FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT UNDER 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
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission file number: 0-10944
MTX INTERNATIONAL, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-0729290
------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7901 E. Belleview Ave., Suite 50, Englewood, Colorado 80111
----------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(303) 770-9840
-------------------------------------------------
(Registrants telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for at least 90
days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class of Securities
(as of March 31, 1997)
-----------------------------
Common Stock, $0.01 par value
10,774,398
Transitional Small Business Format (Check One)
Yes [ ] No [X]
<PAGE>
FORM 10-QSB
MTX INTERNATIONAL, INC.
INDEX
Page
Management's Discussion and Analysis or Plan of Operation 3
Legal Proceedings 4
Defaults Upon Senior Securities 4
Submission of Matters to a Vote of Security Holders 4
Other Information 4
Exhibits and Reports on Form 8-K 4
Financial Statements
Condensed Balance Sheet (Unaudited) - December 31, 1996 5
Condensed Statement of Operations (Unaudited) Three Months Year
Ended December 31, 1996 and 1995 7
Condensed Statement of Changes in Cash Flows (Unaudited) for the
Three Months Ended December 31, 1996 and 1995 8
Notes to Condensed Financial Statements 9
Signatures 10
Exhibit 10.23 Modification to Employment Agreement for A.W. Blair 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The information required by Item 310(b) of Regulation S-B is included hereto
beginning on page 5.
Item 2. Management Discussion and Analysis of Plan of Operation
Capital and Source of Liquidity:
For the six months ended March 31, 1997, the Company experienced a net loss from
operating activities of $34,902 as compared to net loss of $29,290 for the same
period in 1996. Depreciation and amortization expenses remained relatively
unchanged for this period. Accounts receivable decreased from $86,775 at
September 30, 1996 to $71,168 at March 31, 1997. Inventories increased from
$65,305 at September 30, 1996 to $68,912 at March 31, 1997. An employee
receivable, which reflects draws against commissions, decreased from $1,270 at
September 30, 1996 to zero at March 31, 1997. Software acquisition and
development costs, net of amortization, decreased from $174,749 at September 30,
1996 to $169,052 at March 31, 1997. Prepaid expenses decreased from $6,670 at
September 30, 1996 to zero at March 31, 1997. Refundable deposits decreased from
$4,318 at September 30, 1996 to $3,983 at March 31, 1997. Other assets remained
relatively the same for this period. For the period ended March 31, 1997,
accounts payable and accrued liabilities decreased from $207,474 at September
30, 1996 to $180,402 at March 31, 1997. The notes payable totaling $83,333 are
to shareholders and are classified as current for the demand notes and the
amount due in the next 12 months, or long term for the amount due after 12
months. A substantial portion of the notes payable are for loans made to the
Company by its President and CEO. Other liabilities remained relatively the same
during the period. Ending cash decreased from $26,732 at September 30, 1996 to
$15,324 at March 31, 1997.
Results of Operations:
Total revenues decreased $60,838 or 29% and $103,365 or 25% for the three and
six months ended March 31, 1997 as compared with the same prior year periods.
Service and consulting revenue decreased from $106,385 for the three months
ended March 31, 1996 to $73,426 for the three months ended March 31, 1997. For
the six months ended March 31, 1997 there was a decline of $ 32,777 from the
same prior year period. This decrease is the result of reduced software sales.
Cost of sales, service and consulting decreased to 9% and 10% of revenue for the
three and six months ended March 31, 1997 as compared to 10% and 11% of revenue
for the same prior year periods. Marketing expenses for the three months ended
March 31, 1997 increased to 50% from 49% for the same prior year period while
they decreased from 50% for the six months ended March 31, 1996 to 49% for the
six months ended March 31, 1997. General and administrative expenses increased
to 53% for the three months ended March 31, 1997 from 51% for the same prior
year period and to 60% for the six months ended March 31, 1997 from 46% for the
same prior year period.
