As filed with the Securities and Exchange Commission on March 18, 1997
Registration No. 333-6423
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
WIZ TECHNOLOGY, INC.
(Name of registrant as specified in its charter)
Nevada 33-0560855
(State or Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
32951 Calle Perfecto Mar-Jeanne Tendler
San Juan Capistrano, California 92675 32951 Calle Perfecto
(714) 443-3000 San Juan Capistrano, California
92675
(Address, including zip code, and telephone number, including area code
(714) 443-3000
of Registrant's principal executive offices)
(Name, address, including zip code, and
telephone number, including area code, of
agent for service)
COPY TO:
Jehu Hand, Esq.
Hand & Hand
24901 Dana Point Harbor Drive, Suite 200
Dana Point, California 92629
(714) 489-2400
Facsimile (714) 489-0034
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this registration
statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933 other than securities offered only
in connection with dividend or
interest reinvestment plan, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:
[ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered Be Registered Per Share(1) Offering Price(1) Registration Fee
Common Stock offered by
<S> <C> <C> <C> <C>
selling shareholders................. 3,072,472 $.90625 $ 2,784,427.70 $ 843.77
Total(2)............................... 3,072,472 $.90625 $ 2,784,427.70 $ 843.77
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
Pursuant to Rule 457(c) under the Securities Act, the maximum offering
price per share is based upon the closing bid and ask prices of the
Common Stock on the Electronic Bulletin Board on March 18, 1997 of
$.90625 per share. Includes 53,333 shares issuable upon conversion of
debt; 208,333 shares issuable upon conversion of $250,000 in Convertible
Promissory Notes and 120,000 shares issuable upon exercise of related
options; 1,200,000 shares issuable upon conversion of Convertible Series
B Preferred Stock; an estimated 256,550 shares issuable upon conversion
of Series C Convertible Preferred Stock; 294,500 shares issuable upon
exercise of Warrants; an estimated 609,756 shares of Common Stock
issuable upon conversion of $1,250,000 in principal amount of the
Company's 7% Convertible Debentures due December 31, 1999; also includes
reoffers of such shares.
(2) Filing fee of $5,693.13 paid with initial filing on Form S-3; for
2,130,333 shares at $7.75 per share; an additional $207.13 paid with
Amendment No. 1 to register 754,250 additional shares.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
WIZ TECHNOLOGY, INC.
3,072,472 Shares of Common Stock
($.001 par value)
The 3,072,472 shares (the "Shares") of Common Stock, par value $.001 per
share (the "Common Stock") of WIZ Technology, Inc., a Nevada corporation (the
"Company") are being offered by selling stockholders (the "Selling
Shareholders"). The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholders. See "Selling Stockholders." The
expenses of the offering, estimated at $40,000, will be paid by the Company.
The Common Stock is listed on the NASD's Electronic Bulletin Board under
the symbol "WZTC." The Common Stock was delisted from the American Stock
Exchange in February 1996. On March 14, 1997, the closing bid and ask prices of
the Common Stock as reported by the Electronic Bulletin Board were $.75 and
$1.0625 per share, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1997
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This Prospectus relates to the offer and sale of the following securities:
$250,000 in value of Common Stock of the Company, valued at 80% of the closing
sale price of the Company's Common Stock on the date immediately prior to the
effective date of this Prospectus, issuable upon conversion of two of the
Company's convertible Promissory Notes dated August 16, 1995 and due August 16,
1996, in the aggregate principal amount of $250,000 (the "Notes"); [208,333
estimated shares assuming a conversion price of $1.20 per share]; 120,000 shares
of Common Stock issuable upon exercise of the options attached to the Notes at a
price of $2.50 per share; $256,550 in value of Common Stock of the Company,
valued at the lower of 80% of the closing sale price of the Company's Common
Stock on the date immediately prior to the date of conversion or $1.00, issuable
upon conversion of the Company's Series C Convertible Preferred Stock issued in
exchange for two additional convertible Notes, in the aggregate principal amount
of $250,000 [256,550 estimated shares]; 1,500,000 shares of Common Stock,
including 1,200,000 shares of common stock issuable upon conversion of 1,200,000
shares of Series B Convertible Preferred Stock, all issued in connection with
the acquisition of Q & A Sales and Marketing, Inc., 30,000 shares of common
stock issuable to acquire software from AIM Software, Inc., 53,333 shares
issuable upon conversion of a promissory note for $80,000 issued in December
1992; an estimated 609,756 shares of Common Stock issuable upon conversion of
$1,250,000 in principal amount of 7% Convertible Debentures due December 31,
1999 and convertible at the lower of $3.85 or 82% of the average closing bid
price on the five trading days prior to conversion; 112,500 shares issuable upon
exercise of Warrants at $5.00 per share issued to placement agents in connection
with the 7% Convertible Debentures; and 182,000 shares of common stock issuable
upon exercise of Underwriter's Warrants. See "Selling Stockholders".
No person has been authorized in connection with this offering to give any
information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities covered by this Prospectus in any state or other jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such state
or jurisdiction. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, as well as proxy statements and
other information filed by the Company with the Commission, can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its Regional
Offices located at 7 World Trade Center, New York, New York 10048, and at
Citibank Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, Washington, D.C. 20549, during regular
business hours.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety by
such reference. The Company will provide, without charge upon oral or written
request of any person, a copy of any information incorporated by reference
herein. Such request should be directed to the Company at 32951 Calle Perfecto,
San Juan Capistrano, California 92675, telephone (714) 443-3000.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety.
The Company
WIZ Technology, Inc., a Nevada corporation (the "Company") markets a
comprehensive line of computer software at prices under $20.00 per program,
including both licensed software and "shareware," for IBM PCS and compatibles.
The Company markets its products directly and through distributors. The
Company's product line of over 200 programs is designed for a wide range of
personal computer users, particularly small business and home users who may have
limited technical expertise. The Company selects software programs which it
believes are most suitable for general public use in the categories of games,
utilities, educational, and business and integrates these programs with
user-friendly menu screens. Recently, the Company acquired its first major
proprietary software title, Lunar Landing. Software is sold in CD Rom jewel
cases, shrink wrapped boxes and colorful diskette envelopes. The Company's
software products are sold in the United States and abroad under the names "The
$5 Computer Software StoreTM," for 3.5" diskettes, "White Wolf" and "Silver
Coyote" for CD Roms, and Digital System Research for boxed software through
computer stores such as Comp USA, Computer City, and Ingram Micro, national
retailers such as K-Mart-Canada, Osco Drugs, Toys-R-Us Canada, regional discount
chains such as Longs Drugstores, Pharma Plus Drug Canada, grocery stores such as
Alpha Beta Supermarkets, Army & Air Force Exchange Service and national and
local specialty retailers.
The Company's objective is to become a leading marketer of affordable
computer software. The Company's strategy for achieving this objective consists
of three components: (1) acquire rights to distribute high quality, easy to use
software; (2) continue to develop effective distribution channels for marketing
such software; and (3) market software at prices under $20.00 that meet the
needs of a broad base of users. In March 1996, in furtherance of this strategy,
the Company acquired Q & A Sales and Marketing, Inc. ("Q & A"), specializing in
home office, productivity and lifestyle software.
Intranet Business. In March 1996, in connection with the acquisition of
Q & A, the Company acquired rights to a new generation of internet technology
from Digital Systems Research, Inc. ("DSR") originally developed for the United
States Department of Defense. This technology enables internet "home pages" to
be connected into a relational database, and thereby converts the current
"static" internet home page, which only has that information designed by the
sponsor of the page, into a "dynamic" page which can reflect the needs of the
consumer. The Company intends to market this technology to manufacturers and
distributors of consumer products in order to give consumers internet access to
product information and to facilitate direct purchasing. Pursuant to a Software
Development and License Agreement dated March 8, 1996 with DSR (the "Software
Agreement"), the Company obtained a worldwide, exclusive right to market this
technology to the public at large or to retailers, as well as distributors, and
original equipment manufacturers or wholesalers who support retail operations.
The Software Agreement is for a term of five years, with automatic extensions
each five years in perpetuity. DSR is required under the Software Agreement to
assist the Company in developing the functional specifications for each contract
and to provide ongoing support. The Company is marketing this technology through
its new subsidiary, Capotec Business Solutions ("Capotec").
Capotec will also market its Corporate Information Services division
("CIS"). CIS enables customers to establish customized "virtual" networks (known
as the "intranet") by using the Internet and customized relational databases. To
date $2,000,000 in intranet contracts have been sold.
Traditional networks require users to be hard wired together, whether
through local cable or dedicated telephone lines. The virtual networks to be
marketed by CIS enable anyone who has access to the Internet to access the
customers network, provided that appropriate passwords are supplied. The
security level and type of information which is accessible can be customized for
each user or group of users.
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Most internet users locate information by using web browsers to search
for their topics of interest. The information search can be compared to a
library: the user searches for the home page of the desired source (similar to
locating a book or periodical) and then peruses the home page, book or
periodical. The user is able to access only one home page at a time. In the view
of management, this limitation of one homepage web site at a time has hindered
the development of the use of the internet for shopping. The Company's
technology permits the consumer to access multiple web pages simultaneously, and
in effect design a customized electronic product catalog. For example, a
consumer could request information on all women's tennis shoes of a particular
color from a number of retailers or manufacturers simultaneously. The dynamic
home page produced by the software would list all such shoes offered, together
with pictures, prices and ordering information.
The Company's principal executive offices are located at 32951 Calle
Perfecto, San Juan Capistrano, California 92675 and its telephone number is
(714) 443-3000.
The Offering
Securities Offered:......................................
3,072,472 shares of Common Stock, $.001 par value per
share, including 871,422 shares issuable upon conversion
of debt, 256,550 shares issuable upon conversion of
Series C Preferred Stock, 1,530,000 shares issued for
acquisitions (including 1,200,000 shares issuable upon
conversion of Series A Preferred Stock) and 414,500
shares issuable upon exercise of warrants and options.
Common Stock Outstanding(1) Before Offering:............. 9,045,035(1) shares
Common Stock Outstanding After Offering:................. ___________(1) shares
AMEX symbol.............................................. WIZ
(1) Based on shares outstanding as of January 31, 1997.
Risk Factors
Investment in the Shares offered hereby involves a high degree of risk,
including the limited operating history of the Company and competition.
Investors should carefully consider the various risk factors before investing in
the Shares. This Prospectus contains forward looking statements which may
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors." See "Risk Factors."
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk. Prospective investors should carefully consider the following risk
factors relating to the business of the Company and this offering, together with
the information and financial data set forth elsewhere in this Prospectus,
before investing in the Shares offered hereby.
Limited History of Business Operations; Sustainability of Past Results
The Company has limited operating history, having commenced operations
in January 1991. As of January 31, 1997 the Company's cumulative losses were
approximately $7,110,027. The Company's revenues and income, which until April
1995 were derived primarily from the sale of shareware, have increased
significantly in the past fiscal periods. The Company's growth has been
dependent on a number of factors, such as the Company's marketing efforts,
trends in personal computer sales and usage, changes in available technology,
changes in the competitive environment of personal computer software, and
general economic conditions. The Company has enjoyed limited
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competition to date in the emerging market for under $20 computer software, and
an increase in competition or the loss of additional customers could have an
adverse effect on the Company's revenues and profitability. In fiscal 1995, the
Company continued its expansion of its software and began marketing CD Rom
software. The Company has recently acquired exclusive marketing rights to
certain internet technology, and intends to expand marketing efforts in this
area. As a result of the increase in operating expenses caused by this expansion
and other factors, operating results may be adversely affected if sales do not
increase sufficiently, whether due to increased competition or otherwise. There
can be no assurance that the Company will be able to grow in future periods or
sustain its historic rates of revenue growth and profitability. As a result, the
Company believes that period to period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance.
Management of Growth
The Company's growth to date has required and is expected to continue
to require, the full utilization of the Company's management, financial and
other resources. The Company's ability to manage growth effectively will depend
on its ability to improve and expand its operations, including its financial and
management information systems, and to recruit, train and manage executive staff
and employees. There can be no assurance that management will be able to manage
growth effectively, and the failure to effectively manage growth may have a
materially adverse effect on the Company's results of operations.
Dependence on Limited Number of Customers
The Company is dependent upon a limited number of distributors and
retail customers for the majority of its revenues. In the fiscal years ended
July 31, 1996 and 1995, significant (over 10%) distributors and retail
customers, accounted for an aggregate of 90% and 47.2%, respectively, of total
net revenues. In fiscal 1994, the Company terminated its relationship with its
largest customer, its former Canadian distributor, and wrote off $405,329 of
accounts receivable from this customer. Although the Company is vigorously
pursuing collection of this account, there can be no assurance that the Company
will collect any of this amount. The Company's acquisition of Q & A in March
1996 has lessened the Company's dependence on any one customer, but the
Company's dependence on a limited number of customers could result in sales
declines or similar losses in the future if its relationship with any one
significant customer described above is interrupted for any reason.
Competition
The market for software products, while fragmented, is highly
competitive and subject to rapid change. Consumer demand for particular software
products may be adversely affected by the increasing number of competitive
products from which to choose. The Company's low priced software competes with
computer specialty stores, software specialty stores, direct sales
organizations, software publishers that sell directly to end users, mail-order
companies, bookstores, electronic bulletin boards, other software distributors
employing marketing plans similar to the Company and other types of retail
chains that sell software products. Many of these competitors have substantially
greater resources than the Company. Several small companies have emulated the
Company's concept of marketing low priced software to the general public, but to
the Company's knowledge such competition has not materially adversely affected
the Company. Should a larger and better financed company decide to compete with
the Company, and be successful in its competitive efforts, the Company's
business could be materially adversely affected. The Company's internet
technology will compete with other companies marketing internet software and
services. These competitors include several large companies with substantially
greater financial, technological and marketing resources than the Company and a
large number of companies of varying sizes and resources. Competitors may
broaden their product line, and potential competitors, including large computer
or software manufacturers, entertainment companies, entertainment software
companies and educational publishers, may enter, or increase their focus on,
shareware or educational or game software business, or internet application
software, resulting in increased competition.
There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not have a material adverse effect on the
Company. Additionally, the channels of distribution for personal computer
software are constantly changing and new
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channels, such as software rental stores or other channels, are likely to
emerge. Changes in the channels of personal computer software distribution could
have a material adverse effect on the Company's results of operations.
Developing and Changing Market
Consumer preferences for particular software products, including the
educational, self-help and small business software and entertainment software
currently marketed by the Company, are difficult to predict and are subject to
rapid change. The market for software is continually evolving, and is highly
dependent upon changes in computer hardware technology. Changes in technology
and consumer preferences may render software obsolete, and computer software is
subject to unauthorized duplication. The Company does not believe that these
risks are material at this time in the low price software segment, but there can
be no assurance that the Company's assessment is correct, nor that the Company's
products will continue to be accepted by the public in the future. Since the
Company sells its programs on recycled floppy disks, shortages in the supply of
recycled floppy disks (or other media on which software may be recorded in the
future) could adversely affect the Company's results of operations.
Risks of New Internet Business
Dependence of Continued Growth in Use of the Internet. The future
success of the Company's Intranet Games is partially dependent, upon continued
growth in the use of the Internet and the Web. Rapid growth in the use of and
interest in the Internet and the Web is a recent phenomenon. There can be no
assurance that communication or commerce over the Internet will become
widespread or that extensive content will continue to be provided over the
Internet. The Internet may not prove to be a viable commercial marketplace for a
number of reasons, including potentially inadequate development of the necessary
infrastructure, such as a reliable network backbone, or timely development of
performance improvements including high speed modems. In addition, to the extent
that the Internet continues to experience significant growth in the number of
users and level of use, there can be no assurance that the Internet
infrastructure will continue to be able to support the demand placed upon it by
such potential growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of newer standards and protocols required
to handle increased levels of Internet activity, or due to increased
governmental regulation. Changes in or insufficient availability of
telecommunications services to support the internet also could result in slower
response times and adversely affect the Company's Intranet customers. If use of
the Internet does not continue to grow, or if the Internet infrastructure does
not effectively support growth that may occur, the Company's business, results
of operations and financial condition might be materially and adversely
affected.
