<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 August 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
or 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 October 7, 1996 there
were 6,141,289 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 August 31, 1996 3
Consolidated statements of operations for the
three months ended August 31, 1996 and 1995, and 4-5
the six months ended August 31, 1996 and 1995
Consolidated statements of cash flows for the
six months ended August 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 8-11
PART II.
Other information 12
Signature 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - UNAUDITED
AUGUST 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 135,606
Restricted short-term investments 275,000
Accounts receivable, net of allowance of $1,305,000 1,402,735
Note receivable 26,250
Inventories 163,257
Deferred advertising expense 150,138
Prepaid expenses and other current assets 300,266
-----------
2,453,252
PROPERTY AND EQUIPMENT, NET 681,259
INTANGIBLE ASSETS, NET 463,617
NOTE RECEIVABLE 180,000
OTHER ASSETS 21,420
-----------
$3,799,548
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,505,037
Current Portion capital lease obligations 150,850
Current maturities of long-term debt (Note 2) 322,917
-----------
1,978,804
-----------
Long-term portion of capital lease obligations 108,436
LONG-TERM DEBT (Note 3) 407,072
STOCKHOLDERS' EQUITY (Notes 2 and 3)
Common stock $.01 par value, 20,000,000 shares
authorized; 6,141,289 issued and outstanding 61,414
Preferred stock, $.01 par value, 1,000,000 shares
authorized; -0- issued and outstanding --
Additional paid-in capital 8,571,188
Deficit (7,327,366)
-----------
1,305,236
-----------
$ 3,799,548
===========
See notes to consolidated financial statements.
3
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
THREE MONTHS ENDED AUGUST 31,
1996 1995
---- ----
NET SALES $1,633,231 $1,841,701
COST OF GOODS SOLD 206,716 256,612
---------- ----------
GROSS PROFIT 1,426,515 1,585,089
---------- ----------
COSTS AND EXPENSES
Selling and marketing 1,688,734 2,144,564
General and administrative 458,438 433,494
Interest expense 30,863 12,987
Other (income) expense, net (8,070) (34,817)
---------- ----------
TOTAL COSTS AND EXPENSES 2,169,965 2,556,228
---------- ----------
(LOSS) FROM CONTINUING OPERATIONS (743,450) (971,139)
DISCONTINUED OPERATIONS (5,720)
---------- ----------
NET (LOSS) $(743,450) $(976,859)
========== ==========
(LOSS) PER SHARE: (Note 4)
Continuing operations $(.14) $(.21)
Discontinued operations -- (.00)
---------- ----------
Net (loss) $(.14) $(.21)
========== ==========
Weighted average number of common shares
outstanding 5,140,181 4,618,750
========== ==========
See notes to consolidated financial statements.
4
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
SIX MONTHS ENDED AUGUST 31,
1996 1995
---- ----
NET SALES $4,229,219 $3,686,002
COST OF GOODS SOLD 447,749 521,600
---------- ----------
GROSS PROFIT 3,781,470 3,164,402
---------- ----------
COSTS AND EXPENSES
Selling and marketing 3,732,822 4,202,780
General and administrative 739,525 770,071
Interest expense 49,354 52,515
Other (income) expense, net (25,165) (66,968)
---------- ----------
TOTAL COSTS AND EXPENSES 4,496,536 4,958,398
---------- ----------
(LOSS) FROM CONTINUING OPERATIONS (715,066) (1,793,996)
DISCONTINUED OPERATIONS (106,719)
---------- ----------
NET (LOSS) $(715,066) $(1,900,715)
========== ==========
(LOSS) PER SHARE: (Note 4)
Continuing operations $(.13) $(.42)
Discontinued operations -- (.02)
---------- ----------
Net (loss) $(.13) $(.44)
========== ==========
Weighted average number of common
shares outstanding 4,995,070 4,296,910
========== ==========
See notes to consolidated financial statements.
