<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended August 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to _____________
Commission file number: 001-25758
MULTI-MEDIA TUTORIAL SERVICES, INC.
----------------------------------
(Name of small business issuer specified in its charter)
Delaware 73-1293914
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
205 Kings Highway Brooklyn, New York 11223
------------------------------------------
(Address of principal executive offices, including zip code)
718-234-0404
------------
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
Redeemable Warrants
-------------------
(Title of Class)
<PAGE>
Check whether the issuer: (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
The number of shares outstanding of the issuer's Common Stock as of August 31,
2000 was 15,113,027 shares.
Transactional Small Business Disclosure Format (Check one): Yes ___ No _X_
THIS QUARTERLY REPORT ON FORM 10-QSB (THE "REPORT") MAY BE DEEMED TO
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). FORWARD-LOOKING STATEMENTS IN
THIS REPORT OR HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), REPORTS TO THE
COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR
RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL
OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST
ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF
OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH
HEREIN, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE
ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
ii
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2000 (UNAUDITED) AND FEB 29, 2000 (AUDITED)
--------------------------------------------------------------------------------
ASSETS
AUGUST 31, 2000 FEBRUARY 29, 2000
----------------- -----------------
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Accounts receivable $ 33,443 $ 44,605
Inventories 85,582 88,102
Prepaid income taxes 3,470 3,453
Prepaid expenses 52,861 120,601
----------------- -----------------
Total current assets 175,356 256,761
FURNITURE AND EQUIPMENT, NET 234,801 214,184
INTANGIBLE ASSETS, NET 150,280 162,349
RESTRICTED CASH 15,000 50,000
OTHER ASSETS 21,420 21,681
----------------- -----------------
TOTAL ASSETS $ 596,857 $ 704,975
================= =================
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2000 (UNAUDITED) AND FEBRUARY 29, 2000 (AUDITED)
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
AUGUST 31, 2000 FEBRUARY 29, 2000
----------------- -----------------
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Book overdraft $ 47,308 $ 46,692
Short-term notes payable 1,430,676 1,580,176
Convertible promissory notes 736,190 662,500
Capital lease obligations 114,391 114,391
Due to related party 31,624 83,224
Accounts payable 1,378,604 1,282,047
Accrued payroll and other expenses 257,598 298,000
Accrued interest 556,663 463,161
----------------- -----------------
Total current liabilities 4,553,054 4,530,191
LONG-TERM TRADE PAYABLE 163,820 366,980
----------------- -----------------
Total liabilities 4,716,874 4,897,171
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, Series A, $0.01 par
value 1,000,000 shares authorized
no shares issued and outstanding - -
Preferred stock, Series B, $0.01 par
value 50 shares authorized
no shares issued and outstanding - -
Common stock, $0.01 par value
20,000,000 shares authorized and
15,113,027 shares issued and
outstanding 151,131 86,835
Common stock committed, $0.01 par value - 88,500
Additional paid-in capital 12,150,533 11,214,736
Accumulated deficit (16,421,681) (15,582,267)
----------------- -----------------
Total stockholders' deficit (4,120,017) (4,192,196)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 596,857 $ 704,975
================= =================
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31,2000 AND
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED AUGUST 31,
2000 1999
----------------- -----------------
(UNAUDITED) (UNAUDITED)
NET SALES $ 429,215 $ 798,210
COST OF SALES 10,151 52,976
----------------- -----------------
GROSS PROFIT 419,064 745,234
----------------- -----------------
OPERATING EXPENSES
Selling and marketing 260,656 398,048
General and administrative 267,461 331,116
Depreciation and amortization 54,786 64,963
----------------- -----------------
Total operating expenses 582,903 794,127
----------------- -----------------
LOSS FROM OPERATIONS (163,839) (48,893)
----------------- -----------------
OTHER EXPENSE
Non-cash interest charges (4,074) -
Interest expense (81,016) (36,000)
----------------- -----------------
Total other expense (85,090) (36,000)
----------------- -----------------
