<PAGE>
U.S. 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 May 31, 1996
Commission File Number 0-25758
MULTI-MEDIA TUTORIAL SERVICES, INC.
(Exact name of small business issuer
as specified in its charter)
DELAWARE 73-1293914
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
205 Kings Highway
Brooklyn, NY 11223
(Address of principal executive offices)
(718) 234-0404
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act 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 the past 90 days. Yes [x] No [ ]
State the number of shares outstanding of each of the issuer's common equity, as
of the latest practicable date: As of July 12, 1996 there were 5,953,289 shares
of common stock outstanding.
<PAGE>
Multi-Media Tutorial Services, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
PART I.
ITEM 1. Financial information
Consolidated balance sheet as of May 31, 1996 3
Consolidated statements of operations for the
three months ended May 31, 1996 and 1995 4
Consolidated statement of stockholders' equity
for the three months ended May 31, 1996 5
Consolidated statements of cash flows for the
three months ended May 31, 1996 and 1995 6
Notes to consolidated financial statements 7-8
ITEM 2. Management's discussion and analysis of the financial
condition and results of operations 8-10
PART II.
Other information 11
Signature 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - UNAUDITED
MAY 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $57,789
Restricted short-term investments 275,000
Accounts receivable, net of allowance
of $1,000,000 1,694,142
Note receivable 26,250
Inventories 206,854
Deferred advertising expense 201,009
Prepaid expenses and other current assets 335,767
----------
2,796,811
PROPERTY AND EQUIPMENT, NET 425,900
INTANGIBLE ASSETS, NET 477,597
NOTE RECEIVABLE 180,000
OTHER ASSETS 17,420
----------
$3,897,728
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,135,066
Accrued product returns 80,000
Current maturities of long-term debt (Note 2) 390,717
----------
1,605,783
----------
LONG-TERM DEBT (Note 3) 500,000
STOCKHOLDERS' EQUITY (Notes 2 and 3)
Common stock $.01 par value, 20,000,000
shares authorized; 5,953,289 issued and
outstanding 59,533
Preferred stock, $.01 par value, 1,000,000
shares authorized; -0- issued and outstanding --
Additional paid-in capital 8,316,328
Deficit (6,583,916)
----------
1,791,945
----------
$3,897,728
==========
See notes to consolidated financial statements.
3
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
THREE MONTHS ENDED MAY 31,
1996 1995
---- ----
NET SALES
$2,595,988 $1,844,311
COST OF GOODS SOLD 241,034 264,991
---------- ----------
GROSS PROFIT 2,354,954 1,579,320
---------- ----------
COST AND EXPENSES
Selling and marketing 2,044,087 1,972,380
General and administrative 281,087 410,361
Interest expense 18,491 39,528
Other (income) expense, net (17,095) (20,092)
---------- ----------
TOTAL COST AND EXPENSES 2,326,570 2,402,177
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 28,384 (822,857)
DISCONTINUED OPERATIONS -- (100,999)
---------- ----------
NET INCOME (LOSS) $28,384 $(923,856)
========== ==========
INCOME (LOSS) PER SHARE: (Note 4)
PRIMARY EARNINGS PER SHARE
Continuing operations $.01 $(.20)
Discontinued Operations -- (.03)
---------- ----------
Net income (loss) $.01 $(.23)
========== ==========
Weighted average number of
common shares outstanding 5,160,774 3,975,069
========== ==========
FULLY DILUTED EARNINGS PER SHARE
Continuing operations $.01 $(.20)
Discontinued Operations -- (.03)
---------- ----------
Net income (loss) $.01 $(.23)
========== ==========
Weighted average number of
common shares outstanding 5,319,661 3,975,069
========== ==========
See notes to consolidated financial statements.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STAT\EMENT OF STOCKHOLDERS' EQUITY - UNAUDITED
<TABLE>
<CAPTION>
Common Stock Preferred Stock
20,000,000 Shares 1,000,000 Shares
$01 Par Value $.01 Par Value Additional
------------------ --------------- Paid-in
Shares Value Shares Value Capital Deficit Total
------ ----- ------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 29, 1996 4,848,060 $48,481 -- -- $8,127,946 $(6,612,300) $1,564,127
Conversion of debt for stock (Note 2)
194,239 1,942 203,286 205,228
Issuance of stock in escrow (Note 3)
909,090 9,091 (9,091) --
Other 1,900 19 (5,813) (5,794)
Net income 25,384 25,384
--------- ------- ----- ----- ---------- ----------- ----------
Balance at May 31, 1996 5,953,289 $59,533 -- -- $8,316,328 $(6,583,916) $1,791,945
========= ======= ===== ===== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
THREE MONTHS ENDED MAY 31,
1996 1995
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $28,384 $(923,856)
--------- ----------
Adjustments to reconcile net income (loss)
from continuing operations to cash used in
operating activities:
Provision for returns and allowances (200,000) (357,000)
Depreciation and amortization 67,767 37,529
Non-cash compensation 3,206 --
Loss on debt conversion 6,435 --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (399,890) 67,663
Inventories (28,687) (19,201)
Deferred advertising 188,491 --
