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, 1996
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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
- ---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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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 September 16, 1996
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Common Stock, par value $.01 per share 36,281,722
Transitional Small Business Disclosure Format (Check one): Yes No X
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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, 1996
Consolidated Statement of Change in Stockholders' Equity
Consolidated Statements of Operation
Consolidated Statements of Cash Flows
Notes to Financial Statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 1996
(in $'000)
ASSETS (unaudi
ted)
Current assets:
Cash 2,761
Accounts receivable; billed 8,228
unbilled 1,830
Prepaid expenses and other current assets 2,597
TOTAL CURRENT ASSETS 15,416
Property and equipment, net of accumulated 721
depreciation
Intangible assets, less accumulated amortization 15,230
Capitalized software development 681
TOTAL ASSETS 32,049
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 2,486
Accrued expenses 3,063
Taxes payable 4,737
Note payable on acquisition 2,100
Deferred income 4,034
Lease liabilities 61
Other current liabilities 250
TOTAL CURRENT LIABILITIES 16,731
Loans payable 8,993
Other long term liabilities 108
TOTAL LIABILITIES 25,832
Stockholders' equity
Common stock $.01 par value. Authorized shares
200,000,000,
issued shares 31,030,808 310
Additional paid in capital 52,724
Accumulated deficit (46,538)
Foreign currency translation adjustment (279)
TOTAL STOCKHOLDERS' EQUITY 6,217
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 32,049
The accompanying notes are an integral part of these
financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In $000 except share data)
Additional
Common Stock paid in Retained Transla Total
tion
stock amount capital Earnings Adjustment
Balances at April 30, 24,686,084 247 49,814 (46,865) 433 3,629
1996
Sale of common shares 1,021,111 10 490 500
Issuance of common
stock in conversion of 5,231,613 52 2,380 2,432
convertible debentures
Issuance of common
stock in compensation 92,000 1 40 41
for services
Net income for the 327 327
period
Translation adjustment (712) (712)
Balances at July 31, 31,030,808 310 52,724 (46,538) (279) 6,217
1996
Less Shares to be 584,810
issued
Shares issued and 30,445,998
outstanding
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended July 31
(in $'000)
1996 1995
(unaudited) (unaudited
)
REVENUES
Software products 1,430 3,353
Maintenance fees 2,475 2,047
Customer service fees 2,741 1,793
TOTAL REVENUE 6,647 7,193
COST AND EXPENSES
Costs of software products 213 693
Costs of maintenance 1,150 1,056
Costs of customer service 986 797
Selling, general and administrative 3,545 4,425
Amortization of Intangible assets 181 185
Depreciation 213 264
TOTAL COSTS AND EXPENSES 6,289 7,420
PROFIT/(LOSS) FROM OPERATIONS 358 (227)
Interest (expense) (32) (288)
NET PROFIT/(LOSS) 327 (515)
Net profit (loss) per share outstanding $0.01 ($0.03)
Net profit per share, fully diluted $0.01
Weighted average number of common shares outstanding 27,618,075 15,451,450
Weighted average number of common shares and common
share equivalent outstanding 50,184,006
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(in $ 000)
Three months
ended July 31,
1996 1995
Cash flow from operating activities
Net income (loss) 327 (515)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Capitalisation of software development (681) (712)
Depreciation and amortization 464 554
Changes in assets and liabilities net of effects from
acquisitions:
Increase (decrease) in accounts receivable (including (2,149) 1,574
unbilled)
Increase in other current assets (595) (92)
Decrease (increase) in accounts payable & accrued expense (718) 160
Increase (decrease) in payroll payable 124 (345)
Decrease in notes and loans payable (416) -
Increase (decrease) in deferred income 998 (519)
Decrease in other liabilities (11) (163)
Net cash used in (provided by) operating activities (2,657) 105
Cash flows from investing activities:
Cash paid for DESISCo less cash acquired - (844)
Proceeds from sales of fixed assets - 29
Net cash used in investing activities: - (815)
Cash flow from financing activities
Proceeds from notes payable and convertible debentures 5,060 -
Repayment of notes payable - (275)
Proceeds from issuance of common stock 500 803
Net cash provided in financing activities 5,560 528
Effect of exchange rate on cash (455) 63
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,448 (119)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 313 833
CASH AND CASH EQUIVALENTS - END OF PERIOD 2,761 714
Supplemental disclosure of cash flow information
Non-cash financing activities
Issuance of common stock in 2,432 357
conversion of debt
Issuance of common stock for compensation 41 -
The accompanying notes are an integral part of these financial
statements
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, 1996, included in the Company's Annual Report on form 10-KSB. 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. The net profit per share for the three months ended July 31, 1996 is
computed based upon the weighted average of common shares and common stock
equivalents outstanding. The net loss per share for the quarter ended July 31,
1995 is computed based upon the weighted average number of shares outstanding
excluding stock equivalents as they would be anti-dilutive.
