FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-27828
WANDERLUST INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3779546
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5301 Beethoven Street, Los Angeles, CA 90066
(Address of principal executive offices)
(Zip Code)
(310) 821-7880
(Registrant's telephone number, including area code)
462 Broadway, New York, New York 10013
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of November 4, 1997.
5,472,891 shares of common stock, par value $.01 per share.
Page 1 of 12
There is no Exhibit Index.
WANDERLUST INTERACTIVE, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet - 3
September 30, 1997
Consolidated Statements of Operations- 5
Three Months Ended September
30, 1997 and September 30,
1996
Consolidated Statement of Cash Flows - 6
Three Months Ended September 30, 1997,
and September 30, 1996
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis 9
of Financial Condition and
Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
-2-
<PAGE>
Wanderlust Interactive, Inc., and Subsidiary
Consolidated Balance Sheet
ASSETS
September 30,
1997
Current assets:
Cash and cash equivalents $ 21,903
Accounts receivable, net of allowance
for doubtful accounts of $23,500 263,887
Costs and estimated earnings in excess
of billings on uncompleted contracts 0
Prepaid expenses 40,109
-------
Total current assets 325,899
-------
Fixed assets, net of accumulated
depreciation $1,318,783 748,924
-------
Other assets:
Patents and licenses, net of
accumulated amortization of $566,893 2,834,466
Goodwill, net of accumulated
amortization of $28,011 1,652,661
License rights, advance royalty
net of accumulated amortization
of $125,000 175,000
Capitalized software, net of accumulated
amortization of $34,000 65,938
Security deposits and other 45,086
---------
4,773,151
---------
$5,847,974
=========
See notes to financial statements.
-3-
Wanderlust Interactive, Inc., and Subsidiary
Consolidated Balance Sheet
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
and accrued liabilities $ 831,515
Billings in excess of costs and
estimated earnings on
contracts in progress 341,061
Notes and loans payable 448,057
Convertible debentures 183,750
---------
Total current liabilities 1,804,383
---------
Due to officer/shareholder 85,537
---------
Commitments and contingency
Shareholders' equity:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
issued and outstanding, none 0
Common stock, $.01 par value;
authorized, 10,000,000 shares;
issued and outstanding, 5,177,895 shares 51,779
Additional paid-in capital 11,585,206
Accumulated deficit (7,678,931)
---------
3,958,054
---------
$ 5,847,974
=========
See notes to financial statements.
-4-
<PAGE>
Wanderlust Interactive, Inc., and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Three Months Three Months
ended ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales $ 2,367 $ 0
Development contracts 249,943 0
Royalties 237,490 118,300
--------- ---------
489,800 118,300
--------- ---------
Expenses:
Cost of product sales 34,000 0
Cost of development contracts 276,457 0
Research and development 211,951 739,394
Selling, general and
administrative 784,179 392,639
Interest expense (income) net 18,924 (34,812)
--------- ---------
1,325,511 1,097,221
--------- ---------
Net loss $ (835,711) $ (978,921)
========= =========
Net loss per common
stock share $ (0.16) $ (0.26)
========= =========
Weighted average
shares outstanding 5,132,339 3,763,719
========= =========
See notes to financial statements.
-5-
Wanderlust Interactive, Inc., and Subsidiary
<CAPTION>
Consolidated Statements of Cash Flows
Three Months Three Months
ended ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating
activities:
Net loss $ (835,711) $ (978,921)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Write-off of license rights 25,000 0
Amortization of capitalized
software 34,000 0
Amortization, other 223,089 0
Depreciation 99,821 33,887
Change in:
Accounts receivable (26,906) 0
Costs and estimated earnings
in excess of billings on
contracts in progress 20,600 0
Billings in excess of costs
and estimated earnings on
contracts in progress 210,776 0
Accounts payable and accrued
expenses 87,288 31,234
Other assets 11,615 (15,673)
Prepaid expenses (15,609) 0
--------- ---------
Net cash used in operating
activities: (166,037) (929,473)
--------- ---------
Cash flows from investing
activities:
Purchase of fixed assets (2,946) (64,672)
--------- ---------
Net cash used in investing
activities: (2,946) (64,672)
--------- ---------
Cash flows from financing
activities:
Payments on notes payable (40,112) 0
Payments on due to officer,
net of interest accrued 2,237 0
--------- ---------
-6-
Wanderlust Interactive, Inc., and Subsidiary
<CAPTION>
Consolidated Statements of Cash Flows
Three Months Three Months
ended ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net cash used in financing
activities: (37,875) 0
--------- ---------
Increase (decrease) in cash
and cash equivalents (206,858) (994,145)
Cash and cash equivalents,
beginning 228,761 4,893,658
--------- ---------
Cash and cash equivalents,
ending $ 21,903 $3,899,513
========= =========
During the three months ended September 30, 1997, 135,417 shares of
common stock were issued in exchange for $81,250 of convertible debentures.