NET LOSS $ (248,929) $ (84,893)
================= =================
BASIC LOSS PER SHARE $ (0.02) $ (0.02)
================= =================
DILUTED LOSS PER SHARE $ (0.02) $ (0.02)
================= =================
WEIGHTED AVERAGE SHARES OUTSTANDING 13,410,487 4,451,805
================= =================
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six months Ended August 31,2000 and
For the Six Months Ended August 31, 1999 (unaudited)
--------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED AUGUST 31,
2000 1999
----------------- -----------------
(UNAUDITED) (UNAUDITED)
NET SALES $ 954,470 $ 1,770,234
COST OF SALES 92,638 191,431
----------------- -----------------
GROSS PROFIT 861,832 1,578,803
----------------- -----------------
OPERATING EXPENSES
Selling and marketing 515,218 1,297,224
General and administrative 500,085 615,354
Depreciation and amortization 106,786 130,182
Stock-based compensation 36,250 -
----------------- -----------------
Total operating expenses 1,158,339 2,042,760
----------------- -----------------
LOSS FROM OPERATIONS (296,507) (463,957)
----------------- -----------------
OTHER EXPENSE
Non-cash interest charges (361,982) -
Interest expense (180,925) (78,200)
----------------- -----------------
Total other expense (542,907) (78,200)
----------------- -----------------
NET LOSS $ (839,414) $ (542,157)
================= =================
BASIC LOSS PER SHARE $ (0.07) $ (0.15)
================= =================
DILUTED LOSS PER SHARE $ (0.07) $ (0.15)
================= =================
WEIGHTED-AVERAGE SHARES OUTSTANDING 11,638,059 3,597,726
================= =================
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE SIX MONTHS ENDED AUGUST, 31
2000 1999
---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (839,414) $ (542,157)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 106,786 130,182
Below-market conversion feature of convertible debt 357,908 -
Common stock issued for interest 4,074 -
Common stock issued for services 17,500 -
Stock options issued for services 18,750 -
(Increase) decrease in
Restricted cash 35,000 -
Accounts receivable 11,162 39,820
Inventories 2,520 5,134
Prepaid expenses and other assets (10,016) 6,351
Increase (decrease) in
Due to related party (51,600) 69,799
Accounts payable (106,603) 156,219
Accrued payroll and other expenses (40,402) 3,513
Accrued interest 107,553 72,000
---------------- ----------------
Net cash used in operating activities (386,782) (59,139)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (7,003) (22,697)
Increase in intangibles (30,331) -
---------------- ----------------
Net cash used in investing activities (37,334) (22,697)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 437,500 202,526
Repayment of notes payable (14,000) -
---------------- ----------------
Net cash provided by (used in) financing activities 423,500 202,526
---------------- ----------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31,2000 AND
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE SIX MONTHS ENDED AUGUST 31,
2000 1999
---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents $ (616) $ 120,690
CASH AND CASH EQUIVALENTS (BOOK OVERDRAFT), BEGINNING OF
YEAR (46,692) (118,277)
---------------- ----------------
Cash and Cash Equivalent
(BOOK OVERDRAFT), END OF YEAR $ (47,308) $ 2,413
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 73,791 $ 6,200
================ ================
INCOME TAXES PAID $ 6,400 $ 4,661
================ ================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended August 31,2000, the Company converted $512,500 of
notes payable and $861 of accrued interest into 5,733,611 shares of common
stock.
During the six months ended August 31,2000, the Company issued 150,000 shares of
common stock for $21,000 of consulting services. $10,500 of consulting services
were rendered during the six months ended August 31,2000 and $10,500 of the
consulting services were rendered in the prior year.
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31,2000 AND
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
During the six months ended August 31, 2000, the Company issued 433,333 shares
of common stock for $65,000 of services.
During the six months ended August 31,2000, the Company issued 52,000 shares of
common stock for $13,000 services.
During the six months ended August 31,2000, the Company issued 20,000 shares of
common stock for $7,000 of consulting services.
During the six months ended August 31, 2000, the Company issued 40,740 shares of
common stock for $4,074 of interest.
During the six months ended August 31, 1999 the Company converted $201,000 of
accounts payable into 670,000 shares of common stock.