Start-up Nature of Internet Business. The Company's ability to generate
revenues will depend, among other factors, on customer's and vendor's acceptance
of the Web and the Corporate Information Services.
The Company's Corporate Information Services will compete with other
companies offering virtual network services. In addition, there is intense
competition in the sale of advertising on the Internet, including competition
from other Internet navigational tools as well as other high-traffic sites,
which has resulted in a wide range of rates quoted by different vendors for a
variety of advertising services, which makes it difficult to project future
levels of Internet advertising revenues that will be realized generally or by
any specific company. Competition among current and future suppliers of Internet
navigational services or Web sites, as well as competition with traditional
marketing and advertising channels, may lead to reductions in revenues. There
can also be no assurance that the Company's advertising customers will accept
the internal and third-party measurements of impressions received by the Wiz
Mall, or that such measurements will not contain errors.
Technology and Infrastructure. The Company has licensed the technology
used in the Corporate Information Services from DSR under an exclusive, five
year agreement renewable for successive five year terms. Under the license
agreement, DSR is responsible for implementation of the hardware and software
portions of the vendor contracts, and the Company will be substantially
dependent upon ongoing maintenance and technical support from DSR to ensure
effective operation. Any failure of DSR to implement each contract or to provide
prompt and effective support and maintenance to the Company, could have a
material adverse effect of the Company's business, results of operations and
financial condition.
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Lack of Proprietary Protection. The internet/intranet technology
licensed from DSR involves a combination of hardware and software technology.
Although the Company believes that the technology would be time consuming and
expensive for another party to duplicate, the concept of linking together
information and computers with relational databases is not protected by any
proprietary rights, such as a patent or copyright. There can be no assurance
that competitors will not develop competing intranet systems.
Dependence on Key Personnel
The Company is dependent upon Mar-Jeanne Tendler, Chief Executive
Officer, Arthur Tendler, President, and Bruce Allen Gilgen, Chief Operating
Officer and other key employees with respect to administration and marketing.
The Company has entered into employment agreements with these individuals and
has obtained key men life insurance on the lives of Messrs. Tendler and Gilgen
and Ms. Tendler in the amount of $1 million each. The Company's future success
also depends on its ability to attract and retain other qualified personnel, for
which competition is intense. The loss of certain key employees or the Company's
inability to attract and retain other qualified employees could have a material
adverse effect on the Company's results of operations.
Dependence on Third Party Authors; Nonexclusivity
The Company does not currently develop or own most of its software
products, but either distributes them free of royalty (shareware) or pays a
royalty on each copy of licensed programs sold. The Company is currently
dependent on third party authors for the development of new software products,
although the Company believes that the lack of in-house program developers
represents a cost advantage, since it enables the Company to avoid the costs of
development, to select from products developed by the thousands of independent
programmers, and to be introduced to products and trends in computer software as
they occur. However, there can be no assurance that the Company will be able to
continue to obtain a supply of quality software programs from independent
authors.
The Company receives many new programs each month for evaluation from
independent software developers. Although the Company may acquire exclusive
rights to software in the future, or may acquire the exclusive right to
customize versions of software in the future, the lack of exclusive rights means
that the Company's competitive advantage, if any, will be limited to its ability
to select and market software which is responsive to consumer preferences.
However, management does not believe that the lack of exclusive proprietary
rights is critical in the low priced software market in which it competes.
Protection of Trademark Rights
The Company considers its trademark and service marks in the aggregate,
and in particular, "The $5 Computer Software Store," to be valuable and of
substantial commercial benefit with consumers and retailers of its product. The
Company has filed or is in the process of filing for federal trademark
protection on several of its trademarks and service marks including those named
herein, one of which, Wiz, has been challenged. There can be no assurance that
any federal trademarks will be granted, in which case the Company intends to
rely on common law trademark protections, to the extent available. The Company
has obtained and collected on a judgment of $250,000 against a former
distributor for misappropriation of trademarks and similar causes of action, and
intends to pursue any other infringing parties with vigor. Litigation to enforce
these rights can be protracted and expensive, and the outcome of any litigation
may be uncertain. If the Company is unable to defend ownership of its
proprietary rights, its operating results could be materially adversely affected
due to consumer confusion and sales lost to infringing competitors.
Control by Officers and Directors
Directors and officers of the Company beneficially own 5,945,001 shares
of the Company's outstanding Common Stock, or approximately 58.7% of the
outstanding voting stock. As a result, the Company's officers and directors are
able to elect a majority of the Company's Board of Directors, to dissolve,
merge, or sell the assets of the Company, and to direct and control the
Company's operations, policies and business decisions.
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Anti-takeover Effect of Possible Issuance of Preferred Stock and Nevada
Corporate Law
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of Preferred Stock, par value $.001 per share ("Preferred
Stock"). Preferred Stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the Board of Directors, without
further action by stockholders, and may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion and redemption rights and sinking fund provisions.
There are currently 800 shares of Series A Preferred Stock outstanding,
1,200,000 shares of Series B Preferred stock outstanding and 256,550 shares of
Series C Convertible Preferred Stock outstanding. The Company has no present
plans for any issuances of additional Preferred Stock. The issuance of any
Preferred Stock could adversely affect the rights of the holders of Common
Stock, and therefore reduce the value of the Common Stock and make it less
likely that holders of Common Stock would receive a premium for the sale of
their shares. In particular, specific rights granted to future holders of
Preferred Stock could be issued to restrict the Company's ability to merge with
or sell its assets to a third party, thereby preserving control of the Company
by present owners. In addition, the Nevada General Corporation Law prohibits any
merger, consolidation, sale of assets or similar transaction over a certain de
minimus size between the Company on the one hand and another company which is,
or is an affiliate of, a beneficial holder of ten percent or more of the
Company's voting power (defined as an "interested stockholder"), for three years
after the acquisition of the voting power, unless the acquisition of the voting
power was approved beforehand by the Company's Board of Directors or the
transaction is approved by a majority of Company stockholders (excluding the
interested stockholder). Another provision of the Nevada General Corporation Law
would limit the voting rights of shares acquired in a "control share
acquisition," as defined, in the event the Company has more than 100
stockholders of record in Nevada and the Company does business in Nevada.
Although the Company is not expected to satisfy either of these two
prerequisites in the foreseeable future, the application of the Nevada control
share acquisition statute, and the provisions prohibiting interested stockholder
transactions, could also preserve control of the Company by management.
General Economic and Market Conditions
Personal computer software sales are highly dependent upon sales of
personal computers. During recent years, segments of the personal computer
industry have experienced significant economic downturns characterized by
decreased product demand and price erosion. Although the Company does not
believe such factors have affected the Company, there can be no assurance that
the Company will not be affected if such situation continues or worsens or by
future events in the industry.
Lack of Dividends
The Company has not paid cash dividends in the past and does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
MARKET PRICE OF COMMON STOCK
The Company's Common Stock has been listed on the American Stock
Exchange Emerging Company Marketplace ("ECM") under the symbol "WIZ" since
February 9, 1994. On November 13, 1996, trading of common stock on the American
Stock Exchange (the "Exchange") was halted due to the Company's failure to file
its Annual Report Form 10-KSB for the year ended July 31, 1996 in a timely
manner. The Annual Report was filed in February 1997 and shortly thereafter the
Common Stock was delisted from the Exchange. The Common Stock became quoted on
the Electronic Bulletin Board sponsored by the National Association of
Securities Dealers, Inc. on February 21, 1997. The prices set forth in the table
below represent closing sales prices on ECM, as recorded in the Wall Street
Journal (from February 9, 1994) and high and low "bid" prices as reported by the
Electronic Bulletin Board commencing in 1997, without adjustments for retail
markups, markdowns or commissions, and may not necessarily represent actual
transactions.
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Closing Sales
February 3, 1995-
March 31, 1994 5 5/8 3 1/16
June 30, 1994 5 1/8 2 3/16
September 30, 1994 4 11/16 2 1/16
December 31, 1994 3 15/16 2 5/8
Quarter Ended 1995
March 31, 1995 4 1/16 2 7/16
June 30, 1995 3 3/16 2 1/16
September 30, 1995 5 5/16 2 5/8
December 31, 1995 4 7/16 3 1/4
Quarter Ended 1996
March 31, 1996 5 11/16 3 1/2
June 30, 1996 9 1/8 4 5/8
September 30, 1996 6 15/16 3 3/8
December 31, 1996 3 3/4 2 1/2
Quarter Ended 1997
March 31, 1997
(through February 21, 1997) 1 5/8 7/16
The Company has not paid any dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business,
and therefore does not anticipate paying cash dividends in the foreseeable
future.
As of January 31, 1997, there were 443 record holders of
Company Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Despite reporting a loss in excess of $3.1 million for the year ended
July 31, 1996 the Company's general financial condition remains good. Total
stockholders' equity is $6.3 million and total liabilities of $3.2 million which
results in a ratio of stockholders' equity to total debt of 2:1. Working capital
of $1.2 million includes a cash position at July 31, 1996 of approximately
$451,000. Net sales for the year ended July 31, 1996 increased to over $7
million from $3.7 million for the year ended July 31, 1995. This increase in
sales is primarily attributed to the customer base acquired with the Q&A
acquisition discussed earlier as well as increased sales to three existing
customers. This increase in sales also changed the customer-mix of the Company
from its past operations. Sales and accounts receivable at July 31, 1996 are
concentrated with 86% attributed to fewer than eight customers (see Footnote #2
in the Notes to Consolidated Financial Statements). Management, however, does
not consider this an inordinate risk due to the strength of the customers
involved which are all credit-worthy national accounts and because the Company
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is re-directing its emphasis toward the sale of intranet software applications.
Accounts receivable of $1.9 million are shown net of allowances of $608,000
which management believes is adequate. Inventories of $1.0 million are disclosed
net of allowances for slow moving/obsolescence of $478,000 which management
believes is also adequate.
Changes in Financial Condition
The two largest changes in balance sheet accounts at July 31, 1996 from
July 31, 1995 are the additions of the "Covenant not to Compete" and "License
Agreement" related to the Q&A purchase which are carried at a book value of
$557,000 and $3,368,753 respectively. These amounts were recorded primarily as a
result of the Q&A purchase, are disclosed net of allowance for amortization of
$43,000 and $131,247 respectively, and both are amortized over five and ten year
lives, respectively. The valuations of both of these items were established by
the Company based upon the valuation report prepared by an independent financial
advisor. The License Agreement involves the rights of the Company to market an
intranet software application which was developed by DSR. The Company has the
worldwide exclusive rights to market applications of the product to retail
customers and the public at large. Exclusive rights to sell to government
entities remains with DSR only. It is the marketing of this software application
which the Company believes will become its core business in the future.
Subsequent to July 31, 1996 the Company entered into three contracts to develop
intranet applications for customers. It is management's intention to either
develop these projects directly, or, sell the contracts to third party
developers for an upfront fee with participation in future revenues generated
from the contracts. Management believes revenues derived from this concept will
be realized in fiscal 1997, though no assurances can be given at this time nor
is the Company relying on this source of revenues for its operations in the near
future.
Management believes that capital and liquidity are sufficient to meet
the on-going operations of the Company for the foreseeable future. Currently,
the Company is seeking an accounts receivable credit line with a local bank.
Management considers this credit line one of convenience and for contingencies
rather than one of necessity and whether or not it is approved, management
believes liquidity is sufficient for the foreseeable future. Also, in October,
1996 the Company was successful in completing an offering under Regulation D
whereby it sold $1,250,000 of 7% convertible debentures due October, 1999.
The Company has no plans for any major capital expenditures in that
current facilities are adequate for the foreseeable future. The Company also
does not expect to increase the number of employees in the foreseeable future.
Results of Operations
Because management believes the Company's future will be focused more
on developing the intranet software acquired with Q&A, management chose to
revise its strategic direction. As a result, management evaluated its product
lines in the fourth quarter of fiscal 1996 and determined that the marketing of
certain lines would be discontinued. This resulted in the write-off of
significant software development costs. In addition, management evaluated a
number of its assets for continuing significance following the strategic
direction change. Write-offs included charges to inventory, accounts receivable
and fixed assets (See Footnote #15 of the Notes to Consolidated Financial
Statements). Management also chose to increase the allowance for obsolescence in
inventory, and increase the allowance for doubtful accounts receivable to cover
the exposure created with the bankruptcy of Neostar-Babbages in October, 1996.
This customer accounted for approximately $300,000 in accounts receivable for
the Company at July 31, 1996. Management believes these allowances applied to
sales, inventory and accounts receivable are now adequate for the near future.
Additionally, pre-paid advertising of approximately $700,000 which was to have
been amortized over fiscal 1997 was completely expensed at July 31, 1996 due to
a dispute which arose subsequent to July 31, 1996.
Company sales for the year ended July 31, 1996 almost doubled compared
to the year ended July 31, 1995 from $3.7 million to $7.1 million partially as a
result of a change in software sold from 3-1/2 inch floppy disks to CD-Roms, and
because the Company's customer base expanded into larger retail operations which
typically place larger orders. Cost of revenues increased from 53% of revenues
in fiscal 1995 to 78% in fiscal 1996 primarily due to increased development and
packaging costs as it related to the change to CD-Roms, and because previously
capitalized software development costs were expensed in the fourth quarter as a
result of discontinued items. Selling,
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general and administrative expenses increased by 84% primarily as a result of
the added expenses related to the Q& acquisition.
Foreign currency fluctuations have not had a material effect on the
Company's results of operations.
Inflation has not had a material impact on the Company's operations.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions," which, in the opinion of
management, will have no effect on the Company's Consolidated Financial
Statements.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock
Based Compensation". SFAS No. 123 permits a company to choose either a new fair
value based method of accounting for its stock based compensation arrangements
or to comply with the current APB Opinion 25 intrinsic value based method adding
pro forma disclosure of net income and earnings per share computed as if the
fair value based method had been applied in the financial statements. SFAS No.
123 is effective for fiscal years beginning after December 15, 1995. The Company
will adopt SFAS No. 123 in 1996 using pro forma disclosures of net income and
earnings per share. The Impact of stock options on the Company's pro forma
disclosures of net income and earnings per share calculation is not known as the
Company has not yet implemented the provision of the SFAS.
Interim Financial Information
The Company continues to develop and distribute budget computer software to
retail stores throughout the United States and foreign countries. For the near
future the Company's focus to generate revenues will come from the sale of this
software and from the marketing of its intranet software application to other
companies. With regards to the Intranet revenues, the Company expects to receive
revenues as transactions are accessed on the respective intranet sites and/or
from the sale of contracts to third parties. At January 31, 1997 the Company
sold two of its existing contracts to a third party for $2,000,000. The discount
balance will be recognized as interest income over the collection period of the
contract. See footnotes to the financial statements.
As previously discussed, the most significant change on the Company's balance
sheet for the quarter ended January 31, 1997 is the contact receivable with
regards to the intranet sales discussed above. The Company is currently pursuing
additional contracts to develop intranet sites for other companies, though no
assurances can be given that those contracts will be consummated.
For the six months ended January 31, 1997, net revenues declined by 37% compared
to the same period ended January 31, 1996. Management believes a combination of
slower than expected seasonal sales, competition and returned merchandise were
factors contributing to the decline. Cost of goods sold remained relatively
comparable for the six month periods at 43% and 40% for January 31, 1997 and
1996 respectively. The decrease in cost of sales is due to the inclusion of the
revenue recognized of the intranet sales contract. The offsetting cost of sale
of the contract is reflected in the amortization expense of the intranet license
agreement. Selling and Q&A expenses rose however by 63% from the prior year to
the increase in number of employees and executives as a result of the fourth
quarter 1996 purchase of Q& A Sales & Marketing. Management of the Company has
taken aggressive steps to reduce this increase by bringing the number of
employees more in line with the revenue of the company. By March, 1997 the
number of full time employees had been reduced to approximately 30, down from
over 50 at the year ended July 31, 1996. Management does not expect any further
significant changes in the number of employees for the foreseeable future.
