UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 2-91525-NY
MARKET GUIDE INC.
(Exact name of Registrant as specified in its charter)
New York 11-646081_________ __
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2001 Marcus Avenue
Suite South 200
Lake Success, New York 11042-1011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (516) 327-2400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 _______
4,830,080 Common shares, $.001 par value were issued and outstanding
on July 1, 1999.
Table of Contents
Part I - Financial Statements
Item 1: Financial Statements
The following financial statements of the Registrant are included:
Condensed Balance Sheets - May 31, 1999 (unaudited)
and February 28, 1999 3
Condensed Statements of Income (unaudited) - Three Months
Ended May 31, 1999 and 1998 (Restated) 5
Condensed Statements of Cash Flows (unaudited) - Three
Months Ended May 31, 1999 and 1998 (Restated) 6
Notes to Condensed Financial Statements (unaudited) 7
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
MARKET GUIDE INC.
Condensed Balance Sheets
May 31, February 28,
1999 1999
-------------------------- ------------------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 2,183,807 $ 1,838,408
Accounts receivable, net of allowance for doubtful
accounts of $34,000 at May 31, 1999 and
February 28, 1999 1,515,441 1,220,869
Prepaid expenses and other current assets 203,853 272,038
Deferred income taxes 191,008 191,008
--------------------- ----------------------
Total current assets 4,094,109 3,522,323
Property and equipment, at cost:
Furniture and equipment 1,546,507 1,687,987
Equipment held under capital leases 1,222,844 942,950
Leasehold improvements 102,920 92,930
--------------------- ----------------------
2,872,271 2,723,867
Less: accumulated depreciation and amortization
(including amortization of $642,996 at May 31, 1999 and
$545,985 at February 28, 1999 on capital leases) 1,240,417 1,097,653
--------------------- ----------------------
Net property and equipment 1,631,854 1,626,214
Notes receivable, net of deferred gain of $919,000 at
May 31, 1999 and $890,000 at February 28,1999 - -
Computer software and database expansion, net of
accumulated amortization of $2,033,009 at May 31, 1999
and $1,916,881 at February 28, 1999 2,936,705 2,798,345
Deposits and other assets 66,057 66,057
--------------------- ----------------------
Total assets $ 8,728,725 $ 8,012,939
===================== ======================
See accompanying notes.
MARKET GUIDE INC.
Condensed Balance Sheets - continued
May 31, February 28,
1999 1999
--------------------------- ---------------------
Liabilities and stockholders' equity (unaudited)
Current liabilities:
Accounts payable and accrued expenses $ 417,209 $ 248,620
Current portion of long-term debt 157,250 157,250
Current portion of capital lease obligations 257,187 201,625
Unearned revenues 686,330 693,073
--------------------- ---------------------
Total current liabilities 1,517,976 1,300,568
Deferred rent 415,195 419,306
Long-term debt 196,563 235,875
Capital lease obligations 315,785 167,232
--------------------- ---------------------
Total liabilities 2,445,519 2,122,981
Stockholders' equity:
Common stock - $.001 par value; 20,000,000 shares authorized, 4,801,380 and
4,792,213 shares issued and outstanding at May 31, 1999 and
February 28, 1999, respectively 4,801 4,792
Additional paid-in capital 5,770,847 5,715,891
Retained earnings 507,558 169,275
--------------------- ------------------
Total stockholders' equity 6,283,206 5,889,958
--------------------- ---------------------
Total liabilities and stockholders' equity $ 8,728,725 $ 8,012,939
===================== =====================
See accompanying notes.
MARKET GUIDE INC.
