UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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 October 31, 1997
- --------------------------------------------------------------------------------
OR
[ ]TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURTIES EXCHANGE
ACT OF 1934
For the transaction period from to
================================================================================
Commission file number: 1-12726
- --------------------------------------------------------------------------------
WIZ TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 33-0560855
- --------------------------------------------------------------------------------
State or other jurisdiction of incorporation IRS Employer Identification Number
32951 Calle Perfecto, San Juan Capistrano, CA 92675
- --------------------------------------------------------------------------------
Address of Principal Executive Offices (Zip code)
(714) 443-3000
- --------------------------------------------------------------------------------
Registrant's Telephone Number, Including Area Code
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changes since last report
Indicate by check mark whether the registrant (1) has 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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES_______ NO X
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d)of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
N/A
YES_______ NO_______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 13,306,663 at October 31, 1997
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
INDEX TO FORM 10-QSB
OCTOBER 31, 1997
Part 1 - Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Operations
Part II - Other Information
Item 1 - Legal Proceedings
Item 2 - Change in Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
Part 1 - Financial Information
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheet
Consolidated Income Statements
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
October 31,
1997
---------------
ASSETS
Current assets:
Cash $ 21,629
Accounts receivable, less allowance of $344,900 46,911
Inventories, less allowance of $312,000 268,230
Prepaid expenses 88,741
---------------
Total current assets 425,511
Note receivable from officer 169,596
Equipment 413,136
---------------
$ 1,008,243
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Convertible debt $ 1,170,000
Obligations under capital lease 213,907
Notes payable 500,000
Convertible debt to related party 80,000
Accounts payable 1,241,716
Accrued settlement expense 109,000
Accrued salaries and wages 167,102
Other accrued expenses 396,511
---------------
Total current liabilities 3,878,236
---------------
Commitments and contingencies -
Stockholders' deficit:
Preferred stock, $.001 par value, 10,000,000 shares authorized
Series A, 550 shares issued and outstanding 1
Series B, 1,000,000 shares issued and outstanding 1,000
Additional paid-in capital, preferred 2,842,999
Common stock, $.001 par value, 50,000,000 shares authorized,
13,306,663 shares issued and outstanding 13,307
Additional paid-in capital, common 10,133,226
Accumulated deficit (15,860,526)
---------------
Net stockholders' deficit (2,869,993)
---------------
$ 1,008,243
===============
See accompanying notes to financial statements
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
---------------------------------
October 31, October 31,
1997 1996
--------------- ---------------
Revenue:
Computer software $ 182,974 $ 1,319,175
Intranet systems - -
--------------- ---------------
182,974 1,319,175
Costs and expenses:
Cost of revenues - computer software 111,273 599,689
Selling, general and administrative 588,025 949,857
--------------- ---------------
Total costs and expenses 699,298 1,549,546
--------------- ---------------
Loss from operations (516,324) (230,371)
--------------- ---------------
Nonoperating (expenses) income:
Interest income 1,528 8,367
Interest expense (36,199) (23,436)
Other - (3,223)
--------------- ---------------
Total nonoperating expenses (34,671) (18,292)
--------------- ---------------
Net loss $ (550,995) $ (248,663)
=============== ===============
Net loss per common share $ (0.05) $ (0.03)
=============== ===============
Weighted average number of common shares
outstanding 12,063,896 8,985,191
=============== ===============
See accompanying notes to financial statements
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
--------------------------
October 31, October 31,
1997 1996
------------ ------------
Cash flows from operating activities:
Net loss $ (550,995) $ (248,663)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 42,707 219,318
Amortization of software development costs - 33,196
Services rendered for stock previously issued - 9,450
Common stock issued for services rendered 18,000 -
(Increase) decrease in assets:
Accounts receivable 222,923 (7,003)
Inventories 70,425 11,358
Prepaid expenses and other assets 109,570 20,900
Increase (decrease) in liabilities:
Accounts payable 89,171 (709,338)
Accrued salaries and wages 7,104 (11,345)
Other accrued expenses 33,983 (269,547)
------------ ------------
Net cash provided (used) by operating activities 42,888 (951,674)
------------ ------------
Cash flows from investing activities:
Purchases of equipment - (3,318)
Increase in notes receivable (100,000) (10,000)
Capitalized software development costs - (5,500)
------------ ------------
Net cash used by investing activities (100,000) (18,818)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable - 1,212,500
Principal payments on obligations under capital lease (20,569) (27,638)
------------ ------------
Net cash (used) provided by financing activities (20,569) 1,184,862
------------ ------------
Net (decrease) increase in cash (77,681) 214,370
Cash, beginning of period 99,310 450,971
------------ ------------
Cash, end of period $ 21,629 $ 665,341
============ ============
Supplemental schedule of non-cash financing activity:
October 31, 1997
- ----------------
- - Conversion of 100 shares of Series A Preferred stock into 916,667 shares of
Common stock.