The total of marketing, general and administrative and all other expenses
decreased $66,515 or 28% and $81,558 or 18% for the three and six months ended
March 31, 1997 as compared to the same prior year periods. This decrease is the
result of management efforts to reduce expenses.
Earnings increased to a loss of $38,519 and decreased to a loss of $93,829 for
the three and six months ended March 31, 1997 as compared to a loss of $60,881
and $88,309 for the same prior year periods. The reduced loss for the three
month period reflects current efforts by management to improve the profitability
of the Company, despite a continuing decline in revenue. The Company has
replaced an employee who had previously served as the Company's sales manager
and recruited a new Controller. Direct sales personnel have been retained by the
Company as non-affiliated independent contractors who are paid on a commission
basis only. Management has taken steps to increase sales while controlling
costs. Work continues on a new product called MTX Enterprise Accounting. The
Company plans to release this new product during the next fiscal quarter ending
June 30, 1997.
3
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No legal proceedings are required to be disclosed hereunder.
Item 2. Changes In Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Effective January 2, 1997, the Board of Directors of the Company appointed A. W.
Blair Chief Executive Officer, replacing Gerald J. Novreske, who as previously
reported, had resigned as an officer of the Company effective December 31, 1996.
Mr. Dale R Hunzelman resigned from the Board of Directors effective January 23,
1997. Mr. Gerald J. Novreske resigned from the Board of Directors effective
March 31, 1996. Both Mr. Novreske and Mr. Hunzelman advised the Company that
their resignations were for personal reasons, and both expressed best wishes to
management for the future success of the Company.
Mr. Blair's employment agreement was modified on January 2, 1997 to increase his
annual base salary to $105,000. However, only 50% ($52,500 per year) will be
paid until such time as the Company has reported profitable quarterly operating
results, or a change in control of the Company occurs. At either such time the
salary will be restored to $105,000 per year. In addition, a performance
incentive of 8% of annual pre-tax operating income will be paid to Mr. Blair in
lieu of a previously defined 20% consulting commission as provided under the
original terms of his employment agreement. The net effect of this modification
to Mr. Blair's compensation is to reduce his total compensation thereby further
reducing the Company's annual operating expense.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.23 Modification to Employment Agreement for A.W. Blair
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the quarter for which this
report is filed.
4
<PAGE>
<TABLE>
<CAPTION>
MTX INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
(Unaudited)
ASSETS
March 31,
1997
--------
<S> <C>
Current assets:
Cash ............................................................ $ 15,324
Accounts receivable - trade, less allowance
for doubtful accounts of $132 at 3/31/97 ..................... 71,168
Employee receivable ............................................. --
Current portion of note receivable .............................. 240
Inventory ....................................................... 68,912
Prepaid expenses ................................................ --
---------
Total current assets ................................... 155,644
Property and equipment, at cost:
Computer equipment .............................................. 64,359
Furniture and equipment ......................................... 140,829
Leasehold improvements .......................................... 676
Rental equipment ................................................ 6,056
---------
211,920
Less accumulated depreciation ................................... 198,818
---------
Net property and equipment ............................. 13,102
Other assets:
Software acquisition and development costs, net
of amortization of $614,293 at 3/31/97 ....................... 169,052
Refundable deposits ............................................. 3,983
---------
Total other assets ..................................... 173,035
---------
$ 341,781
=========
See accompanying notes.
