<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 November 30, 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 January 14, 1997 there were 6,160,679
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 November 30, 1996 3
Consolidated statements of operations for the
three months ended November 30, 1996 and 1995, and 4-5
the nine months ended November 30, 1996 and 1995
Consolidated statements of cash flows for the
nine months ended November 30, 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
NOVEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 437,471
Restricted short-term investments 200,000
Accounts receivable, net of allowance of $1,539,953 1,504,205
Note receivable 26,250
Inventories 259,833
Deferred advertising expense 290,628
Prepaid expenses and other current assets 238,858
-----------
2,957,245
PROPERTY AND EQUIPMENT, NET 686,572
INTANGIBLE ASSETS, NET 464,431
NOTE RECEIVABLE 180,000
OTHER ASSETS 21,420
-----------
$ 4,309,668
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,359,899
Current Portion capital lease obligations 132,447
Current maturities of long-term debt (Note 2) 1,000,000
-----------
2,492,346
-----------
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS 102,102
LONG-TERM DEBT (Note 3) 250,000
STOCKHOLDERS' EQUITY (Notes 2 and 3)
Common stock $.01 par value, 20,000,000 shares
authorized; 6,160,679 issued and outstanding 61,607
Preferred stock, $.01 par value, 1,000,000 shares
authorized; 15 issued and outstanding 1
Additional paid-in capital 9,354,029
Deficit (7,950,417)
-----------
1,465,220
-----------
$ 4,309,668
===========
</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 NOVEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
NET SALES $ 1,500,612 $ 2,805,827
COST OF GOODS SOLD 161,602 358,427
----------- -----------
GROSS PROFIT 1,339,010 2,447,400
----------- -----------
COSTS AND EXPENSES
Selling and marketing 1,484,494 1,932,585
General and administrative 449,529 442,716
Interest expense 32,282 29,475
Other (income) expense, net (4,243) (13,297)
----------- -----------
TOTAL COSTS AND EXPENSES 1,962,062 2,391,479
----------- -----------
INCOME/(LOSS) FROM CONTINUING OPERATIONS (623,052) 55,921
DISCONTINUED OPERATIONS -- 127,455
----------- -----------
NET INCOME/(LOSS) $ (623,052) $ 183,376
=========== ===========
INCOME/(LOSS) PER SHARE: (Note 4)
Continuing operations $ (.10) $ .01
Discontinued operations -- .03
----------- -----------
Net (loss) $ (.10) $ .04
=========== ===========
Weighted average number of common shares
outstanding 6,113,704 4,621,182
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
NET SALES $ 5,729,831 $ 6,491,840
COST OF GOODS SOLD 609,351 880,030
----------- -----------
GROSS PROFIT 5,120,480 5,611,810
----------- -----------
COSTS AND EXPENSES
Selling and marketing 5,217,315 6,137,053
General and administrative 1,189,054 1,213,215
Interest expense 81,636 81,990
Other (income) expense, net (29,408) (81,955)
----------- -----------
TOTAL COSTS AND EXPENSES 6,458,597 7,350,303
----------- -----------
(LOSS) FROM CONTINUING OPERATIONS (1,338,117) (1,738,493)
DISCONTINUED OPERATIONS -- 21,154
----------- -----------
NET (LOSS) $(1,338,117) $(1,717,339)
=========== ===========
(LOSS) PER SHARE: (Note 4)
Continuing operations $ (.23) $ (.39)
Discontinued operations -- (.00)
----------- -----------
Net (loss) $ (.23) $ (.39)
=========== ===========
Weighted average number of
common shares outstanding 5,664,995 4,405,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
NINE MONTHS ENDED NOVEMBER 30,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) $(1,338,117) $(1,717,339)
----------- -----------
Adjustment for discontinued operations -- 21,154
Adjustments to reconcile net (loss) from continuing
operations to cash used in operating activities:
Gain on sale of business segment -- (166,264)
Depreciation and amortization 221,257 161,797
Non-cash compensation and services 28,314 --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Restricted short term investments 75,000 --
Accounts receivable (409,953) (1,022,601)
Inventories (81,666) (5,961)
Deferred advertising 98,872 --
Prepaid expenses and other current assets 92,173 (212,307)
Other Assets (7,114) (4,005)
(Decrease) in liabilities:
Accounts payable and accrued expenses 137,010 65,376
----------- -----------
Total adjustments 153,891 (1,162,811)
----------- -----------
Net cash used in operating activities from
continuing operations (1,184,226) (2,901,304)
Net cash used in operating activities from
discontinued operations -- (258,084)
----------- -----------
Net cash used in operating activities (1,184,226) (3,138,234)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (89,983) (444,896)
Increase in intangibles (71,482) (178,301)
----------- -----------
Net cash used in investing activities (161,465) (623,197)
----------- -----------
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 1,001,704 --
Repayment of capital lease obligations (39,221) --
Repayment of notes payable - bank -- (70,223)
Repayment of notes payable and long-term debt -- (60,800)
Repayment of stockholder loans -- (153,348)
Net proceeds from stock issuance (46,943) 5,869,034
Net proceeds from preferred stock issuance 675,000 --
Repayment of Notes Payable (352,266) (1,355,080)
----------- -----------
Net cash provided by financing activities 1,684,107 4,571,085
----------- -----------
Net (decrease) increase in cash and cash equivalents 338,416 809,654
Cash and cash equivalents at beginning of period 99,055 230,237
----------- -----------
Cash and cash equivalents at end of period $ 437,471 $ 1,039,891
=========== ===========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Interest paid $ 83,518 $ 93,231
=========== ===========
Income taxes paid $ 991 $ 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 nine months ended November 30, 1996, the Company converted
$525,950 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 NOVEMBER 30, 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 November 30, 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. 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. During the quarter
ended November 30, 1996, all remaining principal and interest was paid.
