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 July 31, 1997
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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 September 15, 1997
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Common Stock, par value $.01 per share 141,703,439
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 July 31, 1997
Consolidated Statement of Change in Stockholders' Equity
Consolidated Statements of Operation
Consolidated Statements of Cash Flows
Notes to Financial Statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 1997
(in $000)
ASSETS
Current assets:
Cash 291
Accounts receivable 1,307
Prepaid expenses and other current assets 108
TOTAL CURRENT ASSETS 1,706
Property and equipment, net of accumulated depreciation 144
Intangible assets, less accumulated amortization 5,197
Other assets 22
TOTAL ASSETS 7,069
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 1,170
Accrued expenses 1,741
Taxes payable 622
Deferred income 1,082
Other current liabilities 2
TOTAL CURRENT LIABILITIES 4,617
Convertible debentures 3,699
Other long term liabilities 44
TOTAL LIABILITIES 8,360
Stockholders' equity
Common stock $.01 par value. Authorized shares 1,417
200,000,000, issued shares 140,703,439
Additional paid in capital 61,155
Accumulated deficit (63,987)
Foreign currency translation adjustment 124
TOTAL STOCKHOLDERS' EQUITY (1,291)
TOTAL LIABILITIES AND STOCKHOLDERS' 7,069
EQUITY
The accompanying notes are an
integral part of these financial statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in $000 except share data)
Number Common Additio
nal
of stock paid in Accumulat Translation Total
ed
shares par capital deficit adjustment
value
Balances at April 117,703,439 1,177 60,464 (63,388) 83 (1,664)
30, 1997
Issuance of 11,500,000 115 100 215
common stock for
compensation and
services
Issuance of 12,500,000 125 591 716
common stock
Net loss for the (599) (599)
year
Translation 41 41
adjustment
Balances at July 141,703,439 1,417 61,155 (63,987) 124 (1,291)
31, 1997
The accompanying notes are an integral part of these financial
statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31, 1997 and 1996
(in $000)
1997 1996
Revenues
Software products 315 1,985
Maintenance fees 250 2,476
Customer service fees 577 2,301
Total revenues 1,142 6,762
Cost and expenses
Cost of software products 156 213
Cost of maintenance 207 1,150
Costs of customer service 289 986
Selling, general and administrative 967 4,258
Amortization of intangible assets 40 181
Depreciation 23 213
Total costs and expenses 1,682 7,001
LOSS FROM OPERATIONS (540) (241)
Interest expense (59) (181)
NET LOSS (599) (421)
Net loss per share (0.00) (0.01)
Weighted average number of common shares 136,036,772 27,618,075
outstanding
The accompanying notes are an integral part of these financial
statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three month ended July 31
(in $000)
1997 1996
Cash flow from operating activities
Net loss (599) (421)
Adjustments to reconcile net loss to
net cash
used in operating activities
Depreciation and amortization 233 712
Issuance of common stock for 215 554
compensation
Write off of property, plant & 4 -
equipment
Changes in assets and liabilities net
of effects from acquisitions:
Increase in accounts receivable (793) (2,148)
Decrease in prepaid & other 182 24
assets
Decrease in accounts payable & (189) (719)
accrued expenses
Increase in taxes payable 190 124
Decrease in deferred income (70) (464)
Decrease (increase) in other (2) 885
liabilities
Net cash used in operating activities (829) (3,290)
Cash flow from financing activities
Proceeds from notes payable and convertible - 5,060
debentures
Gross proceeds from issuance of common 757 500
stock
Net cash provided by financing activities 757 5,560
Effect of exchange rate on cash (8) (178)
Decrease (increase) in cash and cash (80) 2,448
equivalents
Cash and cash equivalents - beginning of period 371 313
Cash and cash equivalents - end of period 291 2,761
Supplemental disclosure of cash flow
information
Non-cash financing activities
Issuance of common stock in conversion of - 2,432
debt
Issuance of common stock for compensation - 41
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 Registrant's (the "Company") financial statements for
the fiscal year ended April 30, 1997, 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. Revenue Recognition
a) The Company accounts for revenue in conformity with Statements of
Position (SOP) 91-1 and 81-1.
b) Billings made in advance of revenue recognition are recorded as
deferred income. The amount by which recognized revenue exceeds
billings to customers is shown as unbilled accounts receivable.
c) In accordance with SOP 91-1, revenues from IBS-90 and Abraxsys
licenses are recognized on delivery to the customer, provided that no
significant vendor obligations remain and collection of the resulting
receivable is deemed probable. The Company's contracts with its
customers provide for payment to be made on specified schedules that
may differ from the timing by which revenue is recognized.
d) Revenues from IBS Version 5 and Pro-IV IBS licenses are recognized
on the percentage-of-completion method of accounting as costs are
incurred (cost to cost basis) in conformity with SOP 81-1. An
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.
e) Maintenance fees are recognized proportionately over the term of the
maintenance agreement.
f) Customer service fees represent fees charged to customers for
modifications of standard software to customer specifications or work
charged on the basis of the time spent on the task as required by
customers. Customer services fees are recognized as revenue as work
is performed and invoiced by the Company.
3. The net loss per share for the quarters ended July 31, 1996 and 1997 is
computed based upon the weighted average number of shares outstanding
excluding stock equivalents as they would be anti-dilutive.
4. Taxes payable comprise deductions plus estimated penalties and interest for
late payment.
5. 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.