Prepaid expenses and other current assets (61,408) (131,948)
Other assets (3,115) (9,099)
(Decrease) in liabilities:
Accounts payable and accrued expenses (30, 324) (383,247)
------- ----------
Total adjustments (457,525) (795,303)
------- ----------
Net cash used in operating activities from
continuing operations (429,141) (1,719,159)
Net cash used in operating activities from
discontinued operations -- (60,978)
------- ----------
Net cash used in operating activities (429,141) (1,780,137)
------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17,023) (198,370)
Increase in intangibles (17,435) (27,102)
------- ----------
Net cash used in investing activities (34,458) (225,472)
------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from debt 440,000 --
Proceeds from collection of note receivable 5,833 --
Deferred offering costs -- 341,502
Repayment of notes payable - bank -- (70,223)
Repayment of notes payable and long-term debt (14,500) (1,410,800)
Repayment of stockholder loans -- (153,348)
Net proceeds from stock offering -- 5,870,413
Other (9,000) --
------- ----------
Net cash provided by financing activities 422,333 4,577,544
------- ----------
Net (decrease) increase in cash and cash equivalents (41,266) 2,571,935
Cash and cash equivalents at beginning of period 99,055 230,237
------- ----------
Cash and cash equivalents at end of period $57,789 $2,802,172
======= ==========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid $60,906 $ 93,233
======= ==========
Income taxes paid $ 300 $ 11,420
======= ==========
In March 1996, the Company issued Common Stock valued at $3,206 as a bonus. In
April 1996, the Company issued a note for a payable of $45,000. In May 1996,
the Company converted $198,792 of notes payable into common stock.
See notes to consolidated financial statements.
6
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MULTI-MEDIA TUTORIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 1996 AND 1995 (UNAUDITED)
1. Summary of significant accounting policies:
Basis of quarterly presentation: The accompanying quarterly financial
statements Multi-Media Tutorial Services, Inc. and subsidiary (the
"Company") have been prepared in conformity with generally accepted
accounting principles and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of
management, reflect all adjustments, which are necessary to present fairly
the results of operations for the period ended May 31, 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, management believes that the disclosures are adequate
to make the information presented not misleading. This report should be
read in conjunction with financial statements and footnotes therein
included in the audited annual report on Form 10-KSB as of February 29,
1996.
Principles of consolidation: The Company's consolidated financial
statements include the accounts of the Multi-Media Tutorial Services, Inc.
("MMTS) and its wholly-owned subsidiary, Video Tutorial Services, Inc.
("VTS"). All intercompany balances and transactions have been eliminated.
Reclassifications: Certain reclassifications have been made to the prior
year financial statements to conform with the classification used in
1996.
2. Conversion of debt for equity:
During May 1996, the Company negotiated agreements with certain of its
noteholders to modify the terms of their notes. These agreements were
concluded in June 1996. As a result of these agreements, $198,792 of
principal and accrued interest was converted into 194,239 restricted shares
of common stock and warrants to purchase an additional 210,516 restricted
shares of common stock at $1.50 per share. This transaction resulted in a
loss of approximately $6,400 based upon the then current market price of
the Company's common stock. In addition, the maturity date of approximately
$330,000 of principal and accrued interest was extended to November 30,
1996. In consideration for this extension, the debt holders were issued
warrants to purchase 492,700 restricted shares of common stock at $1.50 per
share. The interest rate on the extended notes increased to 9% effective
April 1, 1996. Interest was paid in July 1996 and a final interest payment
will be made at maturity. In addition, the Company agreed to reduce the
exercise price of the warrants issued in November 1995 from $2.50 to $1.50.
These warrants expire November 6, 2005.
7
<PAGE>
3. Convertible debt financing:
In April 1996, the Company received gross proceeds of $500,000 from the
sale of convertible notes. The notes bear interest at 10% per annum and are
due on December 31, 1997. The noteholders have the right to convert the
principal and accrued interest into common shares of the Company at a price
of (I) $1.2656 per share or (ii) 75% of the closing bid for the five
trading days immediately preceding the conversion. If the noteholders have
not converted at December 31, 1997, the Company has the right to compel
conversion at $1.2656 per share. However, in the event of default, as
defined, the Company will not have the right to compel conversion. The
Company placed 909,090 shares of common stock into escrow for the benefit
of the noteholders.