The net loss reported at January 31, 1997 of $1.2 million compared to profits of
$521,069 reported at the period ended January 31, 1996 resulted form the
combination of slower sales and increased overhead and includes non-cash charges
of depreciation and amortization of nearly $600,000. Management cannot at this
time determine if the trend of losses reported to date for fiscal 1997 will
continue or not for the balance of the fiscal year. Management believes capital
and liquidity are sufficient for the near-future and continues to aggressively
work toward collections of account receivable and reducing inventory levels.
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Foreign currency fluctuations have not had a material effect on the Company's
results of operations.
BUSINESS
Background and Strategy
WIZ Technology, Inc., a Nevada corporation (the "Company"), markets a
comprehensive line of computer software at prices under $20.00 per program,
including both licensed software and "shareware," for IBM PCS and compatibles.
The Company markets its products directly and through distributors. The Company
has commenced marketing its internet/intranet software technology. This
technology which is currently utilized by the U.S. Defense Department, enables
customers to establish their own virtual networks at a relatively low cost.
The Company's product line of over 200 programs is designed for a wide
range of personal computer users, particularly small business and home users who
may have limited technical expertise. The Company selects software programs
which it believes are most suitable for general public use in the categories of
games, utilities, educational, and business and integrates these programs with
user-friendly menu screens. Recently, the Company acquired its first major
property software title, Lunar Landing. Software is sold in CD Rom jewel cases,
shrink wrapped boxes and colorful diskette envelopes. The Company's software
products are sold in the United States and abroad under the names "The $5
Computer Software Store, " for 3.5" diskettes, "White Wolf" and "Silver Coyote"
for CD Roms, and Digital System Research for boxed software through computer
stores such as Comp USA, Computer City, and Ingram Micro, national retailers
such as K-Mart-Canada, Osco Drugs, Toys-R-Us Canada, regional discount chains
such as Longs Drugstores, Pharma Plus Drug Canada, grocery stores such as Alpha
Beta Supermarkets, Army & Air Force Exchange Service and national and local
specialty retailers.
The Company's objective is to become a leading marketer of affordable
computer software. The Company's strategy for achieving this objective consists
of three components: (1) acquire rights to distribute high quality, easy to use
software; (2) continue to develop effective distribution channels for marketing
such software; and (3) market software at prices under $20.00 that meet the
needs of a broad base of users. In March 1996, in furtherance of this strategy,
the Company acquired Q & A Sales and Marketing, Inc. ("Q & A"), with sales in
calendar 1995 of $3,893,000 specializing in home office, productivity and
lifestyle software.
Q & A Acquisition and Internet/Intranet software.
Effective March 12, 1996 the Company acquired all of the outstanding
shares of Q & A Sales and Marketing, Inc. ("Q & A") by 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 to May 10, 1998 to the stockholders of Q & A, being Digital
Systems Research, Inc. and four employees of Q & A (the "Q & A Shareholders").
As of July 31, 1996 the 300,000 shares of Common Stock issued to Q & A
Shareholders and the 1,200,000 additional common shares issuable upon conversion
of the Series B Preferred Stock represented 14.8% of the total outstanding
shares. The Company agreed to register the shares of common stock issued to the
Q & A shareholders and the common stock issuable upon the conversion of the
Series B Preferred Stock and has registered such shares in the registration
statement of which this Prospectus is a part.
Until such time as the Q & A Shareholders own collectively less than
100,000 shares of common stock (including shares issuable upon conversion of
Series B Preferred Stock) or March 15, 1999 whichever first occurs, the Q & A
Shareholders have the right to purchase additional shares of Company common
stock in the event the Company issues shares of common stock for less than 85%
of market value, at the same price as sold to third parties in order to maintain
their proportionate interest in the Company's common stock. Pursuant to the
agreement, DSR, Mr. Wolfe, the president of Q & A and a Q & A Shareholder,
Mar-Jeanne Tendler, Arthur S. Tendler and Gil Gilgen entered into a
Shareholder's Agreement wherein such persons agreed to vote all securities of
the Company held by them for the election of a designee of the Q & A
Shareholders to the Board of Directors. The Company agreed to give the Q & A
Shareholders notice of any meeting of shareholders at which directors are to be
elected and to nominate the designee of the Q & A Shareholders at the meeting.
In addition, the parties to the Shareholder's
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Agreement agreed, insofar as they may be members of the board, to elect the
designee as a member of any executive committee of the Board. Pursuant to the
Shareholder's Agreement, W. Willie Woods, president of DSR, was elected to the
Board of Directors as of March 12, 1996 and was nominated and elected to that
position at the annual shareholder's meeting held April 22, 1996. Later in 1996,
Mr. Woods resigned from the Board of Directors due to his personal commitments.
There are currently no executive committees of the Board of Directors. The
Shareholder's Agreement terminates on the earlier of March 8, 1999 or such time
as less than 300,000 of the Q & A Shares remain outstanding. Finally, the
Company agreed to indemnify DSR for any liability DSR may have as a former
guarantor of the Q & A obligations.
In March 1996 in connection with the acquisition of Q & A, the Company
acquired rights to a new generation of internet technology from Digital Systems
Research, Inc. ("DSR") originally developed for the United States Department of
Defense. This technology enables internet 'home pages' to be connected into a
relational database, and thereby converts the current 'static' internet home
page, which only has that information designed by the sponsor of the page, into
a 'dynamic' page which can reflect the needs of the consumer. The Company is
marketing this technology to two groups: first, manufacturers and distributors
of consumer products in order to give consumers internet access to product
information and to facilitate direct purchasing, and to businesses who wish to
establish their own internet networks on a time and cost effective basis.
Pursuant to a Software Development and License Agreement dated March 8, 1996
with DSR (the "Software Agreement"), the Company obtained a worldwide, exclusive
right to market technology to the public at large or to retailers, as well as
distributors, original equipment manufacturers or wholesalers who support retail
operations for a license fee of 40% to DSR of the gross licensing revenues. The
Software Agreement is for a term of five years, with automatic extensions each
five years. DSR is required under the Software Agreement to assist the Company
in developing the functional specifications for each contract, and DSR may also
obtain sales leads for the Company in which case the license fee is 60% of the
gross contract price. The Company has permitted a former employee and a former
consultant to market this technology in which case the contracts obtained by
these persons are deemed to be contracts generated by DSR.
Q & A Product Line. In March 1996 the Company acquired Q & A Sales and
Marketing, Inc. Q & A sells over 50 licensed proprietary software products at
list prices under $20.00 on CD Rom and 3.5" diskettes, all under its Digital
Systems Research label. Q & A's software titles include Labels Plus, Unlimited
Fonts, Legal Documents and My Family Tree, and emphasize home office and
lifestyle software.
CD Rom. In fiscal 1995 the Company began development of CD-Rom
software. The CD-Rom software is sold either as individual titles in CD boxes or
jewel cases, typically at the price of $9.99 per disk, or as part of a ten pack
of CD Rom diskettes, for $29.99. Initial sale of CD-Rom titles commenced in the
last quarter of 1995 with a shipment to approximately 80 CompUSA stores. The
Company believes that CD-Rom sales will be an increasing portion of its business
in the future. CD-Rom software consists both of shareware and licensed titles,
and include bonus programs also sold by the Company on 3.5" floppy disks as well
as some titles developed for CD-Rom.
The Company intends to focus its business in two broad directions: (1)
Continuing its business of developing and selling inexpensive computer software,
and, (2) develop a marketing strategy of the intranet software acquired during
the Q&A acquisition. with the acquisition of Q&A, the Company's customer base
changed radically from previous years. Prior to the acquisition the Company
dealt with many small companies for its inexpensive software and remained
diversified. However, with the Q&A purchase, 86% of the Company's sales are
vested with eight major customers/distributors. This was because the sales force
of Q&A dealt with larger companies resulting in fewer, though larger, sales
invoices. Management intends to work toward better diversification of the
customer base during fiscal 1997 and does not consider the concentration of
sales a material risk. In the fiscal year ended July 31, 1996, the following
customers accounted for 10% or more of the Company's net revenues: CompUSA, 31%,
Ingram-Micro, 31%, Salash, 15% and ADTI, 13%.
Research and Development
The Company incurred no research and development expense for fiscal
1996 compared to R&D expense of $29,342 in fiscal 1995.
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Competition
The market for the Company's products, although fragmented, is very
competitive and subject to rapid change and the Company currently competes with
software distributors and publishers. The Company believes that the principal
competitive factors affecting the market for its products include performance,
ease of use, functionality, quality and price. The Company believes that it
generally competes favorably with respect to each of these factors. Competitive
pressures could result in price reductions, which could affect the Company's
operating results.
The Company also competes for access to its chosen channels of
distribution. Because of relatively low barriers to entry in the shareware
market, numerous shareware authors distribute their products through other
distributors and directly through electronic bulletin boards and advertising in
industry oriented publications. The Company believes that its existing
infrastructure gives it a competitive advantage over current and potential
competitors. However, should a competitor which is larger and better financed
than the Company choose to compete directly against the Company, such
competition could have an adverse affect on the Company; the Company has also
experienced competition from other distributors utilizing similar marketing
displays as those used by the Company.
Employees
As of July 31, 1996, the Company had 48 employees, 42 of whom were full
time. The Company considers its employee relations to be good. None of the
Company's employees are subject to an collective bargaining agreement. Certain
employees of Q&A were hired by the Company on closing of the acquisition. As of
January 31, 1997 none of these employees remained.
Trademarks
The Company believes that the trade names used by it in the aggregate
and specifically "$5 Computer Software Store", "White Wolf", "Silver Coyote",
"Publishers Diamond", and "World of Multimedia" are important to its business.
Applications are pending with the U.S. Office of Patents and Trademarks for the
tradename "Wiz Technology" and various other trademarks and trademarks including
"$5 Computer Software Store." "Cyberquest" and "Rainbow Avenue Educational
Software." The Company has been notified that an opposition has been filed on
the trademark application for "Wiz Technology," but believes that the failure to
obtain proprietary protection on "Wiz Technology" will not materially adversely
affect its business. There can be no assurance that any federal trademarks will
be granted, in which case the Company intends to rely on common law trademark
protections, to the extent available. The Company successfully sued a former
distributor for misappropriation of trademarks and similar causes of action, and
intends to pursue any other infringing parties with vigor. Litigation to enforce
these rights can be protracted and expensive, and the outcome of any litigation
may be uncertain. If the Company is unable to defend ownership of its
proprietary rights, its operating results could be materially adversely affected
due to consumer confusion and sales lost to infringing competitors.
Properties
The Company leases 20,188 square feet of office and warehouse space at
32951 Calle Perfecto, San Juan Capistrano, California. The lease extends through
March 31, 1998. The Company believes that this space will be adequate for its
needs for the foreseeable future. Additionally, the Company is liable for
certain leased office space as a result of the Q&A acquisition which extends to
February, 1997. The space is currently subleased to other tenants and presents
no material effect on the Company.
Legal Proceedings
Except as set forth below, no material proceedings to which the Company
is a party, or to which any of its properties are subject, are pending or are
known to be contemplated, and the Company knows of no material legal
proceedings, pending or threatened, or judgments entered against any director or
officer of the Company in his capacity as such.
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The Company has filed, on March 23, 1994, a lawsuit against $5.99
Store, Craig Larson and Andrea Larson, former distributors of the Company
(collectively, the "Defendants"), in the Supreme Court of British Columbia,
Canada, for the debt owned by the $5.99 Store to the Company, and breach of the
distribution agreement entered into by the Company and the Defendants. In the
lawsuit, the Company alleges that the Defendants continue to use the Company's
trademarks and represent themselves as the owners of such trademarks without the
consent of the Company. Furthermore, the Company alleges the breach of an
agreement with the Defendants, pursuant to which the Company agreed to extend
credit to teh Defendants. The Company seeks damages in the amount of $477,418.75
(Can) for the price of goods sold and delivered to the Defendants and for the
financing charges associated therewith. The lawsuit further alleges that the
Defendants failed to conduct their business affairs in a professional manner, in
breach of the distribution agreement. The Company terminated said distribution
agreement with the Defendants on February 10, 1994. The Company seeks also an
injunction restraining and enjoining the Defendants from selling and
distributing of the Company's goods without the Company's consent. The Company
obtained a judgment in this litigation in the amount of $364,000 (Can), but
collection of the judgment has been stayed pending appeal and resolution of the
countersuit described below.
On March 21, 1994, $5.99 Computer Software Store (Canada), Inc. (the
"Plaintiff") filed a lawsuit in the Supreme Court of British Columbia, Canada,
against the Company in which it alleges a breach of the distribution agreement
by the Company. The Plaintiff seeks unspecified damages and an injunction
restraining the Company from distributing its products in Canada. A trial date
has been tentatively scheduled for September, 1998 to resolve outstanding issues
with respect to this matter.
Although the Company believes it has successfully challenged
Plaintiff's claims, in the event the Plaintiff was successful, the Company
believes that the impact would neither be material nor have a material adverse
impact on the Company. There can be no assurance that the Plaintiff and others
will not bring claims against the Company nor that the Company can successfully
challenge each such claim.
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 1,000.00. The Company believes the
second lawsuit is without merit and has filed an answer denying all allegations.
This lawsuit has been consolidated with the first lawsuit. The Company has also
filed a motion to disqualify the Underwriter's legal counsel in the two lawsuits
on the basis of a conflict of interest; that motion has been granted but is
under appeal by the Underwriter.
On January 9, 1997 the Company filed a complaint in U.S. Federal
District Court, Central District of California against the Underwriter and
Michael Levine and Alan Schumacher its principals, for damages under Section
10b, Rule 10b-5, and Section 201, all under the Securities Exchange Act of 1934,
for violations of California state securities laws, breach of contract, breach
of fiduciary duty and fraud and concealment. The complaint alleges that
Defendants traded the Company's Common Stock on the basis of material,
non-public information. The Defendants have not answered the complaint.
The Company has been named in a respondent action for breach of
contract and other business-related torts brought by Daisy Software, Inc. The
Company filed a counter-claim alleging numerous business-related torts and
seeking punitive damages. In October, 1996 an arbitrator with the American
Arbitration Association who presided over the hearing awarded $140,000 to Daisy
Software. This amount has been accrued as a liability in the July 31, 1996
financial statements. The Company intends to appeal this judgment.
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On October 29, 1996, Platinum Entertainment Partners, II, a Nevada
general partnership, filed in Clark County, Nevada District Court a complain
against the Company asserting three causes of action based on an alleged breach
of contract. The complaint seeks unspecified damages, or specific performance in
which the Company should provide 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 are without merit.
See Note #13 in Notes to Consolidated Financial Statements. On March 4,
1997 a lawsuit was filed in the Orange County Superior Court of California by
seven 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. As of March 12, 1997 the Company
has not yet been served with this complaint.
MANAGEMENT
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors, executive officers and certain significant
employees of the Company is as follows:
Mar-Jeanne Tendler and Arthur Tendler are husband and wife. They
founded the Company as a proprietorship in January 1991. In September 1991, they
contributed their interests in the proprietorship to WIZ Technology, the
Company's wholly owned California subsidiary ("WTI"). They have jointly owned
and operated Surplus Computer Software and its predecessor, AT&T Liquidators,
both located in Santa Ana, California, for more than five years. Surplus
Computer Software is engaged in the business of purchasing and liquidating
computer software and computer related products.
Mar-Jeanne Tendler, age 48, has been Chairman, Chief Executive Officer
and a Director of WTI since its incorporation in September 1991. She has been
Chairman, Chief Executive Officer and Director of the Company since August 1992.
Arthur S. Tendler, age 49, has been President, Chief Operating Officer
and a Director of WTI since its incorporation in September 1991. He was Acting
Chief Financial Officer of the Company from August, 1994 to July 1995 and has
also been Acting Chief Financial Officer since March 1996. He has been
President, Chief Operating Officer and a Director of the Company since August
1992 and was Chief Financial Officer of WTI from September 1991 to October 1993.
He was Chief Financial Officer of WTI from September 1991 to October 1993.
Bruce Gilgen, age 49, has been Executive Vice President and a Director
of WTI since September 1991, and has held the same position in the Company since
August 1992. He has been vice president of Surplus Computer Software, and its
predecessor, AT&T Liquidators, since June 1989. Prior to that time he was
Director of Loss Prevention for Gemco.
