U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended August 31, 1998. [ ] Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. For the transition period from To Commission File Number: 0-8880 MARITIME TRANSPORT & TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) New York 11-2196303 (State of jurisdiction of (I.R.S. Identification No.) incorporation or organization) 1535 Memphis Junction Road, Bowling Green, Kentucky, 42101. (Address of principal executive offices) (502) 781 - 8453 (Registrant's telephone number, including area code) Former name, former address and former fiscal year, if changed since last report Indicate by check mark, whether the registrant:: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The Company had 14,826,455 shares of common stock outstanding PART I FINANCIAL INFORMATION Item 1. Financial Statements The condensed financial statements for the periods ended August 31, 1999 included herein have been prepared by Maritime Transport & Technology, Inc., (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission"). In the opinion of management, the statements include all adjustments necessary to present fairly the financial position of the Company as of August 31, 1999, and the results of operations and cash flows for the three month periods ended August 31, 1998 and 1999. The Company's results of operations during the three months of the Company's fiscal year are not necessarily indicative of the results to be expected for the full fiscal year. The financial statements included in this report should be read in conjunction with the financial statements and notes thereto in the Company's Annual Report on Form 10-K for the fiscal years ended May 31, 1998 and 1999. MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEET August 31, May 31, 1999 1999 Unaudited Assets Current assets Cash and cash equivalents $122,161 $140,492 Accounts receivable 397,467 482,778 Prepaid expenses 1,600 1,600 Inventory 508,017 525,257 Federal corporate incomes tax receivable 8,925 7,344 ----- ----- Current assets 1,038,170 1,157,471 Property and equipment-net 35,702 38,239 Other assets Security deposits 805 805 Notes receivable 30,490 41,137 ------ ------ Total other assets 68,540 41,942 ------ ------ Total assets $1,105,167 $1,237,652 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $232,595 $275,807 Customer deposits payable 70,123 65,574 Bank Loans payable 7,268 7,268 Corporate taxes payable 13,027 4,000 Officer loan payable 174,527 175,490 Investor loans payable 38,400 ~ 57,000 ------- ------ Total current liabilities 535,940 584,139 Long term liabilities Bank loans payable - net of short term portion 8,274 14,299 ----- ------ Total liabilities 544,214 599,438 Stockholders' equity Common Stock authorized 80,000,000 shares, $0.01 Par value each. At May 31, 1999 and August 31, 1999, there are 14,787,955 and 14,826,455 shares outstanding respectively. 147,881 148,265 Additional paid in capital 866,935 905,050 Retained earnings deficit (453,863) (415,101) ------- --------- Total stockholders' equity 560953 638,214 ------ ------- Total liabilities and stockholders' equity $1,105,167 $1,237,652 =========== ========== See accompanying notes to financial statements. F1 MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF OPERATIONS Unaudited For the three For the three months ended months ended August 31, August 31, 1998 1999 Revenue $357,611 $396,605 Costs of goods sold 121,301 202,123 ------- ------- Gross profit 236,310 194,482 Operations: General and administrative 237,703 144,859 Depreciation and amortization 12,000 ---------- ------ Total expense 237,703 156,859 Loss from operations before corporate income taxes (1,393) 37,623 Other income and expenses Gain o sale of assets 19,000 Interest income 83 1,842 Interest expenses (2,176) (703) ------- ---- Total other Income 16,907 1,139 Net income (loss) $15,513 $38,762 ======== ======= Net income (loss) per share -basic $.00 $.00 ==== ==== Number of shares outstanding-basic 15,130,705 14,787,955 =========== ========== See accompanying notes to financial statements. F2 MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited For the three For the three months ended months ended August 31, 1998 August 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(99,860) $38,762 Non cash transactions Depreciation 12,000 Accounts receivable (127,907) (85,311) Prepaid expenses (1,200) Inventory (9,404) (17,240) Federal Corporate income taxes receivable 1,581 Accounts payable and accrued expenses 84,612 43,212 Customer deposits payable 12,853 (4,549) Corporate taxes payable (24,960) -------- TOTAL CASH FLOWS FROM OPERATIONS (119,310) (21,572) CASH FLOWS FROM FINANCING ACTIVITIES Loans payable-investors 131,500 Note payable- bank 122,368 Bank loans payable 6,025 Officer loan payable 963 Sale of common stock 38,500 ------------ ------ TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 253,868 39,463 CASH FLOWS FROM INVESTING ACTIVITIES Note receivable (10,647) Purchase of fixed assets (39,682) (14,537) Note receivable affiliated party (16,055) Note receivable non affiliated party (4,423) Investor loans payable 18,600 ----------- ------ TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (60,160) (559) NET INCREASE (DECREASE) IN CASH 74,398 18,331 CASH BALANCE BEGINNING OF PERIOD 70,681 122,161 ------- ------- CASH BALANCE END OF PERIOD $145,079 $140,492 ========= ======== Non cash activities Issuance of shares of common stock in consideration for consulting fees See accompanying notes to financial statements F1 MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY Retained Common Stock Common Stock Additional earnings Date paid in capital deficit Total - ---- --------------- ------- ----- Open balances June 1, 1998 15,130,705 $151,308 $494,508 $(386,425) $259,391 Issuance of shares for 100,000 1,000 199,000 200,000 consulting fees Sale of shares 232,250 2,323 166,677 169,000 Cancellation of shares (675,000) (6,750) 6,750 -0- Net loss (67,438) (67,438) --------------- -------- -------- Balances May 31, 1999 14,787,955 $147,881 $866,935 (453,863) $560,953 Unaudited Sale of shares 38,500 385 38,115 38,500 Net profit 38,762 38,762 --------------- ------- ------ Balances August 31, 1999 14,826,455 $148,265 $905,050 $(415,101) $638,214 =========== ========= ========= ========== ======== See accompanying notes to financial statements F1 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED AUGUST 31, 1999 1. BASIS OF PRESENTATION The accompanying unaudited financial statements of Maritime Transport & Technology, (the "Company"), reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of the interim periods presented. All such adjustments are of a normal recurring nature. The financial statements should be read in conjunction with the notes to financial statements contained in the Company's Annual Report on Form 10-Ksb for the year ended May 31, 1999. 2. NET INCOME PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("Statement No. 128"). Statement No. 128 applies to entities with publicly held common stock or potential common stock and is effective for financial statements issued for periods ending after December 15, 1997. Statement No. 128 replaces APB Opinion 15, Earnings per Share ("EPS"). Statement No. 128 requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing net income by the total number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could dilute the shares in computing the earnings of the Company such as common stock which may be issuable upon exercise of outstanding common stock options or the conversion of debt into common stock. Pursuant to the requirements of the Securities and Exchange Commission, the calculation of the shares used in computing basic and diluted EPS include the shares of common stock issued for the acquisition of B.G. Banking Equipment, Inc. and Financial Building Equipment Exchange, Inc. Shares used in calculating basic and diluted net income per share were as follows: For the three months For the three months months ended months ended August 31, August 31, 1998 1999 ------------- -------------- Total number common shares outstanding 15,130,705 14,787,955 3. ACCOUNTING FOR INCOME TAXES The Company follows Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires an asset and liability approach of accounting for income taxes. Deferred tax assets and liabilities are computed annually for differences between financial statement basis and tax basis of assets, liabilities and available general business tax credit carry-forwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. 4. Private Placements Prior to the Company's reverse acquisition of B.G. Banking and FBEE, B.G. Banking offered and received subscriptions for 126,500 shares of its common stock at $1.00 per share. Subsequent to the date of the Company's acquisition, the purchasers of shares of comon stock were offered and received sharesof common stock in the Company at a ratio of 1 share of B.G. Banking to 1.5 shares of the Company's common stock. The Company has issued 189,750 shares of common stock in satisfaction of the subscription agreements at a value of $0.67 per share. Two of the Company's directors, Andrew Seim and Alexander Brosda, acting and individually and acting as principals of Taurus Investments International, Inc. ( a Bermuda corporation) (together "Taurus"), acting as Directors of B.G. Banking prior to its acquisition by the Company and subsequent to the acquisition becoming Directors of the Company, offered and sold on behalf of B.G. Banking what Taurus has admitted to being an aggregate of 304,500 shares of common stock of B.G. Banking for an aggregate consideration of $304,500. Taurus has remitted to B.G. Banking and the Company a net proceeds of $109,673.05 and claims the difference of $194,826 be retained by Taurus as payment for expenses and commissions. Taurus has refused to disclose the names and numbers of shares of common stock and refused to remit to the Company the proceeds of the shares sold. The Company intends to enter into a lawsuit with Taurus demanding the balance of $194,826 that was improperly withheld be remitted to the Company and that Taurus disclose the names of the persons and the number of shares of common stock sold to these individuals. As of May 31, 1999, Taurus has failed to turn over the balance of money, provide the names of the stock subscribers and the number of shares of common purchased. Based upon the accounting provided by Taurus to the Company, the Company may be liable for the issuance of up to 329,500 shares of common stock if and when Taurus substantiates their representation as to the number of shares of common stock sold and the aggregate consideration. The Company may also be forced