In connection with this financing the Company paid to financial advisors
fees consisting of $60,000 cash and warrants to purchase 50,000 shares of
common stock at an exercise price, as amended, of $1.50 per share,
exercisable through April 17, 2000.
4. Income (loss) per share:
For both primary and fully diluted purposes, per share amounts in 1996 were
computed using the modified treasury stock method. Under this method, the
weighted average number of common stock and common equivalent shares is
based on the weighted average number of actual common shares outstanding
during the period, the assumed exercise of all options and warrants, the
use of proceeds of such assumed exercise to acquire 20% of the outstanding
common stock and the use of the remaining proceeds to retire Company debt
and the balance invested in U.S. Government securities. The effect of the
modified treasury stock method was to increase income from operations by
approximately $29,000 and $32,000 for purposes of the primary and fully
diluted per share computation, respectively.
Loss per share amounts for 1995 were computed by dividing net loss by the
weighted average number of shares outstanding. Common stock equivalents
have been excluded as their effect would be anti-dilutive.
As noted in Note 3, the Company issued 909,090 of its Common Stock and
placed these shares into and escrow account for the benefit of the
noteholders. Since the noteholders do not have any rights or benefits
accorded to a shareholder, these shares are being considered as treasury
stock , and are not included in the weighted average number of shares
calculation for the current period. These shares are included in the
computation of fully diluted income per share.
Item 2. Management's Discussion and Analysis of the Financial Condition and
Results of Operations
Results of Operations: Three months ended May 31, 1996 and 1995
Net sales for the three months ended May 31, 1996 (the "1996 Period") were
$2,595,988 compared to $1,844,311 in the three months ended May 31, 1995
(the "1995 Period"). The increase of $751,677 or 40.8% is primarily
attributable to increased sales of the Company's "Math Made Easy"
videotapes, the Company's main product , to both new and repeat customers
and to an increase in sales of the Company's "Reading Is Easy" product
line. The increase in sales is
8
<PAGE>
partially the result of the introduction of the Company's installment sales
program in November 1995.
Gross profit was $2,354,954 in the 1996 Period compared to $1,579,320 in
the 1995 Period, primarily as a result of higher sales volume. Gross profit
margins were 90.7% and 85.6% for the 1996 and 1995 Periods, respectively,
mainly due to a decrease in purchases of third party videos and reduced
video duplication costs.
Selling and marketing expenses were $2,044,087 or 78.7% of net sales for
the 1996 Period compared to $1,972,380 or 106.9% of net sales for the 1995
Period. This decline in selling and marketing expenses as a percentage of
net sales was due to an increase in sales volume, while advertising
expensed declined as a percentage of net sales.
General and administrative expenses were $281,087 or 10.8% of net sales in
the 1996 Period compared to $410,361 or 22.3% of net sales in the 1995
Period. The 31.5% decrease was due principally due to the decrease in
consulting fees incurred by the Company in the quarter. The 1995 period
included certain expenses incurred in conjunction with the Company's
initial public offering in April 1995.
Interest expense declined to $18,491 in the 1996 Period compared to $39,528
in the 1995 Period as a result of the lower debt balance in the current
period.
Net income was $28,384 or 1.1% of net sales in the 1996 Period compared to
a loss of $923,856 or (50.1%) in the 1995 Period. Net loss for the 1995
Period included a loss from discontinued operations of $100,999. Net income
per share was $.01 in the 1996 Period as compared to a net loss of $.23,
for the 1995 Period, which included a loss of $.03 from discontinued
operations, after effecting a 29.8% increase in the weighted average number
of common shares outstanding.
Liquidity and Capital Resources
Working capital at May 31,1996 was $1,191,028 compared to a working capital
deficit of $433,016 at February 29, 1996. The increase in working capital
was principally attributable to increase in net accounts receivable
resulting from the increase in installment sales and reduction of debt
resulting from the conversion of certain debt to equity. The Company's cash
and short-term investments decreased to $332,789 at May 31, 1996 from
$374,055 at February 29, 1996. Both dates included $275,000 in restricted
short-term investments.
Net cash used in operations in the 1996 Period was $429,141 compared to
$1,780,137 in the 1995 Period, principally due to the net income in the
1996 Period as compared to a net loss in the 1995 Period and the decrease
in accounts payable and accrued expenses.
Net cash used in investing activities in the 1996 Period was $34,458
compared to $225,472 in the 1995 Period, which included the purchase of a
new telephone system for the telemarketing operations.
