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, 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
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December 15, 1997
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Common Stock, par value $.01 per share 170,036,772
Transitional Small Business Disclosure Format (Check one): Yes No X
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INDEX
Page(s)
Part I Financial Information
Item 1 Financial Statements
Unaudited Consolidated Balance Sheet as of October 31,
1997...................................................... 3
Unaudited Consolidated Statement of Change in
Stockholders' Equity (Deficit) as of October 31, 1997..... 4
2
Unaudited Consolidated Statements of Operation for the
three and six months ended October 31, 1997 and 1996...... 5 and 6
Unaudited Consolidated Statements of Cash Flows for the
six months ended October 31, 1997 and
1996...................................................... 7
..........
Notes to Unaudited Consolidated Financial
Statements................................................ 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation........................ 10
Part II Other Information
Item 1 Legal Proceedings......................................... 14
Item 6 Exhibits and Reports...................................... 15
Signatures................................................ 15
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.
MANAGEMENT TECHNOLOGIES, INC.
3
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
October 31, 1997
(in $000)
ASSETS
Current assets
Cash $ 274
Accounts receivable 992
Prepaid expenses and other current assets 4,753
TOTAL CURRENT ASSETS 6,019
Property and equipment, net of accumulated depreciation 187
Intangible assets, net of accumulated amortization 5,609
Other assets 21
TOTAL ASSETS $ 11,836
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,704
Accrued expenses 2,030
Taxes payable 521
4
Deferred income 1,205
Other current liabilities 445
TOTAL CURRENT LIABILITIES $ 5,905
Convertible debentures 3,699
Other long term liabilities 145
TOTAL LIABILITIES 9,749
Stockholders' equity
Common stock $.01 par value. Authorized shares 1,660
200,000,000, issued shares 166,036,772
Additional paid in capital 65,888
Accumulated deficit (65,857)
Foreign currency translation adjustment 396
TOTAL STOCKHOLDERS' EQUITY 2,087
TOTAL LIABILITIES AND STOCKHOLDERS' $ 11,836
EQUITY
The accompanying notes are an integral part of these consolidated
financial statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
5
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in $000 except share data)
Common Common
Stock Stock Additio
nal
Number of Amount paid in Accumula Transl Total
ted ation
shares capital deficit adjust
ment
Balances at July 141,703,439 1,417 61,155 (63,987) 124 (1,291)
31, 1997
Issuance of 11,333,333 113 218 331
common stock for
compensation and
services
Issuance of 13,000,000 130 4,515 4,645
common stock
Net loss for the (1,870) (1,870)
quarter
Translation 272 272
adjustment
6
Balances at 166,036,772 1,660 65,888 (65,857) 396 2,087
October 31, 1997
The accompanying notes are an integral part of these consolidated financial
statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended October 31, 1997 and 1996
(in $000 except share data)
1997 1996
Revenues
Software products $ 694 1,780
Maintenance fees 670 1,601
Customer service fees 524 2,876
7
Total revenues 1,888 6,257
Cost and expenses
Cost of software products 360 145
Cost of maintenance 848 633
Costs of customer service 197 1,814
Selling, general and administrative 2,185 4,579
Amortization of intangible assets 41 184
Depreciation 22 (74)
Total costs and expenses 3,653 7,281
LOSS FROM OPERATIONS (1,765) (1,024)
Interest expense (105) (94)
NET LOSS $ (1,870) (1,118)
Net loss per share $ (0.01) (0.03)
Weighted average number of common shares 151,147 42,591,
outstanding ,883 077
The accompanying notes are an integral part of these consolidated
financial statements
8
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended October 31, 1997 and 1996
(in $000 except share data)
1997 1996
Revenues
Software products $ 1,009 3,765
Maintenance fees 920 4,076
Customer service fees 1,101 5,177
Total revenues 3,030 13,018
Cost and expenses
Cost of software products 516 358
Cost of maintenance 1,055 1,783
Costs of customer service 486 2,800
Selling, general and administrative 3,152 8,837
Amortization of intangible assets 80 365
Depreciation 45 139
Total costs and 5,334 14,282
expenses
9
LOSS FROM OPERATIONS (2,304) (1,264)
Interest expense (165) (275)
NET LOSS $ (2,469) (1,539)
Net loss per share $ (0.02) (0.04)