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Multi-Media Tutorial Services, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principals for interim financial
information and in accordance with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principals for complete financial statements. In the opinion
of management, all material adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month period ended August 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended February 28, 2001. The information contained in this Form 10-QSB should be
read in conjunction with the audited financial statements filed as part of the
Company's Form 10-KSB ending February 29, 2000.
GOING CONCERN ISSUES
The Company has received a report from its independent auditors that includes an
explanatory paragraph describing the Company's uncertainty to continue as a
going concern. These consolidated financial statements contemplate the ability
to continue as such and do not include any adjustments that might result from
this uncertainty.
NET LOSS PER SHARE
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share is
computed by dividing loss available to common stockholders by the
weighted-average number of commons shares outstanding. Diluted loss per share is
computed similar to basic loss per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. For the years ended February 29, 2000 and February
28, 1999, the Company incurred net losses; therefore, basic and diluted loss per
share are the same.
COMPREHENSIVE INCOME
The Company utilizes SFAS No. 130 "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financials statements since the Company did not have
any of the items of comprehensive income in any period presented.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
During the first six months ended August 31, 2000, the Company converted
$512,500 of short-term notes payable and $861 of accrued interest payable into
5,733,611 shares of common stock.
In addition, the Company issued 655,333 shares of common stock for consulting
services valued at $106,000, of which $88,500 was committed and recorded as of
February 29, 2000.
In March, May and July 2000, the Company issued $450,690 of short-term, secured
convertible promissory notes. The notes bear interest at 10% per annum and are
convertible into common stock at a price of (i) $0.50 or (ii) 50% of the average
of the closing bid price for the five days immediately preceding the conversion.
The notes cannot be converted at a price less than $0.10 per share. The shares
are convertible at a price less than $0.10 per share. The shares are convertible
at a par value of $0.01 of the Company's stock or at a par value of $0.001 of
the common stock of TheTutorialChannel.com. Related to the issuance, the Company
recognized the below-market conversion feature by recording non-cash interest
expense of $357,908.
STOCK OPTIONS
The Company uses APB Opinion No. 25 "Accounting for Stock Issued to Employees"
to calculate the compensation expense related to the grant of options to
purchase Common Stock under the intrinsic value method. Accordingly, the Company
makes no adjustments to its compensation expense or equity accounts for the
grant of options. The Company granted options for the period ended May 31, 2000.
In March 2000, the Company granted 150,000 options for consulting services
valued at $10,500 at an exercise price of $0.25.
The Company granted 250,000 options in October 1999 for consulting services of
which $8,250 was booked as of February 29, 2000 and $8,250 for the six months
ended August 31, 2000 per the vesting period.
FACTOR AGREEMENT
During the three months ended August 31,2000 the Company factored and financed
$204,000 of sales. Pursuant to the factoring agreement the Company sells without
recourse its trade receivables of specific telemarketing accounts. The factor
advances the Company funds before the due date of the trade receivables. The
factored sales and advances bear interest at 8 1/2% of the sale. For the three
months ended August 31, 2000 the Company incurred $17,315 of charges.
<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------
SUBSEQUENT EVENTS
Subsequent to August 31, 2000 the company issued 1,000,000 shares of common
stock and 1,000,000 warrants at an exercise price of $.025 for $100,000.
Additionally, the company converted $28,000 of accounts payable into 280,000
shares of common stock.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THIS REPORT, INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS DISCLOSED IN THE
"RISK FACTORS" SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEARS ENDED FEBRUARY 28, 2000 AND 1999, WHICH READERS OF THIS REPORT
SHOULD CONSIDER CAREFULLY.
RESULTS OF OPERATIONS FOR THE THREE (3) MONTHS ENDED AUGUST 31, 2000
AND 1999. Net sales for the three (3) months ended August 31, 2000 (the "2000
Period") were $429,215 compared to $798,210 in the three (3) months ended August
31, 1999 (the "1999 Period").
Gross profit was $419,064 in the 2000 Period compared to $745,234 in
the 1999 Period. Net sales and related gross profit decreased in the 2000 Period
from the 1999 Period due to a reduction in advertising in the 2000 Period. This
reduction was a result of an increase in advertising prices, which caused the
advertising to cease to be cost effective.