- - Conversion of $80,000 of debt into 1,445,095 shares of Common stock.
- - Issued 150,000 Common shares for legal services valued at $18,000.
See accompanying notes to financial statements
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997
1. UNAUDITED INTERIM FINANCIAL INFORMATION
- --------------------------------------------
The interim financial statements are unaudited, but, in the opinion of the
management of the Company, contain all adjustments, consisting of only
normal recurring accruals, necessary to present fairly the financial
position at October 31, 1997, the results of operations and the cash flows
for the three months ended October 31, 1997 and October 31, 1996. The
results of operations for the three months ended October 31, 1997 are not
necessarily indicative of the results of operations to be expected for the
full year ending July 31, 1998.
2. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------
Nature of the business
----------------------
The Company develops and markets low cost computer software, including
licensed commercial software and "shareware." As a result of the merger
with Q & A (see below) the Company was also engaged in the business of
selling intranet systems used to create internet home pages and other
applications. As explained below, the Company does not expect intranet
revenues to continue in the future.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
WIZ Technology, Inc. (a Nevada corporation) and its wholly-owned
subsidiaries, Wiz Technology, Inc., Q & A Software Company ("Q & A") and
CAPOTEC Intranet Business Solutions ("CAPOTEC") (collectively, the
"Company"). All significant intercompany transactions and balances have
been eliminated in consolidation. At October 31, 1997 Q & A and CAPOTEC are
substantially inactive.
Purchase of Q & A
-----------------
Effective March 8, 1996, the Company acquired all the net assets of Q & A
Sales & Marketing ("Q & A") by the merger of Q & A into a newly formed
Nevada subsidiary of the Company. In connection with the merger, Q & A's
name was changed to Q & A Software Company. The Company issued 1,200,000
shares of Series B Convertible Stock and 299,994 shares of Common Stock in
exchange for all the net assets of Q & A. The acquisition was accounted for
as a purchase. As part of the merger agreement the Company was to register
the shares issued to Q & A with the SEC. To date the Company has not
registered these shares.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
- --------------------------------------------------------------------------
Purchase of Q & A (continued)
----------------------------
The purchase price was allocated to the acquired assets as follows:
Trade accounts receivable $ 350,000
Inventory 451,627
Equipment 100,000
License agreement 3,500,000
Covenant not to compete 600,000
-----------
$ 5,001,627
===========
License agreement, covenant not to compete and intranet sales
-------------------------------------------------------------
The license agreement acquired in the Q & A merger provides the Company the
worldwide, exclusive rights to sell intranet systems to the public at large
or to retailers, wholesalers, distributors or original equipment
manufacturers. These systems are based on internet technology and use a
relational database to create dynamic and interactive home pages and
numerous other applications. The license agreement's value and useful life
of 10 years were independently determined by a reputable evaluator.
The five year covenant not to compete entered into with the Q & A merger
restricts the former parent and two officers of Q & A from developing,
marketing and selling boxed software, CD- ROM software or budget consumer
software to consumers throughout the world at manufacturer's suggested
retail prices of less than $50 per unit.
