SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from __________________
to __________________
Commission File Number 0-12726
WIZ TECHNOLOGY, INC.
(Exact Name of Small Business Issuer as specified in its Charter)
Nevada 33-0560855
State or other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.)
32951 Calle Perfecto, San Juan Capistrano 92675
(Address of principal executive offices) (Zip Code)
(714) 443-3000
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of Common Equity, as of the latest practicable date.
Common Stock, $.001 par value 8,618,558
- ---------------------------------- ----------------------
Title of Class Number of Shares outstanding
at April 30, 1996
<PAGE>
WIZ TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $1,280,668 $ 101,994
Accounts receivable, net of allowance
for doubtful accounts of $132,856
and $80,953 as of April 30, 1996 and
July 31, 1995, respectively 2,401,263 1,078,854
Notes receivable from stockholders 151,732 428,731
Inventories 1,216,484 1,000,618
Prepaid expenses and other assets 923,962 32,731
Employee advances 47,123 7,615
Total current assets 6,021,232 2,650,543
Property and equipment, net 937,280 688,414
License agreements, net 3,606,251
Software development costs, net of accumulated
amortization of $250,749 and $19,727 as of
April 30, 1996 and July 31, 1995, respectively 782,883 397,755
Certificate of deposit 100,000 100,000
Covenants not to compete, net of accumulated amortization
of $289,716 and $179,372 at April 30, 1996 and
July 31, 1995, respectively 699,662 210,003
Note receivable, net 13,129 26,129
Other assets 190,360 20,897
Total assets $12,350,797 $4,093,741
Continued
See accompanying notes.
<PAGE>
WIZ TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
April 30, July 31,
1996 1995
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,235,364 $869,872
Accrued expenses 274,018 60,904
Accrued salaries and wages 166,338 106,912
Current maturities of long-term debt 617,811 59,759
Income taxes payable 31,707
Convertible debt to related party 80,000 80,000
Total current liabilities 2,405,238 1,177,447
Long-term debt 249,426 112,131
Total liabilities 2,654,664 1,289,578
Commitments and contingencies
Stockholders' equity
Preferred stock - $.001 par value:
10,000,000 shares authorized
Series A Convertible Preferred
Stock, 1,600 shares issued and
outstanding as of April 30, 1996,
liquidation preference of 2
Series B Convertible Preferred Stock,
1,200,000 shares issued and
outstanding as of April 30 1,200
Common stock - $.001 par value:
50,000,000 shares authorized; 8,618,558
and 8,020,529 shares issued and
outstanding as of April 30, 1996
and July 31, 1995,
respectively 8,618 8,021
Common stock committed 150,000
Additional paid-in capital-Preferred 4,250,298
Additional paid-in capital-Common St 7,512,035 5,736,681
Services receivable for common stock
issued (53,425) (131,400)
Note receivable from stockholder (157,500)
Accumulated deficit (2,015,095) (2,809,139)
Total stockholders' equity 9,696,133 2,804,163
Total liabilities
and stockholders'
equity $12,350,797 $4,093,741
<PAGE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the For the
Nine Months Ended Three Months E
April 30, April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues $6,336,879 $2,124,157 $2,701,999 $599,498
Costs and expenses
Cost of revenues 3,241,066 1,067,624 1,457,655 304,923
Selling, general and
administrative expenses 2,207,437 1,515,605 896,951 276,503
Total costs and expenses 5,448,503 2,583,229 2,354,606 581,426
Income (loss) from operations 888,376 (459,072) 347,393 18,072
Other income (expense):
Interest income 58,265 57,670 23,749 20,963
Interest expense (93,247) (32,055) (42,181) (11,546)
Other (27,643) 14,932 (45,083) 5,791
Total other income (expen (62,625) 40,547 (63,515) 15,207
Income (loss) before income taxes 825,751 (418,526) 283,878 33,279
Provision for income taxes 31,707 0 10,903 0
Net income (loss) $794,044 ($418,526) $272,975 $33,279
Net income (loss) per share of common stock:
Primary $0.09 ($0.05) $0.03 ($0.01)
Fully diluted $0.09 ($0.05) $0.03 ($0.01)
Weighted average number of shares outstanding:
Primary 8,957,422 8,213,863 9,660,961 8,227,706
Fully diluted 9,257,189 8,213,863 10,515,342 8,227,706
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the For the
Nine Months Ended Nine MonthsEnded
April 30, 1996 April 30, 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $794,044 ($418,526)
Adjustments to reconcile net income to net cash
(used) by operating activities:
