<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, 1997
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 July 11, 1997 there were 6,213,279
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, 1997 3
Consolidated statements of operations for the
three months ended May 31, 1997 and 1996 4
Consolidated statements of cash flows for the
nine months ended May 31, 1997 and 1996 5
Notes to consolidated financial statements 6-7
ITEM 2. Management's discussion and analysis of the
financial condition and results of operations 7-10
PART II.
Other information 11
Signature 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - UNAUDITED
MAY 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,051
Restricted short-term investments 247,833
Accounts receivable, net of allowance of $1,166,321 1,354,825
Note receivable 26,250
Inventories 211,231
Deferred advertising expense 259,050
Prepaid expenses and other current assets 373,144
-----------
2,481,384
PROPERTY AND EQUIPMENT, NET 623,651
INTANGIBLE ASSETS, NET 429,062
NOTE RECEIVABLE 180,000
OTHER ASSETS 21,420
-----------
$ 3,735,517
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,708,067
Accrued product returns 60,000
Capital lease obligations 146,862
Notes payable (Note 2 and 4) 1,625,000
-----------
3,539,929
-----------
LONG-TERM DEBT 200,000
STOCKHOLDERS' DEFICIT (Notes 2 and 3)
Common stock $.01 par value, 20,000,000 shares authorized;
6,213,297 issued and outstanding 62,133
Preferred stock, $.01 par value, 1,000,000 shares authorized;
13 issued and outstanding 1
Additional paid-in capital 9,399,060
Deficit (9,465,606)
-----------
(4,412)
-----------
$ 3,735,517
===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
1997 1996
----------- -----------
<S> <C> <C>
NET SALES $ 1,004,117 $ 2,595,988
COST OF GOODS SOLD 220,288 241,033
----------- -----------
GROSS PROFIT 783,829 2,354,955
----------- -----------
COSTS AND EXPENSES
Selling and marketing 1,476,194 2,044,088
General and administrative 420,441 281,088
Interest expense 43,469 18,491
Other (income) expense, net 0 (17,096)
----------- -----------
TOTAL COSTS AND EXPENSES 1,940,104 2,326,571
----------- -----------
NET (LOSS)/INCOME $(1,156,275) $ 28,354
=========== ===========
(LOSS)/INCOME PER SHARE: (Note 5)
Net (loss)/income $ (.20) $ .01
=========== ===========
Weighted average number of common shares outstanding 5,758,752 5,319,661
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
THREE MONTHS ENDED MAY 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss)/income $(1,156,275) $ 28,384
----------- -----------
Adjustments to reconcile net (loss)/income from continuing operations
to cash used in operating activities:
Depreciation and amortization 80,164 67,767
Non-cash compensation and services 26,331 3,206
Loss on debt conversion 6,435
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Restricted cash 11,188
Accounts receivable 316,039 (599,890)
Inventories 77,014 (28,687)
Deferred advertising 102,681 188,491
Prepaid expenses and other current assets 17,006 (61,408)
Other Assets 0 (3,115)
(Decrease) in liabilities:
Accounts payable and accrued expenses (105,433) (30,324)
----------- -----------
Total adjustments 524,990 (457,525)
----------- -----------
Net cash used in operating activities (631,285) (429,141)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (17,023)
Increase in intangibles (5,736) (17,435)
----------- -----------
Net cash used in investing activities (5,736) (34,458)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from debt 575,000 440,000
Proceeds from collection of note receivable 5,833
Repayment of capital lease obligations (5,000)
Other (9,000)
Repayment of Notes Payable (200,000) (14,500)
----------- -----------
Net cash provided by financing activities 370,000 422,333
----------- -----------
Net decrease in cash and cash equivalents (267,021) (41,266)
Cash and cash equivalents at beginning of period 276,072 99,055
----------- -----------
Cash and cash equivalents at end of period $ 9,051 $ 57,789
=========== ===========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid $ 7,745 $ 60,906
=========== ===========
Income taxes paid $ 0 $ 300
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 1997 AND 1996 (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 May 31, 1997.
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, 1997.
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 1997.
2. 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 nine months ended November
30, 1996, $250,000 were converted into 341,897 shares. As a result of the
conversion, 454,545 shares remained in escrow.
3. Preferred Stock:
During the quarter ended November 30, 1996, the Company issued $750,000 of
convertible preferred stock. The preferred is convertible into common
stock at a price equal to the lesser of $1 per share or 70% of the market
value of the common stock at the time of conversion, but in no event less
than $.50 per share. In addition, if the holders of the preferred stock do
not convert to common stock within the first six months of purchase, the
holder receives a warrant to purchase one share of common stock for each
dollar invested in the preferred and held for six months. The Company has
reached an agreement to convert the warrants into 371,875 shares of
common stock.
6
<PAGE>
4. Notes Payable:
The Company arranged a six month short term loan that yielded the Company
in the months of September 1996 and October 1996 approximately $1,000,000
which was used to retire existing debt and fund working capital. In
connection with this funding, the lenders were granted 2.2 million
warrants exercisable at $1.50. Interest accrues at a rate of 8.0%.