During the three months ended September 30, 1997, 1,250 shares of common
stock were issued for extension of due date of convertible debentures.
</TABLE>
See notes to financial statements.
-7-
Wanderlust Interactive, Inc., and Subsidiary
Notes to Financial Statements
1. The financial statements as of September 30, 1997 and for the three
month periods ending September 30, 1997 and 1996 are unaudited and
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim periods. The financial statements and notes thereto,
together with management's discussion and analysis of financial
condition and results of operations contained in the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1997. The
results of operations for the three months ended September 30, 1997 are
not necessarily indicative of the results for the entire fiscal year
ending June 30, 1998.
-8-
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company had revenues of $489,800 and $118,300 for the three months
ended September 30, 1997 and 1996, respectively, an increase of $371,500 or
314% in the current period. These increases were derived largely from the
Company's acquisition of Western Technologies. The Company incurred a net
loss of $835,711, or $.16 per share, including non-cash depreciation and
amortization expenses of $381,910, and $978,921, or $.26 per share, including
non-cash depreciation and amortization expenses of $33,887, for the three
month periods ended September 30, 1997 and 1996, respectively.
For the three month periods ended September 30, 1997 and 1996, research
and development ("R&D") expenses totalled $211,951 and $739,394,
respectively. This reflects a significant reduction in unfunded R&D
activities. Selling, general and administrative expenses were $784,179 and
$392,639 for the three month periods ended September 30, 1997 and 1996,
respectively.
Financial Condition
The Company had a working capital deficit at September 30, 1997 of
$1,478,484 as compared to a working capital deficit of $1,116,839 at June 30,
1997. The Company's current ratio was .18 to 1 at September 30, 1997 as
compared to .31 to 1 at June 30, 1997. At September 30, 1997, the Company's
stockholders' equity was $3,958,054 as compared to $4,711,765 at June 30,
1997. The weighted average shares outstanding for the three months ended
September 30, 1997 and 1996, were 5,132,339 and 3,763,719, respectively.
The Company used substantially less cash for operating activities in the
amount of $166,037 during the three months ended September 30, 1997, as
compared to using $929,473 in the year earlier period. This reflects the
Company's change in activities due to its acquisition of Western Technologies
and reduction of costs at its New York offices. The Company purchased $2,946
of fixed assets during the three months ended September 30, 1997, as compared
to $64,672 a year ago. The Company used funds for financing activities in
the amount of $37,875 and $0 during the three months ended September 30, 1997
and 1996, respectively. This reflects reduction of notes payable during the
current quarter. The Company's cash and cash equivalents decreased from
$228,761 at June 30, 1997 to $21,903 at September 30, 1997.
In May, 1995, the Company issued units consisting of convertible
debentures and common stock. An aggregate of $507,500 of debentures payable
and 465,374 shares of Common Stock were issued to various investors in
exchange for $1,015,000. The debentures accrued interest at the rate of 8%
(payable annually), and were due in May, 1997. The Company offered the
debenture holders two options in lieu of payment: (1) Conversion into shares
of Common Stock at the rate of $.60 per share or, (2) extend the due date for
one year in exchange for 200 shares of Common Stock for each $1,000 so
extended. As of September 30, 1997, 539,576 shares of Common Stock were
-9-
<PAGE>
issued in exchange for $323,750 of the convertible debentures, and 14,250
shares were issued to extend the due date of $71,250 of convertible
debentures. As of November 4, 1997, holders of $112,500 of debentures had
not exercised either option, one of whom has threatened litigation against
the Company. Such debentures are due, payable and in default.
