SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000.
or
[ ] Transition report pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-22851
MASTERPIECE TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Washington 91-179-3053
(State or jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
455 Wards Corner Road
Loveland, OH 45140
513-831-6647
(Registrant's telephone number, including
area code)
(Former Address, 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 Exchange Act of 1934 during the
preceding 12 months (or for such that the
registrant was required to file such
reports), and (2) has shorter period been
subject to such filing requirements for the
past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY.
Indicate by check mark whether the
registrant has filed all documents and
reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares
outstanding of each of the issuer's classes
of common stock, as of the latest practicable
date.
As of June 30, 2000, approximately
5,672,416 shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
As of June 30, 2000, approximately
100,000 shares of the Registrant's Preferred
Stock, $.10 par value, were outstanding.
Part I - Financial Information.
Item 1. Financial Statements.
MASTERPIECE TECHNOLOGY GROUP, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, March 31,
2000 2000
------------------------------
<S> <C> <C>
Current Assets
Accounts Receivable $ 228,818 $ 447,491
Other Current Assets 238,757 303,531
------------------------------
Total Current Assets 467,575 751,022
------------------------------
Property and Equipment
Building and Improvements 257,786 257,786
Equipment, Furniture and Fixtures 834,787 834,787
------------------------------
1,092,573 1,092,573
Less Accumulated Depreciation 710,695 680,368
------------------------------
Total Property and Equipment 381,878 412,205
------------------------------
Other Assets
Capitalized Software Cost 6,416,374 6,532,125
Deposits and Other Assets 28,447 29,774
------------------------------
Total Other Assets 6,444,821 6,561,899
------------------------------
Total Assets $ 7,294,274 $ 7,725,126
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Overdraft $ 35,224 $ 72,720
Current Portion of Mortgage Note 1,131 1,131
Notes Payable - Banks 1,443,396 1,491,428
Notes Payable - Officers and Related Parties 64,299 1,402,375
Notes Payable - Others 994,691 1,247,171
Capital Lease Obligations - Current 49,048 49,048
Accounts Payable 1,086,958 1,096,824
Accrued Expenses 651,384 1,153,610
------------------------------
Total Current Liabilities 4,326,131 6,514,307
------------------------------
Long-Term Liabilities
Mortgage Payable - Bank (Less Current Portion) 150,275 150,550
Capital Lease Obligations (Less Current Portion) 26,732 35,842
------------------------------
Total Long-Term Liabilities 177,007 186,392
------------------------------
Stockholders' Equity
Common Stock, No Par Value; 50,000,000 Shares Authorized 5,672,416
and 5,672,416, Issued and Outstanding as of June 30, 2000 8,865 5,672
and March 31, 2000, respectively
Paid-in Capital 10,094,567 7,698,043
Accumulated Deficit (7,312,296) (6,679,288)
------------------------------
Total Stockholders' Equity 2,791,136 1,024,427
------------------------------
Total Liabilities and Stockholders' Equity $ 7,294,274 $ 7,725,126
==============================
</TABLE>
MASTERPIECE TECHNOLOGY GROUP, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended June 30,
----------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Sales $ 338,775 $ -
Cost of Sales 5,147 (21,602)
------------------- ------------------
Gross Profit 333,628 (21,602)
------------------- ------------------
Administrative Expenses
Payroll, Fees, Taxes and Related Benefits 303,277 169,251
Rent 18,490 -
Interest Expense 3,017 -
Professional Fees 444,125 -
Depreciation 33,635 -
Amortization 120,633 -
Utilities and Telephone 44,697 -
Travel and Entertainment 31,288 -
Other 28,821 -
------------------- ------------------
Total Administrative Expenses 1,027,983 169,251
------------------- ------------------
Loss from Operations (694,355) (190,853)
Other Income and (Expenses) 343 -
------------------- ------------------
