0000806566-95-000029.txt : 19950816
0000806566-95-000029.hdr.sgml : 19950816
ACCESSION NUMBER: 0000806566-95-000029
CONFORMED SUBMISSION TYPE: 10KSB
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 19950430
FILED AS OF DATE: 19950815
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MANAGEMENT TECHNOLOGIES INC
CENTRAL INDEX KEY: 0000806566
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372]
IRS NUMBER: 133029797
STATE OF INCORPORATION: NY
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: 10KSB
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17206
FILM NUMBER: 95564292
BUSINESS ADDRESS:
STREET 1: 630 THIRD AVENUE
STREET 2: 15TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10017
BUSINESS PHONE: (212) 983 5620
MAIL ADDRESS:
STREET 1: 630 THIRD AVENUE
STREET 2: 15TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10017
10KSB
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES ACT OF 1934 (Fee required)
FOR THE FISCAL YEAR ENDED APRIL 30, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No fee required)
For the transition period
from to 13-3029797
------------
(I.R.S. Employer
------------
Commission file number Identification No.)
0-17206
MANAGEMENT TECHNOLOGIES, INC.
-----------------------------
(Name of small business
issuer in its charter)
New York
(State or other jurisdiction
of incorporation or
organization)
630 Third Avenue
New York, New York
------------------
(Address of principal executive offices)
1
10017-6705
----------
(Zip Code)
Issuer's telephone number, including area code (212) 983 5620
--------------
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on
which registered
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock, par value $.01 per share
---------------------------------------
(Title of Class)
2
Indicate by check mark whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities 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
----- -----
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year:
$18,687,000
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days: July 31,
1995: $13,493,225.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: as
of July 31, 1995: 15,685,669
Transitional Small Business Disclosure Format (check one): Yes
No X
----- -
3
PART I
Item 1. Description of Business
Business Development
The Registrant (the ``Company'') was incorporated in the State
of New York in 1980.
Effective November 15, 1993, the Company acquired a 75% equity
interest in New Paradigm Software Corporation (``NPSC'').
Subsequently, the Company's equity interest was reduced to 61%
and its voting rights to 17.5% at April 30, 1995 due to other
equity issuances by NPSC. NPSC develops and markets a software
product that allows different applications running on different
hardware and software platforms to share data.
On July 13, 1994, the Company acquired four companies from
Winter Partners Holding A.G., Switzerland: Winter Partners
Limited, a United Kingdom company with offices in London,
England, Winter Partners, Inc., a United States company with
offices in New York, New York, Winter Partners (Pte) Limited, a
Singapore company with offices in Singapore and Winter Partners
(HK) Limited, a Hong Kong company with offices in Hong Kong
(collectively, the ``Winter Partners subsidiaries ''). Winter
Partners, Inc., Winter Partners (PTE) Limited, and Winter
Partners (HK) Limited, were subsequently renamed MTi Abraxsys
Systems, Inc., MTi Abraxsys (Pte) Limited and MTi Abraxsys
Systems (HK) Limited, respectively. The Winter Partners
subsidiaries, as renamed, are referred to as the ``Abraxsys
division''
4
In addition, all shares issued and outstanding of Winter
Partners Information Technology (UK) Limited, a dormant wholly
owned subsidiary of Winter Partners Limited at the acquisition
of the Winter Partners subsidiaries, were transferred from
Winter Partners Limited to the Company. Winter Partners
Information Technology (UK) Limited was subsequently renamed MTi
Holdings (UK) Limited (``MTi Holdings'').
Effective January 1, 1995, the Company and MTi Holdings acquired
all the issued and outstanding shares in Digital Equipment
Service Industries Solutions Company (``DESISCo'' subsequently
renamed MTi Trading Systems Limited (``MTi Trading ''), from
Digital Equipment International Limited, Digital Equipment
International bv, Digital Equipment (Holdings) bv, and Digital
Equipment Co. Ltd. MTi Trading is referred to as the
``OpenTrade division''.