Depreciation and amortization 295,935 171,576
Amortization of software development costs 231,023
Allowance for doubtful accounts 51,903 (1,792)
Provision for uncollectible note receivable 13,000
Reserve for obsolete inventories 68,271
Deferred rent (5,092)
Common stock issued for services rendered 310,412 115,160
Services received for common stock
previously issued 77,975 4,366
Gain on sale of assets 21,299
Changes in operating assets and liabilities:
Accounts receivable (974,839) (86,864)
Inventories (774,597) (706,913)
Prepaid expenses and other assets (132,281) (232,823)
Employee advances (39,508)
Accounts payable (620,551) (16,344)
Accrued expenses 121,407 (49,767)
Deferred revenue (171,753)
Customer deposits 5,959
Accrued salaries and wages (36,449) (24,961)
Accrued interest 12,724
Income taxes payable 31,707
Net cash (used in) operating activities (561,249) (1,405,050)
Cash flows from investing activities:
Purchases of property and equipment (156,572) (85,410)
Increase in notes receivable (48,001) (6,692)
Collections of notes receivable 325,000 (250,835)
Proceeds from available-for-sale securities 516,183
Other assets (156,868) (21,462)
Software development costs (515,612)
<PAGE>
Net cash provided by (used by) investing
activities (552,053) 151,784
Cash flows from financing activities:
Proceeds from issuance of Series A Convertible
Preferred stock, net 1,800,000
Proceeds from issuances of common stock 4,609
Proceeds from exercises of common stock options 37,500
Proceeds from long-term debt 500,000
Principal payments on long-term debt (45,524) (10,353)
Net cash provided by (used in)
financing activities 2,291,976 (5,744)
Net increase (decrease) in cash and cash equivalents 1,178,674 (1,259,010)
Cash and cash equivalents at beginning of period 101,994 1,444,335
Cash and cash equivalents at end of period $1,280,668 $185,325
Supplemental disclosure of cash flows information Cash paid during the year for:
Interest $51,996 $32,055
Income taxes $0 $0
</TABLE>
Continued
See accompanying notes
<PAGE>
WIZ TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended April, 30, 1996 and 1995
Supplemental noncash investing and financing activities:
During 1996, the Company completed the following transactions:
Issuance of 300,000 shares of common stock and 1,200,000 shares of Series B
Preferred Stock in exchange for the net assets of Q & A Sales and Marketing,
Inc.
Conversion of 400 Shares of Series A Convertible Preferred Stock at a value of
$360,000 for 133,527 shares of common stock.
Issuance of 45,000 shares of common stock with a value of $157,500 in exchange
for a note receivable.
Issuance of 58,176 shares of common stock with a value of $310,412 in exchange
for services.
Issuance of 25,332 shares of common stock with a value of $100,539 in exchange
for software development costs.
Issuance of 10,000 shares of common stock in exchange for an account receivable
with a value of $30,000.
Exchange of inventories for advertising credits valued at $751,045.
Automobiles valued at $141,534 received in exchange for capital lease
obligations.
Common stock committed of $150,000 in exchange for a license agreement and an 18
% profit participation in the licensee's gross profits.
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Nine Months Ended April 30, 1996 and 1995
NOTE 1 - UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial statements are unaudited, but in the opinion of the
management of WIZ Technology, Inc., (a Nevada corporation) and its wholly-owned
subsidiaries, Wiz Technology, Inc. (a California corporation), Q & A Software
Company and CAPOTEC Intranet Business Solutions ("the Company"), contain all
adjustments, consisting of only normal recurring accruals, necessary to present
fairly the financial position at April 30, 1996, the results of operations for
the three and nine months ended April 30, 1996 and 1995, and the changes in cash
flows for the nine months ended April 30, 1996 and 1995. The results of
operations for the three and nine months ended April 30, 1996 and 1995 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year ending July 31, 1996. All intercompany transactions have been
eliminated in consolidation. Reference is made to the Company's Form 10-KSB for
the year ended July 31, 1995. As of March 9, 1996, the Company has reflected the
purchase of Q & A Sales and Marketing (see Note 4) and the results of operations
and cash flows on a combined basis from that date through April 30, 1996.
