SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-17206
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Management Technologies, Inc.
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(Exact name of Registrant as specified in its Charter)
New York 13-3029797
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(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
1
630 Third Avenue
New York, New York 10017
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(Address of principal executive offices)
(212) 983 5620
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(Registrant's telephone number)
(Former Name, Former Address and Former Fiscal Year, if changed
since last Report)
Check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during
the past 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
---
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of
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September 15, 1995
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Common Stock, par value $.01 per share 15,651,067
Transitional Small Business Disclosure Format (Check one): Yes
No X
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2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein are
unaudited, but reflect all adjustments that, in the opinion of
management, are necessary to provide a fair statement of the
results for the periods covered. All such adjustments are of a
normal recurring nature.
Index to Financial Statements (Unaudited):
Consolidated Balance Sheet as of July 31, 1995
Consolidated Statement of Change in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Financial Statements
3
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(in $'000)
July 31 April 30,
1995 1995
ASSETS (unaudited)
Current assets:
Cash 551 833
Accounts receivable; billed 1,870 4,655
2,792 1,618
unbilled
Prepaid expenses and other current 1,885 1,803
assets
TOTAL CURRENT ASSETS 7,098 8,909
Property and equipment, net of accumulated 1,509 1,810
depreciation
Intangible assets, less accumulated 14,142 14,663
amortization
Capitalized software development 711
Other assets 0 1,839
4
TOTAL ASSETS 23,460 27,221
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 3,162 2,898
Accrued expenses 4,411 4,545
Taxes payable 1,694 2,053
Note payable on acquisition 2,430 3,607
Deferred income 3,094 3,632
Lease liabilities 123
Other current liabilities 1,283 1,180
TOTAL CURRENT LIABILITIES 16,197 17,915
Loans payable 270
Non current note payable on acquisition 0 1,766
Other long term liabilities 227 1,521
TOTAL LIABILITIES 16,694 21,202
Stockholders' equity
Common stock $.01 par value. Authorized
shares, 200,000,000
issued shares 16,362,732 160 140
Additional paid in capital 43,613 42,472
Accumulated deficit (36,578) (36,063)
Foreign currency translation adjustment (429) (530)
TOTAL STOCKHOLDERS' EQUITY 6,766 6,019
5
TOTAL LIABILITIES AND STOCKHOLDERS' 23,460 27,221
EQUITY
The accompanying notes are an integral part of these financial
statements
6
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(In $000 except share data)
Additio
nal
Common Stock paid in Retaine Transla Total
d tion
stock amount capital Earning Adjustm
s ent
Balances at April 14,540,169 140 42,472 (36,063) (530) 6,019
30, 1995
Sales of common 839,429 9 523 532
shares
Issuances of common
stock in conversion 271,469 3 377 380
of debt
7
Shares subscribed 711,665 8 241 249
but not issued
Net income (loss) (515) (515)
for the year
Translation 101 101
adjustment
Balances at July 16,362,732 160 43,613 (36,578) (429) 6,766
31, 1995
Less shares to be 711,665
issued
Total issued and 15,651,067
outstanding at
July 31, 1995
The accompanying notes are an integral part of these financial
statements
8
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in $'000)
Three months ended July
31,
1995 1994
(unaudited) (unaudited)
Revenues
Software products 3,353 312
Maintenance fees 2,047 354
Customer service fees 1,793 151
TOTAL REVENUE 7,193 817
Cost and expenses
Costs of software products 693 6
Costs of maintenance 1,056 266
Costs of customer service 797 89
Selling, general and 4,425 1,201
administrative
Write off of acquired research 7,000
and development
9
Amortization of Intangible 185 16
assets
Depreciation 264 26
TOTAL COSTS AND EXPENSES 7,420 8,604
LOSS FROM OPERATIONS (227) (7,787)
Write down of investment in affiliate (1,112)
Interest (expense) (288) (20)
NET LOSS (515) (8,919)
Net profit loss per share outstanding (0.03) (1.90)
Weighted average number of common shares 15,451,450 4,697,042
outstanding
The accompanying notes are an integral part of these financial
statements
10
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(in $ 000)