Selling and marketing expenses were $260,656 in the 2000 Period
compared to $398,048 for the 1999 Period. Selling and marketing expenses were
significantly reduced as the Company eliminated advertising, which had become
inefficient.
General and administrative expenses were $267,461 in the 2000 Period
compared to $331,116 in the 1999 Period. Included in General and Administrative
expenses were legal and accounting fees of approximately $66,000 in connection
with the preparation of the company's financial statements and approximately
$48,000 for consulting fees in connection with the launch of the Tutorial
Channel.com, Inc., a wholly owned subsidiary of the Company. General and
administrative expenses were reduced in the fiscal quarter ended August 31,
2000, as the Company reduced its overhead personnel by consolidating its
operations under a leaner management team.
Depreciation and amortization decreased to $54,786 in the 2000 Period
from $64,963 in the 1999 Period. This decrease was due to certain assets being
fully depreciated in the prior year.
Interest expense was $81,016 in the 2000 Period compared to $36,000 in
the 1999 Period. The Company also had non-cash interest charges of $4,074 in the
2000 Period related t the issuance of stock for interest expense. Of the $81,016
of interest expense in the 2000 Period, $14,350 related to a cash payment
related to the financing of the convertible promissory notes.
Net loss was $248,929 in the 2000 Period compared to $84,893 in the
1999 Period. Loss from operations was $163,839 in the 2000 Period compared to
$48,893 in the 1999 Period. The non-recurring interest charges constituted
$14,350 of the net losses in the 2000 Period. Loss from operations before
depreciation and amortization was $109,053 for the 2000 period and income before
depreciation and amortization was $16,070 for the 1999 period.
During the first half of fiscal year ended February 29, 2000, the
Company was still actively purchasing significant quantities of advertising time
on national radio. Due to the influx of dot com advertisers, the inventory
available was limited to unfavorable air times and rates for such advertising
increased. This resulted in a deterioration in the advertising performance.
Beginning in the second half of fiscal year ended February 29, 2000,
management reduced the Company's dependency on such advertising and restricted
its purchasing to those areas of advertising, which were still available on
favorable terms. The Company also took steps to diversify its revenue base,
which included a greater share of revenue from teleservicing.
Management also took steps to transition its educational sales from
off-line advertising to an internet model. The Company developed a fully
functioning e-commerce site, 1800USAMATH.COM, and has developed an advertising
3
<PAGE>
strategy designed to procure leads from other educational and family related
sites at a lower cost per lead than what the Company had been paying for
off-line leads. Additionally, the Company is developing its product line for
on-line learning, which it intends to provide on a subscription basis.
RESULTS OF OPERATIONS FOR THE SIX (6) MONTHS ENDED AUGUST 31, 2000 AND
1999. Net sales for the six (6) months ended August 31, 2000 (the "2000 Period")
were $954,470 compared to $1,770,234 in the six (6) months ended August 31, 1999
(the "1999 Period").
Gross profit was $861,832 in the 2000 Period compared to $1,578,803 in
the 1999 Period. Net sales and related gross profit decreased in the 2000 Period
from the 1999 Period due to a reduction in advertising in the 2000 Period. This
reduction was a result of an increase in advertising prices, which caused the
advertising to cease to be cost effective.
Selling and marketing expenses were $515,218 in the 2000 Period
compared to $1,297,224 for the 1999 Period. Selling and marketing expenses were
significantly reduced as the Company eliminated advertising, which had become
inefficient.
General and administrative expenses were $500,085 in the 2000 Period
compared to $615,354 in the 1999 Period. General and administrative expenses
were reduced in the six (6) months ended August 31, 2000, as the Company reduced
its overhead personnel by consolidating its operations under a leaner management
team.
Interest expense was $180,925 in the 2000 Period compared to $78,200 in
the 1999 Period. The Company also had non-cash interest charges of $361,982 in
the 2000 Period related to the below-market conversion features of certain
convertible promissory notes issued by the Company from November, 1999 through
July , 2000 and issuance of stock for interest expense. Of the $180,925 of
interest expense in the 2000 Period, $60,550 related to a cash payment related
to the financing of the convertible promissory notes.