Richard H. Nance, age 48, joined the Company as Chief Financial Officer
in September, 1996. He has been involved in accounting, finance and banking for
over twenty years. He has been senior vice president and executive vice
president in state and nationally chartered banks and worked as a National Bank
Examiner with the Comptroller of the Currency. For the three years prior to
joining the Company he worked as a principal in Calspectre Management
Consulting. From July, 1989 to October, 1993 he was chief financial officer of
Mortgage BancFund, Inc., a mortgage banking operation in Irvine, CA. He holds a
Bachelor of Business Administration in Banking and Finance from North Texas
State University, and a Bachelor of Science in Accounting from Central State
University of Oklahoma. He is a Certified Public Accountant and a member of the
AICPA and the California Society of CPAs.
Executive Compensation
The following table sets forth the cash compensation of the Company's
executive officers and directors during each of the last three fiscal years. The
remuneration described in the table does not include the cost to the
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Company of benefits furnished to the named executive officers, including
automobiles, premiums for health insurance and other benefits provided to such
individuals that are extended in connection with the conduct of the Company's
business. The value of such benefits cannot be precisely determined, but the
executive officers named below did not receive other compensation in excess of
the lesser of $50,000 or 10% of such officer's cash compensation.
17
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
ANNUAL COMPENSATION LONG TERM COMPENSATION
Name and Other Annual Awards Payouts All
Principal Position Year Salary Bonus Compensation Other
RestrictedOptions/ LTIP
Stock ($)SARs(#) Payouts ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mar-Jeanne Tendler 1996 140,000 0 0 0 0 0 0
1995 140,000 0 0 0 100,000 0 0
1994 140,000 0 0 0 100,000 0 0
Arthur Tendler 1996 140,000 0 0 0 0 0 0
1995 140,000 0 0 0 100,000 0 0
1994 140,000 0 0 0 100,000 0 0
Bruce Gilgen 1996 100,000 0 0 0 0 0 0
1995 100,000 0 0 0 100,000 0 0
1994 100,000 0 0 0 100,000 0 0
Gary Wolfe(1) 1996 100,000 0 80,000 0 100,000 0 0
</TABLE>
(1) Gary Wolfe's contract also provides for commissions on sales of
software and revenues derived from the licensing arrangement with DSR
with minimum annual payments of $80,000. His contact was mutually
terminated in January 1997. Directors receive no compensation to
perform duties as directors.
<TABLE>
<CAPTION>
Options Granted in Fiscal 1996:
Percentage
of Total
Options Options Granted to Exercise Expiration
Name Granted Employees in 1996 Price Date
<S> <C> <C> <C> <C>
Gary Wolfe, EVP 100,000 83% 5.4375 March, 2006
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises and Fiscal Year-End Option Value Table:
Value of Unexercised
Number of Unexercised In-the-Money Options
Options and Warrants at July 31, 1996
Shares Acquired Value
Name on Exercise Realized Exercisable Non-Exercisable Exercisable
<S> <C> <C> <C> <C> <C>
Mar-Jeanne Tendler -0- -0- 300,000 -0- $ 1,138,000
Arthur S. Tendler -0- -0- 300,000 -0- 1,138,000
Bruce Allen Gilgen 25,000 37,500 275,000 -0- 1,025,500
Gary Wolfe -0- -0- 100,000 -0- 56,000
</TABLE>
18
<PAGE>
Employment Agreements
The Company entered into three-year employment contracts with each of
Messrs. Gilgen and Tendler and
Ms. Tendler commencing on August 1, 1993. These contracts were renewed for an
additional year in August 1996.
The contracts provide for annual compensation of $140,000 each to Mr. Tendler
and Ms. Tendler and $100,000 to
Mr. Gilgen. The annual compensation is subject to annual increase by the Board
of Directors and bonus based on
profitability of the Company.
The Company entered into a one year employment agreement with Billie
Jolson on August 2, 1995 in connection with her employment as chief financial
officer, at a salary of $85,000 per year plus a leased automobile, an annual
bonus of up to $5,500, and a quarterly bonus payable in shares of common stock
equal to 2% of the Company's quarterly net income from operations. Ms. Jolson
resigned as chief financial officer in March 1996.
On January 2, 1996, the Company's subsidiary Q & A Software Company
(formerly (Q & A Sales and Marketing Inc.), entered into a three year employment
agreement with Gary Wolfe requiring annual compensation of $180,000, plus a
bonus of up to two thirds of salaried amounts if certain performance criteria
are met. No bonuses were paid and this contract was mutually terminated in
January 1997.
Stock Option Plan
The Company adopted the 1992 Stock Option Plan (the "Plan") in August,
1992, and amended and restated the Plan to increase the number of authorized
shares issuable thereunder from 500,000 shares to 800,000 shares in January,
1993, and amended the Plan in April 1996 to increase the number of shares
issuable thereunder to 2,000,000. The Plan enables the Company to offer an
incentive based compensation system to employees, officers and directors and to
the principal employees of companies who perform consulting services to the
Company provided such companies have a very limited number of employees.
The Company may increase the number of shares authorized for issuance
under the Plan or may make other material modifications to the Plan without
shareholder approval. However, no amendment may change the existing rights of
any option holder. The Plan as amended and restated was approved by the
shareholders in January 1993.
The Company has registered the shares issuable pursuant to the Plan.
Any shares which are subject to an award but are not used because the
terms and conditions of the award are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option may again be
used for awards under the Plan. However, shares with respect to which a stock
appreciation right has been exercised may not again be made subject to an award.
In the discretion of a committee comprised of non-employee directors
(the "Committee"), directors, officers, and key employees of the Company and its
subsidiaries or employees of companies with which the Company does business
become participants in the Plan upon receiving grants in the form of stock
options or restricted stock. The Board of Directors is currently acting as the
Committee.
The Board of Directors has adopted a policy of granting options to
purchase 100,000 shares in each fiscal year to each founding member of the Board
of Directors. In February, 1997 the Board awarded 500,000 options to each of
Messrs. Gilgen, Tendler and Wolfe and Ms. Tendler at $1.50 per share, vesting
100,000 shares per year for five years, with 200,000 options vested as of
February 1997 not under the Plan.
The Board of Directors has adopted a policy to grant to each employee,
on each February 2, a number of options derived by dividing 10% of the employees
Form W-2 compensation for the prior calendar year by the option exercise price.
This amount does not include an undeterminable amount of other options which may
be granted to commissioned sales representatives. This policy may be changed at
any time and no employee or prospective optionee is to have any rights to obtain
options until such time as the options are actually granted. Pursuant to this
policy the Company issued options for 28,121 shares to employees at $4.0625 per
share on February 2, 1996 and options for 966,354 shares to employees at $.50
per share on February 2, 1997.
19
<PAGE>
Stock options may be granted as non-qualified stock options or
incentive stock options, but incentive stock options may not be granted at a
price less than 100% of the fair market value of the stock as of the date of
grant (110% as to any 10% shareholder at the time of grant); non-qualified stock
options may not be granted at a price less than 85% of fair market value of the
stock as of the date of grant. Restricted stock may not be granted under the
Plan in connection with incentive stock options.
Stock options may be exercised during a period of time fixed by the
Committee except that no stock option may be exercised more than ten years after
the date of grant or three years after death or disability, whichever is later.
In the discretion of the Committee, payment of the purchase price for the shares
of stock acquired through the exercise of a stock option may be made in cash,
shares of the Company's Common Stock or by delivery or recourse promissory notes
or a combination of notes, cash and shares of the Company's Common Stock or a
combination thereof. Incentive stock options may only be issued to directors,
officers and employees of the Company.
Stock options granted under the Plan may include the right to acquire
an Accelerated Ownership Non-Qualified Stock Option ("AO"). All options granted
to date have included the "AO" feature. If an option grant contains the AO
feature and if a participant pays all or part of the purchase price of the
option with shares of the Company's Common Stock, then upon exercise of the
option the participant is granted an AO to purchase, at the fair market value as
of the date of the AO grant, the number of shares of Common Stock of the Company
equal to the sum of the number of whole shares used by the participant in
payment of the purchase price and the number of whole shares, if any, withheld
by the Company as payment for withholding taxes. An AO may be exercised between
the date of grant and the date of expiration, which will be the same as the date
of expiration of the option to which the AO is related. Under the Plan,
"fair-market value" for purposes of replacement AO options will be the average
of the closing bid and ask prices of the Common Stock if it is then publicly
traded, or if not traded, the fair market value determined by the Board of
Directors.
Stock appreciation rights and/or restricted stock may be granted in
conjunction with, or may be unrelated to stock options. A stock appreciation
right entitles a participant to receive a payment, in cash or Common Stock or a
combination thereof, in an amount equal to the excess of the fair market value
of the stock at the time of exercise over the fair market value as of the date
of grant. Stock appreciation rights may be exercised during a period of time
which may be fixed by the Committee not to exceed ten years after the date of
grant or three years after death or disability, whichever is later. Restricted
stock requires the recipient to continue in service as an officer, director,
employee or consultant for a fixed period of time, as may be determined by the
Board of Directors, for ownership of the shares to vest. If restricted shares or
stock appreciation rights are issued in tandem with options, the restricted
stock or stock appreciation right is canceled upon exercise of the option and
the option will likewise terminate upon vesting of the restricted shares.
Upon the grant of an incentive stock option, the optionee will not
recognize any taxable income and the Company will not be entitled to a tax
deduction. Upon the exercise thereof while the optionee is employed by the
Company or a subsidiary or within three months after termination of employment,
the optionee will not recognize taxable income if certain holding period
requirements under the Internal Revenue Code of 1996 are met; however, under
certain circumstances, the excess of the fair market value of the shares of
Common Stock acquired upon such exercise over the exercise price may be subject
to the alternative minimum tax.
If the shares of Common Stock acquired pursuant to the exercise of an
incentive stock option are held for at least two years from the date of grant
and at least one year from the date of exercise, the optionee's gain or loss
upon a disposition of such shares of Common Stock will be a long-term capital
gain or loss and the Company will not be entitled to any tax deduction. If such
shares are disposed of prior to the expiration of these holding periods, the
optionee will recognize ordinary income on certain amounts in excess of the
option price and the Company will be entitled to a corresponding tax deduction.
Upon the grant of a non-qualified option, the optionee will not
recognize any taxable income. Upon the exercise thereof, the optionee will
recognize taxable income in an amount equal to the difference between (i) the
fair market value of the shares of Common Stock acquired upon such exercise, and
(ii) the exercise price. At that time, the Company will be entitled to a
corresponding tax deduction.
20
<PAGE>
Upon a subsequent disposition of shares of Common Stock acquired upon
the exercise of a non-qualified option, the optionee will recognize long-term or
short-term capital gain or loss, depending on the holding period of such shares.
CERTAIN TRANSACTIONS
On July 31, 1992, Mar-Jeanne and Arthur Tendler, officers and
directors, loaned $185,000 to the Company at 8% interest due August 1, 1993. In
July 1993 the interest rate on the loan was increased to 10% and the maturity of
the loan was extended so that $75,000 was due on or before December 31, 1993,
and the remainder was due on July 31, 1994. The due date of the remainder of the
loan payable to the Tendlers was extended to June 30, 1995. Interest of $17,618
and $15,869 accrued, respectively, in fiscal 1995 and 1994. The loan was repaid
in July 1995 as described in the following paragraph.
In June and July 1994 the Company loaned to Mar-Jeanne and Arthur
Tendler $200,000 and to Bruce Gilgen loaned $32,988 at a rate of 5% per annum.
$25,000 of Mr. Gilgen's debt is represented by a promissory note and the balance
is additional borrowings and accrued interest. As of July 31, 1995, the amount
owed by the Tendlers, including accrued interest, was $210,930. This loan was
paid by the cancellation of debt owed by the Company described in the foregoing
paragraph to the Tendlers in the amount of $182,741, and the payment by Mr.
Tendler of $28,189 in cash for a total of $210,930 including interest. Mr.
Gilgen's note is due June 5, 1996. [status]
In fiscal 1995, the Company exchanged prepaid legal fees on behalf of
Mar-Jeanne and Arthur Tendler in the amount of $69,596 and in return the
Tendlers executed a promissory note in favor of the Company due July 31, 1996.
This note is non-interest bearing. [status]
In August 1992, the Company adopted the 1992 Stock Option Plan, under
which plan three year non-qualified options to purchase 100,000 shares at $1.50
per share were granted to each of Mar-Jeanne Tendler, Arthur Tendler, and Bruce
Gilgen. These options were extended until August 1997. In fiscal 1994, the
Company granted, under the 1992 Stock Option Plan options, to purchase 100,000
shares at a price of $3.00 per share, to each of Mar-Jeanne Tendler, Art
Tendler, and Bruce Gilgen. In each of fiscal 1995 and 1996, the Company granted,
outside the 1992 Stock Option Plan, three-year options to each of these persons
to purchase 100,000 shares at a price of $3.00 and $3.25 per share,
respectively. Mr. Gilgen exercised 25,000 options at $1.50 per share during
fiscal 1996. No other options have been exercised to date.
On August 10, 1991, the parents of Mar-Jeanne Tendler, Gerson and
Elaine Lacoff, loaned $15,000 to the Company with interest at 10% for working
capital. At the option of the holder, accrued interest and principal are
convertible into shares of Common Stock at a price of $1.50 per share. An
additional $5,000 and $60,000 were loaned on October 24, 1992 and December 30,
1992 respectively on the same terms and the three loans are represented by a
single promissory note payable on demand, with interest payments due on the
first day of each calendar quarter. The Company issued 10,000 shares in
connection with the making of these loans. Interest of $8,667 and $7,739 was
incurred in the years ended July 31, 1995 and 1994, respectively. There are no
other obligations under this agreement other than as set forth above.
On April 1, 1994, the Company entered into a consulting agreement (the
"Consulting Agreement") with Stuart Wertzberger, pursuant to which Mr.
Wertzberger will be employed by the Company as a consultant at the rate of
$4,000 per month for 25 months. Mr. Wertzberger will also receive, pursuant to a
covenant not to compete for a term of 36 months described in the Consulting
Agreement, 200,000 shares of the Company's Common Stock at the rate of 5,556
shares per month. In order to provide for the release of shares to Mr.
Wertzberger, the Company and Mr. Wertzberger entered into a trust agreement,
also dated April 1, 1994.
Effective April 1, 1995, the Company entered into a two-part agreement
with an unrelated third party to provide financial and investor relations advice
to the Company in exchange for 75,000 shares of the Company's unregistered
common stock. Due to the restrictions on the access and salability of the
shares, the Company discounted the value of the shares by 30%. Under the first
part of the agreement, 50,000 shares represented compensation for services to be
rendered from April 1, 1995 to April 30, 1997. As of July 31, 1995, $66,150 of
services not yet rendered was included in services receivable for common stock
issued. Under the second part of
21
<PAGE>
the agreement, 25,000 shares represented consideration under a covenant not to
compete for the three-year period ending March 31, 1997. Those shares will
remain restricted until the end of the term. The covenant not to compete is
being amortized using the straight-line method over the three-year term of the
agreement. Amortization expense related to this covenant for the year ended July
31, 1995 was $4,375 and $58,332 in the six months ended January 31, 1996.
On August 8, 1994, the Company loaned to James M. Duarte, legal counsel
to the Company, $150,000 (the "Loan"), payable at a rate of $25,000 per month,
with no interest, commencing 30 days from the date of registration with the
Securities and Exchange Commission of Mr. Duarte's 186,364 shares of Common
Stock, provided such registration occurred not later than October 31, 1994. As
consideration for the Loan and subsequent loans in the amount of $175,000 for a
total of $325,000, Mr. Duarte agreed to sell not more than 50,000 shares per
month unless otherwise consented by the Company. Said limitation on the number
of shares sold by Mr. Duarte was not to apply, however, if the price of the
Company's Common Stock increased to $5.00 per share or decreased to $1.50 per
share or if the stock was not registered and freely tradeable by October 31,
1994. The shares were not registered by October 31, 1994. The Loan was
collateralized by Mr. Duarte's pledge of 100,000 shares of the Company and was
repaid by December 1995 by an unrelated third party who acquired the shares from
Mr. Duarte.
