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 October 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 December 16, 1996
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Common Stock, par value $.01 per share 70,830,118
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):
2
Consolidated Balance Sheet as of October 31, 1996
Consolidated Statement of Change in Stockholders' Equity
Consolidated Statements of Operation
Consolidated Statement of Cash Flows
Notes to Financial Statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 31, 1996
(in $'000)
ASSETS (unaudited)
Current assets:
Cash 1,525
Accounts receivable; billed 5,461
unbilled 3,637
Prepaid expenses and other current assets 2,943
TOTAL CURRENT ASSETS 13,566
Property and equipment, net of accumulated 746
depreciation
Intangible assets, less accumulated amortization 14,940
Capitalized software development 1,184
3
TOTAL ASSETS 30,436
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 3,769
Accrued expenses 2,563
Taxes payable 3,712
Deferred income 2,272
Other current liabilities 110
TOTAL CURRENT LIABILITIES 12,426
Loans payable 8,323
TOTAL LIABILITIES 20,749
Stockholders' equity
Common stock $.01 par value. Authorized shares
200,000,000,
issued shares 56,216,081 562
Additional paid in capital 56,745
Accumulated deficit (46,353)
Foreign currency translation adjustment (1,267)
TOTAL STOCKHOLDERS' EQUITY 9,687
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 30,436
The accompanying notes are an integral part of these financial
statements
4
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In $000 except share data)
Additional
Common Stock paid in Retained Translat Total
ion
stock amount capital Earnings Adjustment
Balances at July 31, 31,030,808 310 52,724 (46,538) (279) 6,217
1996
Issuance of common
stock in conversion 25,185,273 252 4,021 4,273
of convertible
debentures
Net income for the 185 185
period
Translation (988) (988)
adjustment
5
Balances at October 56,216,081 562 56,745 (46,353) (1,267) 9,687
31, 1996
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended October 31
(in $'000)
1996 1995
(unaudited) (unaudited)
REVENUES
Software 1,780 1,494
products
Maintenance fees 1,601 1,735
Customer service 3,455 1,285
fees
TOTAL REVENUE 6,836 4,514
6
COST AND EXPENSES
Costs of 145 526
software
products
Costs of 633 1,115
maintenance
Costs of 1,184 874
customer service
Selling, general and 3,927 5,014
administrative
Amortization of 184 184
Intangible assets
Depreciation (74) 244
TOTAL COSTS AND EXPENSES 6,629 7,957
PROFIT (LOSS) FROM 207 (3,443)
OPERATIONS
Profit on disposal of 1,064
affiliate
Interest expense (22) (173)
NET PROFIT (LOSS) 185 (2,552)
Net profit (loss) per share outstanding $0.00 ($0.12)
Net profit per share, fully diluted $0.00
Weighted average number of common shares 42,591,077 18,100,062
outstanding
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Weighted average number of common shares and common
share
equivalent outstanding 81,365,316 0 (0)
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended October 31
(in $'000)
1996 1995
(unaudited) (unaudited)
REVENUES
Software 3,211 3,919
products
Maintenance fees 4,076 3,782
Customer service 6,196 3,078
fees
TOTAL REVENUE 13,483 10,779
COST AND EXPENSES
Costs of 358 1,219
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software
products
Costs of 1,783 2,171
maintenance
Costs of 2,800 1,671
customer service
Selling, general and 7,473 10,151
administrative
Amortization of 365 369
Intangible assets
Depreciation 139 507
TOTAL COSTS AND EXPENSES 12,918 16,088
PROFIT/(LOSS) FROM 565 (5,309)
OPERATIONS
Profit on disposal of - 1,064
affiliate
Interest (expense) (54) (462)
NET PROFIT/(LOSS) 511 (4,707)
Net profit (loss) per share outstanding $0.01 ($0.27)
Net profit per share, fully diluted $0.01
Weighted average number of common shares outstanding 35,104,576 17,188,781
Weighted average number of common shares and common
share
equivalent outstanding 65,774,661 0 (0)
9
The accompanying notes are an integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(in $ 000)
Six months ended October
31,
1996 1995
Cash flow from operating activities
Net income (loss) 512 (4,707)
Adjustments to reconcile net income (loss) to net
cash
provided by (used in) operating activities
Write down of investment in affiliate - (923)
Capitalization of software development (1,184) -
Depreciation and amortization 729 1,116
Other (111) -
Changes in assets and liabilities net of
effects from acquisitions:
Decrease in accounts receivable (including (1,188) 1,503
unbilled)
Decrease in other current assets (941) 560
Increase (decrease) in accounts payable & 66 (3)
accrued expense
Decrease (increase) in payroll payable (901) 810
10
Decrease in notes and loans payable (3,119) -
Decrease in deferred income (763) (519)
Decrease in other liabilities (73) (163)
Net cash used in (provided by) operating (6,862) 105
activities
Cash flows from investing activities:
Cash paid for DESISCo less cash acquired - (844)
Proceeds from sales of fixed assets - 29
Net cash used in investing activities: - (815)
Cash flow from financing activities
Proceeds from notes payable and convertible 9,387 -
debentures
Repayment of notes payable - (275)
Proceeds from issuance of common stock 500 803
Net cash provided in financing activities 9,887 528
Effect of exchange rate on cash (1,700) 63
DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS 1,211 (119)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 313 833
CASH AND CASH EQUIVALENTS - END OF PERIOD 1,524 714
Supplemental disclosure of cash flow information
11
Non-cash financing activities
Issuance of common stock in 7,246 357
conversion of debt
Issuance of common stock for compensation - -
The accompanying notes are an integral part of
these financial statements
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, 1996, included in the Company's Annual Report on form 10-KSB. 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 profit per share for the three months ended October 31, 1996 is
computed based upon the weighted average of common shares and common stock
equivalents outstanding. The net loss per share for the quarter ended October
31, 1995 is computed based upon the weighted average number of shares
outstanding excluding stock equivalents as they would be anti-dilutive.