Depreciation and amortization decreased to $106,786 in the 2000 Period
from $130,182 in the 1999 Period. This decrease was due to certain assets being
fully depreciated during the prior year.
Stock based compensation increased from $36,250 in the 2000 Period from
none in the 1999 Period.
Net loss was $839,414 in the 2000 Period compared to $542,157 in the
1999 Period. Loss from operations was $296,507 in the 2000 Period compared to
$463,957 in the 1999 Period. The non-recurring interest charges constituted
$422,532 of the net losses in the 2000 Period. Loss from operations before
depreciation and amortization was $189,721 and $333,775 for the six (6) months
ended August 31, 2000 and August 31, 1999, respectively.
During the first half of fiscal year ended February 29, 2000, the
Company was still actively purchasing significant quantities of advertising time
on national radio. Due to the influx of dot com advertisers, the inventory
available was limited to unfavorable air times and rates for such advertising
increased. This resulted in a deterioration in the advertising performance.
Beginning in the second half of fiscal year ended February 29, 2000,
management reduced the Company's dependency on such advertising and restricted
its purchasing to those areas of advertising, which were still available on
favorable terms. The Company also took steps to diversify its revenue base,
which included a greater share of revenue from teleservicing.
Management also took steps to transition its educational sales from
off-line advertising to an internet model. The Company developed a fully
functioning e-commerce site, 1800USAMATH.COM, and has developed an advertising
strategy designed to procure leads from other educational and family related
sites at a lower cost per lead than what the Company had been paying for
off-line leads. Specifically, the Company has engaged Hot Socket, Inc. to
develop an internet marketing campaign which is designed to test varying
promotions, pricing strategies and website designs. The Company plans to utilize
the results to fashion its internet marketing strategy. Additionally, the
Company is developing its product line for on-line learning, which it intends to
provide on a subscription basis.
4
<PAGE>
The Company is pursuing joint alliances in relationship to its internet
marketing. As an example, the Company has entered into an agreement on June 6,
2000 with 1st Webbank Direct, a division of Sovereign Bank, whereby the
Company's Math Made Easy product line will be offered to 1st Webbank Direct
customers as a promotion and visitors to the Math Made Easy website will be
offered 1st Webbank Direct banking services. The Company has agreed to sell its
educational tapes to 1st Webbank Direct for the 1st Webbank Direct promotion and
agreed upon a receiving a royalty arrangement with 1st Webbank Direct based upon
customers referred to it by Math Made Easy.
LIQUIDITY AND CAPITAL RESOURCES. The Company's cash and restricted cash
decreased to $15,000 at August 31, 2000 from $50,000 at February 29, 2000. The
Company did not have any cash, other than restricted cash, at August 31, 2000.
Net cash used in operations in the six (6) months ended August 31, 2000
was $386,782 compared to $59,139 in the six (6) months ended August 31, 1999.
Net cash used in investing activities in the six (6) months ended
August 31, 2000 was $37,334 compared to $22,697 in the six (6) months ended
August 31, 1999.
Net cash provided from financing activities in the six (6) months ended
August 31, 2000 was $423,500, compared to $202,526 in the six (6) months ended
August 31, 1999.
As of May 24, 1999, the Company effected a reverse split of its issued
and outstanding Common Stock on a one-for-ten basis.
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 an
accelerated rate of 17% per annum beginning April 17, 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. 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 was
converted into 34,190 shares and $250,000 of principal remain outstanding and
are currently due and payable. As a result of the conversion, 45,455 shares
remained in escrow.
In May and June 1997, the Company secured approximately $350,000 of
loans ("1997 Loans"), which were used for working capital and for debt
repayment. As of June 9, 2000, the noteholders had converted all of the loans
into 5,200,000 shares of Common Stock, including 1,600,000 shares of Common
Stock issued in the fiscal quarter ended May 31, 2000.
The Company has received advances aggregating $375,000, which bear
interest at the rate of 10% per year, and are currently due and payable.
At August 31, 2000, the Company maintained advances of $31,624 from
Barry and Anne Reichman, who are directors and executive officers of the
Company.