CAPOTEC Intranet Business Solutions ("CAPOTEC") was established as a
wholly-owned subsidiary of the Company in April 1996 to conduct intranet system
marketing and sales.
NOTE 2-NOTE RECEIVABLE
On December 15, 1995, an agreement was entered into with a consultant whereby
the consultant was granted 45,000 options to acquire 45,000 shares of Common
Stock at the then fair market value. The consultant subsequently exercised the
option and was issued the Common Stock in exchange for a promissory note bearing
interest at an annual rate of 8%. The note is due and payable on or prior to
July 31, 1996. This note is reflected as a contra equity account on the balance
sheet.
NOTE 3-SERIES A CONVERTIBLE PREFERRED STOCK
In November 1995, the Company issued 2,000 shares of Series A Convertible
Preferred Stock ("Series A Preferred") and warrants to purchase 125,000 shares
of Common Stock in exchange for $1,800,000, net of issuance costs of $200,000.
The holders of the Series A Preferred are entitled to receive dividends, when
and as declared, at the rate of $80 per share, payable semiannually, commencing
July 1, 1996. The Series A Preferred carries a liquidation preference of $1,000
per share. Each share of Series A Preferred is convertible into Common Stock of
the Company at the rate of $1,000 divided by the lower of 80% of the fair market
value of the stock on the date of conversion or $3.4375. The holders of the
Series A Preferred are restricted as to the number of shares which can be
converted during various times during the period between December 26, 1995 and
April 5, 1996 at which time all remaining
<PAGE>
shares may be converted. The related warrants expire on November 1, 2000. Of the
125,000 shares which can be purchased under these warrants, 100,000 carry an
exercise price of $3.4375 per share while the remaining 25,000 have an exercise
price of $4.00 per share.
NOTE 4-ACQUISITIONS
In March 1996, the Company entered into an agreement with AIM Software, Inc.
("AIM") whereby the Company obtained an exclusive license to make, use and sell
a software product known as Lunar Landing. The Company has committed to exchange
30,000 shares of common stock valued at $5 per share for an 18% profit
participation in the overall profits of AIM. Additionally, the Company is
committed to pay a royalty of 10% of the gross sales price for each product
sold.
In March 1996, the Company acquired all of the outstanding shares of Q & A Sales
and 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 300,000 shares of common stock and 1,200,000 shares of Series
B Preferred Stock, each share of which is convertible into one share of common
stock at various times from August 7, 1996 through May 10, 1998, to the
stockholders of Q & A. The transaction was accounted for as a purchase. The
purchase price of $4,865,000 was allocated to assets and liabilities as follows:
License agreement $3,500,000
Covenant not to compete 600,000
Accounts receivable 369,000
Inventories 261,000
Other assets 135,000
Accounts payable (986,000)
Accrued expenses (188,000)
Other liabilities (99,000)
The license agreement acquired in this transaction 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.
The financial statements reflect the purchase of Q & A as of March 1996 and
include the combined results and cash flows of the Company and Q & A from March
1996 through April 30, 1996. Had the companies been combined as of the beginning
of all periods presented, the results would have been as follows:
<PAGE>
<TABLE>
<CAPTION>
For The Nine Months For The Three Months
Ended April 30, Ended April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues $8,620,364 $ 3,818,177 $3,076,331 $1,158,524
Income (loss)
from operations 138,439 (332,789) 226,440 144,355
Net income (loss) $ 43,340 ($309,220) $ 157,668 $ 103,038
Net income (loss) per
share of common stock
Primary $ nil $ (.04) $ .02 $ .01
Fully diluted $ nil $ (.03) $ .01 $ .01
Weighted average
number of shares
Primary 10,080,998 8,920,541 10,080,998 8,920,541
Fully diluted 10,935,379 10,034,016 10,935,379 10,034,016
</TABLE>
NOTE 5-SUBSEQUENT EVENTS
The Company is engaged in various lawsuits. The Company intends to vigorously
defend itself in these matters and it believes that any loss would not have a
material adverse impact on the Company. See Legal Proceedings.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
The following discussion regarding the financial statements of the
Company should be read in conjunction with the financial statements and notes
thereto included elsewhere in this Report. The Company is engaged in the
business of developing and then marketing, both directly and through
distributors, inexpensive computer software through traditional as well as
non-traditional retail outlets for computer software such as supermarkets,
discount stores, drug stores and airport gift shops. In the nine months ended
April 30,1996, the Company continued its significant development efforts and
released new product lines for sale which had been previously in development.