5
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
SIX MONTHS ENDED AUGUST 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) $(715,066) $(1,900,715)
--------- -----------
Adjustment for discontinued operations 106,719
Adjustments to reconcile net (loss) from continuing
operations to cash used in operating activities:
Depreciation and amortization 151,691 93,715
Non-cash compensation and services 9,483
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (308,483) (415,044)
Inventories 14,910 (44,443)
Deferred advertising 239,362
Prepaid expenses and other current assets 31,973 (176,178)
Other Assets (7,115) (1,215)
(Decrease) in liabilities:
Accounts payable and accrued expenses 204,993 (420,410)
--------- -----------
Total adjustments 336,814 (856,856)
--------- -----------
Net cash used in operating activities from
continuing operations (378,252) (2,757,571)
--------- -----------
Net cash used in operating activities from
discontinued operations (292,511)
--------- -----------
Net cash used in operating activities (378,252) (3,050,082)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (49,933) (300,937)
Increase in intangibles (36,057) (102,952)
--------- -----------
Net cash used in investing activities (85,990) (403,889)
--------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Deferred offering costs 341,502
Net proceeds from debt 440,000
Proceeds from collection of note receivable 5,833
Net proceeds of notes payable 101,704
Repayment of capital lease obligations (14,485)
Repayment of notes payable - bank (70,223)
Repayment of notes payable and long-term debt (1,381,061)
Repayment of stockholder loans (155,819)
Net proceeds from stock issuance 2,091 5,869,034
Repayment of Notes Payable (34,350)
--------- -----------
Net cash provided by financing activities 500,793 4,603,433
--------- -----------
Net (decrease) increase in cash and cash equivalents 36,551 1,149,462
Cash and cash equivalents at beginning of period 99,055 230,237
--------- -----------
Cash and cash equivalents at end of period $ 135,606 $ 1,379,699
========= ===========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid $ 16,073 $ 93,231
========= ===========
Income taxes paid $ -0- $ 9,825
========= ===========
</TABLE>
In August 1996, the Company issued Common Stock valued at $82,000 as
compensation. In April 1996, the Company issued a note for a payable
of $45,000. During the six months ended August 31, 1996, the Company
converted $368,878 of accounts and notes payable and convertible debt
into common stock.
See notes to consolidated financial statements.
6
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED AUGUST 31, 1996 AND 1995 (UNAUDITED)
1. Summary of significant accounting policies:
Basis of quarterly presentation: The accompanying quarterly
financial statements of 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 August 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 Service, 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>
In addition, certain of the Company's vendors converted $70,722
of the Company's obligations into 80,000 shares of common stock.
3. Convertible debt financing:
In April 1996, the Company received gross proceeds of $500,000
from the issuance 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.
During the six months ended August 31, 1996, $88,428.20 were
converted into 112,709 shares. As a result of the conversion,
796,381 remained in escrow.
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. Loss per share:
Loss per share amounts for the 1996 and 1995 periods 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 has placed 796,948 shares of its
Common Stock into an 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.
Item 2. Management's Discussion and Analysis of the Financial Condition and
Results of Operations
Results of Operations: Three months ended August 31, 1996 and 1995
Net sales for the three months ended August 31, 1996 (the "1996
Period") were $1,633,231 compared to $1,841,701 in the three
months ended August 31, 1995 (the "1995 Period"). The decrease of
$208,470 or 11.3% is primarily attributable to reduced
advertising in the 1996 Period compared to the 1995 Period.
Advertising costs represented 38% of net sales in the 1996 Period
as compared to 62% in the 1995 Period. The decrease in sales is
also partially the result of the introduction of stricter credit
criteria used prior to shipping product to non-credit card
customers.
Gross profit was $1,426,515 (87.3% of net sales) in the 1996
Period compared to $1,585,089 (86.1% of net sales) in the 1995
Period.
8
<PAGE>
Selling and marketing expenses were $1,688,734 or 103.3% of net
sales for the 1996 Period compared to $2,144,564 or 116.4% of net
sales for the 1995 Period. This decline in selling and marketing
expenses as a percentage of net sales and in nominal dollars was
due to better management and placement of the advertising
yielding a more efficient advertising budget.
General and administrative expenses were $458,438 or 28.1% of net
sales in the 1996 Period compared to $433,494 or 23.5% of net
sales in the 1995 Period. The $24,944 increase was due
principally due to the building of internal infrastructure to
support the increased volume that the Company exhibited over the
past year.
Interest expense increased to $30,863 in the 1996 Period compared
to $12,987 in the 1995 Period as a result of the increased debt
balance in the current period.
Net loss was $743,450 in the 1996 Period compared to a loss of
$976,859 in the 1995 Period. Net loss for the 1995 Period
included a loss from discontinued operations of $5,720. Net loss
per share was $0.14 in the 1996 Period as compared to a net loss
of $.21, for the 1995 Period, which included a loss of less than
$0.01 from discontinued operations, after effecting a 11.2%
increase in the weighted average number of common shares
outstanding.
