) 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 services and/or raising other sources of financing.
We closed a financing subsequent to June 30, 2001 for gross proceeds less
placement agent's commission of $4,509,000. Management has entered into and
expects to enter into additional arrangements that will produce revenue from new
products during the remainder of fiscal 2001 and 2002. If we are successful in
selling these new products combined with the funds received from the July 2001
financing, we believe that we will be able to finance our operations during the
remainder of fiscal 2001 and fiscal 2002.
At June 30, 2001, we had cash and cash equivalents of $248,947. During the
nine month period ended June 30, 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 $2,040,019 for the nine
month period ending June 30, 2001 from $1,744,124 for the nine month period
ending June 30, 2000. Cash used in operating activities for the nine month
period ending June 30, 2001 was primarily related to operations and a decrease
in deferred income offset by reductions in accounts receivable of $333,652 and
inventories of $328,214. The decrease in deferred income is due to the shipment
of product prepaid by the customer. The decreases in accounts receivable and
inventory are a result in the decline in sales of our legacy products.
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Cash provided by financing activities for the nine month period ending June
30, 2001 of $1,209,748 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 and $7,795 from the exercise of certain warrants.
RECENT PRIVATE FINANCING
On July 20, 2001, we completed a Preferred Stock and warrant financing. In
the financing, we sold shares of Series A Preferred Stock convertible into an
aggregate of 5,010,000 shares of Common Stock and warrants to purchase an
aggregate of 1,753,500 shares of Common Stock at an exercise price of $1.00 per
share. The proceeds from the financing, net of the placement agent's
commission, were approximately $4,509,000. We believe the proceeds from the
financing will enable us to meet the net tangible asset requirement set by
Nasdaq for the continued listing of our securities on the Nasdaq SmallCap
Market.
We issued to ComVest Venture Partners, L.P. a warrant to purchase 118,151
shares of Common Stock on May 15, 2001 in connection with ComVest Venture
Partners' commitment to invest in the financing the difference between
$5,000,000 and the aggregate amount of money invested by all other investors in
the financing. In addition, we granted Commonwealth Associates, L.P., the
placement agent for the financing, an option to purchase (i) shares of Series A
Preferred Stock convertible into an aggregate of 926,850 shares of Common Stock
and (ii) a warrant to purchase 324,397 shares of Common Stock.
We have agreed to prepare and file with the Securities and Exchange
Commission a registration statement covering the resale of the shares of Common
Stock underlying all securities issued in connection with the financing. Also,
we have agreed to appoint two designees of Commonwealth Associates, L.P. to our
Board of Directors and to cause the authorized number of directors on our Board
of Directors to be no greater than six prior to our next annual meeting of
shareholders. We have covenanted to provide Commonwealth Associates, L.P. with
(i) finder's fees in connection with certain future financings, (ii) Board
observation rights and (iii) Board committee membership rights.
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.
PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
(c) Sale of Unregistered Securities
On May 15, 2001 we issued a warrant to purchase 118,151 shares of our
Common Stock to ComVest Venture Partners, L.P. as consideration for its
commitment to invest up to $2,150,00 in our 2001 private placement. The offer
and sale of the warrant was exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) thereunder. Please see Note 8 of
Notes to our Consolidated Financial Statements for a description of the
conversion provisions of the warrant.
On July 20, 2001, we issued an aggregate of 501,000 shares of a new class
of Series A Preferred Stock, and warrants to purchase $1,753,500 shares of our
Common Stock, to investors in exchange for aggregate proceeds of $5,010,000. In
issuing the Preferred Stock and the warrants, we relied on the
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NOTIFY TECHNOLOGY CORPORATION
exemption provided by Section 4(2) of the Securities Act. Please see Note 8 of
Notes to our Consolidated Financial Statements for a description of the
conversion provisions of the Preferred Stock and the exercise terms of the
warrants.
On July 20, 2001, we issued an option to purchase 9.2685 units to
Commonwealth Associates, L.P. as consideration for the services it provided to
us as placement agent in our 2001 private placement. Each unit consists of
10,000 shares of our Series A Preferred Stock and a warrant to purchase 35,000
shares of our Common Stock. The offer and sale of the option was exempt from
the registration requirements of the Securities Act of 1933 pursuant to Section
4(2) thereunder. Please see Note 8 of Notes to our Consolidated Financial
Statements for a description of the exercise provisions of the units and the
warrants underlying the units and the conversion provisions of the Preferred
Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held a Special Meeting of Shareholders on June 29, 2001. Out of
5,267,674 shares of Common Stock entitled to vote at such meeting, there were
present in person or by proxy 3,037,312 shares. At the Special Meeting, the
shareholders of Notify Technology Corporation approved the following matters:
(a) To approve the proposed private placement of up to 60 units (each unit
representing 10,000 shares of our Series A Convertible Redeemable Preferred
Stock and warrants to purchase our Common Stock), the issuance of warrants
to purchase Series A Convertible Redeemable Preferred Stock and Common
Stock to the placement agent and the issuance of a warrant to an affiliate
of the placement agent to purchase up to 118,151 shares of our Common
Stock. 2,110,465 votes cast for and 0 votes against with 926,847 No Votes.