Condensed Statements of Income
(Unaudited)
For the 3 Months Ended
---------------------------------------
May 31, May 31,
1999 1998
----------------- -----------------
(restated)
Revenues:
Database vendors $ 2,027,973 $ 1,569,091
Market Guide products 685,962 480,945
Print products 11,722 10,894
--------------- ----------------
Total revenues 2,725,657 2,060,930
Expenses:
Costs of revenues 1,050,356 675,515
Selling, general and administrative 784,125 631,623
Advertising and promotion 66,814 48,271
Depreciation 142,764 100,750
Amortization 116,128 92,011
--------------- ----------------
Total expenses 2,160,187 1,548,170
--------------- ----------------
Income from operations 565,470 512,760
Interest income 21,227 4,864
Interest expense (22,894) (25,206)
--------------- ----------------
Income from continuing operations before income taxes 563,803 492,418
Income tax expense 225,521 4,719
--------------- ----------------
Income from continuing operations 338,282 487,699
Discontinued operations:
Loss from discontinued operations, net of taxes - (268,530)
--------------- ----------------
Net income $ 338,282 $ 219,169
=============== ================
Net income (loss) per share - basic:
Continuing operations $ 0.07 $ 0.10
Discontinued operations - (0.06)
--------------- ----------------
Net income $ 0.07 $ 0.04
=============== ================
Net income (loss) per share - diluted:
Continuing operations $ 0.07 $ 0.10
Discontinued operations (0.06)
-
--------------- ----------------
Net income $ 0.07 $ 0.04
=============== ================
Shares used in the calculation of net income (loss) per share:
Basic 4,795,716 4,735,144
=============== ================
Diluted 5,148,730 4,977,787
=============== ================
See accompanying notes.
MARKET GUIDE INC.
Condensed Statements of Cash Flows
(Unaudited)
For the 3 Months Ended
May 31, May 31,
1999 1998
------------------ -------------------
(restated)
Cash Flows From Operating Activities From Operations:
Income from continuing operations $ 338,282 $ 487,699
------------------ -------------------
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities:
Depreciation and amortization 258,892 192,761
Provision for bad debts - 10,000
Issuance of common stock - 10,596
Deferred rent (4,111) (652)
Changes in operating assets and liabilities:
Accounts receivable (294,572) (117,498)
Prepaid expenses and other current assets 68,185 (2,266)
Accounts payable and accrued expenses 168,589 51,333
Unearned revenues (6,743) (6,299)
------------------ -------------------
Total adjustments 190,240 137,975
------------------ -------------------
Net cash provided by operating activities from
continuing operations 528,522 625,674
------------------ -------------------
Cash Flows From Investing Activities:
Purchases of property and equipment (148,404) (186,068)
Computer software and database expansion (254,488) (190,965)
------------------ -------------------
Net cash used in investing activities (402,892) (377,033)
------------------ -------------------
Cash Flows From Financing Activities:
Repayments of long-term debt and capital leases (115,090) (49,825)
Proceeds from capital leases 279,894 -
Proceeds from issuance of common stock in
connection with stock purchase plan 35,165 47,233
Proceeds from stock options exercised 19,800 75,000
------------------ -------------------
Net cash provided by financing activities 219,769 72,408
------------------ -------------------
Cash Flows From Discontinued Operations:
Loss from discontinued operations including gain on
sale, net of taxes - (268,530)
Adjustments to reconcile loss from discontinued operations to net cash
used in discontinued operations:
Depreciation and amortization - 32,004
Decrease in net assets of discontinued operations - 70,847
------------------ -------------------
Net cash used in discontinued operations - (165,679)
------------------ -------------------
Net increase in cash and cash equivalents 345,399 155,370
Cash and cash equivalents at beginning of period 1,838,408 809,618
------------------ -------------------
Cash and cash equivalents at end of period $ 2,183,807 $ 964,988
See accompanying notes.
MARKET GUIDE INC.
Notes to Condensed Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting only of normal
recurring accruals and adjustments) necessary to present fairly the
financial position of the Company as of May 31, 1999, the results of its
operations for the three months ended May 31, 1999 and 1998 and changes in
its cash flows for the three months ended May 31, 1999 and 1998.
