<PAGE>
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 DECEMBER 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from [_______] to [_______]
Commission File Number 0-17478
WISMER*MARTIN, INC.
(Exact name of small business issuer as specified in its charter)
WASHINGTON
(State or other jurisdiction of incorporation or organization)
91-1196514
(IRS Employer Identification No.)
N. 12828 NEWPORT HIGHWAY
MEAD, WASHINGTON 99021-9988
(Address of principal executive offices)
(509) 466-0396
(Issuer's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: AS OF JANUARY 1, 1996, THERE
WERE 16,325,461 SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, PAR VALUE
$.001, WHICH IS THE ONLY CLASS OF COMMON OR VOTING STOCK OF THE REGISTRANT.
Transitional Small Business disclosure Format (check one):
Yes [ ]; No [X]
<PAGE>
WISMER*MARTIN, INC.
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1995
I N D E X
Page
----
PART I - Financial Information
Item 1 - Consolidated Balance Sheets as of December 31, 1995
and June 30, 1995 . . . . . . . . . . . . . . . . . . . . . 1
- Consolidated Statements of Operations for the Three
and Six Month Periods Ended December 31, 1995 and 1994 . . . 2
- Consolidated Statements of Cash Flows for the Six Month Periods
Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . 3
- Notes to Consolidated Financial Statements . . . . . . . . 4-5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 6-7
PART II - Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
WISMER*MARTIN, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 776,174 $ 91,225
Trade receivables, net of allowance for doubtful
accounts of $48,000 and $255,647 785,650 854,474
Unbilled costs and expenses 211,250 37,800
Inventories 116,287 184,803
Prepaids and other assets 99,396 148,066
---------- --------
Total current assets 1,988,757 1,316,368
Property, plant and equipment, net 1,422,629 1,802,139
Software development costs, net of accumulated amortization
of $1,745,297 and $1,491,918 3,239,208 2,879,421
Other assets, net of accumulated amortization of $220,098
and $206,637 90,971 249,235
---------- ----------
Total assets $ 6,741,565 $ 6,247,163
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Note payable to bank $ - $ 583,964
Accounts payable and accrued expenses 426,432 863,110
Accrued wages and related taxes 264,783 351,562
Other accrued liabilities 97,386 184,516
Deferred revenue 2,135,239 1,922,539
Long-term debt, due within one year 34,937 70,335
Obligations under capital leases, due within one year 27,751 30,500
------------ -----------
Total current liabilities 2,986,528 4,006,526
Other liabilities 67,565 86,984
Long-term debt, due after one year 756,946 879,662
Convertible subordinated debentures - 3,000,000
Obligations under capital leases, due after one year 37,648 67,615
------------ -----------
Total liabilities 3,848,687 8,040,787
------------ -----------
------------ -----------
Stockholders' Equity (Deficit):
Common stock, $0.001 par value 20,000,000 shares authorized;
16,325,461 and 9,847,625 shares issued and outstanding 16,325 9,848
Additional paid-in capital 4,881,190 1,203,809
Excess purchase price of acquired subsidiary (2,533,308) (2,533,308)
Retained earnings (deficit) 528,671 (473,973)
------------ -----------
Total stockholders' equity (deficit) 2,892,878 (1,793,624)
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 6,741,565 $ 6,247,163
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
WISMER*MARTIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
------------ ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales:
Software license fees $ 1,734,816 $ 446,465 $1,994,671 $1,567,899
Equipment, software and supplies sales 405,206 796,354 704,390 1,445,459
Software and hardware maintenance contracts 1,012,115 956,404 2,046,262 1,902,305
Service revenue 450,225 738,977 925,488 1,606,807
Discounts (153,828) (414,698) (284,762) (675,696)
---------- ---------- ---------- ----------
Net Sales 3,448,534 2,523,502 5,386,049 5,846,774
---------- ---------- ---------- ----------
Operating Expenses:
Cost of software license fees 129,242 148,113 243,279 296,243
Cost of equipment, software and supplies
sold 327,768 542,475 528,760 1,026,359
Cost of support and operations 547,928 813,886 1,071,977 1,557,234
Selling and marketing 382,685 686,578 648,515 1,268,526
Product research, development and
enhancements 503,071 666,773 1,025,505 1,298,377
Less: amount capitalized related to
enhancements (282,052) (427,513) (546,467) (787,984)
General and administration 646,241 1,069,051 1,305,535 2,027,834
----------- ----------- ---------- ----------
Total operating expense 2,254,883 3,499,363 4,277,104 6,686,589
----------- ----------- ---------- ----------
Operating Income (Loss) 1,193,651 -975,861 1,108,945 -839,815
----------- ----------- ---------- ----------
Other Income (Expense):
Interest income 7,586 6,056 10,768 11,553
Interest expense (27,500) (89,457) (117,070) (172,058)