Loss Before Taxes (694,012) (190,853)
Income Taxes - -
------------------- ------------------
Net Loss $ (694,012) $ (190,853)
=================== ==================
Net Loss Per Share $ (0.10) $ (0.01)
=================== ==================
</TABLE>
MASTERPIECE TECHNOLOGY GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three Months
Ended June 30,
2000
<S> <C>
Cash Flows From Operating Activities
Net Loss $ (694,012)
Reconciliation of Net Loss with
Cash Flows from Operations
Depreciation 33,635
Amortization 120,633
Stock Issued for Debt and Services 2,452,531
Changes In
Accounts Receivable 218,673
Other Current Assets 64,774
Deposits and Other Assets 1,327
Accounts Payable (9,866)
Accrued Expenses (502,226)
-----------------------
Cash Provided (Used) by Operations 1,685,469
-----------------------
Cash Flows From Investing Activities
Acquisition of Property and Equipment -
Capitalized Software Costs -
Payments of Notes Receivable -
-----------------------
Cash Used by Investing Activities -
-----------------------
Cash Flows From Financing Activities
Decrease in Bank Overdraft (37,496)
Decrease in Notes Payable (1,638,863)
Payments on Capital Lease Obligations (9,110)
Sale of Common Stock, Net of Cost -
------------------------
Cash Provided by Financing Activities (1,685,469)
-----------------------
Net Change in Cash -
Beginning Cash Balance -
------------------------
Ending Cash Balance $ -
</TABLE>
Financial Data Schedule is also attached as Exhibit 27.
Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations.
Accounts Receivable
No allowance for bad debts has been provided since management expects no
material losses.
Profit Sharing
The Company has a defined contribution 401(k) plan that covers substantially all
of its employees. Company contributions to the plan are discretionary and no
contributions by the Company were made in 2000. By its nature, the plan is
fully funded.
Going Concern
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, which contemplates continuation of the
company as a going concern. However, the Company has sustained substantial
operating losses in recent years. In addition, its working capital is in a
deficiency. At March 31, 2000 current liabilities exceeded current assets by
$5.8 million.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which is dependent upon the Company's success of its future operations.
Management believes that actions presently being taken to revive the Company's
operating and financing requirements provide the opportunity for the Company to
continue as a going concern. Some of these steps include:
a. Upon acquisition of Maplecrest Software by Masterpiece Technology Group, Inc.
("MPTG"), a debt was incurred due to past salary owed to three of the founders
of Maplecrest. An agreement has been reached between Masterpiece and these
individuals for full settlement for all past due salaries arising for all
periods between January 1, 1999 and May 1, 2000 by issuing to those individuals
free trading stock in MPTG, as soon as those shares are registered. There will
be 111,200 shares of free trading stock issued to satisfy $278,000 of salaries
that are shown as a liability on the balance sheet at March 31, 2000. This
transaction is expected to occur in the fiscal year ended March 31, 2001.
b. Upon acquisition of Maplecrest Software by MPTG, a debt was incurred
resulting from past unpaid payroll taxes and other bank and vendor debt. Three
of Maplecrest founders have agreed to sell off their personal stock to satisfy
approximately $992,000 in past debt. This transaction is expected to occur in
the fiscal year ended March 31, 2001. The agreed-upon debt is shown below:
Internal Revenue Service $600,000
Various Bank Debt 162,000
Equipment Leases 57,000
Various Credit Card Debt 173,000
c. MPTG has a current bank debt incurred over the past three years of
approximately $980,000 from past lines of credit. MPTG has recently turned over
800,000 shares of insider stock as collateral to this bank debt and the bank has
agreed to accept the stock and sell it to make payments towards the loans. As
this stock can be sold to make payments towards this debt, it will be.
