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 January 31, 1997
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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 April 24, 1997
- -------------------------------------- ---------------------------------
Common Stock, par value $.01 per share 113,624,139
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):
2
Consolidated Balance Sheet
Consolidated Statement of Change in Stockholders' Equity
Consolidated Statements of Operation
Consolidated Statement of Cash Flows
Notes to Financial Statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
January 31, 1997
(in $'000)
ASSETS (unaudited)
Current assets:
Cash 514
Accounts receivable; billed 5,483
unbilled 542
Prepaid expenses and other current assets 719
TOTAL CURRENT ASSETS 7,257
Property and equipment, net of accumulated depreciation 804
Intangible assets, less accumulated amortization 14,756
Capitalized software development 1,230
Other assets 294
3
TOTAL ASSETS 24,341
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 3,200
Accrued expenses 1,829
Taxes payable 5,589
Deferred income 10
Other current liabilities 410
TOTAL CURRENT LIABILITIES 11,039
Loans payable 4,915
TOTAL LIABILITIES 15,954
Stockholders' equity
Common stock $.01 par value. Authorized shares 200,000,000,
issued shares 100,109,089 1,001
Additional paid in capital 57,243
Accumulated deficit (49,639)
Foreign currency translation adjustment (218)
TOTAL STOCKHOLDERS' EQUITY 8,387
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 24,341
The accompanying notes are an integral part of these financial statements
4
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In $000 except share data)
Additio
nal
Common Stock paid in RetainedTranslatio Total
n
stock amount capital EarningsAdjustment
Balances at October 31, 56,216,081 562 54,461 (48,404) (1,406) 5,213
1996
Issuance of common
stock in conversion of 43,893,008 439 2,782 3,221
convertible debentures
Net income for the (1,235) (1,235)
period
Translation adjustment 1,188 1,188
5
Balances at January 100,109,089 1,001 57,243 (49,639) (218) 8,387
31, 1997
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended January 31
(in $'000)
1997 1996
(unaudited) (unaudited)
REVENUES
Software products 424 1,301
Maintenance fees 1,313 1,795
Customer service fees 2,549 2,716
TOTAL REVENUE 4,287 5,812
COST AND EXPENSES
Costs of software products 84 590
Costs of maintenance 397 754
Costs of customer service 998 1,243
6
Selling, general and administrative 3,673 3,507
Amortization of Intangible assets 185 181
Depreciation 97 210
TOTAL COSTS AND EXPENSES 5,436 6,485
LOSS FROM OPERATIONS (1,149) (673)
Interest expense (85) (118)
NET LOSS (1,235) (791)
Net loss per share outstanding ($0.02) ($0.04)
Weighted average number of common shares outstanding 78,162,585 20,123,028
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended January 31
(in $'000)
7
1997 1996
(unaudited) (unaudited)
REVENUES
Software products 4,189 5,221
Maintenance fees 5,390 5,577
Customer service fees 7,726 5,794
TOTAL REVENUE 17,305 16,592
COST AND EXPENSES
Costs of software products 442 1,809
Costs of maintenance 2,180 2,925
Costs of customer service 3,798 2,914
Selling, general and administrative 12,510 13,658
Amortization of Intangible assets 550 550
Depreciation 236 717
TOTAL COSTS AND EXPENSES 19,718 22,573
LOSS FROM OPERATIONS (2,413) (5,980)
Interest (expense) (360) (580)
NET PROFIT/(LOSS) (2,774) (5,496)
Net loss per share outstanding ($0.06) ($0.31)
8
Weighted average number of common shares outstanding 49,881,492 17,474,416
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(in $ 000)
Nine months ended
January 31,
1997 1996
Cash flow from operating activities
Net income (loss) (2,774) (4,707)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Write down of investment in affiliate - (923)
Capitalization of software development (1,230) -
Depreciation and amortization 855 1,116
Other (405) -
Changes in assets and liabilities net of effects from
acquisitions:
Decrease in accounts receivable (including 1,885 1,503
unbilled)
Decrease in other current assets 1,283 560
Decrease in accounts payable & accrued expense (1,239) (3)
Increase in payroll payable 976 810
Decrease in notes and loans payable (2,564) -
9
Decrease in deferred income (3,025) (519)
Decrease in other liabilities (328) (163)
Net cash used in (provided by) operating activities (6,566) 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
Net proceeds from notes payable and convertible debentures 6,916 -
Repayment of notes payable - (275)
Proceeds from issuance of common stock 500 803
Net cash provided in financing activities 7,416 528
Effect of exchange rate on cash (649) 63
INCREASE IN CASH AND CASH EQUIVALENTS 201 (119)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 313 833
CASH AND CASH EQUIVALENTS - END OF PERIOD 514 714
Supplemental disclosure of cash flow information
Non-cash financing activities
Issuance of common stock in 7,246 357
conversion of debt
10
Issuance of common stock for compensation - -
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 loss per share for the periods ended January 31, 1996 and 1997,
respectively, 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.
11
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
12
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.