All information for the period ended May 31, 1998 has been restated to
reflect the sale of the CreditRisk Monitor division to
New Generation Foods Inc. (name changed to CreditRiskMonitor.com, Inc.).
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X and do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. Operating results for the three months
ended May 31, 1999 are not necessarily indicative of operating results
that may be expected for the year ending February 29, 2000.
The accompanying condensed financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended February 28, 1999.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations for the three months end
May 31, 1999 and 1998.
May 31, 1999 May 31, 1998
----------------------- -----------------------
(restated)
Numerator:
Income from continuing operations $ 338,282 $ 487,699
----------------------- -----------------------
Denominator:
Denominator for basic earnings per share
- weighted-average shares 4,795,716 4,735,144
Effect of dilutive securities:
Stock options 353,014 242,643
----------------------- -----------------------
Denominator for diluted earnings per share
-adjusted weighted-average shares and
assumed conversions 5,148,730 4,977,787
----------------------- -----------------------
Basic earnings per share 0.07 0.10
======================= =======================
Diluted earnings per share 0.07 0.10
======================= =======================
3. Merger with Multex.com
On June 23, 1999, the Company, Multex.com, Inc., a Delaware corporation
("Multex"), and Merengue Acquisition Corp., a New York corporation and
a wholly owned subsidiary of Multex ("Merengue"), executed an Agreement
and Plan of Merger and Reorganization, dated as of June 23, 1999 (the
"Merger Agreement"), pursuant to which Merengue will merge with and
into the Company and the Company will continue as a wholly owned
subsidiary of Multex (the "Merger"). Under the terms of the Merger
Agreement, each outstanding share of the Company's common stock will be
exchanged for one share of Multex common stock. The transaction will be
accounted for as a pooling of interests and will qualify as a tax-free
reorganization. The Merger is expected to close in the fall of 1999
subject to various conditions, including the expiration or termination
of any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and approval by the shareholders
of both the Company and Multex.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the three months ended May 31, 1999 compared to restated May 31, 1998
Total revenues for the first quarter ended May 31, 1999 increased 32% to
$2,725,657 compared to a restated $2,060,930 for the same period ended May 31,
1998. The growth in revenues reflects increases of 29% in database vendor sales
to $2,027,973 and 43% in Market Guide product sales to $685,962. Revenue gains
reflect increased business activity in all of Market Guide's distribution
channels. Traditional and Internet distribution arrangements increased 62% from
65 vendors in May 1998 to 105 vendors in May 1999. The majority of these new
agreements involve licensing of Market Guide's proprietary financial and company
content to Internet portals and financial web sites. Internet advertising
revenues increased 175% in response to a sharp rise in traffic on the
marketguide.com web site. The Company's advertising base currently consists
primarily of discount brokers and Internet financial web sites. In future
quarters, the Company plans to increase Internet advertising by expanding its
reach to non-financial advertisers as well. Print product revenues, consisting
mainly of the Market Guide - Select OTC Stock Edition, increased 8% to $11,722,
however the Company continues to de-emphasize this product.
Total operating expenses increased 40% to $2,160,187 from $1,548,170 for the
same period ended May 31, 1998 reflecting higher costs of revenues and selling,
general, and administrative expenses.
Cost of revenues increased 55% to $1,050,356 compared to $675,515 in the same
period ended May 31, 1998. This increase reflects an increase in the number of
employees in Research, Product Development, and MIS, and higher third party
royalty payments for content displayed on the www.marketguide.com web site. Data
collection expense was also impacted by the effect of an approximate $50,000
non-recurring research charge related to transitioning the Company's internal
data collection platform to a new database structure.
Selling, general and administrative expenses rose 24% to $784,125 compared to
$631,623 in the same period ended May 31, 1998. This increase is attributable to
higher selling expenses and increased overhead costs. The Company continues to
expand its sales and marketing effort to capture the increased demand for Market
Guide's products.