----------- ---------- ---------- ----------
Total other income (expense) (19,914) (83,401) (106,302) (160,505)
----------- ----------- ---------- ----------
Income (Loss) Before Income Tax Provision 1,173,737 (1,059,262) 1,002,643 (1,000,320)
Income Tax Expense (Benefit) 58,200 (361,134) (342,862)
----------- ----------- ---------- -----------
Net Income (Loss) $ 1,115,537 $ (698,128) $1,002,643 $ (657,458)
----------- ----------- ---------- -----------
----------- ----------- ---------- ----------
Net Income (Loss) Per Share $ 0.07 $ (0.07) $ 0.07 $ (0.07)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Weighted average common shares outstanding 16,325,461 9,846,306 14,172,536 9,605,767
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
WISMER*MARTIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,002,643 $ (657,458)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 593,513 578,921
Loss on disposal of property, plant and equipment (11,672) -
Change in operating assets and liabilities:
Trade receivables 68,824 471,697
Unbilled costs and expenses (173,450) 28,250
Inventories 68,516 270,814
Prepaids and other assets 48,670 (334,720)
Accounts payable (436,678) (440,209)
Accrued wages and related taxes (86,779) (162,826)
Other accrued liabilities (87,130) (35,988)
Deferred revenue 212,700 21,985
Other liabilities (19,419) (23,945)
---------- ---------
Net cash provided by (used in) operating activities 1,179,738 (283,479)
---------- ---------
Cash flows from investing activities:
Proceeds from disposition of property, plant and equipment 155,323 -
Purchase of property, plant and equipment (55,911) (269,069)
Additions to software development costs (603,067) (832,984)
Purchase of other assets - (25,951)
---------- -----------
Net cash used in investing activities (503,655) (1,128,004)
---------- -----------
Cash flows from financing activities
Payment of debt obligations (160,863) (72,464)
Net proceeds from issuance of common stock 783,660 121,750
Payments under capital lease obligations (29,967) (10,760)
Net proceeds (payments) on note payable to bank (583,964) (900,605)
---------- ----------
Net cash provided by financing activities 8,866 939,131
---------- ----------
Net increase (decrease) in cash and cash equivalents 684,949 (472,352)
Cash and cash equivalents at beginning of period 91,225 588,349
---------- ----------
Cash and cash equivalents at end of period $ 776,174 $ 115,997
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 202,807 $ 156,679
---------- ----------
---------- ----------
Income taxes $ - $ -
---------- ----------
---------- ----------
Noncash financing activities:
Conversion of convertible subordinated debentures to equity $500,000 $ -
---------- ----------
---------- ----------
Subordinated debentures accepted as consideration $2,500,000 $ -
for common stock ---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WISMER*MARTIN, INC.
PART I - FINANCIAL INFORMATION, Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
1. COMPANY ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with
the financial statements and related notes included in the Company's 1995
Form 10-KSB. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended December 31, 1995 are not necessarily indicative of the results that
may be expected for the year ending June 30, 1996.
2. CONVERTIBLE SUBORDINATED DEBENTURES:
On August 26, 1993, the Company issued convertible subordinated debentures
with a face value of $500,000 in exchange for cash. The debentures are due
August 31, 1998. Interest accrues on the outstanding principal of the
debenture at the rate of 7% per annum and is payable semi-annually on
February 28 and August 31 during the term of the debenture. The debenture
allows the holder to convert in whole or part the outstanding balance into
shares of the Company's common stock at any time during the term of the
debenture at a fixed conversion price of $.60 per common share. The
Company may, at its option, call the outstanding principal amount of the
debentures for redemption at any time after December 31, 1993. As of
November 1, 1995, all of the holders of these convertible subordinated
debentures have converted their debentures into common stock, utilizing the
conversion feature of their debentures.
On February 10, 1994, the Company issued convertible subordinated
debentures with a face value of $2,500,000 in exchange for all the
outstanding stock of Integrated Health Systems, Inc. ("IHS"). The
debentures are due January 31, 1999. Interest accrues on the outstanding
principal of the debenture at the rate of 7% per annum and is payable semi-
annually on January 31 and July 31 during the term of the debenture. The
debenture allows the holder to convert in whole or part the outstanding
balance into shares of the Company's common stock at any time during the
term of the debenture at a fixed conversion price of $3.23 per common
share.