In December, 1999 the Company entered into an agreement with Gaspra,
Inc., a software development company, to develop a website and to convert a
portion of its educational video product into on-line learning courses utilizing
flash technology. The Company agreed to pay $130,000 for these services and
issued 433,333 shares of Common Stock in satisfaction of $65,000 of this
obligation in the fiscal quarter ended May 31, 2000. The Company has agreed to
issue an additional 433,333 shares in satisfaction of the $65,000 balance, once
the Company has determined that the project has been completed to its
satisfaction.
5
<PAGE>
From November, 1999, to July, 2000, the Company issued approximately
$763,000 of convertible, unsecured promissory notes. The notes bear interest at
the rate of 10% PER ANNUM, and are due 10-months following the date of issuance.
The notes are convertible into Common Stock at the lesser of: (i) $0.50 per
share, or (ii) 50% of the average of the closing bid price for the Common Stock
during the five (5) days immediately preceding conversion. However, the notes
may not be converted at a price of less than $0.10 per share. The notes may be
converted into a number of shares of common stock of the Company's subsidiary,
The Tutorial Channel.com, equal to 1% of the issued and outstanding shares of
common stock of such subsidiary for each $25,000 principal amount with respect
to $600,000 of certain of these notes (Series A Notes), and equal to 0.25% of
the issued and outstanding shares of common stock of such subsidiary for each
$25,000 principal amount with respect to $163,000 of certain of these notes
(Series B Notes). Each class of these notes is convertible on the earlier of (i)
the last business day preceding the filing of the first registration statement
for the common stock of such subsidiary, or (ii) December 1, 2000. As of August
31, 2000, the Company converted $312,500 principal amount of the Series A Notes
and $100,000 principal amount of Series B Notes, plus accrued interest, at a
conversion price of $0.10 per share, into an aggregate of 4,133,611 shares of
Common Stock. The Company recorded a non-cash interest expense of $357,908 in
connection with the below-market conversion feature of these notes.
From November, 1999 to February, 2000, the Company issued $100,000 of
unsecured, demand promissory notes, bearing interest at the rate of 10% PER
ANNUM.
As of February 2, 2000, the Company converted an account payable of
$135,500 due to its former accountants, Holtz Rubenstein & Co., LLP, into a
one-year Series B Note, in the principal amount of $135,500, bearing interest at
the rate of 10% PER ANNUM.
In August, 2000, the Company issued 40,740 shares of Common Stock to a
consultant in consideration of an interest payment of $4,074.
In September, 2000, the Company issued 1,000,000 shares of Common Stock
to an existing stockholder of the Company in consideration of $100,000. The
shares have certain piggyback registration rights.
In September, 2000, the Company issued 280,000 shares of Common Stock
in consideration of the conversion of $28,000 in payables to a vendor.
As of October, 2000, the Company had judgments entered against it by
certain of its vendors in the aggregate amount of approximately $60,000. The
Company has reached agreements or is in the course of negotiating agreements
with these vendors to make scheduled payments on these obligations. Further,
certain creditors of the Company have commenced various lawsuits asserting
claims in the aggregate amount of approximately $235,000. In addition, the
Company has been sued by a vendor for approximately $100,000, and the Company
has asserted a counterclaim against the vendor seeking damages in the sum of
$500,000. The Company also has reached agreements with certain of its vendors
relating to obligations in the aggregate amount of approximately $760,000. Of
these settled amounts, approximately $740,000 is payable over a period of two
(2) years, and the other $25,000 is payable over a period between 6 to 18
months.
The Company continues to meet its working capital requirements through
debt and equity funding from outside sources and internally generated funds. In
addition, the Company may have increased capital requirements as it seeks to
expand its product lines and customized telemarketing services. In order to meet
its current and future cash requirements, the Company is in discussions to
negotiate additional debt and equity 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, which has been filed with the Company's Annual Report on Form
10-KSB for the fiscal year ended February 29, 2000, that includes an explanatory
paragraph describing the uncertainty as to the ability of the Company's
operations to continue as a going concern.
6
<PAGE>
The Company's operations have not been materially affected by the
impact of inflation. YEAR 2000
The Company has updated its computer systems to address issues related
to year 2000 compliance. Financial and operational systems were developed to
address systems modification requirements to become year 2000 compliant. The
financial impact of making the required systems changes was not material to the
Company's consolidated financial position, liquidity and results of operations.