Depreciation and amortization expense increased 34% to $258,892 compared to
$192,761 in the same period ended May 31, 1998. Higher depreciation expense
reflects the acquisition of equipment to support the Company's expanding
Internet infrastructure and the purchase of additional computer equipment to
support a larger employee base. The increase in amortization expense reflects
the Company's completion at the end of April 1999 of its internal database
conversion project which is now being amortized over its estimated useful life.
Advertising and promotion costs increased 38% to $66,814 compared to $48,271 in
the same period ended May 31, 1998. The rise in advertising and promotion
expenses is due to increased marketing literature, trade shows, travel, meals
and entertainment costs.
Interest income rose 336% to $21,227 compared to $4,864 in the same period ended
May 31, 1998 due to higher cash balances. The majority of the increase in cash
and marketable securities was attributable to the sale of the CreditRisk Monitor
division in January 1999.
Interest expense decreased 9% to $22,894 compared to $25,206 in the same period
ended May 31, 1998.
Income from continuing operations before income taxes increased 14% to $563,803
compared to a restated $492,418 in the same period ended May 31, 1998.
Income tax expense increased from $4,719 in the quarter ended May 31, 1998 to
$225,521 in the quarter ended May 31, 1999. The Company's effective tax rate
rose to 40% in the first quarter ended May 31, 1999 compared to 1.0% in the same
period ended May 31, 1998.
As a result of the higher tax expenses, income from continuing operations
decreased 31% to $338,282 compared to $487,699 in the same period
ended May 31, 1998.
Net income increased 54% to $338,282 compared to $219,169 in the same period
ended May 31, 1998. The increase in net income reflects the absence of losses
from discontinued operations in the quarter ended May 31, 1999 compared to
losses from discontinued operations of $268,530 in the quarter ended May 31,
1998. As previously reported, the Company sold its CreditRisk Monitor division
to New Generation Foods, Inc. in January 1999 (In May 1999, New Generation
Foods, Inc. changed its name to CreditRiskMonitor.com, Inc.).
Liquidity and Capital Resources
As of May 31, 1999, the Company's working capital (current assets less current
liabilities) increased 16% to $2,576,133 when compared to $2,221,755 at February
28, 1999. The increase of $354,378 in working capital resulted principally from
an increase in cash and cash equivalents. The Company's cash and cash
equivalents increased 19% to $2,183,807 when compared to $1,838,408 at February
28, 1999.
For the first quarter ended May 31, 1999, net cash provided by operating
activities from continuing operations decreased 16% to $528,522 when compared to
a restated $625,674 for the quarter ended May 31, 1998. This decrease reflects a
reduction in income from continuing operations due to higher taxes and an
increase in accounts receivable balances, partially offset by higher
depreciation and amortization expense.
For the first quarter ended May 31, 1999, net cash used in investing activities
increased 7% to $402,892 when compared to a restated $377,033 in the first
quarter ended May 31, 1998. Results reflect an increase in capitalized project
costs related primarily to the Business Information Database project.
For the first quarter ended May 31, 1999, net cash provided by financing
activities rose 204% to $219,769 when compared to a restated $72,408 in the
first quarter ended May 31, 1998. Financing activities reflect $280,000 in
proceeds from a capital lease.
The Company believes its current working capital, cash to be generated from
operating activities and accounts receivable under its existing credit
facilities will be sufficient to meet its obligations during the next twelve
months.
Year 2000 Compliance
Market Guide has completed its inventory and assessment of its internal systems,
proprietary software, and products. Indications are Market Guide is ready for
the change occurring January 1, 2000. All systems are being thoroughly tested
before being put into production.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the particular year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to accurately compute financial ratios and/or
deliver our products, process transactions, send invoices, or engage in similar
normal business activities.