Included in the new product releases were numerous new CD-ROM titles (including
such titles as "Great Restaurants," "How to Play Craps," "Webster's Dictionary,"
"Ultimate Gambler," "White Wolf 10-Pack," and "The Great Golf CD") marketed
under the names of White Wolf and Silver Coyote and various new titles released
as 3 1/2" disks. In March 1996, the Company acquired Q & A Sales And Marketing
("Q & A") which was a competing company in the
<PAGE>
inexpensive software business. Its software titles and customers were,
by and large, different from those of WIZ Technology, Inc. ("WIZ").
Additionally, Q & A held a license agreement with Digital Systems
Research, Inc. acquired by WIZ in the transaction which provided
worldwide, exclusive rights to sell intranet systems to retailers,
wholesalers and original equipment manufacturers.
Revenues for the nine months ended April 30, 1996 consisted of sales
of computer software and point-of purchase displays as well as intranet systems
on a direct sale basis and through a distributor. Revenues for software sales
are recognized upon shipment of product, less a reserve for estimated future
product returns.
The Company is placing new displays on a weekly basis to large,
recognizable retailers throughout domestic and international markets. However,
there can be no assurance that growth in revenues or profits will occur nor that
the Company will continue to be profitable, and the specific levels of revenue
and income, if any, in fiscal 1996 cannot be predicted.
Nine Months Ended April 30, 1996 Compared to the Nine Months Ended April 30,
1995.
Revenues. Net revenues for the nine months ended April 30, 1996 were
$6,336,879 compared to net revenues in the nine months ended April 30, 1995 of
$2,124,157, an increase of $4,212,722 or 198.3%. The increase was due to sales
of products totaling approximately $1,000,000 to distributors which were
customers of Q & A as well as higher sales of existing as well as new product
lines to existing national distributors, sales to new customers including
CompUSA, Sav-On, Ingram Micro, GTI, Inc., Seagram USA and People's Drugs and the
addition of new domestic and international accounts.
Costs and Expenses. Total costs and expenses for the nine months
ended April 30, 1996 were $5,448,503, compared to $2,583,229 for the nine months
ended April 30, 1995 or an increase of $2,865,274. The increase in costs and
expenses was due to an increase in costs of revenues of $2,173,442 and an
increase in selling, general and administrative expenses of $691,832.
Costs of revenues increased slightly as a percentage of net revenues
from 50.3% for the nine months ended April 30, 1995 to 51.1% for the comparable
period in 1996. During fiscal 1996, the costs of revenues for WIZ products
decreased due to the continued refinements in the allocation of labor and
overhead to product costs. This was offset by the sale of Q & A products in
March and April 1996 which carried costs higher than those of WIZ products.
Selling, general and administrative costs increased from $1,515,605
for the nine months ended April 30, 1995 to $2,207,437 for the comparable period
in 1996. However, these costs as a percentage of
<PAGE>
net revenues decreased from 71.4% to 34.8% in 1995 and 1996, respectively. This
very positive trend reflects the Company's conscious effort to hold these costs
steady while sales volume increases. This was partially offset by hiring of
additional administrative and sales personnel in March 1996 as a result of the
acquisition of Q & A.
Other Income/Expense. Interest income increased slightly in the nine
months ended April 30, 1996 compared to April 30, 1995 due to cash available for
investment as a result of a sale of preferred stock in November 1995. Interest
expense increased as a result of the addition of $500,000 in new promissory
notes, the issuance of the related stock options, and interest expense
associated with the lease of automobiles. Net miscellaneous expense in 1996
resulted from a claim settlement of approximately $60,000 in April 1996 which
was partially offset by gains on sales of property and equipment and other
miscellaneous video monitors.
Net Income. The Company's net income for the nine months ended April
30, 1996 was $794,044 as compared to a loss of $418,526 for the nine months
ended April 30, 1995. This represents an increase of $1,212,570 which is largely
attributable to the significant sales growth while holding product costs as a
percentage of sales relatively constant and spreading selling, general and
administrative costs over a larger sales volume thereby reducing these costs
dramatically as a percentage of sales.
