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 January 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission File Number: 0-17206
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Management Technologies, Inc.
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(Exact name of Registrant as specified in its Charter)
New York 13-3029797
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
630 Third Avenue
New York, New York 10017
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(Address of principal executive offices)
(212) 983 5620
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(Registrant's telephone number)
(Former Name, Former Address and Former Fiscal Year, if changed since last
Report)
Check whether the registrant (1) has 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 (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding as of March 11, 1996
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Common Stock, par value $.01 per share 22,069,402
Transitional Small Business Disclosure Format (Check one): Yes No X
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements included herein are unaudited, but reflect
all adjustments that, in the opinion of management, are necessary to provide a
fair statement of the results for the periods covered. All such adjustments are
of a normal recurring nature.
Index to Financial Statements (Unaudited):
Consolidated Balance Sheet as of January 31, 1996
Consolidated Statement of Change in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Financial Statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in $'000)
January April
31 30,
1996 1995
ASSETS (unaudit audited
ed)
Current assets:
Cash 685 833
Accounts receivable; billed 3,911 4,655
2,250 1,618
unbilled
Prepaid expenses and other current 1,535 1,803
assets
TOTAL CURRENT ASSETS 8,381 8,909
Property and equipment, net of accumulated 986 1,810
depreciation
Intangible assets, less accumulated 13,561 14,663
amortization
Capitalized software development 1, 934
Other assets 0 1,839
TOTAL ASSETS 24,862 27,221
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 2,038 2,898
Accrued expenses 3,000 4,545
Taxes payable 3,967 2,053
Note payable on acquisition 2,202 3,607
Deferred income 2,649 3,632
Lease liabilities 78
Other current liabilities 665 1,180
TOTAL CURRENT LIABILITIES 14,599 17,915
Loans payable 2,615
Non current note payable on acquisition 0 1,766
Other long term liabilities 137 1,521
TOTAL LIABILITIES 17,351 21,202
Stockholders' equity
Common stock $.01 par value. Authorized
shares, 200,000,000
issued shares 20,387,552 201 140
Additional paid in capital 45,546 42,472
Accumulated deficit (38,677) (36,063)
Foreign currency translation adjustment 441 (530)
TOTAL STOCKHOLDERS' EQUITY 7,511 6,019
TOTAL LIABILITIES AND STOCKHOLDERS' 24,862 27,221
EQUITY
The accompanying notes are an integral part of these
financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In $000 except share data)
Additi
onal
Common Stock paid Retain Transl Total
in ed ation
stock amountcapita Earnin Adjustment
l gs
Balances at October 19,837,393 19545,371 (38,694) (250) 6,622
31, 1995
Sale of common shares 571,270 6 175 181
Net income (loss) for 17 17
the period
Translation adjustment 691 691
Balances at 31, 20,408,663 20145,546 (38,677) 441 7,511
Janaury 1996
Less Shares to be 21,111
issued
Shares issued and 20,387,552
outstanding
The accompanying notes are an integral part of these financial
statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended January 31
(in $'000)
1996 1995
(unaudited)(unaudited)
REVENUES
Software 976 4,164
products
Maintenance fees 1,795 1,301
Customer service 2,716 889
fees
TOTAL REVENUE 5,487 6,354
COST AND
EXPENSES
Costs of 590 261
software
products
Costs of 753 674
maintenance
Costs of 897 315
customer service
Selling, general and 2,721 3,769
administrative
Write off of purchased research and 1,740
development
Amortization of 181 120
Intangible assets
Deprecia 210 161
tion
TOTAL COSTS AND 5,352 7,040
EXPENSES
PROFIT/(LOSS) FROM 135 (686)
OPERATIONS
Interest (118) (96)
(expense)
NET 17 (782)
PROFIT/(LOSS
)
Net profit (loss) per share outstanding $0.00($0.10)
Net profit per share, fully diluted $0.00