Merger and Reorganization
Effective November 11, 1997 the Company U. S. Mining & Exploration, Inc. (USM)
pursuant to a Reorganization Agreement (the "Plan") with Global Digital
Information, Inc.(GDI) USM was acquired in a "reverse acquisition" and the
shareholders of GDI became the major shareholders in USM. The "Plan" as
approved by the Board of Directors provided for a 2 for 1 split of the then
owned shares of the USM, the issuance of additional shares (440,962) for cash
($52,500), and 276,410 shares issued for services rendered by officers and
directors of the Company. As part of the "Plan" the shareholders of GDI were
issued an additional 8,044,150 shares. The then existing Board of Directors
(USM) resigned and was replaced by directors from GDI.
The acquisition has been accounted for as a "Pooling of Interests" as per APB No
16. Since GDI came into existence on June 25, 1997, its results of operations
have been included in these financial statements. No adjustment is made to
prior years presented because GDI was not in existence at that time.
On June 22, 1999, Masterpiece Technology Group, Inc. (formerly Global Digital
Information, Inc.) merged with Masterpiece Medical and Del Crane Medical, with
1,900,000 shares of stock going to the shareholders of Masterpiece Medical.
This was accounted for using the pooling of interest method under APB No. 16.
The balance sheet as of March 31, 2000 includes the accounts of Masterpiece
Medical and Del Crane Medical. The activity for the entire year ended March 31,
2000 is included in the statement of income. Activity for 1999 and 1998 is not
available and, therefore, not included in the income statements for these two
years.
On November 18, 1999, Maplecrest Software Development, Inc. was acquired by MPTG
by issuing 1,850,765 shares of MPTG to the shareholders of Maplecrest. The
cost of acquisition was $3,123,166 (using a value as of the date of acquisition
of $1.6875 per share), and resulting in an increase in the valuation of
Maplecrest's capitalized software cost of $3,680,877, which is being amortized
over 15 years. This was accounted for using the purchase method under APB No.
16. The balance sheet as of March 31, 2000 includes the accounts of Maplecrest,
but the income statement only includes activities from the date of merger
(November 18, 1999) through year end.
On March 30, 2000, Claims Direct, Inc. was acquired by MPTG by issuing 550,000
shares of MPTG to the shareholders of Claims Direct. The cost of acquisition
was $962,500 (using a value as of the date of acquisition of $1.75 per share).
This purchase price did not result in any goodwill or other increase in
intangible assets. This was accounted for using the purchase method under APB
No. 16. The balance sheet as of March 31, 2000 includes the accounts of Claims
Direct, but the income statement does not include any activity since the merger
date was March 30, 2000.
The following summarized proforma (unaudited) information assumes the
acquisition had occurred on April 1, 1999.
Year Ended
March 31, 2000
Sales $ 3,348,173
Net Loss $(1,967,324)
The Company has several unsecured notes payable to officers and related parties.
The notes bear interest at rates ranging from 5.50% to 8% and are due on demand.
Interest expense on these notes was $67,535 for the year ended March 31, 2000.
The Company has several unsecured notes payable to various individuals. These
notes bear interest at rates ranging from 8% through 12% and are currently due.
The Company has several notes payable to banks. The notes are secured by
general assets of the Company. These notes bear interest at rates ranging from
8.5% through 10.5% and are currently due.
2000
Mortgage Loan Payable
The Company has a mortgage loan
payable with an interest rate of 8.5%, the
final balloon payment of which is due
December, 2026. $151,681
Less Current Portion 1,131
Long-Term Portion $150,550
The remaining maturities on the mortgage note payable are as follows:
Year Ended
March 31,
2001 $ 1,131
2002 109
2003 128
2004 137
2005 150
Thereafter 150,026
-------
$151,681
=======
The Company leases equipment under several capital lease obligations. They will
expire on various dates ranging from July, 2000 through June, 2005. The assets
and accumulated depreciation under capital leases at March 31, 2000 are as
follows:
Equipment $167,698
Accumulated Depreciation (83,472)
---------
$ 84,226
=========
NOTE 6 - CAPITAL LEASE OBLIGATIONS (Continued)
Minimum future payments under the capital lease obligations are as follows:
Year Ended
March 31,
2001 $ 60,858
2002 31,122
2003 5,885
2004 2,898
2005 724
---------
Total Payments 101,487
Interest Portion of
Minimum Payments (16,597)
---------
Present Value of Capital
Lease Obligations 84,890
Less Current Portion 49,048
--------
Long-Term Portion $35,842
========
The interest rates are based on the imputed rate of return and range from 10.3%
to 30.1%.