Weighted average number of common shares 145,592,328 35,104,576
outstanding
The accompanying notes are an integral part of these consolidated
financial statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended October 31, 1997 and 1996
(in $000)
1997 1996
Cash flows from operating activities
Net loss $ (2,469) (1,539)
Adjustments to reconcile net loss to net
10
cash
used in operating activities:
Change in long-term assets 125 (1,184)
Issuance of common stock for 546 4
compensation
Write off of property and equipment 10 -
Other - 729
Changes in operating assets and
liabilities net of adjustments for acquisitions:
Accounts receivable (171) 947
Prepaid and other current assets (286) 533
Accounts payable and accrued expenses 748 64
Taxes payable 105 (901)
Loans payable - (2,564)
Deferred income 63 (877)
Other liabilities 520 615
Net cash used in (809) (4,173)
operating activities
Cash flows from investing activities
Payment for acquisition of certain assets from (741) -
Winter Partners Limited
Net cash used in (741) -
investing activities
Cash flows from financing activities
Proceeds from notes payable and convertible 97 7,103
debentures
11
Proceeds from issuance of common stock 1,361 500
Net cash provided by 1,458 7,603
financing activities
Effect of exchange rate changes on cash (5) (2,218)
(Decrease) increase in cash (97) 1,212
Cash - beginning of period 371 313
Cash - end of period $ 274 1,525
Supplemental disclosure of cash flow
information
Non-cash investing and financing activities
Issuance of common stock for purchase of $ 4,000 -
advertising time
Issuance of common stock in conversion of - 7,246
debt
The accompanying notes are an integral part of these consolidated financial
statements
Notes to Consolidated Financial Statements:
12
1. The accompanying consolidated financial statements should be read in
conjunction with the Registrant's (the "Company") consolidated 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. Basis of Presentation
The consolidated financial statements include the accounts of Management
Technologies, Inc. and its wholly owned subsidiaries, for the periods
during which such subsidiaries were controlled by Management Technologies,
Inc. Accordingly, the consolidated financial statements include the
accounts of the following wholly owned subsidiaries for the periods
indicated in the following table:
SUBSIDIARY PERIOD
MTi Trading Systems Limited May 1 to October 31, 1996
Winter Partners Limited May 1 to October 31, 1996
MTi Holding (UK) Limited May 1 to October 31, 1996
Advanced Banking Systems Limited July 22 to October 31, 1997
MTinnovation SA May 1 to October 31, 1997
MTi Abraxsys Systems, Inc. May 1 to October 31, 1996
May 1 to October 31, 1997
MTi Abraxsys Systems (Pte) Limited May 1 to October 31, 1996
May 1 to October 31, 1997
MTi Abraxsys Systems (HK) Limited May 1 to October 31, 1996
May 1 to October 31, 1997
13
All significant inter-company balances have been eliminated in
consolidation.
3. 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.
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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.
4. The net loss per share for the three and six months ended October 31, 1997
and 1996 is computed based upon the weighted average number of common
shares outstanding excluding common stock equivalents as they would be
anti-dilutive.
5. Taxes payable comprise deductions plus estimated penalties and interest for
late payment.
6. 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.
Certain statements under the caption "Management's Discussion and Analysis of
financial Condition and Result of Operations" and elsewhere in this Form 10-QSB
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievement expressed or implied by such forward looking
15
statements. Such factors include among others, general economic climate and
business conditions, which will, among other things, impact demand for the
Company's product and services; industry capacity, which tends to increase
during strong years of the business cycle; changes in public taste, industry
trends and demographic changes; competition from other software companies, which
may affect the Company's ability to generate revenue; political, social and
economic conditions and laws, rules and regulations, particularly in Europe, the
Middle East and the Far East, which may affect the Company's results of
operations; changes in business strategy or development plans; the significant
indebtedness on the Company; quality of management; availability of qualified
personnel; changes in or the failure to comply with, government regulations;
and other factors referenced in the Form 10-QSB.