The above conversion rates are subject to adjustment if (a) the Company
pays a dividend or makes a distribution of common shares (b) the Company
consolidates or merges into another corporation or (c) sells any common
shares (excluding existing stock bonus and option plans) for less than the
conversion price if the cumulative value of these transactions exceeds
$100,000. On August 15, 1995 the company's Form SB-2 Registration of
approximately 6 million shares of common stock for sale to the public
became effective with the Securities and Exchange Commission. The Board of
Directors of the Company set the price to the public at $0.60 per share.
As of September 26, 1995, the holders of all of these convertible
subordinated debentures have canceled their debentures in exchange for
common stock being offered through the public offering, at $0.60 per share.
4
<PAGE>
WISMER*MARTIN, INC.
PART I - FINANCIAL INFORMATION, Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
3. STOCK OFFERING:
On August 15, 1995, the Company's Form SB-2 Registration of 6,066,667
shares of common stock for the sale to the public became effective with the
Securities and Exchange Commission. The Board of Directors set the offering
price at $0.60 per share on August 21, 1995. The offer was completed as of
November 1, 1995, and the Company raised capital of approximately
$3,384,000 through the offering and conversion of its convertible
subordinated debentures.
4. RECLASSIFICATIONS:
Certain financial statement amounts have been reclassified to conform to
the current period's presentation. These reclassifications have no effect
on the net loss or retained deficit previously reported.
5. NET INCOME (LOSS) PER SHARE:
The computation of net income (loss) per share in each period is based on
the weighted average number of common shares outstanding. When dilutive
stock options, debentures and warrants are included as share equivalents
using the treasury stock method, fully diluted net income (loss) per common
share is not materially different from primary net income (loss) per common
share.
5
<PAGE>
WISMER*MARTIN, INC.
PART I - FINANCIAL INFORMATION, Continued
-----------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995
COMPARED WITH SIX MONTHS ENDED DECEMBER 31, 1994
NET SALES
Net sales for the six months ended December 31, 1995 ("1995") were
$5,386,049, representing a decrease of $460,725 (8%) from December 31, 1994
("1994") sales of $5,846,774, which resulted from a decline in service revenue
and sales of equipment, software and supplies. The Company's pretax results of
operations increased from a loss of $1,000,320 in 1994 to an income of
$1,002,643 in 1995.
OPERATING EXPENSES
The cost of software license fees was $243,279 for 1995, a decrease of
approximately $53,000, or 18%, from 1994. Enhancements have been made to the
SM*RT Practice product, which have increased the marketability and extended the
life of this product. Thus, the unamortized costs associated with the previous
version of this product have been added to the costs of enhancement and
amortized over the estimated economic life of the new version (five years),
consistent with the Company's policy for software development costs.
The cost of equipment, software and supplies sold was $528,760, a decrease
of about $498,000 (48%) from 1994. The reduction relates to a 51% decrease in
equipment, software and supplies sales.
Cost of support and operations was $1,071,977 for 1995, representing a
decrease of $485,257 (31%) from 1994. The decrease is the result of certain
cost restructuring measures taken by the Company in order to increase overall
profitability of its operations.
Selling and marketing expenses were $648,515 for 1995, a decrease of
$620,011 (49%) from 1994 which resulted from a reduction in the number of sales
and marketing personnel.
Product research, development and enhancement costs for 1995 decreased by
$272,872 (21%) from 1994. This reduction is the result of a decrease in the
number of personnel devoted to enhancing the Company's existing products and
developing new products.
As a direct result of the decrease in product research, development and
enhancement costs, the amount of enhancement expenses capitalized as software
development costs for 1995 was reduced by $241,517, a decrease of 31%.
General and administrative expenses for 1995 were $1,305,535, representing
a decrease of $722,299 (36%) from 1994. This reduction reflects the success of
the Company's efforts to control overhead expenses.
Principally due to the conversion of $3 million of convertible subordinated
debentures into shares of common stock, 1995 interest expense was reduced by
$54,988 (32%).
The Company used a portion of its prior years' net operating loss
carryforwards to offset the income tax provision on 1995 operating income. The
remaining net operating loss carryforwards will be available to offset the
future reversal of temporary differences created by software development costs
and other items which give rise to deferred tax liabilities.