The Company has a $100,000 certificate of deposit at El Dorado Bank
(formerly Mariners Bank), which collaterlizes a personal obligation of
Mar-Jeanne and Arthur Tendler. The outstanding balance of the loan at July 31,
1996 was $97,000. The underlying obligation is due in February 1997.
Management believes the terms of the foregoing transactions were no
less favorable to the Company than would have been obtained from independent
third parties for similar transactions.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of January 31, 1997, and
as adjusted to reflect the sale by the Company and the Selling Stockholders of
the shares of Common Stock offered hereby, by (i) each person known by the
Company to beneficially own more that 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers and (iv) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Directors, Five Percent Stockholders,
Executive Officers Named in Summary Number of Percent
Compensation Table and Directors and Shares Beneficially Shares Being After
Executive Officers as a Group(1) Owned Percent offered Offering
<S> <C> <C> <C> <C>
Mar-Jeanne Tendler 2,078,000(3)(4) 21.1% 21.1%
32951 Calle Perfecto
San Juan Capistrano, CA 92675
Arthur S. Tendler 1,972,800(3) 20.0% 20.0%
32951 Calle Perfecto
San Juan Capistrano, CA 92675
Bruce Allen Gilgen 1,665,000(3) 17.0% 17.0%
32951 Calle Perfecto
San Juan Capistrano, CA 92675
Willie Woods 1,099,201(5) 11.1% 1,099,201 --
Digital Systems Research, Inc.
4301 North Fairfax Drive
Suite 725
Arlington, Virginia 22203
Richard H. Nance 20,000(7) * *
32951 Calle Perfecto
San Juan Capistrano, CA 92675
Gerson Lacoff, Trustee 1,053,000(6) 11.6% 11.0%
The Red-Net Trust
32951 Calle Perfecto
San Juan Capistrano, CA 92675
All officers and directors
as a group (5 persons) 5,735,800(2)(3)(4)(7) 58.1% 58.1%
</TABLE>
*less than 1%
(1) The address of each individual is 32951 Calle Perfecto,
San Juan Capistrano, California 92675, unless
otherwise noted.
(2) Unless otherwise indicated, the persons named in the table have sole
voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where
applicable.
(3) Included 800,000 shares of Common Stock issuable upon exercise of
options held by each of Mar-Jeanne
and Arthur Tendler and Mr. Gilgen. Mar-Jeanne and Arthur Tendler,
husband and wife, disclaim beneficial
ownership of the shares held by the other.
(4) Includes 13,000 shares held by Mar-Jeanne Tendler as trustee for minor
relatives.
(5) Includes 891,717 shares issuable upon conversion of 891,717 shares of
Series B Preferred Stock owned by
DSR. Mr. Woods is the controlling shareholder of DSR and is deemed to
beneficially owned all of the
shares of common stock owned by DSR.
(6) Includes 1,000,000 shares held by a family trust of which Gerson Lacoff
is trustee.
(7) Includes 20,000 shares issuable upon exercise of stock options held by
Mr. Nance.
23
<PAGE>
SELLING STOCKHOLDERS
The shares of Common Stock of the Company offered by the Selling
Stockholders (the "Shares") will be offered at market prices, as reflected on
the Electronic Bulletin Board or on any other market on which the Common Stock
is then traded. The Shares are being offered by 17 persons. It is anticipated
that registered broker-dealers will be allowed the commissions which are usual
and customary in open market transactions. Each purchaser was required to
represent, warrant, agree and acknowledge that he or she had been provided with
information regarding the Company, the risks of an investment, that the shares
were not registered and must be held for an indefinite period of time unless
registered, and that a legend would be placed on the certificate representing
the Shares. The Shares are being offered pursuant to the right of these persons,
or as set forth in the subscription agreement or other agreement, to demand
registration of their shares.
The following table lists the Selling Stockholders, the position,
office or other material relationship with the Company (or such person's
spouse), if any, for all officers, the number of Shares offered by each and the
percentage of shares held before and after the offering. None of the Selling
Stockholders have any material relationship to the Company, except as noted
below. The Selling Stockholders intend to sell all of the shares owned by each
of them. Each Selling Stockholder will be required to deliver a current
prospectus at the time of sale of his or her own shares.
<TABLE>
<CAPTION>
Percentage
Ownership Shares Percentage
Shares Before Offered Held After
Name Held Offering For Sale Offering
Q & A Shareholders
<S> <C> <C> <C>
Digital Systems Research, Inc.(1) 1,099,201 11.1% 1,099,201 -
Gary Wolfe, employee(2) 346,623 4.0% 346,623 -
Walter Dreschler, employee(3) 6,040 * 6,040 -
Sheena Warner, employee(4) 23,962 * 23,962 -
Gary Sousa, employee(5) 24,160 * 24,160 -
Convertible Noteholders
Sanforf I. Feld(6) 164,166 1.0% 164,166 -
Alan D. Zelinsky(6) 164,166 1.0% 164,166 -
Series C Convertible Preferred Stockholders
Gregory M. Spirdis(7) 128,275 1.0% 128,275 -
Franklin H. Spirn, M.D.(7) 128,275 1.0% 128,275 -
7% Convertible Debenture holder(8)
Cameron Capital, Inc. 609,756 6.3% 609,718 -
AIM Software, Inc. 30,000 * 30,000 -
Elaine & Gerson Lacoff(9) 1,053,000 11.6% 53,333 11.0%
Underwriter's Warrants
Allan M. Levine(10) 91,000 1.0 91,000 -
Michael Shumacher(10) 91,000 1.0 91,000 -
1996 Placement Warrants
DJ Ltd. 78,750 * 78,750 _
Cameron Capital Management, Ltd. 33,750 * 33,750 _
</TABLE>
* Less than 1%
(1) Includes 891,717 shares issuable upon conversion of 891,717 shares of
Series B Preferred Stock. Willie Woods, a former director of the
Company, is the controlling officer and shareholder of Digital Systems
Research, Inc.
(2) Includes 281,194 shares issuable upon conversion of 281,194 shares of Series
B Preferred Stock. (3) Includes 3,020 shares issuable upon conversion of 3,020
shares of Series B Preferred Stock. (4) Includes 11,981 shares issuable upon
conversion of 11,981 shares of Series B Preferred Stock.
24
<PAGE>
(5) Includes 12,080 shares issuable upon conversion of 12,080 shares of
Series B Preferred Stock.
(6) Includes 104,166 shares issuable upon conversion of $125,000 in
convertible promissory notes and 60,000
shares issuable upon exercise of options at $2.00 per share.
(7) Includes an estimated 128,275 shares issuable upon conversion of
128,275 shares of Series C Convertible Preferred Stock held by each
person at the lower of 80% of the closing sale price of the Common
Stock on the date of conversion or $1.00.
(8) Includes 609,750 shares estimated to be issuable based upon the
conversion terms of the Debentures, which is the lower of $3.85 or 82%
of the closing bid price over the five days preceding the date of
conversion.
(9) Includes 10,000 shares issued to Mr. and Mrs. Lacoff as a consideration
for a loan fee earned in December
1992 and 53,333 shares issuable upon conversion of the total amount of
$80,000 of these loans from the
Lacoffs to the Company.
(10) Includes shares issuable upon exercise of Underwriter's Warrants issued
in connection with the Company's 1994 public offering.
(11) Includes shares issuable upon exercise of Warrants at $5.00 per share,
issued in connection with the
Company's 7% Debentures.
DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, $.001 par value per share, of which 9,045,035
shares were outstanding as of January 31, 1997. Holders of shares of Common
Stock are entitled to one vote for each share on all matters to be voted on by
the shareholders. Holders of Common Stock have no cumulative voting rights.
Holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of Common Stock have no preemptive rights to
purchase the Company's Common Stock. There are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All of
the outstanding shares of Common Stock are validly issued, fully paid and
non-assessable.
The transfer agent for the Common Stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue,
Glendale, California 91204-2991.
Preferred Stock
The Company's Articles of Incorporation authorize the issuance of
10,000,000 shares of preferred stock, $.001 par value, of which 800 shares of
Series A Convertible Preferred Stock, 1,200,000 shares of Series B Convertible
Preferred Stock, and 256,550 shares of Series C Preferred Stock are outstanding.
The Company currently has no plans to issue any additional preferred stock. The
Company's Board of Directors has authority, without action by the shareholders,
to issue all or any portion of the authorized but unissued preferred stock in
one or more series and to determine the voting rights, preferences as to
dividends and liquidation, conversion rights, and other rights of such series.
The preferred stock, if and when issued, may carry rights superior to those of
Common Stock, however, no preferred stock may be issued with rights equal or
senior to the preferred stock without the consent of a majority of the holders
of preferred stock.
The Company considers it desirable to have preferred stock available to
provide increased flexibility in structuring possible future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either
public offering or private placements, the provisions for preferred stock in the
Company's Articles of Incorporation would avoid the possible delay and expense
of a shareholder's meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the Common Stock which would result in dilution
of the income per share and net book value of the Common Stock. Issuance of
additional Common Stock pursuant to any conversion right which may be attached
to the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the Common Stock. The specific
terms of any series of preferred stock
25
<PAGE>
will depend primarily on market conditions, terms of a proposed acquisition or
financing, and other factors existing at the time of issuance. Therefore, it is
not possible at this time to determine in what respect a particular series of
preferred stock will be superior to the Company's Common Stock or any other
series of preferred stock which the Company may issue. The Board of Directors
does not have any specific plan for the issuance of preferred stock at the
present time and does not intend to issue any preferred stock, except on terms
which it deems to be in the best interest of the Company and its shareholders.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of Nevada law could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. While such provisions are intended to enable the Board of Directors to
maximize stockholder value, they may have the effect of discouraging takeovers
which could be in the best interest of certain stockholders. There is no
assurance that such provisions will not have an adverse effect on the market
value of the Company's stock in the future.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Hand & Hand, Dana Point, California.
EXPERTS
The statements of income, stockholders' equity and cash flows for the
year ended July 31, 1995 included in this Prospectus and the related
Registration Statement, have been so included in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated balance sheet as of July 31, 1996 and statements of
income, stockholders' equity and cash flows of the Company for the year ended
July 31, 1996, included in this Prospectus and in the related Registration
Statement, have been audited by Cacciamatta Accountancy Corporation, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
26
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARY
----------
REPORT ON AUDITED CONSOLIDATED FINANCIAL STATEMENTS
As Of July 31, 1996 And
For The Years Ended July 31, 1996 And 1995
----------
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
----------
To the Stockholders and
Board of Directors of
WIZ Technology, Inc.
We have audited the accompanying consolidated balance sheet of WIZ Technology,
Inc. and Subsidiaries as of July 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of WIZ Technology,
Inc. and Subsidiaries as of July 31, 1996, and the results of their consolidated
operations and their consolidated cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Cacciamatta Accountancy Corporation
Irvine, California
January 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
WIZ Technology, Inc. and Subsidiary
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows for the year ended July 31, 1995 of WIZ
Technology, Inc. and Subsidiary. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
WIZ Technology, Inc. and Subsidiary for the year ended July 31, 1995 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
November 8, 1995
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As Of July 31, 1996
----------
- ----------------------------------------------------------------------------------------------------------------------------
A S S E T S
<S> <C>
Current assets:
Cash and cash equivalents $ 450,971
Accounts receivable, net of allowance for doubtful accounts of $ 607,653 1,903,999
Notes receivable 127,415
Notes receivable from stockholders 103,596
Prepaid expenses and other current assets 505,681
Inventories 998,814
Employee advances 48,909
Total current assets 4,139,385
Property and equipment, net 874,701
License agreement, net of accumulated amortization of $ 131,247 3,368,753
Software development costs 199,181
Certificate of deposit 100,000
Covenants not to compete, net of accumulated amortization of $ 352,161 637,214
Other assets 204,969
Total assets $9,524,203
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under capital leases, current $101,109
Accounts payable 1,443,558
Accrued expenses 463,084
Accrued salaries and wages 257,770
Notes payable 500,000
Accrued settlement expense 140,000
Convertible debt to related party 80,000
Total current liabilities 2,985,521
Obligations under capital leases, noncurrent 216,719
Total liabilities 3,202,240
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized
Series A, 1,050 shares issued and outstanding 1
Series B, 1,200,000 shares issued and outstanding 1,200
Common stock, $.001 par value, 50,000,000 shares authorized, 8,935,581 shares
issued and outstanding 8,936
Additional paid-in capital-preferred 3,762,799
Additional paid-in capital-common 8,671,553
Services receivable for common stock issued (28,350)
Note receivable from stockholder (157,500)
Accumulated deficit (5,936,676)
Total stockholders' equity
6,321,963
Total liabilities and stockholders' equity $9,524,203
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended July 31, 1996 And 1995
----------
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Net revenues $7,056,626 $ $3,680,634
Costs and expenses:
Cost of revenues 5,539,431 1,932,746
Selling, general and administrative expenses 4,381,249 2,387,436
Research and development --- 29,342
Total costs and expenses 9,920,680 4,349,524
Loss from operations
(2,864,054) (668,890)
- -
Nonoperating expenses (income):
Interest income (68,970) (74,792)
Interest expense 129,553 41,160
Other 202,100 (73,347)
Total nonoperating expenses (income) 262,683 (106,979)
Loss before provision for income taxes (3,126,737) (561,911)
Provision for income taxes 800 800
Net loss ($3,127,537) ($562,711)
Net loss per share
($0.37) ($0.07)
Weighted average number of common shares outstanding 8,352,183 7,944,034
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended July 31, 1996 and 1995
Note
Addi- Receiv- Note
tional Addi- able Receiv-
Paid-in tional For able Total
Series A Series B Capital Paid-in Common From Accum- Stock-
Preferred Stock Preferred Stock Common Stock Pre- Capital Stock Stock- ulated holders'
Shares Amount Shares Amount Shares Amount ferred Common Issued holder Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
July 31,1994 7,851,768 $ 7,852 $5,359,715 $ (73,962)$(150,000)$(2,246,428)$2,897,177
Stock issued
for services
rendered 30,034 30 94,240 94,270
Stock issued
for services
to be rendered 109,432 109 233,641 (233,750)
Stock issued
for covenant
not to compete 25,000 25 39,350 39,375
Stock issued
for exercise
of options 2,555 3 4,606 4,609
Stock issued
to employees
for bonuses 1,740 2 5,129 5,131
Services rendered
for stock
previously
issued 106,716 106,716
Reclassification
of services and
notes receivables
from stockholders 69,596 150,000 219,596
Net loss (562,711)(562,711)
Balances at
July 31, 1995 8,020,529 $ 8,021 5,736,681 (131,400) (2,809,139)2,804,163
Stock issued
for services
rendered 88,199 88 415,124 415,212
Services
rendered for
stock previously
issued 103,050 103,050
Note receivable
from stockholder 45,000 45 157,455 (157,500)
Stock issued
in private
offering -less
issuance cost 2,000 $ 2 $1,799,998 1,800,000
Conversion of
preferred stock
to common stock (950) (1) 299,564 300 (854,999) 854,700
Record charge
on cheap options 169,081 169,081
Exercise of
stock options 99,018 99 244,906 245,005
<PAGE>
Stock issued
for purchase
of Q&A 1,200,000 1,200 299,994 300 2,817,800 779,700 3,599,000
Stock issued
for legal
settlement 10,000 10 41,240 41,250
Stock issued
to employees
for bonuses 4,602 4 29,042 29,046
Exercise of
warrants 68,675 69 243,624 243,693
Net loss (3,127,537)(3,127,537)
Balances at
July 31, 1996 1,050 $ 1 1,200,000 $ 1,200 8,935,581 $ 8,936 $3,762,799 $8,671,553$(28,350)$(157,500)(5,936,676)6,321,963
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended July 31, 1996 And 1995
----------
- -----------------------------------------------------------------------------------------------------------------------------
1995
1996
<S> <C> <C>
Cash flows from operating activities:
Net loss ($3,127,537) ($562,711)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 513,061 278,522
Amortization of capitalized software development costs 260,909 19,727
Write off of software development costs 558,808 -----
Provision for allowance for doubtful accounts, sales returns and discounts 526,700 125,652
Provision for allowance for slow-moving inventory 418,021 50,000
Loss on disposal of property and equipment 89,954 -----
Stock issued for services rendered 415,212 94,270
Stock issued for bonuses 29,046
5,131
Charge to adjust for stock options issued below market value 169,081 -----
Stock issued in settlement of a lawsuit 41,250 -----
Services rendered for stock previously issued 103,050 106,716
Changes in operating assets and liabilities:
Accounts receivable (1,001,299) (1,076,203)
Inventories (19,131) (566,770)
Prepaid expenses and other assets (436,088) (21,135)
Accounts payable (462,680) 380,537
Accrued expenses 371,132 (42,453)
Accrued salaries and wages 54,983 (2,839)
Accrued interest to stockholders ----- 6,447
--------------- --------------
Net cash used by operating activities (1,495,528) (1,205,109)
----------- ---------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities ----- 908,183
Purchases of property and equipment, net (260,715) (305,546)
Proceeds from settlement of stockholder notes, net ----- 28,189
Increase in notes receivable (127,415) -----
Collections on notes receivable from stockholders, net 325,135 (325,000)
Collections on note receivable 26,129
2,640
Increase in employee advances (41,294)
(7,615)
Increase in other assets (171,477) 4,289
Capitalized software development costs (621,143) (417,482)
--------- ---------
Net cash used by investing activities (870,780) (112,342)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of Series A Convertible Preferred stock, net 1,800,000 -----
Proceeds from exercise of common stock options and warrants 488,698 4,609
Principal payments on obligations under capital leases (73,413) (29,499)
Proceeds from notes payable 500,000 -----
---------- ----------
Net cash provided (used) by financing activities 2,715,285 (24,890)
--------- --------
Net increase (decrease) in cash and cash equivalents 348,977 (1,342,341)
Cash and cash equivalents at beginning of year 101,994 1,444,335
-------- ---------
Cash and cash equivalents at end of year $450,971 $101,994
========= ========
</TABLE>
Continued
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS,
Continued For The Years Ended July 31,
1996 And 1995
----------
Supplemental disclosure of cash flow information:
<S> <C> <C>
Cash paid during the year for:
Interest $ 55,388 $40,493
Income taxes $ ----- $1,600
</TABLE>
During 1996, the Company completed the following
transactions:
+ Issuance of 299,994 shares of Common Stock and
1,200,000 shares of Series B Convertible Preferred
Stock in exchange for the net assets of Q & A
Sales & Marketing, Inc.