Weighted average number of common shares 20,123,028 8,042,306
outstanding
Weighted average number of common shares
and common share
equivalent outstanding 27,122,735
The accompanying notes are an integral part of these
financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended January 31
(in $'000)
1996 1995
(unaudited) (unaudited)
REVENUES
Software 5,823 8,047
products
Maintenance fees 5,577 2,510
Customer service 5,794 1,564
fees
Total Revenues 17,194 12,121
COST AND
EXPENSES
Costs of 1,809 359
software
products
Costs of 2,925 1,590
maintenance
Costs of 2,567 739
customer service
Selling, general and 11,724 7,689
administrative
Write off of purchased research and 8,740
development
Amortization of 550 223
Intangible assets
Deprecia 717 279
tion
Total costs and 20,292 19,619
expenses
LOSS FROM (3,098)(7,498)
OPERATIONS
Profit on disposal of/(write down of 1,064(1,113)
investment in) affiliate
Interest (580) (222)
expense
NET LOSS (2,614)(8,833)
Net (loss) per share outstanding ($0.15)($1.46)
Weighted average number of common shares 17,474,416 6,063,208
outstanding
The accompanying notes are an integral part of these
financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended January 31,
(in $ 000)
1996 1995
Cash flow from operating activities
Net income (loss) (2,614) (8,833)
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities
Write off of purchased research and 8,740
development
Capitalisation of software development (1,994)
Write off investment in affiliate (923) 647
Depreciation and amortization 1,583 596
Write down of acquired research and
development
Changes in assets and liabilities net
of effects from acquisitions:
(Increase) Decrease in accounts 586 (1,004)
receivable
(Increase) Decrease in unbilled (760) 63
accounts receivable
(Increase) Decrease in other current 512 (1,604)
assets
Increase (Decrease) in accounts (716) (1,277)
payable
Increase (Decrease) in accrued (1,444) 881
expenses
Increase (Decrease) in payroll taxes 2,086 586
payable
Increase (Decrease) in notes and 59 1,707
loans payable
Increase (Decrease) in deferred (847) (2,971)
income
Increase (Decrease) in lease (283)
liabilities
Increase/(Decrease) in other 0 (19)
liabilities
Net cash provided by (used in) operating (4,755) (2,488)
activities
Cash flows from investing activities:
Payment for Winter Partners net of cash (5,309)
acquired
Cash paid for DESISCo less cash acquired (1,003) (1,062)
Proceeds from disposal/(purchase) of 44 107
fixed assets
Net cash provided (used in) from investing (959) (6,264)
activities:
Cash flow from financing activities
Proceeds from notes payable 2,307 1,000
Repayment of notes payable (239) (662)
Proceeds from issuance of common stock 2,777 7,501
Net cash provided in financing activities 4,845 7,839
Effect of exchange rate on cash 722 1,133
INCREASE IN CASH AND CASH EQUIVALENTS (148) 220
CASH AND CASH EQUIVALENTS - BEGINNING OF 833 190
PERIOD
CASH AND CASH EQUIVALENTS - END OF PERIOD 685 410
Supplemental disclosure of cash flow
information
Cash paid during the fiscal quarter for 0
interest
Non-cash financing activities
The accompanying notes are an integral part of these
financial statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Notes to Financial Statements:
1. The accompanying consolidated financial statements should be read in
conjunction with the Company's financial statements for the fiscal year ended
April 30, 1995, included in the Company's Annual Report on form 10-KSB, as
amended. In the opinion of management, the interim statements reflect all
adjustments which are necessary for a fair statement of the results of the
interim period presented. The interim results are not necessarily indicative of
the results for the full year.
2. The net profits per share for the three months ended January 31, 1996 is
computed based upon the weighted average of common shares and common stock
equivalents outstanding. The net loss per share for the nine months ended
January 31, 1996 is computed based upon the weighted average number of shares
outstanding and exclude common stock equivalents as they would be anti-dilutive.
3. Taxes payable comprise deductions plus estimated penalties and interest for
late payment.