(b) To approve and ratify our March 1999 private placement of 850,000 shares of
our Common Stock and warrants to purchase a total of 1,344,444 shares of
our Common Stock. 1,663,310 votes were cast for and 35,601 votes against
with 1,338,401 votes abstaining.
(c) To approve and ratify the November 2000 private placement of 376,865 shares
of our Common Stock and warrants to purchase a total of 188,424 shares of
our Common Stock, including the sale of Common Stock and issuance of
warrants to purchase Common Stock to Andrew Plevin, who is one of our
directors. 2,723,322 votes were cast for and 35,906 votes were cast
against with 278,084 votes abstaining.
(d) To increase the authorized number of shares of Common Stock of the Company
from 20,000,000 to 30,000,000 shares. 2,999,406 votes were cast for and
36,206 votes were cast against with 1,700 votes abstaining.
(e) To amend our 1997 Stock Plan to increase the number of shares available for
grant by 1,200,000 shares, and increase the number of shares of Common
Stock that can be issued to current service providers each year from
150,000 shares to 600,000 shares. 2,963,477 votes were cast for and 72,135
votes were cast against with 1,700 votes abstaining.
(f) To approve the following amendments to the terms of the proposed private
placement of up to 60 units (the "Units") and the issuance of warrants (the
"Warrants") to purchase Series A Convertible Redeemable Preferred Stock
("Preferred Stock"):
(1) The reduction of the conversion price of the Preferred Stock from
$1.46 to $1.00;
(2) The increase in the number of shares of Common Stock issuable upon
exercise of the Warrants from 25% to 35% of the number of shares of
Common Stock issuable upon conversion of the Preferred Stock included
in the units;
(3) The reduction in the number of units to be issued to the Placement
Agent upon exercise of warrants to be issued to the Placement Agent
from 20% to 18.5%; and
(4) The increase in the number of directors that the Placement Agent will
be entitled to appoint to our Board of Directors from 1 director to 2
directors.
2,110,465 votes cast for and 0 votes against with 926,847 No Votes.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1.1 Certificate of Amendment to the Registrant's Articles of
Incorporation as filed with the Secretary of State of
California on March 3, 1998.
3.1.2 Certificate of Amendment to the Registrant's Articles of
Incorporation as filed with the Secretary of State of
California on July 12, 2001.
3.2 Bylaws of the Registrant, as amended on July 11, 2001.
10.1 Registrant's 1997 Stock Plan, as amended.
10.2 Amendment No. 2 dated June 29, 2001 to Employment Agreement
dated as of August 1, 1997 between Registrant and Paul DePond,
as amended by Amendment No. 1 to Employment Agreement dated as
of February 23, 2000.
10.3 Amendment No. 2 dated June 29, 2001 to Employment Agreement
dated as of August 1, 1997 between Registrant and Gaylan
Larson, as amended by Amendment No. 1 to Employment Agreement
dated as of February 23, 2000.
10.4 Amendment No. 2 dated June 29, 2001 to Employment Agreement
dated as of August 1, 1997 between Registrant and Gerald Rice,
as amended by Amendment No. 1 to Employment Agreement dated as
of February 23, 2000.
10.5 Lease by and among Registrant, Ching C. Poon and Jenny M. Poon.
(b) Reports on Form 8-K
On June 26, 2001, Registrant filed a Report on Form 8-K under
Item 5 reporting our press release announcing (i) certain facts
relating to its meeting with the NASDAQ Qualifications Panel, (ii) the
June 29, 2001 Special Meeting of Shareholders and (iii) a business and
product update.
On July 23, 2001, Registrant filed a Report on Form 8-K under
Item 5 reporting its completion of a private Preferred Stock and
warrant financing in which the Registrant sold shares of Series A
Preferred Stock convertible into an aggregate of 5,010,000 shares of
Common Stock and warrants to purchase an aggregate of 1,753,500 shares
of Common Stock at an exercise price of $1.00 per share.
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: August 13, 2001
/s/ Gerald W. Rice
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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NOTIFY TECHNOLOGY CORPORATION
EXHIBIT INDEX
3.1.1 Certificate of Amendment to the Registrant's Articles of Incorporation as filed with the Secretary
of State of California on March 3, 1998.
3.1.2 Certificate of Amendment to the Registrant's Articles of Incorporation as filed with the Secretary
of State of California on July 12, 2001.
3.2 Bylaws of the Registrant, as amended on July 11, 2001.
10.1 Registrant's 1997 Stock Plan, as amended.
10.2 Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997 between
Registrant and Paul DePond, as amended by Amendment No. 1 to Employment Agreement dated as of
February 23, 2000.
10.3 Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997 between
Registrant and Gaylan Larson, as amended by Amendment No. 1 to Employment Agreement dated as of
February 23, 2000.
10.4 Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997 between
Registrant and Gerald Rice, as amended by Amendment No. 1 to Employment Agreement dated as of
February 23, 2000.
10.5 Lease by and among Registrant, Ching C. Poon and Jenny M. Poon.