3. Taxes payable comprise deductions plus estimated penalties and interest for
late payment.
4. 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, IBS-IV Trade Finance,
OpenTrade and TradeWizard. Abraxsys, IBS-90 and IBS-IV Trade Finance 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 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. By the end of the current financial year, Abraxsys will have
been ported to Microsoft Corporation's Windows NT operating system to offer a
fully functioning banking solution on the most popular emerging platform in the
industry. IBS-IV Trade Finance has reached the technological feasibility phase
and its development costs since acquisition from McDonnell Information Systems
("MDIS") have been capitalized, accordingly. 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 1,000 positions. 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 selling other companies' hardware and software products.
The Company accounts for revenue in conformity with Statements of Position
("SOP") 81-1.
The Company recognizes revenues from all 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 revenue 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 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-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
The Company has continued to build sales of its products to $6,647,000 for the
3 month period ending 31 July 1996 from $4,693,000 (an average quarterly rate
of 42% for FY96). This increase reflects the successful strategy of
concentrating on our existing clients for additional and on-going business,
which now represents 78% of our total revenue. To complement this focus of
activity on our existing client base, MTi has added new distribution channels
through signing strategic partnerships with niche industry market leaders such
as CSC and IDOM (a subsidiary of Deloitte Touche).
Software product sales on average in FY96 were $1,470,000 compared to $1,430,317
for the 3 month period ended 31 July 1996. This demonstrates that the
concentration on the client base and the partnership approach have not had any
adverse affect on software product sales. Indeed, the current pipeline for new
business stands at in excess of $40 million.
The cost of software products decreased to $213,096 for the 3 month period ended
31 July 1996 from a quarterly average of $649,589 for FY96. This reflects the
reduced amount of computer hardware that in the past we have delivered to
clients as part of a solution. Computer hardware generally has extremely low
margins and a negative cashflow and has been replaced by sales of products
built by the company (ie. software) which has a lower cost of sale, and far
reduced cashflow implications.
The maintenance revenue increased by 30% to $2,475,409 for the 3 months ended 31
July 1996 from a quarterly average of $1,896,000 during FY96. Maintenance
revenue provides sustainable annual income, which enables MTi to be less
affected by the peaks and troughs of new sales revenue, and enables MTi to plan
and manage its resources to better effect. The objective is to achieve a
position where new license sales are not the mainstay of the company.
Customer services fees increased by 42% to $2,741,274 for the 3 month ended 31
July 1996 from $1,931,000, being the quarterly average for FY96. This also
reflects the value of our client base, and that through concerted effort, new
revenue can be generated.
The cost of maintenance increased from $971,065, the quarterly average for
FY96, to $1,149,572 for the 3 months ended 31 July 1996. The cost for the
quarter has increased by only $178,507, however, the revenues have
significantly increased by $579,409. The cost of customer services has
increased from $955,906 quarterly average for FY96, to $986,393 for the 3 month
period ended 31 July 1996. Notably the company has achieved significant
productivity and profitability gains from this activity with costs rising only
$30,487 compared to a substantial revenue increase of $828,274.
Selling, general and administrative costs have decreased from $5,060,000 for the
quarterly average for FY96 to $3,545,383 for the 3 month period ended 31 July
1996 . The restructuring costs taken in the last quarter of FY96 and the
completion of operational unit integration have resulted in this quarters
numbers being a closer reflection of the real on-going costs in this category.