The various factors discussed above resulted in a net income of $1,002,643,
($0.07) per share, and net loss of $657,458, ($.07 per share), for six month
periods ended December 31, 1995 and 1994, respectively.
6
<PAGE>
WISMER*MARTIN, INC.
PART I - FINANCIAL INFORMATION, Continued
-----------
THREE MONTHS ENDED DECEMBER 31, 1995
COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1994
NET SALES
Net sales for the three months ended December 31, 1995 ("1995") were
$3,448,534, representing an increase of $925,032 ,or 37%, from December 31, 1994
("1994") sales of $2,523,502. The increase principally resulted from an
expansion of the Company's existing contracts. The Company's pretax results of
operations increased from a loss of $1,059,262 in 1994 to an income of
$1,173,737 in 1995.
OPERATING EXPENSES
The cost of software license fees was $129,242 for 1995, a decrease of
approximately $19,000 (13%) from 1994.
The cost of equipment, software and supplies sold was $327,768 for 1995, a
decrease of about $215,000 (40%) from 1994, resulted from a 49% decline in
equipment, software and supplies sales.
Cost of support and operations was $547,928 for 1995, representing a
decrease of $265,958 (33%) from 1994. The decrease is the result of product
improvements which have reduced the need for technical personnel to assist with
software.
Selling and marketing expenses were $382,685 for 1995, a decrease of
$303,893 (44%) from 1994, which resulted from a reduction in the number of sales
and marketing personnel.
As a result of a decrease in the number of personnel devoted to enhancing
the Company's existing products and developing new products, product research,
development and enhancement costs for 1995 decreased by $163,702 (25%) from
1994.
The amount of enhancement expenses capitalized as software development
costs for 1995 was reduced by $145,461, a decrease of 34% as a result of a
decline in product research, development and enhancements.
General and administrative expenses for 1995 were decreased by $422,810,
(40%) from 1994. This reduction reflects the Company's successful efforts to
eliminate or reduce nonessential expenses in order to control its operating
overhead.
Interest expense for 1995 was $27,500, a decrease of $61,957, (69%) from
1994. The reduction was related to the conversion of $3 million of convertible
subordinated debentures into shares of common stock.
FINANCIAL CONDITION AND LIQUIDITY
During the first six months ended December 31, 1995, in addition to about
$1,180,000 cash provided by operations, the Company raised capital of
approximately $3,384,000 from issuance of common stock to the public investors,
$2,500,000 of which was through the conversion of subordinated debentures to
shares of common stock. The Company paid-off amounts due on its revolving line
of credit and note payable to Seafirst. Additional cash proceeds of $155,000
was provided from disposition of property, plant and equipment. The Company
invested over $600,000 in software development costs and approximately $56,000
in property, plant and equipment.
Management believes that the Company has sufficient resources to meet its
immediate working capital needs.
7
<PAGE>
WISMER*MARTIN, INC.
PART II - FINANCIAL INFORMATION, Continued
-----------
ITEM 1. LEGAL PROCEEDINGS
On September 21, 1995, the Company had filed a complaint for injunctive relief
and damages in the U.S. District Court in the Eastern District of Washington
against Electronic Data Systems Corporation. During October, 1995, the Company
dismissed the litigation without award of cost to either party.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
Items 2, 3, 4 and 5 of Part II are not applicable on this report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WISMER-MARTIN, INC.
---------------------
(Registrant)
Date: January 24, 1996 By: /s/ Mehdi Moussavi
---------------------
Mehdi Moussavi
Vice President of Finance and Chief
Financial Officer
(Principal Financial and Accounting Officer)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATAED BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS ANDS CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 776,174
<SECURITIES> 0
<RECEIVABLES> 833,650
<ALLOWANCES> 48,000
<INVENTORY> 116,287
<CURRENT-ASSETS> 1,988,757
<PP&E> 1,422,629
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,741,565
<CURRENT-LIABILITIES> 2,986,528
<BONDS> 0
0
0
<COMMON> 16,325
<OTHER-SE> 2,876,553
<TOTAL-LIABILITY-AND-EQUITY> 6,741,565
<SALES> 704,390
<TOTAL-REVENUES> 5,386,049
<CGS> 528,760
<TOTAL-COSTS> 2,323,054
<OTHER-EXPENSES> 1,954,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,070
<INCOME-PRETAX> 1,002,643
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,002,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002,643
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