to defend itself against actions to be brought by unknown subscribers to shares of common stock of B.G. Banking whose purchase price has never been disclosed or delivered to the Company. The Company is aware of one alleged purchaser who claims to have delivered funds to Taurus and whose funds where apparently not turned over to the Company. In the opinion of management, the Company has no liability to such purchasers and intends to vigorously defend and such actions, if and when brought. Subsequent to the date of the financial statements, the Company has received approximately $42,000 from Taurus relating to the purchase of shares by an unknown investor. The Company is holding this money in escrow pending disposition. As of August 31, 1999, the Company has sold an additional 15,000 shares of common stock for an aggregate consideration of $15,000. As of August 31, 1999, the Company has reserved 329,500 shares of common stock pending possible issuance of shares in satisfaction of outstanding subscription agreements. c. Private Placement The Company is offering 2,000,000 shares of common stock at $1.00 per share on a "best efforts basis". As of May 31, 1999, the Company sold 42,500 shares of common stock for an aggregate consideration of $42,500. As of August 31, 1999, the Company has sold an additional 15,000 shares of common stock for an aggregate consideration of $15,000. The Company has reserved 1,942,500 shares of common stock pending the completion of the private placement Item 2. Management's Discussion and Analysis or Plan of Operation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for the three months ended August 31, 1997 and 1998 ------------------------------------------------ THE MATTERS DISCUSSED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS ENTITLED "BUSINESS" AND "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. THE COMPANY DISCLAIMS, ANY INTENT OR OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS. OVERVIEW Maritime Transport & Technology (the "Company") was established in 1968. The Company remained dormant for many years until the Company completed the acquisition of B.G. Banking Equipment, Inc., ("B.G. Banking") and Financial Building Equipment Exchange, Inc., ("FBEE"), Kentucky corporations. The Company is now in the business of buying, selling, trading both new and refurbishing of financial equipment for banks and other financial institutions. The Company markets the products throughout the United States primarily through direct sales to financial insitutions and other distributors supported by the Company's direct sales force and soliciting new contacts through its presence on the Internet. The Company anticipates that its results of operations may fluctuate for the foreseeable future due to several factors, including whether and when new products at competitive prices are obtained and sources of good used banking and banking related equipment and furniture available at favorable prices; market acceptance of current or new products, delays, or inefficiencies, shipment problems, seasonal customer demand, the timing of significant orders, competitive pressures on average selling prices and changes in the mix of products sold. Operating results would also be adversely affected by a downturn in the market for the Company's current and future products, order cancellations or order rescheduling or remanufacturing or delays. The Company purchases and resells new merchandise and remanufactures and ships its other products shortly after receipt of orders and has not developed a significant backlog for such products and does not anticipate it will develop a material backlog for such products in the future. Because the Company is continuing to increase its operating expenses, primarily for personnel and activities supporting newly-introduced products, new product development and entering new markets, the Company's operating results would be adversely affected if its sales did not correspondingly increase or if its product development efforts are unsuccessful or are subject to delays. The Company has incurred losses due to the payment of consulting fees and the issuance of shares of common stock in consideration for consulting expenses charged to operations in lieu of the payment of cash for the year ended May 31, 1999. The Company may not sustain revenue growth or return to profitability on a quarterly or annual basis and its operating results may not be consistent with predictions made by securities analysts. For the three months ended August 31, 1999, the Company has a pre-tax profit of $38,762. The Company has sufficient tax loss carryforwards to offset the tax liability from this profit.corporate tax liability RESULTS OF OPERATIONS The following table sets forth operating data as a percentage of net sales: THREE MONTHS ENDED AUGUST 31, ------------------------------ 1998 1999 ----------- ----------- ------- Net sales..................................... 100.0% 100% Cost of sales................................. 33.9% 50.9% - --- ----- Gross profit.................................. 66.1% 49.1% Operating expenses: Selling, general and administrative......... 66.5% 36.5% Depreciation ........................................ -0-% 3.0% ----- ----- Total operating expenses.................. 