NOTE 7 - ADVERTISING EXPENSE
Advertising expense was $16,222 for the year ended March 31, 2000.
NOTE 8 - INCOME TAXES
The Company has no income tax provision for the years ended March 31, 2000, 1999
and 1998 due to net operating loss carryforwards.
The income tax effect of the temporary differences giving rise to the Company's
deferred tax assets as of March 31, 2000 is as follows:
Federal net operating loss carryforwards $ 2,274,400
Total deferred tax asset 773,296
Valuation allowance (773,296)
Net deferred tax asset $ -
============
<PAGE> 11
NOTE 8 - INCOME TAXES (Continued)
The Company records a valuation allowance due to the uncertainty of utilization
of net operating loss carryforwards. The change in the valuation allowance for
the year ended March 31, 2000 is as follows:
Balance April 1, 1999 $398,760
Increase in Non-Utilization of Net Operating
Loss Carryforwards 374,536
-------------
Balance, March 31, 2000 $773,296
=============
At March 31, 2000, the Company had unused net operating loss carryforwards for
income tax purposes available to offset future taxable income, if any, as
follows:
Expiring In
2008 $ 17,000
2013 567,000
2014 589,000
2020 1,101,400 (a)
(a) The Company's tax returns are filed through 1997. Due to net operating
losses no tax should be due. These loss carryforwards are estimated based upon
preliminary review of tax filings.
NOTE 9 - SHAREHOLDER SUIT
Subsequent to the previously disclosed merger, one of the original shareholders
of the Company requested the exercise of an option to purchase shares of the
Company's stock. Management has refused to honor the option and it has been
reported that the shareholder is going to sue for performance. The Company's
attorney's opinion is that any monetary impact from this suit to the Company
would be insignificant.
NOTE 10 - LEASE COMMITMENTS
Facilities
The Company leases one of its premises from an unrelated entity. The lease
expires in December, 2004. Under the agreement, the Company pays a monthly base
rent plus a portion of the building's operating expenses. The Company's
building lease expense was $224,263 for the year ended March 31, 2000.
NOTE 10 - LEASE COMMITMENTS (Continued)
Equipment
The Company leases equipment under several noncancellable operating leases. The
leases expire on various dates from December, 2000 through June, 2002. The
Company's equipment lease expense was $19,611 for the year ended March 31, 2000.
Minimum future annual rental payments under the noncancellable leases are as
follows for the years ending March 31:
Building Equipment
Rent Lease Total
2001 $ 233,916 $24,957 $ 258,873
2002 243,180 19,773 262,953
2003 252,444 7,074 259,518
2004 261,708 - 261,708
2005 201,492 - 201,492
Thereafter - - -
$1,192,740 $51,804 $1,244,544
NOTE 11 - EARNINGS (LOSS) PER SHARE
Earnings (loss) per share amount for the year ended March 31, 2000 is based upon
the average outstanding shares of the Company. Earnings (loss) per share has
been restated for prior years to reflect the effect of the reverse stock split.
The average number of shares outstanding was 3,068,397, 212,531 and 126,046 for
the years ended March 31, 2000, 1999 and 1998, respectively.
Part II - Other Information
Signatures
Pursuant to the requirements of the
Securities Exchange Act of 1934, the
registrant has duly caused this report to be
signed on its behalf by the undersigned there
unto duly authorized.
Masterpiece Technology Group, Inc.
(Registrant)
Date /s/ Newell Crane
President