4. The Company follows the practices set out in Financial Accounting Standards
Board statement 52 in translating the operations, assets and liabilities of
entities whose accounts are denominated in foreign currencies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The Company's principal products are IBS-90, Abraxsys, OpenTrade and
TradeWizard. Abraxsys and IBS-90 are back office international banking software
products running on mid range computer systems. Abraxsys and IBS-90 have been
installed at approximately 75 locations in over 30 countries. Abraxsys is a
complete re-development of IBS-90 and is now marketed as the Company's prime
offering to banks to computerize their back office operation. Abraxsys has
reached the technological feasibility phase during the quarter ended July 31,
1995 and its development costs during the quarters ended October 31, 1995 and
January 31, 1996 have been capitalized, accordingly. Abraxsys is written in the
industry standard C language and runs on a variety of platforms and operating
systems, the most significant of which is UNIX. OpenTrade is a software product
that provides a platform for distributing real-time financial information within
the trading room environment. OpenTrade is used by 50 customers supporting
6,000 trading positions. TradeWizard is an advanced software product for the
integration of information and applications at the users' desktop. It is
installed at some 1,000 positions. TradeWizard has reached the technological
feasibility stage during the quarter ended July 31, 1995 and its development
costs in the quarters ended July 31, 1995 October 31, 1995 and January 31, 1996
have been capitalized, accordingly. The Company also markets and licenses its
ManTec line of integrated software packages for financial institutions through
an agent. The Company no longer directly supports its ManTec product line.
The Company's agent provides support to certain clients. The ManTec product
line runs on IBM and IBM-compatible mainframe computers.
The Company's revenues consist of license fees for the Company's software
components, maintenance fees and customer service fees. In addition, the Company
earns revenues from the selling other companies' hardware and software products.
The Company accounts for revenue in conformity with Statements of Position
(`SOP'') 91-1 and 81-1.
In accordance with SOP 91-1, revenue from IBS-90 and Abraxsys license fees are
recognized upon delivery to the customer, provided no significant vendor
obligations remain and collection of the resulting receivable is deemed
probable.
The Company recognizes revenues from its OpenTrade and TradeWizard products
according to the percentage of completion method as costs are incurred (cost to
cost basis) in conformity with SOP 81-1. A prudent estimate is made of the
profit attributable to work completed and is recognized once the outcome of the
contract can be assessed with reasonable certainty. If the estimate indicates a
loss, the entire loss is accrued immediately. The amount by which revenue
exceeds billings to customers is shown as unbilled accounts receivable.
Maintenance revenues are recognized on an incremental basis over the period of
the contract, the unrecognized portion is recorded as deferred income. Customer
service revenues are recognized as revenue as work is performed and invoiced by
the Company. The Company's contracts with its customers typically provide for
payments to be made pursuant to specified schedules, some of which payments are
received prior to delivery to the customer. Such payments received prior to
delivery are not recognized by the Company as revenue, but are reflected as
deferred income on the Company's consolidated balance sheet. Revenues
recognized in accordance with SOP-91-1 or SOP-81-1 and not yet invoiced are
recorded as accrued income on the Company's consolidated balance sheet.
Cost of software products consisted of the amortization of capitalized software
products, of the cost of third party products included in the Company's
contractual deliverables and of agency commission incurred. Other costs of
software products, such as the costs of making copies from the product masters
and physical packing of the Company's software are immaterial. Costs are
allocated to maintenance and customer service revenues in proportion to their
respective revenues. Management believes that such allocations are reasonable.
Comparison of fiscal quarters
The Company has booked significant sales of its products in the three month
period ending January 31, 1996. The raising of new capital has allowed the
Company to begin to recognise recognize income from these sales during the three
month period ending January 31, 1996. The increase in revenues from $12,121,000
for the nine month period ending January 31, 1996 to $17,194,000 for the nine
month period ending January 31, 1995 shows an increase of 42%. This reflects
the successful acquisition of the two operating units of Winter Partners and MTi
Trading Systems Limited.
Costs of software products increased to $590,000 for the three months ended
January 31, 1996 from $261,000 for the three months ended January 31, 1995, and
to $1,809,000 for the nine months ended January 31, 1996 from $359,000 for the
nine months ended January 31, 1995, due the amortization of software
recognized on the acquisition of the Winter Partners and Trading Systems
subsidiaries purchased during the year ended April 30, 1995.
Cost of maintenance and customer services increased to $1,650,000 for the three
months ended January 31, 1996 from $989,000 for the three months ended January
31, 1995, and to $5,492,000 for the nine months ended January 31, 1996 from
$2,329,000 for the nine months ended January 31, 1995 mainly due to the addition
of the maintenance and customer service costs of the Winter Partners and Trading
Systems subsidiaries acquired during the fiscal year ended April 30, 1995 and
the consequent increase in the size of the Company and in the number of the
Company's employees.