Warrants to acquire an additional 1,100,000 shares at $1.50 per share were
issuable on the 180th day of the loan. Since the Company's shares are no
longer listed on the NASDAQ Small Cap Market, the exercise price is 75% of
the market price. Certain lenders in this short term loan have agreed to
extend the maturity date for 6 months or until the next significant equity
offering. Several lenders were not prepared to extend and were therefore
repaid. As of the date hereof a total of $200,000 has been repaid. The
Company has reached an agreement to convert the warrants into 2,475,000
shares of common stock.
In May and June 1997, the Company secured certain loans ("1997 Loans")
which will be used for working capital and for debt repayment. Lenders in
these six-month loans receive a promissory note bearing interest at 10%
and shares of the Company's common stock. These loans are to be repaid
from the Company's next major equity financing. Upon an event of default
in the repayment of the loans, the Company is obligated to issue shares of
stock at a price of $.125 per share in an amount equal to the unpaid loan.
As of the date hereof, the Company has received $425,000 towards the
funding of these loans and is seeking further loans on these terms. In
addition, the Company has received advances aggregating $450,000, of which
$200,000 was received prior to February 28, 1997. The Company has reached
an agreement to convert $250,000 of advances into 4,000,000 shares of
common stock and to convert the remaining $200,000 to the same terms as
the 1997 Loans.
5. Income or Loss per share:
Income or Loss per share amounts for the 1997 and 1996 periods were
computed by dividing net income/(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 2, the Company has placed 454,545 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 May 31, 1997 and 1996
Net sales for the three months ended May 31, 1997 (the "1997 Period") were
$1,004,117 compared to $2,595,988 in the three months ended May 31, 1996
(the "1996 Period"). The decrease of $1,591,871 or 61.3% is attributable
to the lack of capital to purchase direct response media time on a
consistent basis. The decrease in sales is also partially the result of
the curtailment of sales to customers on unsecured credit which
represented approximately $450,000 in the 1996 Period.
Gross profit was $783,829 (78.1% of net sales) in the 1997 Period compared
to $2,354,955 (90.7% of net sales) in the 1996 Period. The lower gross
margin was the result of reduced sales prices.
Selling and marketing expenses were $1,476,184 or 147.0% of net sales for
the 1997 Period compared to $2,044,088 or 78.7% of net sales for the 1996
Period. Advertising was less effective in
7
<PAGE>
the 1997 Period as a result of insufficient capital to purchase media on a
consistent and cost effective basis, as well as, a reduction in
availability of such media. The resulting reduced volume resulted in
higher selling and marketing costs as a percentage of net sales.
General and administrative expenses were $420,441 or 41.9% of net sales in
the 1997 Period compared to $281,088 or 10.8% of net sales in the 1996
Period. However, during the 1996 Period, the Company benefited from the
settlement with creditors of various general & administrative expenses.
Interest expense increased to $43,469 in the 1997 Period compared to
$18,491 in the 1996 Period as a result of increased debt balance in the
current period.
Loss from Operations was $1,156,275 in the 1997 Period compared to income
from operations of $28,384 in the 1996 Period. Net loss per share was
$0.20 in the 1997 Period as compared to a net income of $0.01 for the 1996
Period, after effecting a 8% increase in the weighted average number of
common shares outstanding. The loss, compared to the prior year, was due
to the reduced volume and margins, as discussed above.
Liquidity and Capital Resources
Working capital deficit at May 31, 1997 was $1,058,545 compared to working
capital of $1,303 at February 28, 1997. The decrease in working capital
was principally attributable to the decrease in net accounts receivable
resulting from the curtailment of credit sales and increase in borrowings
due to the losses generated in the quarter. The Company's cash and
restricted cash decreased to $256,884 at May 31, 1997 from $535,093 at
February 28, 1997. Those amounts include $247,833 and $259,021 in
restricted cash for the May 1997 and February 1997 dates, respectively.
Net cash used in operations from continuing operations in the 1997 Period
was $631,285 compared to $429,141 in the 1996 Period, due to a lower
volume, losses, a decrease in accounts receivable. inventories and prepaid
costs and a decrease in accounts payable and accrued expenses.
Net cash used in investing activities in the 1997 Period was $5,736
compared to $34,458 in the 1996 Period.
Net cash provided by financing activities in the 1997 Period was $370,000
which was primarily due to the net proceeds from the issuance of short
term loans, compared to $422,333 in the 1996 Period, which included the
net proceeds from the issuance of debt.
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 shares of the Company's Common Stock a
price of either (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 has placed 909,090 shares of common stock into
escrow for the noteholders. During the fiscal 1997 $250,000 were converted
into 341,897 shares and 112,648 shares were canceled leaving 454,545
shares in escrow.
8
<PAGE>
The Company arranged a six month short term loan that yielded the Company
in the months of September 1996 and October 1996 approximately $1,000,000
which was used to retire existing debt and fund working capital. In
connection with this funding, the lenders were granted 2.2 million
warrants exercisable at $1.50. Interest accrues at a rate of 8.0%.