+ Conversion of 950 shares of Series A Convertible
Preferred Stock at a value of $855,000 for 299,564 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 92,801 shares of Common Stock with a value of
$444,258 in exchange for services.
+ Automobiles valued at $141,535 received in exchange
for capital lease obligations.
+ Issuance of 10,000 shares of Common Stock with a value of
$41,250 in settlement of a legal matter.
The accompanying notes are an integral part of these financial statements.
<PAGE>
A charge of $169,081 to adjust for stock options issued
below market value.
During 1995, the Company completed the following
transactions:
+ Issued 109,432 shares of common stock with a value of $233,750 for services
to be rendered.
+ Issued 25,000 shares of common stock with a value of $39,375 for a covenant
not to compete.
+ Exchanged $69,596 of services receivable for common stock for a
note receivable from an officer.
+ Acquired property and equipment with a value of $141,335 through
the issuance of long-term debt.
The accompanying notes are an integral part of these financial statements.
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
1. Summary Of Significant Accounting Policies:
Principles Of Consolidation:
The consolidated financial statements include the accounts of WIZ
Technology, Inc. and its wholly-owned subsidiaries, Wiz Technology,
Inc. (a California corporation), Q & A Software Company and CAPOTEC
Intranet Business Solutions ("CAPOTEC"). (collectively, the "Company").
Intercompany balances and transactions have been eliminated in
consolidation. The Company develops and markets low cost computer
software, including licensed commercial software and "shareware." In
April 1996, CAPOTEC was established to conduct intranet system
marketing and sales.
Effective March 8, 1996, the Company acquired all of 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 of the net assets of Q & A. The
acquisition was accounted for as a purchase.
The purchase price related to the Q & A acquisition is as follows:
Issuance of stock $3,599,000
Liabilities assumed 1,402,627
$5,001,627
The purchase price was allocated to the assets approximately as
follows:
F-8
<PAGE>
Cash $ ---
Trade accounts receivable 350,000
Inventory 450,000
Property and equipment 100,000
License agreement 3,500,000
Covenant not to compete 600,000
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
1. Summary Of Significant Accounting Policies, Continued
Principles Of Consolidation, Continued
The Company has consolidated the results of Q & A since the effective
date of the merger.
F-9
<PAGE>
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 and numerous other applications.
The covenant not to compete acquired in this transaction restricts the
former parent of Q & A and two of its officers from competing with the
business of 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.
This covenant became effective on the date of the merger and continues
for a period of five years.
The following unaudited pro forma consolidated results of operations of
the Company for the years ended July 31, 1996 and 1995 assume that the
acquisition of Q & A occurred on August 1, 1994. The pro forma results
presented below are not necessarily indicative of the actual results of
operations had Q & A been acquired as of the earlier date, nor are they
necessarily indicative of future results of operations.
1996 1995
(unaudited) (unaudited)
Revenues $7,705,495 $6,893,000
Net loss (3,291,262) (1,105,000)
Net loss per common share (.37) (.13)
<PAGE>
WIZ TECHNOLOGY , INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
1. Summary Of Significant Accounting Policies, Continued
Revenue Recognition:
Revenues and costs of revenues for computer software products are
recognized at the time of product shipment. Revenues for intranet
system sales are recognized when all obligations under the related
contracts have been performed by the Company and collections of related
receivable are reasonably assured. Provisions are recorded for
estimated future product returns and for advertising and other
allowances.
Cash And Cash Equivalents:
The Company considers all highly liquid investments with a maturity at
acquisition of 90 days or less to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined under the first-in, first-out method. Periodically, the
Company analyzes its inventories, based on historical and projected
usage, and provides reserves for obsolete, slow-moving or otherwise
nonsalable inventories.
Property And Equipment:
Property and equipment, including certain assets under capital lease,
are stated at cost, less accumulated depreciation and amortization.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets or over the lesser of the
term of the lease or the estimated useful life for leasehold
improvements and assets under capital leases.
<PAGE>
The estimated useful lives are:
Equipment 5 years
Automobiles 3-5 years
Furniture and fixtures 5-7 years
Leasehold improvements
Lesser of useful life or lease term
Displays 1-3 years
Maintenance and repairs are expensed as incurred while renewals and
betterments are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation and amortization, and any resulting gain or loss is included in
operations.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
1. Summary Of Significant Accounting Policies, Continued
License Agreement:
License agreement is stated at a value independently determined by a
third party evaluator and is amortized using the straight-line method
over a ten year period. Amortization expense for the year ended July
31, 1996 was $131,247. The Company will periodically evaluate the
recoverability of this license agreement by comparing the carrying
value to estimated cash flows from the license agreement.
Covenants Not To Compete:
<PAGE>
Covenants not to compete are stated at cost and are amortized using the
straight-line method over the terms of the related agreements.
Amortization expense for the years ended July 31, 1996 and 1995 was
$172,789 and $121,039, respectively.
Software Development Costs:
The Company capitalizes internal software development costs in
accordance with Statement of Financial Accounting Standards No. 86. The
capitalization of these costs begins when a product's technological
feasibility has been established and ends when the product is available
for general release to customers. The Company uses the working model
approach to establish technological feasibility. Amortization is
computed on an individual product group basis and is the greater of:
(a) the ratio of current gross revenues for a product group to the
total current and anticipated future gross revenues for the product, or
(b) the straight-line method over the estimated economic life of the
product. Currently, the Company is using an estimated economic life of
three years for all capitalized software costs. Amortization expense
was $260,909 and $19,727 for the years ended July 31, 1996 and 1995,
respectively. During the fourth quarter of 1996, the Company chose to
discontinue several products as a result of its strategic redirection
due to the merger with Q & A. As a result, software development costs
of $558,808 were written off through a charge to cost of revenues.
Research And Development Costs:
Research and development costs are charged to operations as incurred.
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
1. Summary Of Significant Accounting Policies, Continued
Income Taxes:
The Company follows the Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes ("SFAS No. 109"). Under this method,
deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based on enacted
tax laws and statutory rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
About Fair Value of Financial Instruments, requires management to
disclose the estimated fair value of certain assets and liabilities
defined by SFAS No. 107 as financial instruments. Financial instruments
are generally defined by SFAS No. 107 as cash, evidence of ownership
interest in equity, or a contractual obligation that both conveys to
one entity a right to receive cash or other financial instruments from
another entity and imposes on the other entity the obligation to
deliver cash or other financial instruments to the first entity. At
July 31, 1996 management believes that the carrying amounts of cash,
certificate of deposits, notes and accounts receivable, accounts
payable and other current liabilities, approximate fair value because
of the short maturity of these financial instruments.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
F-14
<PAGE>
revenues and expenses during the reporting period. Actual results
could differ from those
estimates.
New Accounting Pronouncement:
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation, which requires the determination and disclosure of
compensation costs implicit in stock option grants or other stock
rights. The Company was required to adopt certain provisions of this
standard for nonemployee transactions entered into after December 15,
1995.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
1. Summary Of Significant Accounting Policies, Continued
New Accounting Pronouncement: continued
The Company has adopted the required provisions during fiscal 1996 for
all nonemployee transactions occurring after December 15, 1995. The
remaining provisions must be adopted in fiscal 1997. Under the employee
transaction provisions, companies are encouraged, but not required, to
adopt the fair value of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for
such transactions under Accounting Principles Board Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees, but would be required to
disclose, in a note to the financial statements, pro forma net earnings
and, if presented, earnings per share as if the Company had adopted
SFAS No. 123. The Company will continue to account for employee
stock-based compensation under APB No. 25.
2. Concentration Of Credit Risk And Significant Customers:
The Company has cash deposits at financial institutions in amounts in
excess of federally-insured limits. The Company believes that credit
risk related to its cash deposits
F-15
<PAGE>
is limited due to the quality of the institutions and the Company's
policy which limits credit exposure to any one financial institution.
The Company's customers are located in several geographic markets,
primarily in the United States and Canada. Short-term unsecured credit
is granted to its customers, substantially all of whom are engaged in
business activity within the retail distribution industry. Net revenues
by geographic markets for the years ended July 31, 1996 and 1995 are as
follows:
1996 1995
United States 74% 72%
Canada 9% 15%
Australia 10%
Other 7% 13%
100% 100%
Net accounts receivable by geographic markets as of July 31, 1996 are
as follows:
United States 68%
Canada 17%
Australia 14%
Others 1%
------
100%
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
2. Concentration Of Credit Risk And Significant Customers: continued
As of July 31, 1996, four customers had balances each representing 10%
or more of total net accounts receivable, with the sum of these four
customers representing approximately 80% of total net accounts
receivable.
During the year ended July 31, 1995, six of the Company's customers
accounted for 47.2% of total net revenues. One customer represented 14%
of total net revenues for the year ended July 31, 1996. No other
customers represented 10% or more of total net revenues for the years
ended July 31, 1996 and 1995.
3. Notes Receivable:
At July 31, 1996, the Company had 6 notes receivable totaling $127,415
from an individual. The notes are non interest bearing, and are due and payable
within 30 days of the issuance of the Company's stock as payment for software
design services.
4. Prepaid Expenses And Other Assets:
Prepaid expenses and other assets consists of the following at July 31,
1996:
- -------------------------------------------------------------------------------
Advance royalties $110,831
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Prepaid advertising 75,000
Prepaid shelfspace 144,000
Advanced commissions 40,000
Legal retainers 40,000
Other 95,850
$505,681
5. Inventories:
Inventories consist of the following at July 31, 1996:
Raw materials $566,510
Finished goods 910,325
1,476,835
Allowance for obsolescence (478,021)
$998,814
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
6. Property And Equipment:
Property and equipment consists of the following at July 31, 1996:
Equipment $571,663
Automobiles 329,220
Furniture and fixtures 66,236
Leasehold improvements 37,267
Displays 342,599
1,346,985
Less, Accumulated depreciation and (472,284)
amortization
$874,701
Certain equipment and automobiles under capital leases totaling
$441,120 with related amortization of $116,413 are included in property
and equipment as of July 31, 1996.
Depreciation and amortization for the years ended July 31, 1996 and
1995 was $243,348 and $157,483, respectively.
7. Certificate Of Deposit:
The Company maintains a $100,000 certificate of deposit which is
collateral for a personal obligation of two officers which is due in
February 1997.
8. Notes Payable:
At July 31, 1996, the Company had four convertible notes payable of
$125,000 each payable to four individuals. The notes provide for
interest payable on a quarterly basis at Bank of America's prime
lending rate plus 2% (10.25% at July 31,1996). These notes, due and
payable on August 22, 1996, are in default and are in the process of
being renegotiated. With each note, warrants to purchase 30,000 shares
of common stock were granted to each note holder at an exercise price
of $2.50 per share. These warrants expire in August, 2000. The Company
charged interest expense for the difference between the fair value of
its common stock (less a discount of 25%) on the date of grant and the
exercise price. The total of this charge for the year ended July 31,
1996 was $67,081.
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
9. Stockholders' Equity:
Preferred Stock:
Series A Convertible Preferred Stock- In November 1995, the Company issued 2,000
shares of Series A Convertible Preferred Stock ("Series A Preferred") for
$2,000,000, net of
$200,000 for an aggregate of $1,800,000. During 1996, 950 shares of Series A
Preferred
were converted into 299,564 shares of common stock. In the event of any
liquidation, dissolution, or winding up of the Company, whether voluntary or
involuntary, the Series A Preferred carries a
preference of $1,000 per share. Each share of Series A Preferred is
convertible, at the option of its holder, into the number of common shares at
the initial
conversion rate, subject to certain adjustments in the event of
reclassification, exchange
or substitution of shares or reorganization, merger,
consolidation or sale of assets. The initial conversion rate is the number of
shares of common
stock equal to $1,000 divided by the lower of 80% of the market price or
$3.4375.
The Series A Preferred carries no voting rights and is not redeemable. The
holders
are entitled to dividends when and as declared by the Board of Directors at the
rate of
$80 per year, payable semi-annually. No dividends were declared during the
year
ended July 31,1996. In conjunction with the issuance of Series A Preferred,
warrants to purchase 100,000 shares of the Company's Common Stock were issued at
an
exercise price of $3.4375 per share and another 25,000 warrants were issued at
an exercise
price of $4.00 per share. These warrants expire on November 1, 2000.
<PAGE>
Series B Convertible Preferred Stock - In connection with the
acquisition of Q & A, the
Company issued 1,200,000 shares of Series B Convertible Preferred Stock
("Series B
Preferred"). In the event of any liquidation, dissolution or winding up of the
Company, whether
voluntary or involuntary, the Series B Preferred carries a preference of $1.00
per share. Each share of
Series B Preferred is convertible, at the option of the holder
, into one share of common
stock according to an established timetable until May 1998.
Each holder of Series B
Preferred is entitled to cast the number of votes as if the
Series B Preferred had been
converted to common shares. The holders are entitled to
receive dividends, when and as declared by the Board of Directors.
No dividends were declared during the year ended July 31, 1996. As long
as at least 100,000 shares of Series B Preferred are outstanding or until March
15, 1999, the holders of Series B Preferred have the right to purchase
antidilution shares of common stock in the event of a "trigger event", as
defined, at the same price as such shares are offered in the trigger event.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
9. Stockholders' Equity: Continued
Common Stock:
During the year ended July 31, 1995, the Company issued 30,034 shares
of common stock for professional services provided to the Company. The
stock was issued at prices ranging from $2.50 to $3.50 per share, which
approximated fair market value on the dates of issuance.