6. On August 15, 1997, the Company entered into an agreement with Access
America, Inc. ("Access") to purchase advertising time on certain networks
with a fair market value of $4,000,000. The Company agreed to issue Access
2,000,000 shares of common stock valued at $2.00 per share and further
agreed to issue Access additional shares of common stock if the company's
common stock is traded below $2.00 per share on August 11, 1998, such that
the total value of the shares issued and issuable to Access shall be
$4,000,000. Giving pro-forma effect to this asset acquisition yields a net
positive shareholders' equity in the amount of $2,706,000 at July 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The Registrant (the "Company") develops, supports and markets software products
catering to the needs of the financial services community. The Company's
principal products are IBS-90, Abraxsys, IBS Pro-IV, and IBS Version 5. They
are back office international banking software products and run 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. IBS Pro-IV and IBS Version 5 are back office
international banking software products acquired from McDonnell Information
Systems in the year ended April 30, 1996.
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.
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.
By order dated March 19 and March 20, 1997, the High Court of Justice, Chancery
Division, Companies Court, in London, England, appointed Messrs. Malcolm Cohen
and Peter Supperstone of BDO Stay Hayward as joint administrators of Winter
Partners Limited, MTi Holding (UK) Limited and MTi Trading Systems Limited
(collectively, the "UK Subsidiaries"), pursuant to the provisions of Section 8
of the English Insolvency Act 1986, for the purposes of (i) the survival of the
companies, and the whole or any parts of their undertaking, as a going concern,
(ii) the approval of certain voluntary arrangements with the companies'
creditors, and (iii) a more advantageous realization of their assets than would
be effected on a winding up. The Company owns all shares issued and outstanding
of the UK Subsidiaries. As a result of the administration proceedings, the
Company ceased to control the UK Subsidiaries from the date they were put in
administration.
On July 22, 1997, Advanced Banking Solutions Limited ("ABS"), a subsidiary of
the Company, acquired certain assets from Winter Partners Limited, in
administration, including intellectual property rights to certain software
products, various fixtures and equipment, accounts receivable, and work-in-
progress for a total consideration of 257,000 British pounds. In addition ABS
assumed certain contracts from Winter Partners, in administration. Certain
employees and management of Winter Partners, in administration, were hired by
ABS. From July 23, 1997 on, ABS is carrying out in the UK and in certain parts
of the world, the business that was formerly that of Winter Partners Limited.
Comparison of fiscal quarters
Revenues and costs decreased substantially from the three month period ended
July 31, 1996, largely as a result of the Company's not consolidating the
results of the UK Subsidiaries. In addition, results from ABS for the period of
July 22 to July 31, 1997 are not significant and have not been included in these
financial statements.
The following table shows significant comparative results for the periods ended
July 31, 1997 and 1996:
Three Months ended July
31, 1997
Revenue Cost Gross ProfitGross
Margin
Software products 315,000 156,000 159,000 0.50
Maintenance fees 250,000 207,000 43,000 0.17
Customer service fees 577,000 289,000 288,000 0.50
Total 1,142,000 652,000 490,000 0.43
Three Months ended July
31, 1996
Revenue Cost Gross ProfitGross
Margin
Software products 1,985,000 213,000 1,772,000 0.89
Maintenance fees 2,476,000 1,150,000 1,326,000 0.54
Customer service fees 2,301,000 986,000 1,315,000 0.57
Total 6,762,000 2,349,000 4,413,000 0.65
Selling, general and administrative costs decreased to $967,000 from $4,258,000
for the three month period ended July 31, 1997 and 1996, respectively, on
account of the discontinuance of the UK Subsidiaries.
The company is reporting a $540,000 operating loss for the three month period
ended July 31, 1997 as compared to of $241,000 operating loss for the three
month period ended July 31, 1996, and a net loss of $599,000 operating loss for
the three month period ended July 31, 1997 as compared to a net loss of $421,000
for the three month period ended July 31, 1996.
The company incurs expenses in British pounds, Singapore dollars, US dollars,
and French francs. Similarly revenues are invoiced in a variety of currencies,
the most significant are UK pounds, US dollars, and French 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 three month period ended July 31, 1997 the company issued equity for
a total net consideration of approximately $716,000. These funds were
primarily used to fund the restructuring of the Company subsequent to the UK
Subsidiaries being put in administration, and to settle certain historical
liabilities of Management Technologies, Inc.
At July 31, 1997 the company had a working capital deficiency of approximately
$3,211,000 as compared to a working capital deficiency of $3,513,000 at 30 April
1997.
At July 31, 1997, the Company had a negative shareholders' equity in the amount
of $1,291,000.
On August 15, 1997, the Company entered into an agreement with Access America,
Inc. ("Access") to purchase advertising time on certain networks with a fair
market value of $4,000,000. The Company agreed to issue Access 2,000,000 shares
of common stock valued at $2.00 per share and further agreed to issue Access
additional shares of common stock if the company's common stock is traded below
$2.00 per share on August 11, 1998, such that the total value of the shares
issued and issuable to Access shall be $4,000,000. Giving pro-forma effect to
this asset acquisition yields a net positive shareholders' equity in the amount
of $2,706,000 at July 31, 1997.
The company's long term liquidity and its ability to continue as a going concern
will ultimately depend on the company's ability to realise sufficient revenue
from operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27. Financial Data Schedule
The Company did not file any current report on Form 8-K during the quarter ended
July 31, 1997.
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
September 22, 1997
Management Technologies, Inc.
(Registrant)
By: /s/ Patrick Huguenin
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Patrick Huguenin