Three months ended July
31,
1995 1994
(unaudited) (unaudited)
Cash flow from operating activities
Net income (loss) (515) (8,919)
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities
Capitalization of software development (712)
Write off investment in affiliate 0 647
Depreciation and amortization 554 47
Write down of acquired research and 7,000
development
Changes in assets and liabilities net
of effects from acquisitions:
(Increase) Decrease in accounts 2,756 (360)
receivable
(Increase) Decrease in unbilled (1,182) (67)
accounts receivable
(Increase) Decrease in other current (92) (329)
assets
11
Increase (Decrease) in accounts 297 786
payable
Increase (Decrease) in accrued (137) (190)
expenses
Increase (Decrease) in payroll taxes (345) 158
payable
Increase (Decrease) in notes and 0 1,200
loans payable
Increase (Decrease) in deferred (519) 200
income
Increase (Decrease) in lease (163) 17
liabilities
Net cash provided by (used in) operating (58) 190
activities
Cash flows from investing activities:
Payment for Winter Partners net of cash (6,694)
acquired
Payment for DESISCo net of cash acquired (844)
Proceeds from disposal/(purchase) of 29 (19)
fixed assets
Net cash provided (used in) from investing (815) (6,713)
activities:
Cash flow from financing activities
Proceeds from notes payable 0 1,000
Repayment of notes payable (275) (664)
Proceeds from issuance of common stock 803 7,635
12
Net cash provided in financing activities 528 7,971
Effect of exchange rate on cash 63 25
INCREASE IN CASH AND CASH EQUIVALENTS (282) 1,473
CASH AND CASH EQUIVALENTS - BEGINNING OF 833 190
PERIOD
CASH AND CASH EQUIVALENTS - END OF PERIOD 551 1,663
Supplemental disclosure of cash flow
information
Cash paid during the fiscal quarter for 20
interest
Non-cash financing activities
Issuance of common stock in conversion 357
of subordinated debt
The accompanying notes are an integral part of these financial
statements
13
Notes to Financial Statements:
1. The accompanying consolidated financial statements should be
read in conjunction with the Company's financial statements for
the fiscal year ended April 30, 1995, included in the Company's
Annual Report on form 10-KSB, as amended. In the opinion of
management, the interim statements reflect all adjustments which
are necessary for a fair statement of the results of the interim
period presented. The interim results are not necessarily
indicative of the results for the full year.
2. Net loss per share for the three months ended July 31, 1995
is computed based upon the weighted average number of common
shares outstanding and excludes common stock equivalents as they
would be anti-dilutive.
3. Majority owned affiliate: At the balance sheet date,
NPSC was a majority owned but not controlled affiliate of the
Company and is carried and reported by the equity method. The
Company does not have a controlling voting power commensurate
with its equity ownership and may be diluted by NPSC sales of
common equity. The balances in the Company's investment in NPSC
and in receivable from NPSC were entirely written off in the year
ended April 30, 1995.
4. Taxes payable comprise payroll deductions plus estimated
penalties and interest for late payment.
14
5. The Company follows the practices set out in Financial
Accounting Standards Board statement 52 in translating the
operations, assets and liabilities of entities whose accounts are
denominated in foreign currencies.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
The Company's principal products are IBS-90, Abraxsys,
OpenTrade and TradeWizard. Abraxsys and IBS-90 are back office
international banking software products running on mid range
computer systems. Abraxsys and IBS-90 have been installed at
approximately 75 locations in over 30 countries. Abraxsys is a
complete re-development of IBS-90 and is now marketed as the
Company's prime offering to banks to computerize their back
office operation. Abraxsys has reached the technological
feasibility phase during the current quarter and its development
costs during the quarter ended July 31, 1995 have been
capitalized, accordingly. Abraxsys is written in the industry
standard C language and runs on a variety of platforms and
operating systems, the most significant of which is UNIX.
OpenTrade is a software product that provides a platform for
distributing real-time financial information within the trading
room environment. OpenTrade is used by 50 customers supporting
6,000 trading positions. TradeWizard is an advanced software
product for the integration of information and applications at
the users' desktop. It is installed at some 500 positions.