During the year ended July 31, 1995, the Company issued 109,432 shares
of its common stock, 100,000 of which were unregistered shares, for
professional services to be
<PAGE>
rendered under various consulting agreements (see Note 13). The
registered shares were issued at their approximate fair market value on
the dates of issuance. The unregistered shares were discounted 30% due
to the shares being subject to future registration. Total services
rendered under all stock-for-services agreements during the year ended
July 31, 1995 was $106,716 and was charged to operations. The remaining
amount of services not yet rendered under these agreements as of July
31, 1995 was $131,400 and was recorded as services receivable for
common stock issued in the accompanying consolidated financial
statements as of that date.
On April 7, 1995, the Company issued 25,000 shares of unregistered
common stock to a consultant under a covenant not to compete. The
Company discounted the value of the shares by 30% due to the shares
being subject to future registration.
During the year ended July 31, 1996, the Company issued 88,199
shares of common stock in
exchange for services provided to the Company. The stock was issued at prices
ranging from $3.82 to $8.06 per share, which approximated fair market value
on the
dates of issuance.
On December 15, 1995, the Company issued 45,000 shares in exchange for
a note receivable from a stockholder of the Company in the amount of $157,500.
The note carries interest, payable quarterly, at the rate of 8% per annum.
Various individuals exercised options to purchase 99,018 shares of
common stock at a value of $245,005. Exercise prices ranged from $1.50
to $3.67 per share.
In February 1996, 10,000 shares of common stock valued at $41,250 were
issued in settlement of a legal dispute.
In May 1996, warrants to purchase 68,675 shares of common stock
originally granted in conjunction with the issuance of Series A
Preferred were exercised in exchange for $243,693.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
9. Stockholders' Equity: Continued
<PAGE>
Stock Options:
The Company's 1992 Stock Option Plan (the "Plan"), as amended,
authorizes the issuance of up to 2,000,000 shares of common stock to
employees, officers and directors and to employees of companies who do
business with the Company.
Any shares which are subject to an award but are not used because the
terms and conditions of the award are not met, or any shares which are
used by participants to pay all or part of the purchase price of any
option may again be used for awards under the Plan. However, shares
with respect to which a stock appreciation right has been exercised may
not again be made subject to an award.
Stock options may be granted as incentive stock options or nonqualified
stock options. Incentive stock options may not be granted at a price
less than 100% of the fair market value of the stock as of the date of
grant (110% as to any 10% stockholder at the time of grant) and
nonqualified stock options may not be granted at a price less than 85%
of fair market value of the stock as of the date of grant. Restricted
stock may not be granted under the Plan in connection with incentive
stock options.
Stock options granted under the Plan may include the right to acquire
an Accelerated Ownership Nonqualified Stock Option ("AO"). All options
granted to date have included the AO feature. If an option grant
contains the AO feature and if a participant pays all or part of the
purchase price of the option with shares of the Company's common stock,
then upon exercise of the option, the participant is granted an AO to
purchase, at the fair market value as of the date of the AO grant, the
number of shares of common stock of the Company equal to the sum of the
number of whole shares used by the participant in payment of the
purchase price and the number of whole shares, if any, withheld by the
Company as payment for withholding taxes. An AO may be exercised
between the date of grant and the date of expiration, which will be the
same as the date of expiration of the option to which the AO is
related.
Stock appreciation rights and/or restricted stock may be granted in
conjunction with, or may be unrelated to, stock options. A stock
appreciation right entitles a participant to receive a payment, in cash
or common stock or a combination thereof, in an amount equal to the
excess of fair market value of the stock at the time of exercise over
the fair market value of the date of grant. Stock appreciation rights
may be exercised during a period of time fixed by the Committee not to
exceed ten years after the date of grant or three years after death or
disability, whichever is later. There were no stock appreciation rights
outstanding at July 31, 1996 or 1995.
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
9. Stockholders' Equity: Continued
Stock Options: continued
Restricted stock requires the recipient to continue in service as an
officer, director, employee or consultant for a fixed period of time
for ownership of the shares to vest. If restricted shares or stock
appreciation rights are issued in tandem with options, the restricted
stock or stock appreciation right is canceled upon exercise of the
option and the option will likewise terminate upon vesting of the
restricted shares.
In addition to options granted under the Plan, the Company has granted
20,000 options to a former officer, and 400,000 options to current
officer/stockholders, which options do not come under the provisions of
the Plan.
The following table summarizes shares under option, including options
both under the Plan and outside the Plan, for the years ended July 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
Number Of Price Number Of Price
Shares Per Share Shares Per Share
<S> <C> <C> <C> <C>
Beginning of year 936,772 $1.50-$3.50 627,843 $1.50-$2.50
Granted 292,373 $2.50-$4.69 311,484 $3.00-$3.50
Exercised (99,018) $1.50-$3.67 (2,555) $1.50-$2.25
Canceled (1,191) $3.50 --- ---
------------- ------------
End of year 1,128,936 $1.50-$4.69 936,772 $1.50-$3.50
========================== ======= ===========
Exercisable 1,075,508 927,022
========= =======
</TABLE>
<PAGE>
Warrants:
See Notes 8, 14 and 16 for a description of outstanding warrants to
purchase common stock.
10. Net Loss Per Common Share:
Net loss per common share is computed by dividing reported net loss by
the weighted average number of shares of common stock outstanding
during the respective periods. Common stock equivalents were excluded
from the computations of net loss per share because the effect of
including such equivalents in the computation would have been
anti-dilutive.
Primary and fully-diluted loss per share amounts do not differ.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
11. Income Taxes:
The income tax provision for the years ended July 31 consists of:
1996 1995
Current:
Federal $ - $ -
State 800 800
---------------
800 800
Deferred:
Federal - -
State - -
---------------
Provision for income taxes $800 $800
=== ===
Deferred income taxes are recorded based upon the differences between
the financial statement and tax bases of assets and liabilities.
Temporary differences which give rise to deferred income tax assets and
liabilities are as follows:
1996
Deferred tax assets:
Allowance for doubtful accounts $ 215,274
Inventory obsolescence reserve 191,209
Net operating loss carryforwards 1,969,505
Covenants not to compete 47,866
Accrued vacation 25,356
-------------
Total gross deferred tax assets 2,449,210
Deferred tax liabilities:
Software development (75,754)
Property and equipment (93,743)
Total gross deferred tax liabilities (169,497)
Subtotal 2,279,713
Valuation allowance (2,279,713)
Net deferred taxes $ 0
===========
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
11. Income Taxes: continued
The net change during the year ended July 31, 1996 in the total
valuation allowance was an increase of $1,135,683.
The provision (benefit) for income taxes differs from the amount that
would result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------
<S> <C> <C>
Tax provision at the federal statutory rate (34.00%) (34.00%)
- ---------
State income taxes, net of federal income tax benefit .03% 0.17%
Accounting losses for which deferred federal income
tax benefits could not be recognized 35.90% 39.31%
Miscellaneous (1.90%) (1.27%)
Federal tax refund 0 (4.04%)
------------ -------
0.03% 0.17%
</TABLE>
At July 31, 1996, the Company has net operating loss carryforwards for
federal and state income tax purposes in the amounts of approximately
$5,071,000 and $2,638,000, respectively. These carryforwards begin to
expire in 2009 and 1999, respectively.
The utilization of net operating loss carryforwards may be limited
under the provisions of Internal Revenue Code Section 382.
12. Other Related Party Transactions:
Convertible debt to a related party bears interest at 10% per annum
payable quarterly, is due on demand, and may be converted at the option
of the lender into shares of the Company's common stock at the rate of
$1.50 per share. Interest expense to the related party during the years
ended July 31, 1996 and 1995 amounted to $8,004 and $8,667,
respectively.
<PAGE>
On July 31, 1994, the Company loaned $32,988 to an officer/stockholder
of the Company. The note bears interest at a rate of 5% per annum and
is due on demand. As of July 31, 1996, the balance due from such
stockholder, under a promissory note, was $34,000, plus accrued
interest of $708.
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
12. Other Related Party Transactions: continued
During fiscal 1995, the Company loaned an aggregate of $325,000 under a
promissory note to its outside legal counsel pending the registration
of 100,000 shares of common stock held by such individual. The loan was
collateralized by a pledge of such shares. On July 31, 1995, the shares
were transferred from the individual to an unrelated third party, who
assumed the note obligation. The balance of $325,000 was collected in
full during fiscal 1996.
Also, in connection with this transaction, as of July 31, 1995, such
legal counsel owed the Company $69,596 in services prepaid by the
Company with stock during the year ended July 31, 1994. On July 31,
1995, the rights to such services to be rendered were transferred to an
officer/stockholder in exchange for a promissory note from such
officer/stockholder due on or before July 31, 1997 and bearing no
interest. The balance of the note as of July 31, 1996 of $69,596 was
included in notes receivable from stockholders in the accompanying
consolidated balance sheet.
13. Commitments And Contingencies:
Leases:
The Company leases certain office equipment and automobiles under
capital leases which expire at various dates through July 2001. The
Company leases its office and warehouse space and certain equipment and
automobiles under operating leases expiring through July 2000. The
office and warehouse space lease requires the Company to pay
maintenance, insurance, taxes and certain other expenses in addition to
the base rent and expires in March 1998.
Future minimum lease payments under capital and operating leases for
each of the years ending July 31 are as follows:
Capital Operating
Leases Leases
1997 $ 128,379 $ 279,681
1998 116,051 197,381
1999 69,783 58,276
2000 18,273 4,607
2001 51,076 ---
---------- ---------
383,562 $539,945
Less, amount representing interest 65,734
$317,828
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
13. Commitments And Contingencies: continued
Leases: continued
In 1997 the Company is expected to receive sublease income of $102,375
against operating lease expense.
Rent expense for the years ended July 31, 1996 and 1995 amounted to
$279,506 and $140,021, respectively.
Employment Agreements:
As of July 31, 1996, the Company has employment agreements with four
officers. Three of the contracts originated at the time of the initial
public offering, expired in August 1996 and have been extended for a
one year term. The fourth agreement was entered into in March 1996 and
expires in July 1999. The agreements require aggregate annual base
<PAGE>
salaries of approximately $560,000, with annual increases at the
discretion of the Board of Directors for three of the agreements and a
five percent annual increase for the fourth. The Board of Directors may
also, at its discretion, award annual or other bonuses based on
profitability of the Company, performance, or other criteria. No
bonuses were paid to the officers during the years ended July 31, 1996
and 1995.
Consulting Agreements:
Effective April 1, 1994, the Company entered into a two-part agreement
with an unrelated third party to provide financial and reporting advice
to the Company. The agreement required the Company to pay $100,000 at
the inception of the agreement
for consulting services to be provided over a period of 24 months. The
consulting portion of the agreement can be terminated by either the
consultant or the Company with thirty days notice, and does not require
the consultant to repay the Company any amounts. Accordingly, the
Company considered it appropriate to expense the entire $100,000 during
the year ended July 31, 1994. Under the requirements of the second part
of the agreement, the consultant agreed not to provide similar services
to current and prospective competitors of the Company for a period of
three years, effective April 1, 1994, in exchange for 200,000 shares of
the Company's common stock. The Company's stock has been placed in a
trust and cannot be accessed by the consultant until March 1997. Due to
the restrictions on the access and salability of the common stock, the
Company discounted the value of the common stock by 30%. The covenant
not to compete is being amortized using the straight-line method over
the three-year term of the agreement. Amortization expense related to
this covenant was $116,664 for the years ended July 31, 1996 and 1995.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
----------
13. Commitments And Contingencies: continued
Consulting Agreements: continued
<PAGE>
Effective April 1, 1995, the Company entered into a two-part agreement
with an unrelated third party to provide financial and investor
relations advice to the Company in exchange for 75,000 shares of the
Company's unregistered common stock. Due to the restrictions on the
access and salability of the shares, the Company discounted the value
of the shares by 30%. Under the first part of the agreement, 50,000
shares represented compensation for services to be rendered from April
1, 1995 to April 30, 1997. As of July 31, 1996, $28,350 of services not
yet rendered was included in services receivable for common stock
issued in the accompanying balance sheet.
Under the second part of the agreement, 25,000 shares represented
consideration under a covenant not to compete for the three-year period ending
March 31, 1997.
These shares will remain restricted until the end of the term. The
covenant not to compete is being amortized using the straight-line method over
the three-year term of the agreement. Amortization expense related to this
covenant for the years ended July 31, 1996 and 1995 was $13,125 and $4,375,
respectively.
Effective August 1, 1994, the Company entered into an agreement with an
unrelated party to provide marketing and promotional services to the
Company for the two-year period ended July 31, 1996. As compensation
under the agreement, the Company issued 50,000 shares of its
unregistered common stock. Due to the shares being subject to future
registration, the Company discounted the value of the stock by 30%. As
of July 31,1996, all services have been rendered under this agreement.
As described in Note 1, a covenant not to compete was entered into as a
result of the Q & A merger. Amortization expense related to this
covenant was $43,000 for the year ended July 31, 1996.
Litigation:
The Company was awarded a judgment of approximately $364,000 (Canadian)
with respect to its claim against a former distributor. The former
distributor appealed the decision, but the appeal was abandoned.
Collection of the judgment was stayed and the Company's counsel has
prepared an application to remove the stay. However, the Company has
not recognized any gain with respect to this judgment. A trial date has
been tentatively scheduled for September 1998 to resolve outstanding
issues with respect to this matter.
<PAGE>
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 that the Company will be successful in its defense.
On October 3, 1996, an arbitrator with the American Arbitration
Association awarded Daisy Software, Inc., a former distributor of the
Company's product, compensatory damages of approximately $140,000 for
breach of contract. An accrual has been recorded in the financial
statements as of July 31, 1996 in the amount of $140,000.
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 is
preparing its response as well as a counter claim. The Company intends
to vigorously defend the allegations stated in the complaint, as it
believes such allegations to be without merit.
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.
14. Public Offering:
<PAGE>
On February 9, 1994, the Company issued 2,000,000 shares of its common
stock for $4,146,269, net of offering costs of $853,731 through a
public offering. As part of such offering, the Company agreed to the
following:
(Diamond) The Company granted the Underwriter warrants to purchase
182,000 shares of the Company's common stock at a price of
$3.00 per share. The warrants are outstanding as of July 31,
1996 and are exercisable for a period of three years from the
date of closing.
(Diamond) The Company entered into employment contracts with
its principal executive officers for a period of
three years from the date of closing (see Note 13).
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
14. Public Offering: Continued
(Diamond) For a period of three years from the closing, the
Underwriter shall have the right to designate one
nominee for election to the Board of Directors of the
Company.
(Diamond) The Company will not, without the consent of the
Underwriter, sell any shares of the Company's common
stock or warrants or options to purchase shares of
the Company's stock for a period of two years from
the closing.
15. Fourth Fiscal Quarter Adjustments:
<PAGE>
During the fourth quarter of the fiscal year ended July 31, 1996, the
Company recorded adjustments, aggregating approximately $3.4 million,
that increased the net loss for such quarter were as follows:
(Diamond)The write off of advertising credits of approximately
$700,000, which have been disputed.
(Diamond)An increase to the allowance for doubtful accounts of
approximately $527,000 to reserve for significant
customers' balances. One of the customers filed for
bankruptcy protection in August 1996.
(Diamond)An accrual to provide for the settlement of an arbitration
matter in the amount of $140,000.
(Diamond)A write off of software development costs in the amount of
$560,000 as a result of a decision to discontinue certain
product lines in fiscal 1997.
(Diamond)An increase to the allowance for obsolete inventory to reserve
for slow-moving inventory items of $330,000.
(Diamond) A reversal of fourth quarter sales due to product
returns subsequent to year end of approximately $350,000.
(Diamond)A charge for returned inventory deemed to be unsaleable in the
amount of approximately $300,000.
(Diamond) Write off of certain property and equipment of $52,000.
(Diamond)An increase to accrued expenses for fourth quarter legal fees
of approximately $85,000.
(Diamond) Other write downs aggregating approximately $380,000.