3. Taxes payable comprise deductions plus estimated penalties and interest for
late payment.
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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, IBS-IV Trade Finance,
OpenTrade and TradeWizard. Abraxsys, IBS-90 and IBS-IV Trade Finance 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 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. By the end of the current financial year, Abraxsys will have
been ported to Microsoft Corporation's Windows NT operating system to offer a
fully functioning banking solution on the most popular emerging platform in the
industry. IBS-IV Trade Finance has reached the technological feasibility phase
and its development costs since acquisition from McDonnell Information Systems
("MDIS") have been capitalized, accordingly. 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. The Company also markets and licenses its
ManTec line of integrated software packages for financial institutions through
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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 selling other companies' hardware and software products.
The Company accounts for revenue in conformity with Statements of Position
("SOP") 81-1.
The Company recognizes revenues from all 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 revenue 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-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
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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.
Total revenues rose to $6,838,000 and $13,483,000 for the three and six month
periods ended October 31, 1996, respectively, from $4,514,000 and $10,779,000
for the three and six month periods ended October 31, 1995, respectively. These
increases reflects the Company's successful strategy of concentrating on its
existing clients for additional and on-going business for both its trading room
software products and its wholesale banking products. These increases in
revenue are also a result of successful new sales of the Company's products.
Revenue from sales of software product increased to $1,780,000 for the three
month period ended October 31, 1996 from $1,494,000 for the three month period
ended October 31, 1995, and decreased to $3,211,000 for the six month period
ended October 31, 1996 from $3,919,000 for the six month period ended October
31, 1995. The cost of software products decreased to $145,000 and $358,000 for
the three and six month periods ended October 31, 1996, respectively, from
$526,000 and 1,219,000 for the three and six month periods ended October 31,
1995, respectively, due to lower third party hardware product sales. Third party
computer hardware sales generally generate extremely low margins and a negative
cashflow. Sales of software products built by the Company carry a lower cost
of sale. As a result of lower software cost of sales, gross profit from sales
of software products increased to $1,635,000 and $2,853,000 for the three and
six months period ended October 31, 1996 from $968,000 and $2,700,000 for the
three and six month periods ended October 31, 1995.
The aggregate of maintenance fees and customer service fees increased to
$5,056,000 and $10,272,000 for the three and six month periods ended October 31,
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1996, respectively, from $3,020,000 and $6,860,000 for the three and six month
periods ended October 31, 1995, respectively, as a result of the Company's
successful drive to generate more recurrent business from its existing clients.
Maintenance fees and customer service fees provides sustainable recurrent
revenues, which lessens the impact of the peaks and troughs of software product
revenue on the Company's cashflow. The Company's objective is to achieve a
position where new software license revenue represents an a lower percentage of
the Company's total revenue.
Gross profit from maintenance and customer service increased to $2,609,000 and
$5,689,000 for the three and six months period ended October 31, 1996,
respectively, from $1,031,000 and $3,018,000 for the three and six month
periods ended October 31, 1995, respectively, as a result of the Company's
successful efforts to increase productivity and gross profit margins.
Gross profit from sales of software products, maintenance and customer service
increased to $4,234,000 and $8,452,000 for the three and six months period ended
October 31, 1996, respectively, from $1,999,000 and $5,718,000 for the three
and six month periods ended October 31, 1995, respectively, as a result of the
Company's successful efforts to increase productivity and gross profit margins
on all of its products and services.