66.5% 39.5% Income (loss) from operations...................... (0.4)% 9.5% Corporate State Taxes -0-% -0-% Other income, net................................. 4.7% 0.3% ---- --- Net loss.................................................. 4.3% 9.8% --- ---- --- --- ---- Results of operations for the three months ended August 31, 1999 as compared to the three months ended August 31, 1998. - - - ----------------------------------------------------------------------------- Revenues were $396,605 for the three months ended August 31, 1999 as compared to $357,611 for the three months ended August 31, 1998. Costs of goods sold and related expenses for the three months ended August 31, 1999, were $202,123 as compared to $121,301 for the three months ended August 31, 1998 representing a cost of goods sold and related expenses of 33.9% and 50.9% respectively for the three months ended August 31, 1999 and 1998 General and administrative costs for the three months ended August 31, 1999 were $144,859 an decrease of $92,844 over expenses of $237,703, for the three months ended August 31, 1998.The decrease is the result of a reduction in consulting fees that were experienced in the same period August 31, 1998. Results of operations for the three months ended August 31, 1998 as compared to the three months ended August 31, 1997. - - - ----------------------------------------------------------------------------- Revenues were $357,611 for the three months ended August 31, 1998 as compared to $-0- for the three months ended August 31, 1997. Costs of goods sold and related expenses for the three months ended August 31, 1998, were $121,301 as compared to $0 for the three months ended August 31, 1997 representing a cost of goods sold and related expenses of 33.92% for the three months ended August 31, 1998 as compared to 0% for the three months ended August 31, 1997. General and administrative costs for the three months ended August 31, 1998 were $237,703, an increase of 100.0% over expenses of $-0- for the three months ended August 31, 1997. BENEFIT (PROVISION) FOR INCOME TAXES. As a result of the pre-tax loss recorded for the year ended May 31, 1999, the Company not recorded a benefit for Federal income taxes of $154,313 offseting a corporate tax liability of $13,166. Instead the Company recognized no income tax benefit from the loss generated in the year ended May 31, 1999 and August 31, 1999. SFAS No. 109 requires that a valuation allowance be provided if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company's ability to realize benefit of its deferred tax asset will depend on the generation of future taxable income. Because the Company has yet to recognize significant revenue from the sale of its products, the Company believes that a full valuation allowance should be provided. The Company will continue to assess the likelihood of realization of such assets; however, if future events occur which make the realization of such assets more likely than not, the Company will record a tax benefit. The Company is liable for the payment of a Corporate Kentucky State on tangible assets. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations through revenues from operations, private and public placements of equity securities, debt and capital lease financing and interest income earned on the net proceeds from the private placements. Since its reorganization, the Company has raised over $ 222,500 in cash proceeds from the private placement of equity securities and $175,490 from officer loans. During the year ended May 31, 1999, the Company had negative cash flow from operations of $229,228 in spite of a positive cash flow from operating activities of $178,929 essentially because of an increase in accounts receivable of $87,381, prepaid expenses of $400, inventory of $337,222, and a reduction in accounts payable and accrued expenses of $3,318. Customer deposits payable increased $8,717 and currect Corporate State tax liability increased by $11,447. Other significant business activities affecting cash included the purchase of fixed assets of $38,026, an increase of Notes receivable non affiliated party of $2,991, a payoff of a bank loan of $107,651 and the conversion of investor loans payable into shares of common stock aggregating $93,100. During the three months ended August 31, 1999, the Company had negative cash flow from operations of $21,572 because of an increase in accounts receivable of $85,311, inventory of $17,240, an increase in accounts payable and accrued expenses of $43,212. Customer deposits payable decreased $4,549. Other significant business activities affecting cash included the purchase of fixed assets of $14,537, an increase of Notes receivable non affiliated party of $10,647 and the conversion of investor loans payable into shares of common stock aggregating $38,500; and an increase in bank loans payable of $6,025; an increase in officer loan payable of $963. The Company is evaluating various alternatives in addressing its future facilities expansion needs. The alternatives being evaluated include negotiations with various parties for the leasing of additional facility space and the purchase of additional property to build a new or additional office and warehousing facility. Relocation to a new facility or leasing of additional facility space would be expected to result in an increase in rent upon occupancy. The Company believes that its available cash, cash from operations and