Selling, general and administrative costs decreased to $2,721,000 for the three
months ended January 31, 1996 from $3,769,000 for the three months ended January
31, 1995. This reflects permanent savings resulting from management
restructuring undertaken during the previous fiscal quarter. However, the nine
month period ending January 31, 1996 shows an increase to $11,724,000 from
$7,689,000 for the nine months ended January 31, 1995. This is mainly due to
the acquisition of the Winter Partners and Trading Systems Limited subsidiaries.
The Company's operating profit was $135,000 for the three month period ended
January 31, 1996 compared to an operating loss of $686,000 for the three month
period ended January 31, 1995. This continues to reflect the turnaround in the
Company's fortunes from loss to profitable operations. The Company's operating
loss was $3,098,000 for the nine month period ended January 31, 1996 compared to
an operating loss of $7,498,000 for the nine month period ended January 31, 1995
due to the one time write off, in the nine months ended January 31, 1995 of
acquired research and development following on the acquisition of the Winter
Partners subsidiaries in the amount of $8,740,000, partially offset by an
increase in cost of products and services and selling, general and
administrative expenses as a result of the acquisition of the Trading Systems
subsidiary.
The Company, as part of an elimination of debt, disposed of its interest in New
Paradigm Software Corporation (`NPSC'') during the quarter ended October 31,
1995. Consequently, the Company recognized a profit on disposal of $1,064,000
on disposal. In the nine month period ended January 31, 1995, the Company wrote
off its investment in NPSC recognizing a loss of $1,113,000.
The Company incurs expenses in British Pounds, Hong Kong dollars, Singapore
dollars and United States dollars. Similarly, revenues are invoiced in a
variety of currencies, the most significant of which are British Pounds, United
States dollars, Deutsche Marks, French Francs and Swiss Francs. The Company does
not engage in any hedging activity.
The Company is not aware of any current or expected future impact as a result of
new tax laws or the issuance of FASB statements.
Liquidity and Capital Resources
During the three month period ended January 31, 1996 the Company issued stock
for a total consideration of approximately $2,777,000 used to fund working
capital requirements.
At January 31, 1996, the Company had a working capital deficiency of
approximately $6,218,000 as compared to a working capital deficiency of
$9,006,000 at April 30, 1995.
The Company expects to fund continuing operations from current revenues. It
intends, however, to the extent required to re-finance outstanding debt in
fiscal 1996, to continue to sell its securities directly to investors in private
placements and it may, in the future, attempt to arrange an offering through a
placement agent or underwriter.
Effective December 15, 1995 the Company has arranged external staged financing
totaling $8,500,000. The financing includes the issuance of convertible
debentures to management and staff of the Company together with a convertible
debenture with terms leading to forced conversion on or before December 31,
1997. As of March 10, 1996, the Company has closed $6,400,000 under the
convertible debenture and $347,341 under the management and staff convertible
debenture. Had the full financing been closed by January 31, 1996 the working
capital deficiency would have been $2,086,000. The Company has received
committments from external investors and from staff totaling a further
$3,000,000. Had this further funding been closed as of January 31, 1996 the
working capital deficiency would have been entirely eliminated.
The Company has agreed a revised repayment schedule with Digital Equipment Co.
Limited, the former owner of the Company's subsidiary MTi Trading Systems
Limited. Under the revised schedule, the Company will make monthly payments,
completing the acquisition at the end of March 1996. The Company has pledged
all the tangible and intangible assets of MTi Trading Systems Limited to Digital
Equipment Co. Limited to guarantee its performance under the associated stock
purchase agreement and loan assignment.
The Company's long-term liquidity and its ability to continue as a going concern
will ultimately depend upon the Company's ability to realize sufficient revenues
from operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Matter involving Barrington Fludgate
On 26 July 1995, Fludgate commenced an action in the New York State Supreme
Court, New York County claiming breach of contract and a violation of New
York State Labor Law. The action claims specific damages of an aggregate
of $3,500,000 and additional unspecified damages. The Company has
interposed an answer to the complaint, which includes specific affirmative
defenses as well as a counterclaim.
The legal action in the New York State Supreme Court is in the preliminary
stages and based upon the information provided by the Company and the prior
legal action which was dismissed in the United States District Court, there
appears to be a meritorious defense to the claim of Mr. Fludgate in this
action.