Currently, the Company is in the process of comprehensive, systematic testing of
all aspects of its business. The Company is communicating with all of its
significant suppliers and customers to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year 2000
Issues. The Company's current assessment, based on presently available
information, is detailed below. However there can be no guarantee that the
systems of other companies on which Market Guide's system relies will be
converted on a timely basis, or that a failure to convert by another company, or
a conversion that is incompatible with the Market Guide systems, would not have
a material adverse effect on the Company.
As of July 1999, the following states of readiness are believed to exist for the
following subject areas:
Products
Market Guide's products will not be changed as a result of the Year 2000
readiness program. Formats for all date elements in each of our products will
not change. Most of the Company's current files already include only four-digit
years. Any two-digit years will continue to be represented by two digits. All
calculations involving dates as well as the production and dissemination of
these files are being rigorously tested. Testing has shown Market Guide products
to be compliant for operation in the year 2000 and beyond.
Production Processes and Application Software
Market Guide has built a separate, clean test production environment to mirror
its daily production environment. This test environment is being used to insure
in-house systems are Y2K ready as well as enabling the Company to identify those
third party information providers who are also Year 2000 ready. Testing will be
completed by August 31, 1999. The test environment will not be dismantled until
well into the year 2000, allowing the Company to address and test any
unanticipated problems as they arise.
Market Guide is committed to having a Year 2000 compliant environment in place
by August 31, 1999. The Company will maintain compliance by using "clean
management" to ensure all new processes introduced into its production
environment are thoroughly tested beforehand.
Internal Administrative Systems
All hardware, systems software, third party application software, and outside
services are being examined for Year 2000 readiness. The Company is currently
reviewing its office systems (telephone, security, workstations, accounting
systems, etc.) in order to reprogram or replace incompatible hardware or
software.
Contingency Planning
All departments at Market Guide are in the process of drafting contingency plans
for the Company's mission critical systems in the event of an unforeseen Y2K
failure. An experienced Y2K contingency planner, who previously created Y2K
contingency plans for a major Fortune 500 company, is leading the Company's
planning. Contingency plans will be completed by September 1999, with rehearsals
scheduled during the fourth calendar quarter of 1999.
Worst Case Scenario
The total cost of the Year 2000 project was estimated at $200,000 for the
Company's critical systems and is being funded through operating cash flows. To
date, the Company has expended $40,000 towards the purchase of new hardware and
software. The remaining $160,000 is to cover personnel and non-capital expenses
which will be expensed as incurred and is not expected to have a material effect
on the results of operations. To date, the Company has expended $20,000 to cover
personnel and non-capital expenses. The costs of the project and date on which
the Company plans to complete the Year 2000 modifications and conversions are
based on management's best estimates which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer code, failure of third parties on which the Company relies and
similar uncertainties. However, the Company will not be able to function in the
event of an extended power failure or a failure of the telecommunications
services provided by the local telephone company and/or the Company's Internet
service providers.
Due to general uncertainty inherent in the Year 2000 problem, including the
uncertainty associated with suppliers and customer, the potential effect on the
financial results and the condition of the company has not been measured. The
Company intends for the Year 2000 program to be completed on a timely basis so
as to significantly reduce the level of uncertainty and the impact on business
operations and financial results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to changes in interest rates. All
of the Company's long-term debt (approximately $353,800 at May 31, 1999) is at a
variable rate of interest and is not hedged by any derivative instruments. If
market interest rates increase by five percent from levels at May 31, 1999, the
effect on the Company's results of operations would be approximately $20,000.
MARKET GUIDE INC.
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(b) The Company filed the following Current Reports on Form 8-K since
February 28, 1999 through the date of this report:
Form 8-K dated as of June 28, 1999, reporting the execution of the
Merger Agreement among the Company, Multex.com, Inc.
and Merengue Acquisition Corp.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MARKET GUIDE INC.
/s/ Homi M. Byramji
President, Chief Executive Officer
and Treasurer
/s/ Jeffrey S. Geisenheimer
Chief Financial Officer and Secretary
Dated: July 15, 1999
Lake Success, New York