13
Comparison of fiscal quarters
Total revenues decreased to $4,287,000 from $5,812,000 for the three period
ended January 31, 1997 and 1996, respectively, and increased to $17,305,000 from
$16,592,000 for the nine month period ended January 31, 1995, respectively.
Revenue from sales of software product decreased to $424,000 and $4,189,000 from
$1,301 and $5,221,000 for the three month and nine month periods ended January
31, 1997 and 1996, respectively. The cost of software products decreased to
$84,000 and $442,000 from $590,000 and $1,809,000 for the three and nine month
periods ended January 31, 1996, respectively. This decrease in cost is largely
due to the decrease in sales of third party hardware products. Third party
computer hardware sales generally generate low contribution to profits.
The aggregate of maintenance fees and customer service fees decreased to
$3,862,000 from $4,511,000 the three month periods ended January 31, 1997 and
1996, respectively, and increased to $13,116,000 from $11,371,000 for the nine
month periods ended January 31, 1997 and 1996, respectively. Maintenance fees
and customer service fees provides sustainable recurrent revenues, which lessens
the impact of the peaks and troughs of software product revenue on the Company's
cashflow. The Company's objective is to achieve a position where new software
license revenue represents an a lower percentage of the Company's total revenue.
Gross profit from maintenance and customer service decreased to $2,467,000 from
$2,514,000 for the three month periods ended January 31, 1997 and 1996,
respectively, and increased to $7,138,000 from $5,532,000 for the nine month
periods ended January 31, 1997 and 1996, respectively.
Gross profit from sales of software products, maintenance and customer service
decreased to $2,808,000 from $3,225,000 for the three month period ended January
14
31, 1997 and 1996, respectively, and increased to $10,885,000 from $8,944,000
for the nine month periods ended January 31, 1997 and 1996, respectively.
Selling, general and administrative costs increased to $3,673,000 from
$3,507,000 for the three periods ended January 31, 1997 and 1996, respectively,
and decreased to $12,510,000 from $13,658,000 for the nine month periods ended
January 31, 1997 and 1996, respectively, as a result of the Company's successful
strategy to streamline its management structure, to rationalize its sales
efforts and to consolidate its facilities in the United Kingdom, thus reducing
overall facility cost and canceling certain lease liabilities. It is also a
result of the Company's greater reliance on distributors and partners to promote
sales of its products without incurring high fixed costs.
The Company is reporting a $1,149,000 and $2,413,000 operating loss for the
three and nine month periods ended January 31, 1997, respectively, versus an
operating loss of $673,000 and $5,980,000 for the three and nine month periods
ended January 31, 1996, respectively.
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
15
During the nine month period ended January 31, 1997 the Company issued
convertible debt for a total gross consideration of approximately $8,811,000 and
equity for a total consideration of approximately $500,000.
At January 31, 1997 the Company had a working capital surplus of approximately
$3,782,000 as compared to a working capital deficiency of $6,993,000 at April
30, 1996. This improvement is a result of the use of proceeds of financing
transactions to cure the Company's working capital deficiency.
The company's long term liquidity and its ability to continue as a going concern
will ultimately depend on the company's continued ability to realize sufficient
revenue from operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1.Matter involving Barrington J. Fludgate ("Fludgate")
On or about October 26, 1995, Fludgate, a former officer and director of the
Company, commenced a lawsuit in the Supreme Court of the New York State,
County of New York, seeking to recover the aggregate of $1,500,000 in wages,
salary, consulting fees and other benefits allegedly owed to him under an
employment agreement and a consulting agreement. The Company denies any
liability and is vigorously defending this lawsuit.
2.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
16
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.
3.Matter involving Sharon F. Merrill.
On December 10, 1996, Sharon F. Merrill ("Merrill") started action in the
Middlesex Superior Court in the Commonwealth of Massachusetts claiming to
have suffered damages due to the Company's failure to register certain
shares. Merrill claims approximately $180,000 plus interest in direct
damages and approximately $540,000 in other damages. The legal in the
preliminary stages and the Company has interposed an answer to the complaint.
4.Matter involving First Capital India, Ltd.
On or about December 15, 1995, First Capital India, Ltd. commenced a lawsuit
in the United States District Court, Southern District of New York, seeking
to recover the sum of $125,000 allegedly owed by the Company to First Capital
India, Ltd. as a placement or finders fee in connection with the Company's
financing of certain acquisitions.
17
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 January 31, 1996:
FORM REPORT DATE ITEM REPORTED FINANCIAL
STATEMENTS
FILED
8-K/A November 13, 1996 5 & 7, convertible debt None
financing
8-K/A November 14, 1996 5 & 7, convertible debt None
financing
8-K January 7, 1996 6 & 7, resignation of a Director 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:
18
Dated: New York, New York
April 24, 1997
Management Technologies, Inc.
(Registrant)
By: /s/ Michael J. Edison
-------------------------
Michael J. Edison
Chief Executive Officer
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<LEGEND>
This schedule contains summary financial information extracted from consolidated
financial statements for the three and nine month periods ended January 31, 1997
and 1995, respectively, 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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