2. Claim of Edelson Technology Partners, III (`Edelson'')
Edelson has instituted a suit in the New York State Supreme Court, New York
County claiming the sum of $250,000 plus interest and attorneys' fees.
The basis of the suit is a promissory note issued by the Company. The
Company agreed to issue Edelson 400,000 shares of common stock in full and
final settlement of their claim, with registration rights. The parties
agreed to the suspension of the court case pending full execution of the
settlement agreement.
3. Claim of Registration Rights for Unit Holders of the Company
In 1993 and 1994, the Company completed a Private Placement of units
consisting of one (1) share of Common Stock and three (3) Class `C''
Warrants to purchase three (3) shares of Common Stock at $1.19 per share,
subject to possible substantial exercise price reduction pursuant to the
anti-dilution provision of a certain warrant agreement. The Private
Placement terms involved registration rights to the Unit Holders which
further provided for the Company to use its best efforts to register the
shares and the additional shares underlying the Class `C'' Warrants for
Unit Holders. The Company filed a Form S-3 Registration Statement to that
effect in April of 1994. It was compelled to withdraw the Registration
Statement in April 1995 with the understanding that it would refile a new
registration for Unit Holders within a reasonable time. No such
registration statement has been file at this date.
A number of Unit Holders have made claims against the Company, alleging
that the Company agreed to afford Unit Holders options to purchase shares
of Common Stock at a below market price as a form of compensation to Unit
Holders for losses occurring as a result of the Company's not proceeding
with the Registration of their shares. The Company has issued an offer to
Unit Holders to issue to those Unit Holders who were included in the
registration statement which was withdrawn, two shares of the Company's
common stock per unit so that Unit Holders would be compensated for any
loss sustained as a result of the registration which was withdrawn by the
Company. A number of unit holders have returned a favorable response. The
Company is still responsible to file a registration statement. The cost of
such a filing is not expensed but applied against the Additional Paid in
Capital. The Company can reasonably expect to pay $100,000 is awaiting a
response from the Unit Holders as to whether or not they will agree to the
proposed settlement.
4. MTi and IBS Ketel Ltd (`IBS'') - matter pending in the New York State
Supreme Court
The Company has commenced an action against IBS in an attempt to rescind
its agreement with IBS and recover the sum of $100,000 paid to IBS. IBS is
in default and the Company is proceeding to enter a judgment. Information
to date is that IBS has discontinued operation of its business so that
collection of a judgment is doubtful.
In addition, Sam Koo, the principal executive officer of IBS has asserted a
claim for $21,607.71 for expenses.
5. Claim of Sharon F. Merrill
Ms Merrill received 250,000 shares of restricted stock as a result of the
acquisition of the shares of MTi Merken Inc. in 1992. In that regard, the
Company agreed to use its best efforts to register Ms Merrill's shares
within 180 days from the acquisition date. A claim has been made that the
Company has not used its best efforts and that Ms Merrill has sustained
losses as a result of the price of the shares of MTi and resultantly Ms
Merrill has claimed a loss of $450,000. The Company's position is that it
has used its best efforts with respect of the registration of the shares
owned by Ms Merrill.
6. Rosanne Milazzo (`Milazzo'')
Rosanne Milazzo acted as a consultant for the Company to assist in selling
a software product called IBS II Plus. This relationship was terminated by
MTi in August 1994. Milazzo claims breach of contract and damages of
$252,350. Milazzo has filed a law suit against the Company in the New York
State Supreme Court, New York County.
7. Napoleon Securities (`Napoleon'')
Napoleon participated in a private placement and raised a claim related to
an alleged agreement under which the Company agree to repurchase the
securities. Napoleon obtained a default judgment against the Company for
payment of $50,000. in the Circuit Court of Cook County, Illinois. The
Company filed a motion to quash service alleging defective service, and
seeks to vacate the judgment.
The Company is not a party to any other material litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27. Financial Data Schedule
Current reports on Form 8-K filed during the quarter ended October 31, 1995:
FORM REPORT DATE ITEM REPORTED FINANCIAL
STATEMENTS
FILED
8-K February 5, 1996 5 & 7, Debt financing None
8-K/A March 4, 1996 5& 7, settlement None
agreement
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
Dated: New York, New York
March 7, 1996
Management Technologies, Inc.
(Registrant)
By: /s/ Peter Morris
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Peter Morris