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended July 31, 1996 And 1995
<PAGE>
16. Subsequent Events (Unaudited):
On October 14,1996, the Company issued 7% Convertible Debentures in the
principal sum of $1,250,000 which mature on October 14, 1999. The
interest compounds annually and is payable on a semi-annual basis
commencing six months after the date of the Debentures. The Debentures
may be converted, at the holder's option, up to 33 1/3 % of the
aggregate original principal amount beginning after the 90th day
following the date of the issuance; 66 2/3% after the 125th day; and
100% after the 170th day. The conversion price shall be equal to the:
1) lesser of 110% of the average closing bid price (as reported on the
American Stock Exchange) of the Company's common stock for the 5
consecutive trading days ending on the trading day immediately
preceding the date of the agreement, or, 2) 82% of the average closing
bid price of the Company's common stock for the 5 consecutive trading
days ending on the trading day immediately preceding a Conversion Date,
as defined. In conjunction with the issuance of the Debentures, the
Company granted warrants to purchase 37,500 shares of common stock at
an exercise price of $5 per share. These warrants expire on October 14,
1999.
On November 13,1996, trading of common stock on the American Stock
Exchange was halted due to the Company's failure to file SEC Form
10-KSB for the year ended July 31, 1996 in a timely manner. The
Exchange informed the Company it has fallen below the Exchanges listing
requirements and is at risk of being de-listed. Management believes
that with the filing of the Form 10-KSB for the year ended July 31,
1996 the Company will be in full compliance with all Exchange rules and
will be operating within the Exchange quidelines.
<PAGE>
WIZ TECHNOLOGY, INC. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
January 31, 1997
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents 189,733
Accounts Receivable, net of allowance
for doubtful accounts of $297,210 1,232,051
Notes receivable 137,415
Notes receivable from stockholders 103,596
Prepaid expenses and other assets 366,617
Inventories 1,005,279
Employee advances 48,305
Total current assets 3,082,995
Contract receivable, net of discount of $1,300,000 700,000
Property and Equipment, net 734,974
License agreement,
net accumulated amortization of $306,243 3,193,757
Software development costs 138,288
Certificate of deposit 100,000
Covenants not to complete,
net of accumulated amortization of $477,062 512,313
Other assets 100,925
Total assets 8,563,252
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Obligations under capital leases, current 101,703
Accounts payable 732,654
Accrued expenses 107,538
Accrued salaries and wages 189,629
Notes payable 500,000
Accrued settlement expense 140,000
Total current liabilities 1,771,524
7% convertible debentures 1,212,500
Obligations under capital leases, noncurrent 242,214
Total liabilities 3,226,238
Commitments and contingencies
<PAGE>
WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
CONTINUED
January 31, 1997
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized
Series A, 1,050 shares issued and outstanding 1
Series B, 1,200,000 shares issued and outstanding 1,200
Common stock, $.001 per value, 50,000,000 shares authorized
9,067,593 shares issued and outstanding 9,067
Additional paid-in capital preferred 3,537,799
Additional paid-in capital-common 9,065,924
Services receivable for common stock issued (9,450)
Note receivable from stockholder (157,500)
Accumulated deficit (7,110,027)
Total stockholders' equity 5,337,014
Total liabilities and stockholders' equity 8,563,252
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
Six Months Ended Three Months Ended
January 31, January 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues $ 2,288,781 $ 3,634,881 $ 962,436 $ 1,588,849
Costs and expenses:
Cost of revenues 975,572 1,783,412 261,705 814,762
Selling, general and administrative expenses 2,438,594 1,310,487 1,594,523 635,048
Total costs and expenses $ 3,414,166 $ 3,093,899 $ 1,856,228 $ 1,449,810
Income (loss) from operations (1,125,385) 540,982 (893,792) 139,039
Nonoperating (expenses) income
Interest income 19,613 34,516 11,261 26,416
Interest expense (69,460) (69,816) (44,023) (39,541)
Other 1,883 36,190 1,868 (1,388)
Total nonoperating (expense) income (47,965) 890 (30,895) (14,513)
Income (loss) before income taxes (1,173,350) 541,872 (924,687) 124,526
Provision for income taxes 20,803 4,109
Net income (loss) $(1,173,350) $ 521,069 $ (924,687) $ 120,417
Net income (loss) per share $ (0.13) $ 0.06 $ (0.10) $ 0.01
Weighted average number of common shares outstanding 8,985,191 8,608,766 8,985,191 8,620,541
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WIZ TECHNOLOGY INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the
Six Months Ended Six Months Ended
January 31, 1997 January 31, 1996
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $ (1,173,350) $ 521,069
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 439,624 173,380
Amortization of software development costs 60,893 96,092
Allowance for doubtful accounts 42,231
Allowance for slow-moving/obsolete inventories 46,719
Stock issued for services rendered 195,640
Services rendered for stock previously issued 18,900 52,900
Gain on sale of assets 15,988
Additions to software development costs
in exchange for common stock-subscribed
Changes in operating assets and liabilities:
Accounts receivable 671,948 (495,625)
Inventories (6,465) (195,963)
Prepaid expenses and other assets 139,064 (93,636)
Accounts payable (710,904) (510,534)
Accrued expenses (355,546) 84,428
Accrued salaries and wages (68,141) (43,950)
Income taxes payable 20,803
Net cash (used) provided by operating activities (983,977) (90,458)
Cash flows from investing activities:
Purchases from property and equipment, net (103,116)
Interest in contract receivable (700,000)
Increase in notes receivable (10,000) 325,000
Decrease in notes receivable from stockholders
Decrease in employee advances 604 4,238
Decrease in other assets 104,044 (21,634)
Capitalized software development costs (501,047)
Net cash (used) provided by investing activities (605,352) (296,559)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,212,500 500,000
Principal payment on long term debt 25,495 (29,462)
Proceeds from issuance of Series A Convertible
Preferred, Net (225,000) 1,800,000
Current maturities of LTD (79,406)
APIC - Common 394,502
Net cash provided by financing activities 1,328,091 2,270,538
Net increase (decrease) in cash (261,238) 1,883,521
Cash at beginning of period 450,971 101,994
Cash at end of period $ 189,733 $ 1,985,515
Supplemental disclosure of cash flows information Cash paid during the year for:
Interest $ 49,847 $ 25,594
Income Taxes $ 0 $ 0
</TABLE>
5
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WIZ TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Six Months Ended January 31, 1996 and January 31, 1997
NOTE 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
January 31, 1997, the results of operations for the six months ended January 31,
1997 and January 31, 1996, and the cash flows for the three months ended January
31, 1997 and January 31, 1996. The results of operations for the six months
ended January 31, 1997 are not necessarily indicative of the results of
operations to be expected for the full year ending July 31, 1997.
NOTE 2 - CONVERTIBLE DEBENTURES
On October 14, 1996, the Company issued 7% Convertible Debentures in exchange
for $1,212,500 net of issuance costs. These debentures mature on October 14,
1999. The related interest compounds annually and is payable on a semi-annual
basis commencing six months after the date of the Debentures. The Debentures may
be converted, at the holder's option, up to 33 1/3% of the aggregate original
principal amount beginning after the 90th day following the date of the
issuance; 66 2/3% after the 125th day; and 100% after the 170th day. The
conversion price shall be equal to the: 1) lesser of 110% of the average closing
bid price (as reported on the American Stock Exchange) of the Company's common
stock for the 5 consecutive trading days ending on the trading day immediately
preceding the date of the agreement, or, 2) 82% of the average closing bid price
of the Company's common stock for the 5 consecutive trading days ending on the
trading day immediately preceding a Conversion Date, as defined. In conjunction
with the issuance of the Debentures, the Company granted warrants to purchase
112,500 shares of common stock at an exercise price of $5 per share. These
warrants expire on October 14, 1999.
NOTE 3 - CONTRACT RECEIVABLE
On January 31, 1997 the Company sold two of its existing intranet contracts to a
third party for $2,000,000. The terms of the sale call for a payment due in
February, 1997, which was paid, of $450,000 with the balance collected over the
next 51 months. Monthly payments begin October, 1997 under the following
schedule: 1. Twelve payments of $10,000 per month 2. Twelve payments of $20,000
per month 3. Twelve payments of $30,000 per month 4. Twelve payments of $40,000
per month 5. Seven payments of $50,000 per month
Total Cash Payments: $2,000,000
At January 31, 1997 the Company recognized $450,000 as income and will record
future income from the contract based on the recovery method as cash is
received. The discount on the contract receivable will be amortized over the
life of the contract as interest income.
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No dealer, salesman or other person is authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or the Underwriter. This Prospectus does not constitute an offer to sell
or a solicitation to an offer to buy the securities offered hereby to any person
in any state or other jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Additional Information...................... 2
Prospectus Summary.......................... 3
Risk Factors................................ 10
Market Price of Common Stock................ 15
Selected Financial Data..................... 17
Business - New Development ................. 18
Selling Stockholders........................ 22
Description of Securities................... 23
Legal Matters............................... 24
Experts..................................... 24
<PAGE>
WIZ TECHNOLOGY, INC.
PART II
Item 24. Indemnification of Directors and Officers.
The Company has adopted provisions in its articles of incorporation and
bylaws that limit the liability of its directors and provide for indemnification
of its directors and officers to the full extent permitted under the Nevada
General Corporation Law. Under the Company's articles of incorporation, and as
permitted under the Nevada General Corporation Law, directors are not liable to
the Company or its stockholders for monetary damages arising from a breach of
their fiduciary duty of care as directors. Such provisions do not, however,
relieve liability for breach of a director's duty of loyalty to the Company or
its stockholders, liability for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, liability for transactions
in which the director derived as improper personal benefit or liability for the
payment of a dividend in violation of Nevada law. Further, the provisions do not
relieve a director's liability for violation of, or otherwise relieve the
Company or its directors from the necessity of complying with, federal or state
securities laws or affect the availability of equitable remedies such as
injunctive relief or recision.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim for indemnification by any director or
officer.
Item 25. Other Expenses of Issuance and Distribution.
Filing fee under the Securities Act of 1933 $ 6,343.58
Blue Sky qualification fees and expenses(1) 1,000.00
Printing and engraving(1) 5,000.00
Legal Fees(1) 20,000.00
Accounting Fees(1) 5,000.00
Miscellaneous(1) 2,656.42
TOTAL $ 40,000.00
(1) Estimates
Item 26. Recent Sales of Unregistered Securities.
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Item 27. Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession.
2.1 Agreement and Plan of Reorganization, dated February 14,
1996, between the Company, Q&A
Sales Marketing, Inc. and Q&A Acquisition Company(5)
3. Certificate of Incorporation and Bylaws
3.1. Articles of Incorporation(2)
3.2 Bylaws(2)
3.3 Certificate of Amendment to Articles of Incorporation for
change in name of registrant to "WIZ
Technology, Inc."(1)
4. Instruments defining rights of holders, including indentures.
4.1 Warrant Agreement between the Company and Strasbourger
Pearson
Tulcin Wolff(1)
5. Opinion of Hand & Hand as to legality of securities being
registered.(10)
10. Material Contracts
10.1 1992 Stock Option Plan, as amended(2)
10.2 Form of Stock Option Agreement with Mar-Jeanne Tendler,
Arthur S. Tendler and Bruce Allen "Gil" Gilgen(2) 10.3
Demand Promissory Note in favor of Elaine & Gerson Lacoff(2) 10.5
Consulting Agreement with Dale Kostman (1) 10.7 Employment Agreement
between the Company and Arthur S. Tendler(1) 10.8 Employment
Agreement between the Company and Mar-Jeanne Tendler(1) 10.9
Employment Agreement between the Company and Bruce Allen Gilgen(1)
10.10 Registration rights agreements and schedule of
beneficiaries(1) 10.12 Consulting Agreement between the Company and
Strasbourger Pearson Tulcin Wolff(1) 10.13 Promissory Note from
Company in favor of Mar-Jeanne and Arthur Tendler(1) 10.14 Extension
and amendment of Promissory Note from Company in favor
of Mar-Jeanne and Arthur Tendler(1)
10.15 Lease for the Company's executive offices(3)
10.16 Consulting Agreement between the Company and Stuart
Wertzberger(3) 10.17 Trust Agreement between Stuart Wertzberger and
the Company(3) 10.19 Consulting Agreement between the Company and
Jensen Consultants, Inc.(4) 10.20 Promissory note from Arthur
Tendler dated July 31, 1995(4) 10.21 Form of Convertible Promissory
Notes and schedule of details(4) 10.22 Software Development and
License Agreement between the Company and Digital Systems
Research, Inc. dated March 8, 1996(6)(P)
10.23 Employment Agreement with Gary Wolfe(6)(P)
10.24 Covenant Not-to-Compete(6)
16. Letter on change in certifying accountant
16.1 Letter from Corbin & Wertz(4) 16.2 Letter from Coopers &
Lybrand L.L.P.(7) 16.3 Letter from Grant Thornton LLP (8)
21. Subsidiaries of the small business issuer(6)
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23. Consents of Experts and Counsel
23.1 Consent of Cacciamatta Accountancy Corporation(9)
23.2 Consent of Hand & Hand included in Exhibit 5 hereto
24. Powers of Attorney
24.1 Powers of Attorney are included on signature page(9)
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2, filed on November 1,
1993
(2) Incorporated by reference to the Company's Registration Statement on
Form 10-SB, File No. 0-20910 (the
"Form 10")
(3) Incorporated by reference to the Company's Annual Report on Form
10K-SB for the year ended July 31.
1994.
(4) Incorporated by reference to the Company's Annual Report on Form
10K-SB for the year ended July 31,
1995.
(5) Incorporated by reference to the Company's Current Report on
Form 8-K dated March 12, 1996.
(6) Incorporated by reference to such exhibit filed with the Company's
Registration Statement on Form S-3,
File No. 333-6423.
(7) Incorporated by reference to the Company's Current Report on Form 8-K
dated August 21, 1996.
(8) Incorporated by reference to the Company's Current Report on Form 8-K
dated December 12, 1996.
(9) Filed herewith.
(10) To be filed by amendment.
All other Exhibits called for by Rule 601 of Regulation S-B are not
applicable to this filing.
Item 17. Undertakings.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(I) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii)
Reflect in the prospectus any facts or events which, individually or together
represent a fundamental change in the information in the registration statement;
(iii)
Include any material or changed information the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities as at that time to be the initial
bona fide offering thereof.
(3) File a post effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
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(d) To provide to the underwriter at the Closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as may be required by the underwriter to permit prompt delivery to each
purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel that matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(f) The undersigned small business issuer hereby undertakes that
it will:
(1) For purposes of determining any liability under the
Securities Act that the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time the Commission declared it effective.
(2) For the purpose of determining any liability under the
Securities Act, that each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San Juan
Capistrano, State of California on March 14, 1997.
WIZ TECHNOLOGY, INC.
By: /s/ M.J. Tendler
M.J. Tendler
Chief Executive Officer
The undersigned officer and/or director of Wiz Technology, Inc., a
Nevada corporation (the "Corporation"), hereby constitutes and appoints
Mar-Jeanne Tendler, Richard Nance and Arthur Tendler, and each of them, with
full power of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities this Registration Statement and any and
all amendments thereto, and any and all applications or other documents to be
filed pertaining to this Registration Statement with the Securities and Exchange
Commission or with any states or other jurisdictions in which registration is
necessary to provide for notice or sale of all or part of the securities to be
registered pursuant to this Registration Statement and with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
the undersigned could do if personally present. The undersigned hereby ratifies
and confirms all that said attorney-in-fact and agent, or any of his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof and
incorporate such changes as any of the said attorneys-in-fact deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 14, 1997.
By: /s/ M.J. Tendler Chief Executive Officer and Director
M.J. Tendler (principal executive officer)
By: /s/ Arthur S. Tendler President, Chief Operating Officer and Director
Arthur S. Tendler
By: /s/ Bruce Allen Gilgen Executive Vice President, Secretary & Director
Bruce Allen Gilgen
By: /s/ Richard Nance Chief Financial Officer (principal accounting
Richard Nance and financial officer)
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form SB-2 of WIZ
Technology, Inc. of our report dated January 28, 1997 on our audit of the
consolidated financial
statements of WIZ Technology, Inc. as of and for the year ended July 31, 1996,
which report is
included in this Annual Report on Form 10-KSB.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
March 14, 1997