5
<PAGE>
<CAPTION>
MTX INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
1997
--------
<S> <C>
Current liabilities:
Notes payable shareholder - current portion ..................... $ 80,203
Accounts payable ................................................ 145,822
Accrued liabilities ............................................. 34,580
Deferred revenue ................................................ 71,312
---------
Total current liabilities .............................. 331,917
Long term debt - shareholder ............................................. 3,130
Stockholders' equity:
Common stock, $.01 par value; 40,000,000 shares
authorized, 10,774,398 shares issued and
outstanding .................................................. 107,744
Stock subscriptions ............................................. 10,000
---------
Additional paid-in capital ...................................... 2,225,459
Accumulated deficit ............................................. (2,313,976)
---------
29,227
Less 68,160 common shares in treasury, at cost .................. 22,493
---------
Total stockholders' equity ............................. 6,734
$ 341,781
=========
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
MTX INTERNATIONAL, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales ............................. $ 71,074 $ 85,830 $ 126,683 $ 196,824
Service and consulting ............ 73,426 106,385 167,306 200,083
Other ............................. -- 109 7 754
-------- -------- --------- ---------
144,500 192,324 293,996 397,661
Costs and expenses:
Costs of sales, service
and consulting .................. 13,272 19,996 28,390 45,510
Marketing ......................... 72,744 103,840 146,431 202,745
General and administrative ........ 76,885 98,949 176,675 185,699
Depreciation and amortization ..... 10,698 12,624 21,043 23,580
Research and development .......... 5,802 17,231 14,050 27,733
-------- -------- --------- ---------
179,401 252,640 386,589 485,267
-------- -------- --------- ---------
(Loss) from operations ..................... (34,901) (60,316) (92,593) (87,606)
Other income (expense):
Rental income ..................... -- -- 2,383 --
Interest income ................... -- 137 8 412
Interest expense .................. (3,618) (702) (3,627) (1,115)
Utilization of operating loss carry
forward ........................... -- -- -- --
-------- -------- --------- ---------
(3,618) (565) (1,236) (703)
Net income before income taxes ............. (38,519) (60,881) (93,829) (88,309)
Provision for income taxes ................. -- -- -- --
-------- -------- --------- ---------
Net income ................................. $ (38,519) $ (60,881) $ (93,829) $ (88,309)
-------- -------- --------- ---------
Earnings per share: ............... $ -- $ -- $ -- $ --
======== ======== ========= =========
</TABLE>
See accompanying notes.
7
<PAGE>
<TABLE>
<CAPTION>
MTX INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) before extraordinary item .............. $ (93,829) $ (88,309)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ...................... 21,043 23,580
(Increase) decrease in accounts receivable ......... 16,877 35,882
(Increase) decrease in inventory ................... (3,607) (481)
(Increase) decrease in note receivable ............. 75 --
(Increase) decrease in prepaid expenses ............ 6,670 7,806
(Increase) decrease in refundable deposits ......... 335 --
Increase (decrease) in accounts payable ............ 22,891 47,825
Increase (decrease) in accrued liabilities ......... (49,963) 1,683
Increase (decrease) in deferred revenue ............ (1,448) 25,092
Increase (decrease) in guarantee liability ......... -- (2,667)
--------- ----------
Total adjustments ............................... 12,873 138,720
--------- ----------
Net cash (used) provided by operating activities ......... (80,956) 50,411
Cash flows from investing activities:
Purchases of property and equipment ...................... -- (460)
Purchase and development of computer software ............ (13,785) (62,534)
--------- ----------
Net cash used in investing activities .................... (13,785) (62,994)
Cash flows from financing activities:
Borrowings from shareholder - current portion ............ 80,203 --
Borrowings from shareholder - long term portion .......... 3,130 --
Common stock subscribed .................................. -- 1,000
Repayment of officer loan ................................ -- (4,399)
--------- ----------
Net cash provided by financing activities ................ 83,333 (3,399)
Net increase (decrease) in cash ................................... (11,408) (15,982)
Cash at beginning of period ....................................... 26,732 60,492
--------- ----------
Cash at end of period ............................................. $ 15,324 $ 44,510
========= ==========
</TABLE>
See accompanying notes.
8
<PAGE>
MTX INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments necessary to present fairly MTX
International, Inc.'s financial position as of March 31, 1997 and the results of
operations and statement of cash flows for the three months and six months ended
March 31, 1997 and 1996.
