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 March 31, 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.)
462 Broadway, New York, NY 10013
(Address of principal executive offices)
(Zip Code)
(212) 966-8887
(Registrant's telephone number, including area code)
(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 No X
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of May 1, 1997.
4,584,069 shares of common stock, par value $.01 per share.
Page 1 of 14
There is no Exhibit Index.
<PAGE>
WANDERLUST INTERACTIVE, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Balance Sheet - 3-4
March 31, 1997
Statements of Operations- 5
Three Months Ended March 31, 1996
and March 31, 1997, and Nine Months
Ended March 31, 1996 and March 31, 1997
Statement of Cash Flows - Nine 6-7
Months Ended March 31, 1996 and
March 31, 1997
Notes to Financial Statements 8-10
Item 2. Management's Discussion and Analysis 11-12
of Financial Condition and
Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote 13
of Security Holders
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Consolidated Balance Sheet
ASSETS
March 31,
1997
Current assets:
Cash and cash equivalents $ 763,221
Accounts receivable 250,317
Merchandise inventory 43,180
Costs and estimated earnings in
excess of billings on contracts
in progress 94,122
Prepaid expenses 48,335
--------
Total current assets 1,199,175
Fixed assets, net 1,005,521
---------
Other assets:
License rights, advance royalty 287,996
Security deposits and other 47,422
Patents and licenses, net 3,298,908
Goodwill, net 1,693,833
---------
5,328,159
---------
$7,532,855
=========
See notes to financial statements.
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Consolidated Balance Sheet (cont.)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
1997
Current liabilities:
Accounts payable and
accrued liabilities $ 952,785
Billings in excess of costs and
estimated earnings on contracts
in progress 43,445
Notes and loans payable 514,972
Convertible debentures 507,500
---------
Total current liabilities 2,018,702
---------
Due to officer/shareholder 80,000
---------
Commitments and contingency
Shareholders' equity:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
issued and outstanding, none
Common stock, $.01 par value;
authorized, 10,000,000 shares;
issued and outstanding,
4,574,069 45,741
Additional paid-in capital 11,258,245
Accumulated deficit (5,869,833)
----------
5,434,153
----------
$7,532,855
=========
See notes to financial statements.
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
Product $ - $ 68,312 $ - $ 106,312
Development
contracts - 199,800 - 199,800
Royalties - 180,837 - 437,224
--------- ---------- -------- ----------
- 448,949 - 743,336
--------- ---------- -------- ----------
Expenses:
Cost of
product sales - 50,042 - 100,084
Cost of
development
contracts - 281,421 - 281,421
Research and
development 288,530 478,925 742,558 2,003,645
Selling, general
and adminis-
trative 184,744 1,075,582 354,323 1,930,584
Interest expense
(income), net 9,781 (20,424) 21,729 (59,389)
--------- --------- --------- ---------
483,055 1,865,546 1,118,610 4,256,345
--------- --------- --------- ---------
Net loss $ 483,055 $1,416,597 $1,118,610 $3,513,009
========= ========= ========= =========
Net loss per
common stock
share $ .20 $ .33 $ .47 $ .89
========= ========= ========= =========
Weighted average
shares out-
standing 2,424,633 4,303,952 2,387,357 3,943,797
========= ========= ========= =========
See notes to financial statements.
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
<CAPTION>
Consolidated Statements of Cash Flows
Nine Months Ended
March 31
-----------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from
operating activities:
Net loss ($1,118,610) ($3,513,009)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization
and depreciation 58,092 441,947
Common stock issued
for services - 40,000
Change in:
Accounts receivable - (67,218)
Costs and estimated earnings
in excess of billings on
contracts in progress - (24,320)
Billings in excess of costs and
estimated earnings on contracts
in progress - (100,504)
Inventory - (43,180)
Accounts payable and accrued
liabilities 54,842 76,431
Other assets (54,500) 32,979
--------- --------
Net cash used in operating
activities (1,060,176) (3,156,874)
--------- ---------
Cash flows from investing
activities:
Purchase of fixed assets (183,259) (530,226)
Advances to subsidiary, prior
to acquisition - (387,500)
--------- ---------
Net cash used in investing
activities (183,259) (917,726)
Cash flows from financing
activities:
Issuance of common stock
and warrants, net of costs
of issuance 6,158,257 -
Payments on notes payable - (69,745)
Debt acquisition costs (1,847) -
--------- ---------
See notes to financial statements.
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
<CAPTION>
Consolidated Statements of Cash Flows (cont.)