15
TradeWizard has reached the technological feasibility stage
during the current quarter and its development costs in the
quarter ended July 31, 1995 have been capitalized, accordingly.
The Company also markets and licenses its ManTec line of
integrated software packages for financial institutions through
an agent. The Company no longer directly supports its ManTec
product line. The Company's agent provides support to certain
clients. The ManTec product line runs on IBM and IBM-compatible
mainframe computers.
The Company's revenues consist of license fees for the
Company's software components, maintenance fees and customer
service fees. In addition, the Company earns revenues from the
selling other companies' hardware and software products. The
Company accounts for revenue in conformity with Statements of
Position (``OP'') 91-1 and 81-1.
In accordance with SOP 91-1, revenue from IBS-90 and
Abraxsys license fees are recognized upon delivery to the
customer, provided no significant vendor obligations remain and
collection of the resulting receivable is deemed probable.
The Company recognizes revenues from its OpenTrade and
TradeWizard products according to the percentage of completion
method as costs are incurred (cost to cost basis) in conformity
with SOP 81-1. A prudent estimate is made of the profit
attributable to work completed and is recognized once the outcome
of the contract can be assessed with reasonable certainty. If
the estimate indicates a loss, the entire loss is accrued
16
immediately. The amount by which revenue exceeds billings to
customers is shown as unbilled accounts receivable.
Maintenance revenues are recognized on an incremental basis
over the period of the contract, the unrecognized portion is
recorded as deferred income. Customer service revenues are
recognized as revenue as work is performed and invoiced by the
Company. The Company's contracts with its customers typically
provide for payments to be made pursuant to specified schedules,
some of which payments are received prior to delivery to the
customer. Such payments received prior to delivery are not
recognized by the Company as revenue, but are reflected as
deferred income on the Company's consolidated balance sheet.
Revenues recognized in accordance with SOP-91-1 or SOP-81-1 and
not yet invoiced are recorded as accrued income on the Company's
consolidated balance sheet.
Cost of software products consisted of the amortization of
capitalized software products, of the cost of third party
products included in the Company's contractual deliverables and
of agency commission incurred. Other costs of software products,
such as the costs of making copies from the product masters and
physical packing of the Company's software are immaterial. Costs
are allocated to maintenance and customer service revenues in
proportion to their respective revenues. Management believes
that such allocations are reasonable.
Comparison of fiscal quarters
17
The increase in revenues from $817,000 for the three month
period ending July 31, 1994 to $7,193,000 for the three month
period ending July 31, 1995 is primarily due to revenues of the
operating subsidiaries acquired during the fiscal year ended
April 30, 1995.
Costs of software products increased from $6,000 for the
three months ended July 31, 1994 to $693,000 for the three months
ended July 31, 1995 due to the incorporation of costs of third
party products delivered with the Company's products in the three
month period ended July 31, 1995 and a full quarter's
amortization of software recognized on the acquisition of the
operating subsidiaries purchased during the year ended April 30,
1995.
Cost of maintenance and customer services increased from
$266,000 for the three months ended July 31, 1994 to $1,056,000
for the three months ended July 31, 1995 mainly due to the
addition of the maintenance and customer service costs of the
operating subsidiaries acquired during the fiscal year ended
April 30, 1995.
Selling, general and administrative costs increased from
$1,201,000 for the three months ended July 31, 1994 to $4,425,000
for the three months ended July 31, 1995, mainly due to the
addition of the selling, general and administrative costs of the
operating subsidiaries acquired during the fiscal year ended
April 30, 1995. Selling, general and administrative costs as a
18
percentage of revenue decreased from 147% for the three months
ended July 31, 1994 to 62% for the three months ended July 31,
1995 due to greater operating efficiency realized through the
restructuring of the Company in the fiscal year ended April 30,
1995.
The Company's profit after costs of revenue, consisting of
total revenues minus costs of software products, costs of
maintenance and costs of customer service, was $4,647,000 for the
three month period ended July 31, 1995 as compared to $456,000
for the three month period ended July 31, 1994. This improvement
is a result of the gross contribution of the operating
subsidiaries acquired during the fiscal year ended April 30,
1995.