The Company's other wholly owned subsidiaries in the United
Kingdom, New York, Massachusetts, Canada and Australia are
currently inactive.
The Company's principal executive offices are located at 630
Third Avenue, New York, New York 10017. The telephone number is
(212) 983 5620. Unless the context otherwise requires,
references to the Company include its subsidiaries. The NPSC
affiliate is accounted for by the equity method of accounting.
The Company develops, markets, licenses, installs, maintains and
supports software products catering to the needs of
international banks and financial institutions.
5
The Company's principal products are Abraxsys, IBS-90 and the
OpenTrade family of products. Abraxsys and IBS-90 are back
office international banking software products running on mid
range computer systems. Abraxsys and IBS-90 are installed at
approximately 75 locations in over 30 countries. The OpenTrade
family of products comprises OpenTrade and TradeWizard.
OpenTrade is used by 50 customers supporting 6,000 trading
positions. The Company also markets and licenses a line of
integrated software packages for financial institutions known as
ManTec through an agent, Global Financial Systems Limited
(``GFS''). The Company no longer directly supports its ManTec
product line. GFS provides support to certain clients. The
ManTec product line runs on IBM and IBM-compatible mainframe
computers.
Business of the Registrant
Product and Services:
---------------------
IBS-90
IBS-90 is a comprehensive suite of computer programs designed to
support the back office activities of banks. The product
provides transaction processing support for a bank's foreign
exchange and money market business, including various off-
balance sheet instruments such as Forward Rate Agreements,
Interest Rate Swaps, and Repurchase Agreements; various lending
activities including Commercial, Syndications, Participations
and Mortgages; trade finance business, retail or Demand Deposit
6
Accounting business; funds transfer activities and general
ledger and other accounting support.
IBS-90 was a fully developed product of the Winter Partners
subsidiaries at the time of their acquisition by the Company.
It was accounted for as acquired software technology and is
being amortized over the estimated 10 year life of the product.
The product offers multi-lingual support, multi-branch and
multi-currency processing, right down to profit center level.
In addition, the product offers some front office support to
various functional areas in a bank, the most important of which
is teller/cashier support.
IBS-90 reflects some 20 years of an evolutionary development and
previous versions have been marketed under the name of IBS
(International Banking System), and ABS (Arbat Banking System).
The product is written in the AIMS computer language, a
derivative of the widely accepted BASIC language. The product
will run on any model of Digital Equipment Corporation's VAX
computer processors, running under the control of Digital's
proprietary operating system VMS.
IBS-90 was first marketed late in 1989, and to date has been
licensed to approximately 50 banks.
From the date of the Winter Partners acquisition through 30th
April, 1995, the Company has entered in 7 new license
agreements.
Abraxsys
7
Abraxsys is a complete redevelopment of IBS-90 and is now
marketed as MTI's prime offering to banks to computerize bank's
back offices. Abraxsys was a software product in development by
the Winter Partners subsidiaries at the time of their
acquisition by the Company. It had not reached the
technological feasibility stage at the time of acquisition and
was, therefore, treated as acquired research and development,
and the associated costs were expensed during the year ended
April 30, 1995.
Abraxsys comprises essentially the same functions as IBS-90 but
with many enhancements, particularly in the processing support
offered to a banks trade finance department.
However, the most significant difference between IBS-90 and
Abraxsys is that Abraxsys is written in the industry standard
'C' language and runs on a variety of hardware platforms and
operating systems, the most significant of which is UNIX. This
means that Abraxsys can meet the market demand for so-called
open systems, which is not true of IBS-90.
Development of Abraxsys commenced in 1990 and to date over 100
man years of effort have been involved in the development.
A treasury subset of the product was first announced in
September 1993, and the full product availability was announced
in October 1994. To date approximately 9 Abraxsys systems have
been licensed, of which seven were signed in the year ended
April 30, 1995.