Selling, general and administrative costs decreased to $3,927,000 and $7,473 for
the three and six months period ended October 31, 1996, respectively, from
$5,014,000 and $10,151,000 for the three and six month periods ended October
31, 1995, respectively, as a result of the Company's successful strategy to
streamline its management structure, to rationalize its sales efforts and to
consolidate its facilities in the United Kingdom, thus reducing overall facility
cost and canceling certain lease liabilities. It is also a result of the
Company's greater reliance on distributors and partners to promote sales of its
products without incurring high fixed costs.
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The Company is reporting a $207,000 and $565,000 operating profit for the three
and six months period ended October 31, 1996, respectively, versus an operating
loss of $3,443,000 and $5,309,000 for the three and six month periods ended
October 31, 1995, respectively, as a result of cost control and of a successful
strategy to generate recurrent revenue from the Company's extensive client base.
The company incurs expenses in British pounds, Singapore dollars, US dollars,
French francs and German marks. Similarly revenues are invoiced in a variety of
currencies, the most significant are UK pounds, US dollars, German marks, French
francs and Swiss francs. The company does not engage in any hedging activities.
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 six month period ended October 31, 1996 the Company issued
convertible debt for a total consideration of approximately $9,387,000 and
equity for a total consideration of approximately $500,000.
At October 31, 1996 the Company had a working capital surplus of approximately
$1,140,000 as compared to a working capital deficiency of $6,993,000 at April
30, 1996. This improvement is a result of the use of proceeds of financing
transactions to cure the Company's working capital deficiency.
As of October 31, 1996 the Company fully paid Digital Equipment Company Limited,
the former owner of the company's subsidiary, MTi Trading Systems Ltd., all
rescheduled acquisition payments. The tangible and intangible assets pledged to
Digital Equipment Company Limited as guarantee under the associated stock
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purchase agreement and loan assignment have been released and all liens have
been lifted. Since this is the main operating company it now means that MTi is
both debt free and unencumbered and other forms of financing are now available
other than through equity.
The company's long term liquidity and its ability to continue as a going concern
will ultimately depend on the company's continued ability to realize sufficient
revenue from operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Matter involving Barrington Fludgate
On 26 October 1995, Fludgate commenced an action in the New York State
Supreme Court, New York County claiming breach of contract. The action
claims specific damages of an aggregate of $4,000,000 and additional
unspecified damages. The Company will interpose an answer to the
complaint, which includes a general denial, 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 certain
prior legal actions which were dismissed, there appears to be a meritorious
defense to the claim of Mr. Fludgate in this action.
3. Claim of Registration Rights for Unit Holders of the Company
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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,
pre May 15, 1995 reverse split ("Units"), subject to possible substantial
exercise price reduction pursuant to the anti-dilution provision of a
certain warrant agreement. The Private Placement terms provided for the
Company to use its best efforts to register the shares and the 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. The Company extended an offer to the Unit
Holders to issue two additional pre-split shares per Unit as compensation
for any damage they may have suffered due to delays in registering shares
subscribed and shares underlying Class "C" Warrants. A number of Unit
Holders have accepted the Company's offer and were issued such compensation
shares.
4. On December 10, 1996, Sharon F. Merrill ("Merrill") started action in the
Middlesex Superior Court in the Commonwealth of Massachusetts claiming to
have suffered damages due to the Company's failure to register certain
shares Merrill claims approximately $180,000 plus interest in direct
damages and approximately $840,000 in other damages. The legal in the
preliminary stages and the Company will interpose an answer to the
complaint in due course.
The Company is not a party to any other material litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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Exhibit 27. Financial Data Schedule
Current reports on Form 8-K filed during the quarter ended October 31, 1996:
FORM REPORT DATE ITEM REPORTED FINANCIAL
STATEMENTS
FILED
8-K August 7, 1996 5 & 7, convertible debt financing None
8-K August 8, 1996 5 & 7, convertible debt financing None
8-K August 9, 1996 5 & 7, convertible debt financing None
8-K/A September 6, 1996 5 & 7, convertible debt financing None
8-K/A September 9, 1996 5 & 7, convertible debt financing None
8-K/A October 15, 1996 5 & 7, convertible debt financing None
8-K/A October 16, 1996 5 & 7, convertible debt financing None
8-K/A October 18, 1996 5 & 7, convertible debt financing None
8-K October 30, 1996 5 & 7, convertible debt financing None
8-K October 31, 1996 5 & 7, convertible debt financing None
8-K/A October 31, 1996 5 & 7, convertible debt financing None
SIGNATURE
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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
December 23, 1996
Management Technologies, Inc.
(Registrant)
By: /s/ Peter Morris
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Peter Morris
President and Chief Operating Officer