funds from existing credit arrangements will be sufficient to satisfy its funding needs for at least the next 12 months. Thereafter, if cash generated from operations is insufficient to satisfy the Company's working capital and capital expenditure requirements, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. There can be no assurance that such additional capital, if needed, will be available on satisfactory terms, if at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants. The Company's future liquidity and capital funding requirements will depend on numerous factors, including the extent to which the Company's new products and products under consideration are successfully developed, gain market acceptance and become and remain competitive, the timing and results of regulatory actions in the banking industry, the costs and timing of further expansion of sales, marketing and manufacturing activities, facilities expansion needs. The failure by the Company to raise capital on acceptable terms when needed could have a material adverse effect on the Company's business, financial condition and results of operations. IMPACT OF YEAR 2000 ("Y2K") ISSUE The Company is implementing a plan to ensure its system, software and facilities infrastructure will function properly with respect to dates in the year 2000 and thereafter. Key financial, information and operational systems have been assessed and approximately 90% of them have been verified as being compliant. The Company is on schedule to have all remaining systems verified as compliant by November 30, 1999. All key suppliers, distributors, financial institutions and others with whom it does business have been contacted by the Company to assess their Y2K readiness, and approximately 60% have stated that they are compliant or will be compliant before December 31, 1999. The Company is continuing to communicate with key suppliers, distributors, financial institutions and others and believes that their readiness will not pose significant operational problems for the Company, nor have a material adverse effect on the Company's business. To date the Company has expended less than $5,000 addressing the Y2K Issue and estimates the total cost of the project and contingency plans, if necessary, to be under $10,000. The Company anticipates that the Company will be in compliance with Y2K requirements by the end of December 15, 1999. However, if such modifications and conversions are not made or are not completed in a timely fashion, the Y2K Issue could have a material adverse impact on the operations of the Company. Additionally, the systems of other companies on which the Company's systems rely may not be timely converted, which may have an adverse effect on the Company's systems. The most likely worst case scenario is that customers would be unable to order products or pay invoices or suppliers would be unable to manufacture or deliver product. This would result in reduced orders of products and the inability of the Company to manufacture product. The Company currently does not have contingency plans in the event it does not complete all phases of the Y2K program. However, management is considering contingency plans which involve, among other actions, manual workarounds, increasing inventories of key components to the refurbishing process and validating alternate vendors. The Company plans to evaluate the status of the contingency plans by October 1999 and determine whether such plans are necessary. PART II OTHER INFORMATION Item 1. Legal Proceedings. As at August 31, 1999 and the filing date hereof, no material legal proceedings were pending to which the Registrant or any of its property is subject, nor to the knowledge of the Registrant are such legal proceedings threatened. The Company intends to file a suit in the near future. Two of the Company's past directors, Andrew Seim and Alexander Brosda, acting and individually and acting as principals of Taurus Investments International, Inc. ( a Bermuda corporation) (together "Taurus"), acting as Directors of B.G. Banking prior to its acquisition by the Company and subsequent to the acquisition becoming Directors of the Company, offered and sold on behalf of B.G. Banking what Taurus has admitted to being an aggregate of 304,500 shares of common stock of B.G. Banking for an aggregate consideration of $304,500. Taurus has remitted to B.G. Banking and the Company a net proceeds of $109,673.05 and claims the difference of $194,826 be retained by Taurus as payment for expenses and commissions. Taurus has refused to disclose the names and numbers of shares of common stock and refused to remit to the Company the proceeds of the shares sold. The Company intends to enter into a lawsuit with Taurus demanding the balance of $194,826 that was improperly withheld be remitted to the Company and that Taurus disclose the names of the persons and the number of shares of common stock sold to these individuals. As of August 31, 1999, Taurus has failed to turn over the balance of money, provide the names of the stock subscribers and the number of shares of common purchased. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security-Holders None. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Maritime Transport & Technology, Inc. (Registrant) By: /s/Paul Clakr ------------------ Paul Clark PRESIDENT Dated: November 1, 1999