OpenTrade
8
The OpenTrade Platform provides for the management, distribution
and integration of information to a wide range of users in
financial institutions. Predominantly used as an integration
platform for applications requiring access to real-time
financial information from a variety of sources, OpenTrade
offers an open, application programming interface (API) that
conforms to relevant industry standards. In addition, OpenTrade
also supports Microsoft's Windows Open System Architecture
Extensions for Real Time (WOSA/XRT) which is steadily becoming
an industry standard for the integration of real-time
information into Microsoft Windows based applications. The
component based architecture of OpenTrade supports a wide range
of application communication services including: real-time,
transactional, messaging or query oriented, thus ensuring that
information and applications of all types throughout an
organization can be integrated in an effective manner.
OpenTrade was a fully developed product of DESISCo at the time
of its acquisition by the Company. It was accounted for as
acquired software technology and is, therefore, being amortized
over the estimated 10 year life of the product.
Equally at home in a Local or Wide Area Network (LAN or WAN)
OpenTrade offers users a high performance, fault tolerant
platform for information and application integration. System
Management features provide controls on access to and use of
information resources and extensive real-time and paper-based
9
reporting facilities enable managers to audit system, and data
usage.
Continuously developed since 1979, OpenTrade is currently in use
at over 50 sites worldwide supporting some 6000 traders.
TradeWizard
Developed as a native 32-bit application on Microsoft's Windows
NT and using object oriented technologies, Object Linking and
Embedding (OLE), TradeWizard is an advanced application for the
integration of information and applications at the user's
desktop. Whether the information is real-time, supplied by the
traditional information providers, is multimedia based and
sourced from other external organizations, or is in a
documentary format from within the organization itself, users
can easily display and manipulate the information in support of
effective business solution making.
Designed to assist users in managing the information overload,
TradeWizard is user configurable. Individual users can tailor
the display to their specific job function and personal
preferences. Able to display and manipulate information from a
wide variety of sources, TradeWizard is an information
integration workstation offering users access to real-time
digital and video based data, TV and audio news services, video
conferencing, fax and mail services.
TradeWizzard was a software product in development by DESISCo at
the time of its acquisition by the Company. It had not reached
the technological feasibility stage at the time of acquisition
10
and was, therefore, treated as acquired research and
development, and the associated costs were expensed during the
year ended April 30, 1995.
First introduced early in 1995 TradeWizard is achieving
widespread acceptance in the OpenTrade user community with some
500+ positions already installed.
TradeWizard is written in C++ and is available on Microsoft
Windows 95, Windows NT and all major UNIX operating system
platforms.
ManTec
ManTec is a suite of computer programs designed to support the
back office functions of banks. It addresses substantially the
same areas of functions as IBS-90 Abraxsys. The major
difference with ManTec is that it is designed to run exclusively
on IBM and IBM-compatible mainframes. The popularity of
mainframes in the Company's target markets has declined rapidly
over the last few years.
The Company decided in July 1994 following the acquisition of
the IBS-90 and Abraxsys products, to discontinue directly
selling and servicing the ManTec product line. This decision
was based on the view that the market for 'open' systems such as
Abraxsys was much larger and expanding versus the contracting
market for mainframe systems.
However, in recognition that a small market exists for the
ManTec product it was decided to allow an agent, Global
Financial Systems Ltd. (GFS) based in London, England to
11
continue to sell the ManTec product line. The Company shares in
any license fees GFS may generate through the ManTec line.
In the fiscal year ended April 30, 1995, no new ManTec licenses
were sold.
The Company's revenues from transactions in which GFS acted as a
distributor for the Company were $977,000 and $0 for fiscal 1994
and 1995, respectively.
Markets
-------
The Company markets its products to the international banking
area of domestic and foreign banks. In the United States, the
Company believes there are approximately 850 banks engaged in
international banking activities of sufficient size to require,
at least some of the components of the Company's products. In
Europe, the Middle East and the Far East, the Company believes
there are in excess of 3,000 banking offices which form the
primary market for the Company's software products.