Results of Operations: Six months ended August 31, 1996 and 1995
Net sales for the six months ended August 31, 1996 (the "1996
Period") were $4,229,219 compared to $3,686,002 in the six months
ended August 31, 1995 (the "1995 Period"). The increase of
$543,217 or 14.7% is primarily attributable to the increased
sales of the Company's "Math Made Easy" videotapes and an
increase in the Company's "Reading Is Easy" product line, as a
result of increased brand awareness, as well as more effective
advertising. The increase was offset by reduced advertising and
the implementation of stricter credit criteria used prior to
shipping product to non-credit card customers.
Gross profit was $3,781,470 (89.4% of net sales) in the 1996
Period compared to $3,164,402 (85.8% of net sales) in the 1995
Period.
Selling and marketing expenses were $3,732,822 or 88.3% of net
sales for the 1996 Period compared to $4,202,780 or 114.0% of net
sales for the 1995 Period. This decline in selling and marketing
expenses as a percentage of net sales and in nominal dollars was
due to better management and placement of the advertising
yielding a more efficient advertising budget.
General and administrative expenses were $739,525 or 17.5% of net
sales in the 1996 Period compared to $770,071 or 20.9% of net
sales in the 1995 Period. The decrease in dollars and percentage
of sales was due lower professional and consulting fees.
Interest expense decreased to $49,354 in the 1996 Period compared
to $52,515 in the 1995 Period.
9
<PAGE>
Net loss was $715,066 in the 1996 Period compared to a loss of
$1,900,715 in the 1995 Period. Net loss for the 1995 Period
included a loss from discontinued operations of $106,719. Net
loss per share was $.13 in the 1996 Period as compared to a net
loss of $.44, for the 1995 Period, which included a loss of $.02
from discontinued operations, after effecting a 16.2% increase in
the weighted average number of common shares outstanding.
Liquidity and Capital Resources
Working capital at August 31, 1996 was $474,448 compared to
working capital 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 increased to $410,606 at August 31, 1996 from
$374,055 at February 29, 1996. Both dates included $275,000
in restricted short-term investments.
Net cash used in operations from continuing operations in the
1996 Period was $378,252 compared to $2,757,571 in the 1995
Period, due to a lower net loss in the 1996 Period as compared
the 1995 Period, deferred advertising costs, a decrease in
prepaid costs and an increase in accounts payable and accrued
expenses.
Net cash used in investing activities in the 1996 Period was
$85,990 compared to $403,889 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
$500,793 which was primarily due to the net proceeds from the
sale of convertible notes, compared to $4,603,433 in the 1995
Period, which included the net proceeds raised from the initial
public offering.
In April 1996, the Company and several investors entered into a
private placement of $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 by 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. As of
August 31, 1996, $88,428.20 were converted into 112,709 shares.
As a result of the conversion, 796,381 remained in escrow. In
September 1996, an additional $157,071.80 were converted into
229,188 shares.
During 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,
10
<PAGE>
$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 as well as raising debt and
equity from outside sources. 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. In this regard, the Company has arranged for a six
month bridge loan that has yielded the Company in the months of
September 1996 and early October 1996 approximately $850,000
which was used to retire existing debt and fund working capital.
In connection with this funding, the lenders were granted 1.7
million warrants exercisable at $1.50. Interest will be accruing
at a rate of 8.0%. If the loan is not repaid by the 180th day, an
additional warrant for each dollar not repaid, exercisable at
$1.50 will be issued. If the loan is not repaid by the 210th day,
the price of the warrants is reduced to $1.00.
11
<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
12
<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: October 11, 1996
BY: /S/ Morris Berger
Morris Berger
Chief Executive Officer
Principal Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<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> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1999
<CASH> 135,606
<SECURITIES> 275,000
<RECEIVABLES> 2,707,735
<ALLOWANCES> 1,305,000
<INVENTORY> 163,257
<CURRENT-ASSETS> 2,453,252
<PP&E> 832,950
<DEPRECIATION> 151,691
<TOTAL-ASSETS> 3,799,548
<CURRENT-LIABILITIES> 1,978,804
<BONDS> 515,508
0
0
<COMMON> 671,414
<OTHER-SE> 1,243,822
<TOTAL-LIABILITY-AND-EQUITY> 3,799,548
<SALES> 4,229,219
<TOTAL-REVENUES> 4,229,219
<CGS> 447,749
<TOTAL-COSTS> 447,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,354
<INCOME-PRETAX> (715,066)
<INCOME-TAX> 0
<INCOME-CONTINUING> (715,066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (715,066)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