2. Prior year costs of sales, service and consulting, and marketing expense,
have been restated to be consistent with expense classifications used for prior
year audited financial statements. This restatement does not affect gain or loss
from operations, net income or loss, or earnings per share.
3. Earnings per share have been computed using the weighted average number of
shares outstanding during each period (10,774,398 shares).
9
<PAGE>
SIGNATURES
MTX International, Inc.
-----------------------
Registrant
Date 8/28/97 By: /s/ A. W. Blair
-------------------------------------
President & Chief
Executive Officer
Date 8/28/97 By: /s/ Gary W. Williams
-------------------------------------
Gary W. Williams
Secretary
Date 8/28/97 By: /s/ Kevin J. Cox
-------------------------------------
Kevin J. Cox
Director
10
Modification to Employment Agreement for A.W. Blair
A.W. Blair's employment agreement is hereby revised as follows:
Section 1.1 Employment is revised to state that A. W. Blair is appointed
President & Chief Executive Officer; Sections 2.1 and 2.3 regarding Basic Salary
and Commissions, respectively, are revised as follows:
Section 2.1, basic salary is revised to $ 105,000 per year for the balance of
the term of the agreement. Effective January 1, 1997, only 50% of this amount,
$52,500 per year, shall be the basic pay. This reduced basic pay shall remain in
effect until such time as MTX has reported profitable quarterly operating
results, or a change in control of MTX occurs, in conformance with GAAP and SEC
rule and regulations. At either such time, the basic salary will be restored to
$105,000 per year, or as otherwise negotiated between A.W. Blair and MTX.
Section 2.3 Commissions, is replaced with Section 2.3 Bonus, A.W. Blair is
eligible to earn 8% of the annual pre-tax operating income of MTX as a
performance incentive. Payments will be made at the rate of 80% of the bonus
paid quarterly and the balance in full after completion of the certified audit
at September 30.
As further incentive for A.W. Blair to seek and actively support a significant
restructuring and re-capitalization of MTX through acquisition, merger, and/or
any other legal and viable means of raising increased working capital, MTX
agrees to pay A.W. Blair a bonus equal to 5% of the first $1.0 million dollars
of consideration, 4% of the next $1.0 million, 3% of the next $1.0 million, 2%
of the next $1.0 million and 1% of any amount in excess of $4.0 million unless
such bonus would violate securities law. This incentive obligation shall extend
for 24 months beyond the term of A.W. Blair's employment agreement for any and
all transactions that A.W. Blair may have actively initiated or participated in.
All other terms and conditions of the original Employment Agreement shall remain
unchanged.
The effective date of this modification shall be January 1, 1997.
The parties have executed this Agreement on January 2, 1997.
MTX International, Inc.
Employee:
/s/ A. W. Blair
------------------------------------
A. W. Blair
Approved:
(Mr. Brookhart was unavailable)
-------------------------------------
Jerry R. Brookhart, Director
/s/ Dale R. Hunzelman
-------------------------------------
Dale R. Hunzelman, Director
/s/ Gerald J. Novreske
-------------------------------------
Gerald J. Novreske, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MTX
INTERNATIONAL, INC.'S FINANCIAL STATEMENTS AT MARCH 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,324
<SECURITIES> 0
<RECEIVABLES> 71,540
<ALLOWANCES> 132
<INVENTORY> 68,912
<CURRENT-ASSETS> 155,644
<PP&E> 211,920
<DEPRECIATION> 198,818
<TOTAL-ASSETS> 341,781
<CURRENT-LIABILITIES> 331,917
<BONDS> 0
0
0
<COMMON> 107,744
<OTHER-SE> (78,517)
<TOTAL-LIABILITY-AND-EQUITY> 341,781
<SALES> 126,683
<TOTAL-REVENUES> 293,996
<CGS> 28,390
<TOTAL-COSTS> 386,589
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,440
<INTEREST-EXPENSE> 3,627
<INCOME-PRETAX> (93,829)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,829)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