Currently, the Company is conducting a private placement offering of up
to $500,000. As of November 12, 1997, the Company successfully raised
$350,000. It is anticipated that this financing will be completed before the
end of the year. In that regard, the Company has entered into an agreement
for consulting services with Mackenzie Shea, Inc. ("MSI"), pursuant to which
MSI will provide financial and business consulting services to the Company
for a term of 24 months and will be paid $6,000 per month. The agreement may
be cancelled on 30 days notice. MSI has been issued 250,000 shares of Common
Stock and warrants to purchase 500,000 shares of Common Stock for $.25 per
share. If MSI fails to provide the services provided for in the MSI
engagement agreement, the Company may redeem certain of its warrants issued
to MSI for nominal consideration. MSI may appoint one director to the
Company. In addition, the Company has entered into an agreement for business
consulting services with Morgan, Evan & Company, Inc. ("Morgen"), pursuant to
which Morgen will support a private placement offering and provide financial
and business consulting services to the Company and will earn a quarterly
retainer fee of 35,000 shares of Common Stock for the first quarter and
30,000 shares of Common Stock for each subsequent quarter. In addition,
Morgen shall earn a fee of 6% of funds raised for the Company upon the
structuring of the private placement terms. Such fee will be payable at
closing of the private placement. Lastly, the Company may cancel this
agreement at any time by giving Morgen thirty days prior written notice.
There is no assurance, however, that such additional capital will be raised.
Due to significant losses and lower sales than forecast from the
Company's first Pink Panther CD-Rom title, the Company has experienced
significant cash flow shortages resulting in the Company substantially
reducing its staff, especially in its New York office where it went from 50
to three. In addition, the Company is attempting to further reduce its
expenditures. Evenso, unless the Company raises additional capital or its
revenues from operations dramatically increase, the Company will encounter
increased liquidity pressures that could result in a further material
disruption of its operations. There is no assurance, however, that such
additional capital will be available, or if available, whether it will be
available on terms acceptable to the Company.
Safe Harbor Statement
Statements which are not historical facts, including statements about the
Company's confidence and strategies and its expectations about new and
existing products, technologies and opportunities, market and industry
segment growth, demand and acceptance of new and existing products are
forward looking statements that involve risks and uncertainties. These
include, but are not limited to, product demand and market acceptance risks;
the impact of competitive products and pricing; the results of financing
efforts; the loss of any significant customers of any business; the effect of
-10-
<PAGE>
the Company's accounting policies; the effects of economic conditions and
trade, legal, social, and economic risks, such as import, licensing, and
trade restrictions; the results of the Company's business plan and the impact
on the Company of its relationship with its lenders.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) During the quarter ended September 30, 1997, the registrant did not
file any reports on Form 8-K.
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WANDERLUST INTERACTIVE, INC.
Dated: November 14, 1997 s/Jay Smith III
Jay Smith III
CEO (Chief Financial
Officer) and Secretary
-12-
WP51\CDKIDZ\10Q-SEPT.97
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 21,903
<SECURITIES> 0
<RECEIVABLES> 287,387
<ALLOWANCES> 23,500
<INVENTORY> 0
<CURRENT-ASSETS> 40,109
<PP&E> 2,067,707
<DEPRECIATION> 1,318,783
<TOTAL-ASSETS> 5,847,974
<CURRENT-LIABILITIES> 1,804,383
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0
0
<COMMON> 51,779
<OTHER-SE> 11,585,206
<TOTAL-LIABILITY-AND-EQUITY> 5,847,974
<SALES> 2,367
<TOTAL-REVENUES> 489,900
<CGS> 34,000
<TOTAL-COSTS> 1,306,587
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,924
<INCOME-PRETAX> (835,711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (835,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (835,711)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
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