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
7
<PAGE>
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.
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. 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.
5. Income or Loss per share:
Income or 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 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 November 30, 1996 and 1995
Net sales for the three months ended November 30, 1996 (the "1996 Period")
were $1,500,612 compared to $2,805,827 in the three months ended November
30, 1995 (the "1995 Period"). The decrease of $1,305,215 or 46.5% is
attributable to the lack of availability of direct response media time
resulting from the national and local elections during the 1996 Period.
During the 1996 Period the Company's advertising expense was $621,891
compared to $1,058,576 in the 1995 Period, a reduction of 41%. 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.
8
<PAGE>
Gross profit was $1,339,010 (89.2% of net sales) in the 1996 Period
compared to $2,447,400 (87.2% of net sales) in the 1995 Period.
Selling and marketing expenses were $1,484,494 or 98.9% of net sales for
the 1996 Period compared to $1,932,585 or 68.9% of net sales for the 1995
Period. Although the advertising was as effective in the 1996 Period as it
was in the 1995 Period, the combination of reduced volume and the
increased infrastrucutre of the telephone and telemarketing system
resulted in higher selling and marketing costs as a percentage of net
sales.
General and administrative expenses were $449,529 or 29.9% of net sales in
the 1996 Period compared to $442,716 or 15.8% of net sales in the 1995
Period.
Interest expense increased to $32,282 in the 1996 Period compared to
$29,475 in the 1995 Period as a result of the increased debt balance in
the current period.
Loss from Operations was $623,052 in the 1996 Period compared to income
from operations of $55,921 in the 1995 Period. Net income for the 1995
Period included income from discontinued operations of $127,455. Net loss
per share was $0.10 in the 1996 Period as compared to a net income of
$0.04 for the 1995 Period, which included income of $0.03 from
discontinued operations, after effecting a 32% increase in the weighted
average number of common shares outstanding.
Results of Operations: Nine months ended November 30, 1996 and 1995
Net sales for the nine months ended November 30, 1996 (the "1996 Period")
were $5,729,831 compared to $6,491,840 in the nine months ended November
30, 1995 (the "1995 Period"). The decrease of $761,998 or 11.7% is
primarily attributable to the reduced advertising and the implementation
of stricter credit criteria used prior to shipping product to non-credit
card customers.
Gross profit was $5,120,480 (89.4% of net sales) in the 1996 Period
compared to $5,611,810 (86.4% of net sales) in the 1995 Period.
Selling and marketing expenses were $5,217,315 or 91.1% of net sales for
the 1996 Period compared to $6,137,053 or 94.5% 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 $1,189,054 or 20.7% of net sales
in the 1996 Period compared to $1,213,215 or 18.7% of net sales in the
1995 Period. The decrease in dollars expensed was due lower professional
and consulting fees.
Interest expense decreased to $81,636 in the 1996 Period compared to
$81,990 in the 1995 Period.
Net loss was $1,338,117 in the 1996 Period compared to a loss of
$1,717,339 in the 1995 Period. Net loss for the 1995 Period included
income from discontinued operations of $21,154. Net loss per share was
$0.23 in the 1996 Period as compared to a net loss of
9
<PAGE>
$0.39, for the 1995 Period, after effecting a 29% increase in the weighted
average number of common shares outstanding.
Liquidity and Capital Resources
Working capital at November 30, 1996 was $464,900 compared to working
capital of $433,016 at February 29, 1996. The increase in working capital
was principally attributable to the increase in cash resulting from the
issuance of preferred stock, the 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 $637,471 at November 30, 1996
from $374,055 at February 29, 1996. Those amounts include $200,000 and
$275,000 in restricted short-term investments for the November 1996 and
February 1996 dates, respectively.
Net cash used in operations from continuing operations in the 1996 Period
was $1,184,226 compared to $2,901,304 in the 1995 Period, due to a lower
net loss in the 1996 Period as compared the 1995 Period, a smaller
increase in accounts receivable, 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 $161,465
compared to $623,197 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
$1,684,106 which was primarily due to the net proceeds from the sale of
preferred stock and notes, compared to $4,571,085 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 November 30,
1996, $250,000 were converted into 341,897 shares. As a result of the
conversion, 454,545 remained in escrow.
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, $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. In consideration for
this extension, the debt holders were
10
<PAGE>
issued warrants to purchase 492,700 restricted shares of common stock at
$1.50 per share. During the quarter ended November 30, 1996, all remaining
principal and interest was paid.
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 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 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.
In addition, 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.
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: January 22, 1997
BY: /s/ Morris Berger
------------------
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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-30-1996
<CASH> 437,471
<SECURITIES> 200,000
<RECEIVABLES> 3,044,158
<ALLOWANCES> 1,539,953
<INVENTORY> 259,833
<CURRENT-ASSETS> 2,957,245
<PP&E> 931,258
<DEPRECIATION> 119,933
<TOTAL-ASSETS> 4,309,668
<CURRENT-LIABILITIES> 2,492,346
<BONDS> 352,102
0
750,000
<COMMON> 63,706
<OTHER-SE> 651,514
<TOTAL-LIABILITY-AND-EQUITY> 4,309,668
<SALES> 5,729,831
<TOTAL-REVENUES> 5,729,831
<CGS> 609,351
<TOTAL-COSTS> 609,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,636
<INCOME-PRETAX> (1,337,126)
<INCOME-TAX> 991
<INCOME-CONTINUING> (1,338,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,338,117)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