The Company's operating loss was $227,000 for the three
month period ended July 31, 1995 as compared to an operating loss
of $7,786,000 for the three month period ended July 31, 1994.
This improvement is a result of the contribution of the operating
subsidiaries acquired during the fiscal year ended April 30,
1995, and of the write off of acquired in-process development in
the amount of $7,000,000 in the three month period ended July 31,
1994. There was no such write off in the three month period
ended July 31, 1995.
The Company incurs expenses in British Pounds, Hong Kong
dollars, Singapore dollars and United States dollars. Similarly,
revenues are invoiced in a variety of currencies, the most
significant of which are British Pounds, United States dollars,
19
Deutsche Marks and Swiss Francs. The Company does not engage in
any hedging activity.
The Company is not aware of any current or expected future
impact as a result of new tax laws or the issuance of FASB
statements.
Liquidity and Capital Resources
During the three month period ended July 31, 1995 the
Company issued stock for a total consideration of approximately
$1,161,000 used to fund working capital requirements and in the
conversion of subordinated debt.
At July 31, 1995, the Company had a working capital
deficiency of approximately $9,099,000 as compared to a working
capital deficiency of $9,006,000 at April 30, 1995. Certain
liabilities formerly recorded as long term, have repayment dates
that are less than one year and consequently have been
reclassified, at July 31, 1995, as current.
The Company expects to fund continuing operations from
current revenues. It intends, however, to the extent required to
re-finance outstanding debt in fiscal 1996, to continue to sell
its securities directly to investors in private placements and it
may, in the future, attempt to arrange an offering through a
placement agent or underwriter.
20
Since July 31, 1995, the Company has sold its securities to
investors for an aggregate consideration of approximately
$1,250,000. The Company has agreed a revised repayment schedule
with Digital Equipment Co. Limited, the former owner of the
Company's subsidiary MTi Trading Systems Limited. Under the
revised schedule, the Company will make monthly payments,
completing the acquisition at the end of January 1996.
The Company's long-term liquidity and its ability to
continue as a going concern will ultimately depend upon the
Company's ability to realize sufficient revenues from operations.
The Company has pledged all accounts receivables of one of
its US subsidiaries and has agreed to pledge all of its UK,
Singapore and Honk Kong subsidiaries' accounts receivable, its
stock ownership in New Paradigm Software Corp. ("NPSC") and a
software product known as Genesis to secure a $950,000 promissory
note.
The Company has pledged all the tangible and intangible
assets of MTi Trading Systems Limited to Digital Equipment Co.
Limited to guarantee its performance under a certain stock
purchase agreement and loan assignment.
PART II
OTHER INFORMATION
21
Item 1. Legal Proceedings
Matter involving Barrington Fludgate v. MTI
On July 26, 1995, Fludgate commenced an action in the New York
State Supreme Court, New York County, claiming breach of contact
and a violation of New York State Labor Law. The action claims
specific damages of an aggregate of $3,500,000 and additional
unspecified damages. The Company has interposed an answer to the
complaint, which includes specific affirmative defenses as well
as a counterclaim.
The legal action in the New York State Supreme Court is in the
preliminary stages, and based upon the information provided by
the Company and the prior legal action which was dismissed in the
United States District Court, there appears to be a meritorious
defense to the claim of Mr. Fludgate in this action.
Claim of Howard Schraub
Howard Schraub instituted an action against the Company in the
New York State Supreme Court, New York County, for the sum of
$122,000. The Company has agreed to a tentative settlement
agreement with Mr. Schraub wherein the Company will pay the
amount due to him and, at its option, provide a portion of the
settlement amount in shares of common stock of the Company
which contain registration rights. The settlement has not yet
22
been finalized, and it is anticipated that the claim will be
settled prior to September 30, 1995.
Claim of Edelson Technology Partners, III ("Edelson")
Edelson instituted a suit in the New York State Supreme Court,
New York County, claiming the sum of $250,000 plus interest and
attorneys' fees. The basis of the suit was a promissory note
issued by the Company. The Company has entered into a settlement
arrangement with Edelson based upon the payment of the sum under
the Note due plus interest, and, in addition, Edelson has agreed
to provide consulting services for the Company. Edelson agreed
to suspend its suit as a result of the settlement arrangement.