Three Months Ended April 30, 1996 Compared To The Three Months Ended
April 30, 1995
Revenues. Net revenues for the three months ended April 30, 1996 were
$2,701,999 as compared to $599,498 for the three months ended April 30, 1995, an
increase of $2,102,501 or 350.7 %. The increase was due to sales of products
totaling approximately $1,000,000 to distributors obtained through the
acquisition of Q & A as well as the release of new lines of CD-Rom titles and
various other titles packaged as 3 1/2" disks. These releases resulted in
increased sales volume to existing customers, as well as new customers in both
domestic and international markets. Additionally, the Company signed a
distribution agreement granting rights to sell intranet systems in Florida. One
intranet system was sold directly to a customer.
Costs and Expenses. Total costs and expenses for the three months
ended April 30, 1996 were $2,354,606 as compared to $581,426 for the three
months ended April 30, 1995 or an increase of $1,773,180. The increase in total
costs and expenses was due to an increase in costs of revenues of $1,152,732 and
an increase in selling, general and administrative expenses of $620,448.
Costs of revenues increased as a percentage of net revenues from 50.9
% for the three months ended April 30, 1995 to 53.9% for the three months ended
April 30, 1996. This increase as a percentage of sales resulted from the sale of
inventories purchased from Q & A which carried
<PAGE>
higher costs than WIZ's inventories. Additionally, certain slow moving products
were removed from inventory and destroyed in April 1996.
Selling, general and administrative costs increased from $276,503 for the three
months ended April 30, 1995 to $896,951 for the comparable period in 1996.
However, these costs as a percentage of net revenues decreased from 46.1% in
1995 to 33.2% in 1996. This decrease is attributable to the fact that in fiscal
1995 employees were hired in anticipation of increased production. In 1996,
there was a reassignment of personnel from administrative positions to
production responsibilities as production volume increased. This decrease was
partially offset by increased hiring as a result of the Q & A acquisition.
Other Income/Expense. Total other income and expense was a net
$63,515 of expense for the three months ended April 30, 1996 as compared to
other income of $15,207 for the three months ended April 30, 1995. The change
resulted from increased interest expense due to the addition of $500,000 of
promissory notes, a charge for warrants with exercise prices below fair market
value, and interest on automobile leases. Additionally, a claim for
approximately $60,000 was settled in April 1996.
Net Income. The Company's net income for the three months ended April
30, 1996 was $272,975 as compared to net income of $33,279 for the comparable
period of the prior year.
Liquidity and Capital Resources
Cash and cash equivalents increased to $1,280,668 at April 30, 1996
compared to $101,994 at July 31, 1995. This increase of $1,178,674 resulted from
changes as shown below.
Nine Months Ended April 30,
1996 1995
Net cash (used in)
operating activities ($561,249 (1,405,050)
Net cash (used in)
provided by investing activities
(552,053) 151,784
Net cash provided by
(used in) financing activities 2,291,976 (5,744)
Cash flows used in operations for the nine months ended
April 30, 1996 of $561,249 resulted from the following contributing factors:
1. Accounts receivable increased to $2,401,263 as of April 30,1996
from $1,078,854 as of July 31, 1995. This was a direct result of increased sales
in the first nine months of fiscal 1996 and the purchase of accounts receivable
of approximately $369,000 through the acquisition of Q & A Sales and Marketing,
Inc. ("Q & A").
<PAGE>
.
2. Inventories increased to $1,216,484 as of April 30, 1996 from
$1,000,618 as of July 31, 1995. This increase was a result of a build-up
in CD-ROM finished goods inventory in anticipation of increased
sales in the fourth quarter of fiscal 1996 and raw materials to meet
future production requirements and the purchase of inventories of
approximately $261,000 through the acquisition of Q & A. Additionally,
in a noncash transaction, inventories were exchanged for advertising.
The result of this was a cash outlay of approximately $975,000 to build
inventories to meet customer demands for increased sales.
3. Accounts payable increased from $869,872 to $1,235,364. However,
as a result of the acquisition of Q & A, accounts payable of $986,043 were
assumed by the Company in March 1996. Net of those payables, the balance
decreased to $249,321. The net decrease of $620,551 is a result of the payment
of bills on a more timely basis.
4. These factors were partially offset by the net income generated in
the first nine months of fiscal 1996 of $794,044, an increase in accrued
expenses of $121,407 (net of Q & A assumed accrued expenses of approximately
$92,000) and various reconciling items.