General
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.
16
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 approximately 452,000 British pounds or
approximately $741,000. In addition, ABS assumed certain contracts from Winter
Partners Limited, in administration. Certain employees and management of Winter
Partners Limited, 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
17
formerly that of Winter Partners Limited. The Company owns all shares issued
and outstanding of the common stock of ABS. Certain key employees hold
collectively all issued and outstanding preferred stock of ABS. The holders of
preferred stock in ABS are entitled, under certain circumstances, to conversion
of their preferred shares into common shares of ABS or common shares of
Management Technologies, Inc.
On or about July 22, 1997, Raymond Michael Cork lent approximately 250,000
British pounds to ABS and guaranteed a bank credit line to ABS of up to
approximately 500,000 British pounds, maturing on or about January 22, 1998.
Management Technologies, Inc. pledged all shares of ABS it owns to guarantee
obligations of ABS toward Raymond Michael Cork. There is no guarantee that ABS
will be able to timely discharge or re-schedule all obligations to Raymond
Michael Cork. Accordingly, Management Technologies, Inc. could loose title
over the common shares issued and outstanding of ABS. In such an event, ABS
would cease to be a subsidiary of Management Technologies, Inc. and would be
entitled to exclusively develop, maintain, license and support the IBS V-5,
Abraxsys and IBS-90 software products of the Company worldwide, except for the
Americas with respect to IBS-90.
On or about October 24, 1997, MTi Trading Systems Limited was sold to a third
party for an undisclosed amount. There is no guarantee that the Company will
be entitled to any dividend from the proceeds of such sale.
Effective December 15, 1997, the Company contracted with Garg Data
International, Inc. ("GDI"), a Newport Beach, California corporation, to deliver
maintenance and other services to its clients in North America. The Company is
entitled to a portion of profits realized on the current and future business of
GDI with the Company's clients.
Comparison of Fiscal Quarters
18
Revenues and costs decreased substantially from the three month period ended
October 31, 1996, largely as a result of the Company's not consolidating the
results of the UK Subsidiaries in the quarter ended July, 1997, and not
consolidating the results of MTi Trading Systems Limited and MTi Holding (UK)
Limited in the quarter ended October 31, 1997. Results of ABS for the period of
July 22, 1997 to October 31, 1997 are included in these consolidated financial
statements.
As a result of management's efforts to improve operations, the Company's
subsidiaries in the US and the Far East lost approximately $93,000 on
approximately $693,000 of revenue for the three months ended October 31, 1997,
as compared to a loss of $197,000 on $661,000 of revenue for the three months
ended October 31, 1996. ABS, the Company's new subsidiary in the UK lost
approximately $541,000 on $877,000 of revenue for the three months ended October
31, 1997. Management believes that such results in the first three months of
operation of ABS may not be a good indication of its future performance. The
Company's French subsidiary lost approximately $424,000 on $263,000 of revenue
for the three months ended October 31, 1997. Management is assessing
significant measures to prevent the recurrence of such losses in its French
operation. Management believes that it needs to expand its operation
significantly with profitable operating subsidiaries to insure the groups'
viability and profitability. It has completed the first steps toward that goal
by acquiring certain assets of Winter Partners Limited through its ABS
subsidiary and resuming its back office software operation world-wide. More
measures are still necessary as the current operations are not yet all
performing as expected and are insufficient to support corporate overhead.