The company continues to work hard to control its cost base. However, as the
forecast growth manifests, there will be some increase in the cost base.
The company is reporting a $358,388 operating profit for the 3 month period
ended 31 July 1996 compared to an operating loss of $227,000 for the 3 month
period ended 31 July 1995. However, there were several adjustments made at the
end of the financial year FY96 which impacted Q1 last year, and therefore the
total operating loss of $10,965,000 when averaged equates to a realistic loss
per quarter of $2,741,250 in FY96. MTi maintains tight operational and
financial controls over all aspects of its business in order to properly plan
and administer its business.
The company incurs expenses in British pounds, Singapore dollars, US dollars,
French francs and German marks. Similarly revenues are invoiced in a variety of
currencies, the most significant are UK pounds, US dollars, German marks, French
francs and Swiss francs. The company does not engage in any hedging activities.
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 3 month period ended 31 July 1996 the company issued convertible debt
for a total consideration of approximately $5,060,000 and equity for a total
consideration of approximately $500,000. This was used to fund the working
capital requirements.
At 31 July 1996 the company had a working capital deficiency of approximately
$1,315,000 as compared to a working capital deficiency of $6,993,000 at 30 April
1996.
As at 16 September 1996 the company has received commitments from external
investors totalling $3,660,000. Had the full financing been closed by 31 July
the working capital deficiency would have been eliminated.
Since 31 July 1996 the company has fully repaid Digital Equipment Company
Limited, the former owner of the company's subsidiary, MTi Trading Systems
Ltd., all rescheduled acquisition payments. The tangible and intangible assets
pledged to Digital Equipment Company Limited as guarantee under the associated
stock purchase agreement and loan assignment has been released and all liens
have been lifted. Since this is the main operating company it now means that
MTi is both debt free and unencumbered and other forms of financing are now
available other than through equity.
The company's long term liquidity and its ability to continue as a going concern
will ultimately depend on the company's ability to realise sufficient revenue
from operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Matter involving Barrington Fludgate
On 26 July 1995, Fludgate commenced an action in the New York State Supreme
Court, New York County claiming breach of contract. The action claims
specific damages of an aggregate of $4,000,000 and additional unspecified
damages. The Company will interpose an answer to the complaint, which
includes a general denial, 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 certain
prior legal actions which were dismissed, there appears to be a meritorious
defense to the claim of Mr. Fludgate in this action.
3. Claim of Registration Rights for Unit Holders of the Company
In 1993 and 1994, 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,
pre May 15, 1995 reverse split ("Units"), subject to possible substantial
exercise price reduction pursuant to the anti-dilution provision of a
certain warrant agreement. The Private Placement terms provided for the
Company to use its best efforts to register the shares and the shares
underlying the Class "C" Warrants for Unit Holders. The Company filed a
Form S-3 Registration Statement to that effect in April of 1994. It was
compelled to withdraw the Registration Statement in April 1995 with the
understanding that it would refile a new registration for Unit Holders
within a reasonable time. The Company extended an offer to the Unit
Holders to issue two additional pre-split shares per Unit as compensation
for any damage they may have suffered due to delays in registering shares
subscribed and shares underlying Class "C" Warrants. A number of Unit
Holders have accepted the Company's offer and were issued such compensation
shares.
The Company is not a party to any other material litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27. Financial Data Schedule
Current reports on Form 8-K filed during the quarter ended July 31, 1996:
FORM REPORT DATE ITEM REPORTED FINANCIAL
STATEMENTS FILED
8-K June 18, 1996 5 & 7, asset acquisition None
8-K/A July 11, 1996 5 & 7, convertible debt financing None
8-K July 15, 1996 5 & 7, convertible debt financing None
8-K July 30, 1996 5 & 7, equity financing None
SIGNATURE
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 16, 1996
Management Technologies, Inc.
(Registrant)
By: /s/ Peter Morris
Peter Morris
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<LEGEND>
This schedule contains summary financial information extracted from consolidated
financial statements for the three months ended July 31, 1996 and 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> MANAGEMENT TECHNOLOGIES, INC.
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