Under the terms of the license agreement, 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. ADTI transacts other business with the Company relating to
outside software-fulfillment. The terms of the sale called for $450,000 in
cash, which was applied first to a $250,000 prior receivable, and the
balance of $1,550,000 to be collected over 51 months beginning in October
1997.
As part of the merger with Q & A the Company acquired employees with the
technical expertise and contacts to enable the Company to enter the intranet
market. When the Company failed to register the shares issued in the Q & A
merger relationships with these employees deteriorated and they left the
Company's employ, leaving the Company unable to market the intranet
business. Consequently, on October 27, 1997 the holder of the license
agreement notified the Company that it was canceling the agreement based on
its evaluation that the Company was not aggressively marketing the intranet
technology. Also, the Company became aware that the remaining balance of
$1,550,000 from sales of intranet contracts to ADIS was unlikely to be
collected.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
- ----------------------------------------------------------------------------
License agreement, covenant not to compete and intranet sales (continued)
-----------------------------------------------------------------------
Another of the original benefits to the merger with Q & A was the potential
to expand the Company's customer base and sell to large retailers. The
Company began to sell its products through these large retailers, but found
that the sales terms placed on the Company's products and the slowness of
the retailers to pay made it impossible for the Company to be profitable in
this market. Therefore, the Company decided to discontinue selling its
products through these large retailers.
Based on these facts, it was determined in fiscal 1997 that the license
agreement and covenant not to compete had little or no future economic value
to the Company and should be written off according to the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for
Long-Lived Assets". SFAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.
Since these intangible assets were determined to provide no future cash
flows to the Company, their net values of $3,018,757 and $437,000,
respectively, were written off in a non-cash charge to operations,
increasing the fiscal 1997 loss by $.37 per share.
Revenue recognition
-------------------
The Company recognizes revenue from product sales upon shipment. Under
specified conditions, distributors and resellers may return products to the
Company for credit against additional purchases or, in the event the Company
reduces its selling prices, receive credits for the reduction in selling
price. The amount of potential product returns, including returns under the
Company's warranty program, and credits for selling price reductions are
estimated and provided for in the period of the sale.
Accounts receivable and sales returns
-------------------------------------
The allowance for doubtful accounts and sales returns includes management's
estimate of the amount expected to be lost on specific accounts and for
losses on other as yet unidentified accounts included in accounts
receivable. In estimating the allowance component for unidentified losses
and returns, management relies on historical experience. The amounts the
Company will ultimately realize could differ materially in the near term
from the amounts assumed in arriving at the allowance for doubtful accounts
and sales returns in the accompanying financial statements.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. GOING CONCERN
- -----------------
The Company has incurred a net loss of $12,500,000 during the two years
ended July 31, 1997, and an additional loss of $550,000 in the first quarter
of fiscal 1998 and, as of October 31, 1997, had a working capital deficiency
of over $3,400,000. The Company is in default on substantially all its loan
agreements which, among other things, causes the balances to become due on
demand. The Company is not aware of any alternate sources of capital to meet
such demands, if made. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management has reoriented the Company back to the business of selling budget
software to smaller retailers. In addition, the Company has begun to develop
a marketing strategy to sell software to the fundraising industry through
non-profit organizations such as: schools, churches and other non-profit and
fraternal groups. Management has also taken steps to reduce overhead costs
and improve the results of operations and is attempting to negotiate
settlements with debt holders and trade vendors. There can be no assurance
that the Company will be successful in its efforts to become profitable or
negotiate settlements. If the Company is unsuccessful in its efforts, it may
be necessary to undertake such other actions as may be appropriate to
preserve asset value. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
-------------------------------------------------------------------
(a) PLAN OF OPERATION
The Company expects to continue its core business of the sale of low-budget
software and its efforts to expand sales by selling software through the
Fundraising community.
The Company does not expect to incur material research and development costs
for the next twelve months. Management believes that there are sufficient
software titles in the Company's library which can be marketed effectively.