Nine Months Ended
March 31
-----------------
1996 1997
---- ----
<S> <C> <C>
Net cash provided by (used in)
financing activities $6,156,410 ($69,745)
--------- ---------
Increase (decrease) in cash
and cash equivalents 4,912,975 (4,144,345)
Cash and cash equivalents,
beginning 721,968 4,907,566
========= =========
Cash and cash equivalents,
ending $5,634,943 $ 763,221
========= =========
Supplemental schedule of noncash operating and investing activities.
The Company acquired all of the stock of Western Technologies, Inc. and
certain assets and liabilities of Smith Engineering (a proprietorship), in
exchange for 800,000 shares of the Company's common stock. See Note 3.
The Company issued 8,000 shares of common stock in exchange for consulting
services valued at $40,000.
The Company issued 2,350 shares of common stock in settlement of $10,000 of
accounts payable.
</TABLE>
See notes to financial statements.
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. The consolidated financial statements as of March 31, 1997 and
for the three and nine month periods ending March 31, 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. These financial statements should be read in
conjunction with 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 to Stockholders incorporated by
reference in the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1996. The results of
operations for the three and nine months ended March 31, 1997
are not necessarily indicative of the results for the entire
fiscal year ending June 30, 1997.
2. Emergence from development stage:
During the third quarter of fiscal year end June 30, 1997, the
Company no longer considered itself to be in the development
stage. Prior thereto, the Company was considered to be in the
development stage since either its planned principal
operations had not commenced, or such operations had
commenced, but no significant revenue was derived therefrom.
3. Acquisition:
On February 4, 1997, the Company completed an acquisition
pursuant to an acquisition agreement among the Company,
Western Technologies, Inc. ("Western"), Smith Engineering, a
proprietorship ("Engineering") and Mr. Jay Smith, III ("Mr.
Smith"). The agreement provides for the sale of 100% of the
outstanding shares of stock of Western and certain assets and
certain liabilities of Engineering in exchange for 800,000
shares of the Company's common stock. An additional 600,000
shares of the Company's common stock may be issued if certain
events, relating to the Company's obtaining additional equity
capital, transpire. As part of the acquisition, a license
agreement was entered into between Western and Mr. Smith in
which Mr. Smith granted to Western the exclusive right to use
and market patents and license agreements owned by Mr. Smith.
The license agreement provides that 75% of the revenues from
such patents and licenses will be retained by Western and 25%
will be retained by Mr. Smith until Mr. Smith receives an
aggregate revenue from such patents and licenses of
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont.)
$2,000,000, at which time no further revenue will inure to Mr.
Smith and the patents and license agreements will be assigned
to Western.
Western is engaged in the invention and development (including
engineering and software development) of electronic designs,
technology, and software, principally for toys and electronic
games. Western also provides product development service to
manufacturers. Western is located in southern California.
The business combination will be accounted for using the
purchase method. The results of operations of Western for the
period from February 4, 1997 through March 31, 1997 are
included in the Company's statements of operations for the
nine and three months ended March 31, 1997.
The cost of the acquired enterprise is $4,000,000, which
represents 800,000 shares of common stock with an assigned
value of $5 each.
Acquired goodwill will be amortized over forty years using the
straight-line method.
Contingent issuance of common stock in the event of the
Company's obtaining additional equity capital will be
accounted for as an additional cost of the acquisition.
Supplemental pro forma information for the nine month periods
ended March 31, 1997 and 1996 are:
9 Months Ended
--------------
1997 1996
---- ----
Pro forma revenue $ 2,251,000 $ 3,816,000
Pro forma net (loss) $(4,480,000) $(2,524,000)
Pro forma earnings (loss)
per share $ (0.98) $ (0.76)
4. Convertible debentures:
The Company's convertible debentures are due May 19, 1997.
The Company is in the process of offering the debenture
holders the following options:
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements (cont.)
(a) conversion into shares of common stock at the rate of
$.60 per share, or
(b) extend the due date for one year and be given 200 shares
of common stock of the Company for each $1,000 so
extended.
If option (a) is exercised, 845,833 shares of common stock
would be issued. If option (b) is exercised, 101,500 shares
of common stock would be issued. The actual amount of shares
issued will depend upon how many holders exercise and which
option is exercised.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company's revenues increased to $448,949 for the three
months ended March 31, 1997 as compared to no revenues in the year
earlier period. The Company's revenues increased to $743,336 for
the nine months ended March 31, 1997 as compared to no revenues in
the year earlier period. These revenues were derived from product
sales, development contracts (from its acquired subsidiary) and
royalties during the current periods.