In the first week of January, 2000, the Company experienced a year 2000 problem
relating to the operations of its voice mail system. The problem has been
resolved with minimal expense, and the problem did not have a material adverse
effect on the operations of the Company during the weeklong period and the
Company does not anticipate that there will be a material adverse effect on the
Company relating to the matter for the foreseeable future.
DOCUMENTS INCORPORATED BY REFERENCE
THE COMPANY IS CURRENTLY SUBJECT TO THE REPORTING REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT") AND IN
ACCORDANCE THEREWITH FILES REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE COMMISSION. SUCH REPORTS, PROXY STATEMENTS AND OTHER INFORMATION MAY BE
INSPECTED AND COPIED AT THE PUBLIC REFERENCE FACILITIES OF THE COMMISSION AT
JUDICIARY PLAZA, 450 FIFTH STREET, N.W., WASHINGTON D.C. 20549; AT ITS NEW YORK
REGIONAL OFFICE, SUITE 1300, 7 WORLD TRADE CENTER, NEW YORK, NEW YORK, 10048;
AND AT ITS CHICAGO REGIONAL OFFICE, 500 WEST MADISON STREET, SUITE 1400,
CHICAGO, ILLINOIS 60661, AND COPIES OF SUCH MATERIALS CAN BE OBTAINED FROM THE
PUBLIC REFERENCE SECTION OF THE COMMISSION AT ITS PRINCIPAL OFFICE IN
WASHINGTON, D.C., AT PRESCRIBED RATES. IN ADDITION, SUCH MATERIALS MAY BE
ACCESSED ELECTRONICALLY AT THE COMMISSION'S SITE ON THE WORLD WIDE WEB, LOCATED
AT http://www.sec.gov.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
c. Recent Sales of Unregistered Securities.
----------------------------------------
From November, 1999, to July, 2000, the Company issued approximately
$763,000 of convertible, unsecured promissory notes. The notes bear interest at
the rate of 10% PER ANNUM, and are due 10-months following the date of issuance.
The notes are convertible into Common Stock at the lesser of: (i) $0.50 per
share, or (ii) 50% of the average of the closing bid price for the Common Stock
during the five (5) days immediately preceding conversion. However, the notes
may not be converted at a price of less than $0.10 per share. The notes may be
converted into a number of shares of common stock of the Company's subsidiary,
The Tutorial Channel.com, equal to 1% of the issued and outstanding shares of
common stock of such subsidiary for each $25,000 principal amount with respect
to $600,000 of certain of these notes (Class A Notes), and equal to 0.25% of the
issued and outstanding shares of common stock of such subsidiary for each
$25,000 principal amount with respect to $163,000 of certain of these notes
(Class B Notes). Each class of these notes is convertible on the earlier of (i)
the last business day preceding the filing of the first registration statement
for the common stock of such subsidiary, or (ii) December 1, 2000. As of August
31, 2000, the Company converted $312,500 principal amount of the Series A Notes
and $100,000 principal amount of Series B Notes, plus accrued interest, at a
conversion price of $0.10 per share, into an aggregate of 4,133,611 shares of
Common Stock.
7
<PAGE>
In August, 2000, the Company issued 40,740 shares of Common Stock to a
consultant in consideration of an interest payment of $4,074.
In September, 2000, the Company issued 1,000,000 shares of Common Stock
to an existing stockholder of the Company in consideration of $100,000. The
shares have certain piggyback registration rights.
In September, 2000, the Company issued 280,000 shares of Common Stock
in consideration of the conversion of $28,000 in payables to a vendor.
These securities were issued in transactions exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
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) EXHIBIT 27 - Financial Data Schedule.
(b) REPORTS ON FORM 8-K - The Company did not file any Reports on Form
8-K during the quarter ended August 31, 2000.
8
<PAGE>
SIGNATURES
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.
Date: October 16, 2000 By: /s/ Barry Reichman
-------------------------------
Barry Reichman
Chief Executive Officer and
Chief Financial Officer
9