The company incurs expenses in British pounds, Singapore dollars, US dollars,
and French francs. Similarly, revenues are invoiced in a variety of currencies,
19
the most significant of which are British 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.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share", which superseded APB Opinion No. 15, "Earnings Per Share", was issued
in February 1997. SFAS 128 requires dual presentation of basic and diluted
earnings per share ("EPS") for complex capital structure on the face of the
statement of operations. Basic EPS is computed by dividing income or loss by
the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution from the exercise or conversion of
securities into common stock, such as stock options. SFAS 128 is required to be
adopted for the fiscal year ending April 30, 1998; earlier application is not
permitted. The Company does not expect the basic or diluted EPS measured under
SFAS 128 to be materially different than if measured under APB No. 15.
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards No. 131
("SFAS 131") "Disclosure about Segments of an Enterprise and Related
Information," were issued in June 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company has not
determined the impact of SFAS 130 on its financial statements. SFAS 131
establishes standards for the way public companies report information about
operating segments in annual financial statements and requires that those
20
companies report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is required to adopt both new standards in the first
quarter ending July 31, 1998.
Liquidity and Capital Resources
On December 3, 1997, the Nasdaq Stock Market, Inc. ("Nasdaq") notified the
Company of its decision to delete the Company's securities from the Nasdaq
SmallCap Market effective close of business, December 3, 1997. Nasdaq based
their decision on the Company's not meeting the capital and surplus requirements
after excluding acquired pre-paid advertising from the Company's consolidated
balance sheet; on the belief that the Company's proposed reverse split would
not allow it to maintain a $1.00 bid price to meet the new continued listing
requirements; and on general public interest and investor protection grounds.
Effective opening of business, December 4, 1997, the Company's common equity was
traded on the electronic bulletin board.
The Company had approximately $3,699,000 of convertible debt as of October 31,
1997. $1,380,000 of that convertible debt matured on July 31, 1997 and was not
paid or converted into common equity pursuant to its terms. The balance of the
convertible notes mature on December 31, 1997. There is substantial doubt that
the Company will be able to re-schedule or pay such notes on maturity. There is
no guarantee that the common stock of the Company will trade at a price such
that there would enough authorized capital to convert such debt at maturity even
if the Board of Directors effects a 30 to 1 reverse split.
On November 21, 1997, the shareholders authorized the Board of Directors of the
Company to effect a reverse split of the shares issued and outstanding in the
21
ratio of from one to ten to one to thirty, while maintaining the 200,000,000
share authorized capital. Effecting such a reverse split would enable the
Company to issue shares in conversion of outstanding convertible debt and to
seek other funding sources. There is no guarantee that the Company's stock will
trade at a price such that there would be enough authorized capital to convert
all outstanding convertible debt.
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. There is no guarantee that
the Company's stock will trade at a price such that there would be enough
authorized capital to issue such additional shares at that time. Based on the
closing stock price at October 31, 1997 of $0.078, the Company would be
obligated to issue approximately 50,000,000 additional shares to Access.
In addition, the shareholders approved the creation of a preferred class of
stock and authorized the Board of Directors of the Company to designate the
rights, terms and preference of each issuance of preferred stock. The
shareholders authorized 20,000,000 shares of preferred stock with no stated par
value.
At October 31, 1997 the Company had a positive working capital of approximately
$114,000 as compared to a working capital deficiency of $3,513,000 at April 30,
1997. Excluding the pre-paid advertising time discussed above, the Company
would have had a working capital deficiency of approximately $3,886,000 at
October 31, 1997. There is substantial doubt that the Company will be able to
meet its current obligations when they come due.
22
During the quarter ended October 31, 1997, the Company issued 11,333,333 shares
of common stock in compensation for services, partially for pre-paid services.
In addition the Company issued 11,000,000 for a cash consideration of
approximately $625,000.
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, incorporated by reference to Exhibit 10-
27 to the
Company's quarterly report on Form 10-QSB dated December 22, 1997.
The Company did not file any current report on Form 8-K during the quarter ended
October 31, 1997.
SIGNATURE
23
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 22, 1997
Management Technologies, Inc.
(Registrant)
By: /s/ Patrick Huguenin
----------------------
Patrick Huguenin
Chief Financial Officer