Cash flows used in investing activities of $552,053 were primarily
the result of development of software product lines which will be available for
future sales and purchases of property and equipment. These uses were partially
offset by a collection of a note receivable.
Cash flows from financing activities of $2,291,976 resulted primarily
from the net proceeds obtained of $1,800,000 from the issuance of Series A
Convertible Preferred Stock and the proceeds from promissory notes payable of
$500,000.
The Company is negotiating with several lenders to obtain a
$1,500,000 line of credit, but there can be no assurance that any line of credit
can be obtained.
The Company introduced new lines of multimedia CD-ROM products to be
sold in the United States and in international markets. These efforts have
resulted in continued growth of accounts receivable, inventories, and software
development costs. Since the acquisition of Q & A Sales and Marketing, Inc., the
Company has begun marketing efforts of the intranet systems business which will
require additional funding. Since inception, the Company has financed its cash
flow requirements through cash generated from operations, the issuance of shares
of capital stock and debt financing. As the Company expands , it may experience
net negative cash flows from operations, pending receipt of sales revenues, and
may be required to obtain additional financing to fund operations through
offerings of its securities and bank borrowings, to the extent available, or to
obtain additional financing to the extent necessary to augment its working
capital through public or private issuance of equity or debt securities.
The company leases its offices and working space under a four year
lease.
<PAGE>
Inflation has not had a material impact on the Company's operations.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On April 1, 1996, the Company was served with a lawsuit filed in
Orange County Superior Court by the underwriter of its 1994 public
offering, Strausbourger Pearson Tulcin Wolff Incorporated (the
"Underwriter"). The Underwriter alleges that the Company's sale of a
private placement in November 1995 violated a covenant in the
underwriting agreement for the 1994 public offering not to sell any of
its securities until February 9, 1996 without the Underwriter's consent.
The Company has answered the complaint denying all allegations and has
also filed for arbitration with the NASD. The Company believes the
lawsuit is without merit.
On May 24, 1996, the Underwriter filed an additional complaint in
Orange County Superior Court alleging that the Company had not complied with the
Underwriter's demand to file a registration statement with the Securities and
Exchange Commission to register the shares underlying the Underwriter's 182,000
Underwriter Warrants received in connection with the 1994 public offering. The
complaint seeks damages of not less than $1,000,000. On June 6, 1996, the
Company was served with an amended complaint seeking a writ of attachment. A
hearing has been set for June 21, 1996. The Company believes the second lawsuit
is without merit.
The Company has been named in a respondent action for breach of
contract and other business-related torts brought by Daisy Software, Inc. The
action is pending before the American Arbitration Association and is scheduled
to be arbitrated later this year. The Company has filed a counter-claim alleging
numerous business-related torts and seeking punitive damages. The Company
believes that the action filed by Daisy Software, Inc. is without merit.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of shareholders was held on April 22,
1996.
(b) At the meeting, Mar-Jeanne Tendler, Arthur Tendler, Willie
Woods and Bruce Gilgen were reelected as directors.
(c) The shareholders approved an increase in the number of
shares authorized to be issued under the 1992 Stock Option Plan from
800,000 to 2,000,000 and ratified the selection of Coopers & Lybrand
<PAGE>
L.L.P. as auditors for the 1996 fiscal year. The following is the
summary of the votes cast at the meeting.
Election of Directors:
A. Tendler M.J. Tendler G. Gilgen W. Woods
For 6,585,858 6,585,858 6,585,858 6,585,858
Withheld 2,700 2,700 2,700 2,700
Amendment to the 1992 Stock Option Plan--votes cast for the approval
were 4,671,963, votes against 64,450, and abstain 8,725.
Ratification of Coopers & Lybrand L.L.P.---votes cast for the
ratification were 6,581,658, votes against 700, and abstain 6,200
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K:
An 8-K dated March 12, 1996, as amended by a Form 8-K/A, was
filed to report Items 2, Acquisition or Disposition of Assets, and 7, Financial
Statements and Exhibits, to report the acquisition of Q & A Sales Marketing,
Inc. ("Q & A"). Included were the financial statements of Q&A for the year ended
December 31, 1995 and the period inception (March 30, 1994) to December 31,
1994, and pro forma financial statements on the acquisition.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 11, 1996
By:/s/ Arthur S. Tendler
Arthur S. Tendler
<PAGE>
President and duly authorized
Officer