Warrants to acquire an additional 1,100,000 shares at $1.50 per share were
issuable on the 180th day of the loan. Since the Company's shares are no
longer listed on the NASDAQ Small Cap Market, the exercise price is 75% of
the market price. Certain lenders in this short term loan have agreed to
extend the maturity date for 6 months or until the next significant equity
offering. Several lenders were not prepared to extend and were therefore
repaid. As of the date hereof a total of $200,000 has been repaid. The
Company has reached an agreement to convert the warrants into 2,475,000
shares of common stock.
During the quarter ended November 30, 1996, the Company issued $750,000 of
convertible preferred stock. The preferred is convertible into common
stock at a price equal to the lesser of $1 per share or 70% of the market
value of the common stock at the time of conversion, but in no event less
than $.50 per share. In addition, if the holders of the preferred stock do
not convert to common stock within the first six months of purchase, the
holder receives a warrant to purchase one share of common stock for each
dollar invested in the preferred and held for six months. The Company has
reached an agreement to convert the warrants into 371,875 shares of common
stock.
The Company's educational telemarketing business is highly seasonal.
Demand for its products tends to peak during the first and fourth fiscal
quarters when school is in session. Demand is especially slow during the
school vacation periods. This seasonality greatly affects the Company's
advertising campaigns which must be timed to coincide with the annual
periods when demand is traditionally high. The Company does not reserve
advertising time in advance and purchases air time at the lowest possible
rates. Consequently, its reservations are subject to last minute
cancellation by the radio and television stations. In addition, as a
result of the Company's dependence on the availability of media time,
operating results can be negatively impacted by difficulty in purchasing
media time. Although the Company has entered into certain ventures which
may reduce the impact of seasonality on the Company's business, it will in
all likelihood continue to experience a certain amount of seasonality in
its operations. 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 continues to meet its working capital requirements through
internally generated funds and debt and equity funding from outside
sources. In addition, the Company may have increased capital requirements
as it seeks to expand its product lines and customized telemarketing
services. The Company also has investor loans and advances aggregating
$1.825 million payable within the next twelve months. In order to meet its
current and future cash requirements, the Company is in discussions to
negotiate additional financing. There can be no assurance that any
financing will be successful nor that the Company will be able to fund
internally its working capital requirements or meet its debt repayment
obligations. In the event that the Company is unable to secure additional
financing, it may be obligated to significantly reduce its operations and
seek to sell assets, which would have a material adverse affect on the
Company's prospects and financial results. The Company has received a
report from its independent public accountants, Holtz Rubenstein & Co.,
LLP, that includes an explanatory paragraph describing the uncertainty as
to the ability of the Company's operations to continue as a going concern.
In May and June 1997, the Company secured certain loans ("1997 Loans")
which will be used for working capital and for debt repayment. Lenders in
these six-month loans receive a promissory note bearing interest at 10%
and shares of the Company's common stock. These loans are to be repaid
from the Company's next major equity
9
<PAGE>
financing. Upon an event of default in the repayment of the loans, the
Company is obligated to issue shares of stock at a price of $.125 per
share in an amount equal to the unpaid loan. As of the date hereof, the
Company has received $425,000 towards the funding of these loans and is
seeking further loans on these terms. In addition, the Company has
received advances aggregating $450,000, of which $200,000 was received
prior to February 28, 1997. The Company has reached an agreement to
convert $250,000 of advances into 4,000,000 shares of common stock and to
convert the remaining $200,000 to the same terms as the 1997 Loans.
The Company's operations have not been materially affected by the impact
of inflation.
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
The Company held a Special Meeting of Shareholders on June 13,
1997 at which time the shareholders voted to:
1) effect a one-for-ten reverse stock split (3,581,022 votes
for, 94,400 votes against),
2) increase the amount of authorized common shares, on a post
split basis, to 20,000,000 shares with a par value of $.01
per share (3,554,922 votes for, 110,500 votes against),
3) change the Company's name to United Telemarketing
Services, Inc. (3,668,822 votes for, 6,600 votes against.)
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 18, 1997
BY:
-----------------------
Morris Berger
Chief Executive Officer
<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-28-1998
<PERIOD-END> MAY-31-1997
<CASH> 256,884
<SECURITIES> 0
<RECEIVABLES> 2,521,146
<ALLOWANCES> 1,166,321
<INVENTORY> 211,231
<CURRENT-ASSETS> 2,481,384
<PP&E> 962,091
<DEPRECIATION> 338,440
<TOTAL-ASSETS> 3,735,517
<CURRENT-LIABILITIES> 3,539,929
<BONDS> 200,000
0
1
<COMMON> 62,133
<OTHER-SE> (66,546)
<TOTAL-LIABILITY-AND-EQUITY> 3,735,517
<SALES> 1,004,117
<TOTAL-REVENUES> 1,004,117
<CGS> 220,288
<TOTAL-COSTS> 220,288
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,469
<INCOME-PRETAX> (1,156,275)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,156,275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,156,275)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