Net cash provided by financing activities in the 1996 Period was $422,333,
which was primarily due to the net proceeds from the sale of convertible
notes, compared to $4,577,544 in the 1995 Period, which included the net
proceeds raised from the initial public offering.
9
<PAGE>
In April 1996, the Company and several investors entered into a private
placement $500,000 of Convertible 10% Notes due December 31, 1997. Under
terms of the notes, the noteholders have the right to convert the principal
and accrued interest into common shares of the Company at a price of (I)
$1.2656 per share or (ii) 75% of the closing bid for the five trading days
immediately preceding the conversion. If the noteholders have not converted
at December 31, 1997, the Company has the right to compel conversion at
$1.2656 per share. However, in the event of default, as defined, the
Company will not have the right to compel conversion. The Company placed
909.090 shares of common stock into escrow for the benefit of the
noteholders. In connection with this financing the Company paid to
financial advisors fees consisting of $60,000 cash and warrants to purchase
50,000 shares of common stock at an exercise price, as amended, of $1.50
per share, exercisable through April 17, 2000.
During May 1996, the Company negotiated agreements with certain of its
noteholders to modify the terms of their notes. These agreements were
concluded in June 1996. As a result of these agreements, $198,792 of
principal and accrued interest was converted into 194,239 restricted shares
of common stock and warrants to purchase an additional 210,516 restricted
shares of common stock at $1.50 per share. This transaction resulted in a
loss of approximately $6,400. In addition, the maturity date of
approximately $330,000 of principal and accrued interest was extended to
November 30, 1996. In consideration for this extension, the debt holders
were issued warrants to purchase 492,700 restricted shares of common stock
at $1.50 per share. The interest rate on the extended notes increased to 9%
effective April 1, 1996. Interest was paid in July 1996 and a final
interest payment will be made at maturity. In addition, the Company agreed
to reduce the exercise price of the warrants issued in November 1995 from
$2.50 to $1.50. These warrants expire November 6, 2005.
The Company has instituted new policies and procedures for its installment
sales program. As a result of this new initiative, the Company has
experienced an improvement in its cash collections. There can be no
assurance that this improvement will continue in the future.
The Company's math and reading videotape business is highly seasonal.
Demand for these products tends to peak during the first and fourth
calendar quarters when school is in session. The Company has entered into
certain ventures, which may reduce the impact of seasonality on the
Company's business.
The Company continues to meet its working capital requirements through
internally generated funds. However, as the Company enters its
traditionally slower season, there may not be sufficient funds available
for product development and expansion. In order to meet the future cash
requirements, the Company is negotiating with third parties to provide
additional sources of financing. There can be no assurance that these
negotiations will be successful nor that it will continue to be able to
fund internally its working capital requirements.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 10, 1995 the Company commenced an action in the District Court for
the Eastern District of New York for recovery of compensatory damages in
the amount of $1,200,000 and punitive damages in the amount of $25,000,000
from MCI, the Company's then long distance carrier. The Company's suit was
based upon damages resulting from MCI's failure to provide agreed upon
services and fraud.
On or about August 17, 1995 MCI commenced an arbitration proceeding against
the Company to recover an alleged $70,000 for unpaid telephone usage
charges. On or about September 11, 1995, MCI commenced additional
arbitration proceedings to recover an alleged $350,000 for the Company's
early termination of the agreement between the Company and MCI. The two
arbitration proceedings were subsequently consolidated.
The Company has moved to stay the arbitration commenced by MCI pending
completion of the court proceedings. MCI has moved to dismiss the Company's
complaint. Both motions are presently awaiting the decision of the District
Court.
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) None
11
<PAGE>
SIGNATURE
In accordance with the requirements of Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Multi-Media Tutorial Services, Inc.
(Registrant)
Date: July 12, 1996 BY: /s/ Robert Selevan
-------------------
Robert Selevan
Chief Financial Officer
Principal Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> MAY-31-1996
<CASH> 57,789
<SECURITIES> 275,000
<RECEIVABLES> 2,694,142
<ALLOWANCES> 1,000,000
<INVENTORY> 206,854
<CURRENT-ASSETS> 2,796,811
<PP&E> 592,052
<DEPRECIATION> 166,152
<TOTAL-ASSETS> 3,897,728
<CURRENT-LIABILITIES> 1,605,783
<BONDS> 500,000
0
0
<COMMON> 59,533
<OTHER-SE> 1,732,412
<TOTAL-LIABILITY-AND-EQUITY> 3,897,728
<SALES> 2,595,988
<TOTAL-REVENUES> 2,595,988
<CGS> 241,034
<TOTAL-COSTS> 241,034
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,491
<INCOME-PRETAX> 28,384
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,384
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