The Company increased costs of product sales and cost of
development contracts against corresponding revenues during the
current periods. Research and development increased substantially
(although it had begun to decline as a percentage for the third
quarter of Fiscal Year 1997) due to completion of the Company's
first product. Selling, general and administrative ("SG&A")
expenses increased to $1,075,582 for the third quarter of Fiscal
Year 1997 as compared to $184,744 for the third quarter of Fiscal
Year 1996. SG&A expenses increased to $1,930,584 in the current
nine month period as compared to $354,323 in the year earlier
period. This was due to commencement of marketing activities, move
to new offices and costs incurred relating to the acquisition of
Western in the current periods.
The Company incurred a net loss of $1,416,597 or $.33 per
share, for the third quarter of Fiscal Year 1997, as compared to
$483,055 or $.20 per share for the third quarter of Fiscal Year
1996. The Company incurred a net loss of $3,513,009, or $.89 per
share for the nine months ended March 31, 1997 as compared to
$1,118,610, or $.47 per share for the nine months ended March 31,
1996. This increased net loss is due to increased development
activities, research and development activities and SG&A expenses
during the current periods.
Financial Condition
The Company had a working capital deficit at March 31, 1997 of
$819,527 as compared to working capital of $4,287,387 at June 30,
1996. The Company's current ratio was .59 to 1 at March 31, 1997
as compared to 7.8 to 1 at June 30, 1996.
The Company used cash for operating activities in the amount
of $3,156,874 during the nine months ended March 31, 1997, as
compared to $1,060,176 of cash used in operating activities in the
nine months ended March 31, 1996. This was largely due to the
significantly increased net loss during the current period. Cash
used in investment activities for the first nine months of 1997 was
$917,726 as compared to cash used in investment activities of
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (cont.)
$183,259 in the year ago period. This was largely due to increased
purchases of equipment and advances to the Company's newly acquired
subsidiary during the current period. Cash used in financing
activities in the nine months ended March 31, 1997 was $69,745 as
compared to $6,156,410 of cash provided from financing activities
during the nine months ended March 31, 1996 largely due to the
Company's initial public offering of securities which occurred in
the year earlier period. As a result, the Company's cash and cash
equivalents decreased to $763,221 at March 31, 1997 from $5,634,943
at March 31, 1996.
The Company's convertible debentures in the principal amount
of $507,500 are due in May 1997. The Company does not anticipate
being able to repay these debentures when due without raising any
additional capital, of which there is no assurance. As a result,
the Company will likely default on the payment of these debentures.
In order to avoid or cure such a default, the Company has offered
an exchange offer to holders of such debentures. See Note 4 to
financial statements.
Due to significant losses and lower sales than forecast from
the Company's first product, it has substantially reduced its
staff, especially in its New York office where it went from 50 to
approximately thirteen. In addition, the Company is attempting to
further reduce its expenditures. Even so, unless the Company
raises additional capital or its revenues from operations
dramatically increase, the Company may encounter liquidity
pressures that could result in a material disruption of its
operations.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On February 18, 1997, at the Company's Annual Meeting of
Shareholders, the Company's shareholders elected management's slate
of directors, which included Ms. Catherine Winchester and Messrs.
Richard S. Kalin and Jay Smith, III. Ms. Winchester received
3,191,489 votes for and 33,135 votes against. Mr. Kalin received
3,191,489 votes for and 33,135 votes against. Mr. Smith received
3,191,489 votes for and 33,135 votes against. In addition, the
Company's shareholders approved the Company's 1996 Stock Option
Plan by a vote of 1,850,350 votes for and 116,074 votes against.
Item 6. Exhibits and Reports on Form 8-K
(b) During the quarter ended March 31, 1997, the registrant
filed a report on Form 8-K dated February 18, 1997 under Item 2
announcing its acquisition of all of the outstanding shares of
stock of Western Technologies, Inc.
<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: May 20, 1997 s/Catherine Winchester
Catherine Winchester
President (Principal Financial
Officer)
cdkidz\10q-mar.97
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 763,221
<SECURITIES> 0
<RECEIVABLES> 250,317
<ALLOWANCES> 0
<INVENTORY> 43,180
<CURRENT-ASSETS> 1,199,175
<PP&E> 2,125,872
<DEPRECIATION> 1,120,352
<TOTAL-ASSETS> 7,532,855
<CURRENT-LIABILITIES> 2,018,702
<BONDS> 0
0
0
<COMMON> 45,741
<OTHER-SE> 5,388,412
<TOTAL-LIABILITY-AND-EQUITY> 7,532,855
<SALES> 743,336
<TOTAL-REVENUES> 743,336
<CGS> 381,505
<TOTAL-COSTS> 3,934,229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,513,009
<INTEREST-EXPENSE> (59,389)
<INCOME-PRETAX> (3,513,009)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,513,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,513,009)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.89)
</TABLE>