Claim of Registration Rights for Unit Holders of the Company
The Company completed a Private Placement of units consisting of
one (1) share of Common Stock and three (3) Class "C" Warrants to
purchase three (3) shares of Common Stock at $1.19 per share in
1993 and 1994. The Private Placement terms involved registration
rights to the Unit Holders which further provided for the Company
to use its best efforts to register the shares and the additional
shares underlying the Class "C" Warrants for Unit Holders. The
Company filed a Form S-3 Registration Statement for the
underlying shares and was compelled to withdraw the Registration
Statement in April 1995 with the understanding that it would file
a new registration for Unit Holders within a reasonable time. A
number of Unit Holders have made claims against the Company,
alleging that the Company agreed to afford Unit Holders options
23
to purchase shares of Common Stock at a below market price as a
form of compensation to Unit Holders for losses occurring as a
result of the Company's not proceeding with the Registration of
their shares. The Company has issued an offer to Unit Holders to
issue to those Unit Holders who were included in the registration
statement which was withdrawn, two shares of the Company's common
stock per unit so that Unit Holders would be compensated for any
loss sustained as a result of the registration which was
withdrawn by the Company. The Company is awaiting a response
from the Unit Holders as to whether or not they will agree to the
proposed settlement.
Claim of Sharon F. Merrill
Ms. Merrill received 250,000 shares of restricted stock as a
result of the acquisition of the shares of MTI Merken, Inc. in
1992. In that regard, the Company agreed to use its best efforts
to register Ms. Merrill's shares within 180 days from the
acquisition date. A claim has been made that the Company has not
used its best efforts and that Ms. Merrill has sustained losses
as a result of the price of the shares of MTI and, resultantly,
Ms. Merrill has claimed a loss of $450,000. The Company's
position is that it has used its best efforts with respect to the
registration of the shares owned by Ms. Merrill. The Company is
currently negotiating a resolution with Ms. Merrill.
The Company is not a party to any other material litigation.
Item 6. Exhibits and Reports on Form 8-K.
24
Exhibit 27. Financial Data Schedule
Current reports on Form 8-K filed during the quarter ended July
31, 1995:
Form Report Date Item Reported Financial
Statements
Filed
8-K April 28, 5, election of new None
1995 directors
8-K April 28, 5, annual None
1995 shareholders' meeting
8-K May 3, 1995 5, equity financing None
8-K May 9, 1995 4, change of None
accountant
8-K May 23, 5, equity financing None
1995
8-K June 16, 5, debt conversion None
1995
8-K August 9, 5, resignation of an None
1995 officer
SIGNATURE
25
Pursuant to the requirements of Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized:
Dated: New York, New York
September 19, 1995
Management Technologies, Inc.
(Registrant)
By: /s/ Nigel J. Cole
------------------
Nigel J. Cole
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Financial Statements for the quarter ended July 31, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1995 APR-30-1994
<PERIOD-END> JUL-31-1995 JUL-31-1994
<CASH> 551,000 833,000
<SECURITIES> 0 0
<RECEIVABLES> 5,637,000 7,234,000
<ALLOWANCES> 975,000 961,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,098,000 8,909,000
<PP&E> 2,000,000 2,355,000
<DEPRECIATION> 491,000 545,000
<TOTAL-ASSETS> 23,460,000 27,221,000
<CURRENT-LIABILITIES> 16,197,000 17,915,000
<BONDS> 0 0
<COMMON> 160,000 140,000
0 0
0 0
<OTHER-SE> 6,606,000 5,879,000
<TOTAL-LIABILITY-AND-EQUITY> 23,460,000 27,221,000
<SALES> 7,193,000 817,000
<TOTAL-REVENUES> 7,193,000 817,000
<CGS> 2,546,000 361,000
<TOTAL-COSTS> 7,420,000 8,603,000
<OTHER-EXPENSES> 0 1,112,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 288,000 20,000
<INCOME-PRETAX> (515,000) (8,919,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (515,000) (8,919,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (515,000) (8,919,000)
<EPS-PRIMARY> (0.03) (1.90)
<EPS-DILUTED> (0.03) (1.90)
</TABLE>