The Company is attempting to sell some of its automobiles and has no plans
to purchase any equipment in the foreseeable future, nor will it add a
significant number of employees.
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
At October 31, 1997, stockholder's deficit was $2.9 million and total
liabilities were $3.9 million and the working capital deficiency was $3.4
million.
Sales for the periods ended October 31, 1997 and 1996 were $183,000 and
$1,319,000, respectively. This is a decline in sales of 86% along with a
decrease in the related cost of sales of 81%. This is a result of
management's decision to discontinue selling its software through large
retailers due to the large retailer's detrimental payment terms and
policies.
The 38% decrease in selling, general and administrative expenses is the
result of having fewer employees and a reduction of overhead costs. The
decrease in sales resulted in the October 31, 1997 loss of approximately
$550,000 compared to the $249,000 loss reported at October 31, 1996.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
Part II - Other Information
ITEM 1 - LEGAL PROCEEDINGS
On April 1, 1996 and May 24, 1996, the underwriter of the company's initial
public offering, Strausbourger, Pearson Tulchin, Wolff, Inc., filed a
lawsuit against the Company alleging breach of contract and for failing to
register certain warrants. The Company's counsel is vigorously contesting
these matters and believes that the Company will be successful in its
defense.
On October 29, 1996, a Nevada general partnership filed a complaint against
the Company asserting three causes of action based on an alleged breach of
contract. The complaint prays for damages to reimburse the plaintiff for
the reasonable value of services allegedly provided to the company plus
interest and attorney fees, or alternatively, 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 to be without
merit and has filed a cross complaint in the amount of $700,000 alleging
that the partnership failed to perform the advertising for which it
received $700,000 of the Company's products.
On March 4, 1997 a lawsuit was filed in the Orange County Superior Court of
California by 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 April 16, 1997, the Company reached an agreement with Daisy Software,
Inc., a former distributor of the Company's product, whereby the Company
agreed to pay Daisy $185,000 over the next year for breach of contract. As
of October 31, 1997, $109,000 remains to be paid.
On May 8, 1997 the Company was notified that the Securities and Exchange
Commission is "conducting an informal inquiry concerning Wiz Technology,
Inc. to determine whether there have been violations of certain provisions
of the federal securities laws." The Company is cooperating fully with this
process.
On May 28, 1997 ASR Recording Services of California, the Company's CD
duplicator, sued the Company for approximately $200,000 in accounts
payable. The Company and ASR have settled this litigation under an
agreement by the Company to continue the services of ASR and comply with a
payment schedule on the past due balance. As of October 31, 1997 the unpaid
balance was $154,000.
On September 10, 1997 the Company was sued in Orange County Superior Court
by four investors who provided bridge loans to the Company totaling
$500,000 in August 1996. The Company does not have the cash to repay the
loan and is attempting to negotiate a settlement of this litigation.
The Company is involved in various other legal matters resulting from the
normal course of business. Such legal matters, when ultimately determined,
will not, in the opinion of management, have a material effect on the
financial position or the results of operations of the Company.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
Part II - Other Information
ITEM 2 - CHANGES IN SECURITIES
During the three months ended October 31, 1996, 100 Series A Preferred
shares were converted into 916,667 Common shares; holders of convertible
debt in the aggregate principal amount of $80,000 converted their debt into
1,445,095 Common shares; and 150,000 Common shares were issued for legal
services.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
The Company is in default on the $1,165,000 of 7% convertible debentures.
Management has been in close contact with the investors in these debentures
and is negotiating a settlement of the outstanding obligation.
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
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WIZ TECHNOLOGY, INC.
(A NEVADA CORPORATION)
Registrant
/s/ Mar-Jeanne Tendler
------------------------------------ ---------------------------
Mar-Jeanne Tendler, Chairman of the Board Date
/s/ Arthur S. Tendler
------------------------------------ ---------------------------
Arthur S. Tendler, President & Director Date