Data processing has become increasingly important to
international banking activities. Management believes that the
market potential for more sophisticated software systems has
increased as a result of declining computer hardware prices, the
high cost of staff and the increasing need to process
transactions promptly so as to be able to adequately assess and
control different types of risks. At the same time, management
believes that it has become increasingly more difficult for
users to internally develop the software necessary for their
data processing requirements because of the substantial expense
12
and commitment of personnel and other resources necessary to
design and maintain such software programs.
Distribution Methods of the Products and Services
-------------------------------------------------
The Company has narrowed its focus to specific geographic areas
in which relatively greater interest has been expressed in
particular products (although there can be no assurance that
such focus will translate into sales). The areas the Company is
focusing upon include Western Europe, Eastern Europe, the Far
East and North America.
The Company primarily relies upon its own direct sales force to
achieve sales. In certain niche markets, the Company has sales
agents and/or support agents. Included among these are GFS for
the ManTec product, COMAS in Korea for Abraxsys, Systex
Corporation in Taiwan for Abraxsys and Idom for the support of
IBS-90 in Hungary, the Czech Republic and the Slovak Republic.
The Company expects to appoint a number of additional
distributors for its OpenTrade and TradeWizzard products,
primarily to increase sales penetration in certain countries in
Western Europe.
Sources of Revenue
------------------
Software Licensing
The Company generally licenses software products to its
customers for use under non-exclusive, 5 to 25 year license
agreements. Pursuant to the Company's standard form of license
agreement, the customer pays a fixed license fee which varies
13
depending on the number of users licensed to access the
software, and acquires the non-transferable and non-exclusive
right to use the software at a designated site. If the customer
desires to use the software at multiple locations or to add
further users additional license fees are required. The one-
time license fees for the Company's application software
packages currently range from $100,000 to $2,000,000 per site.
The Company is dependent for license revenues upon sales of the
IBS-90, Abraxsys, Open Trade, TradeWizard and ManTec product
lines.
Maintenance
As part of the fixed license fee for the Company's software
products, customers receive, a warranty period of typically 90
days after installation, during which period the Company
provides free maintenance services. After that period, the
Company offers maintenance services to its customers based upon
an annual fee reflecting the service provided by the Company.
Maintenance fee revenues are recognized on an incremental basis
over the period of the contract. The Company warrants that its
software will conform with documented specifications. To date,
warranty expense has been minimal.
The Company's maintenance agreements generally provide for the
maintenance by MTI of MTI licensed software at a specified site
for a period of one to three years. Under the maintenance
agreements, MTI is required to correct or replace its licensed
14
software and/or provide services necessary to remedy significant
programming errors attributable to it. Fees for a single site
maintenance agreements may range from approximately $30,000 to
$400,000 annually, depending upon the number of licensed users.
The Abraxsys division has 60 maintenance agreements in force.
MTi Trading Systems has 75 Maintenance Agreements in force.
Customer Services
The company provides support services relating to the custom
design and production of modifications to software products to
meet the specific needs of a customer. In addition, the Company
offers a full range of customer support services, including
project planning and management, system installation, software
implementation, user training/education, technical support and
documentation and on-site engineering. The Company charges
customers for these services with the exception of
documentation. Customer services fees are recognized as revenue
as work is performed and invoiced by the Company.
Third Party Products
The Company also derives revenues from selling other companies'
products. Such arrangements include sales of both hardware and
software.
a) Hardware
--------
The Company acts as an Agent for Digital Equipment Corporation
and on some IBS-90, Abraxsys and OpenTrade deals will sell
computer equipment as an Agent to the end user. In the year
15
ended April 30, 1995, the company recognized $167,000 of
revenues for sales of hardware, associated with sales of IBS-90.
The Company is also a Sun Authorized Reseller, representing Sun
Microsystems. In addition the Company is also an Authorized
Reseller for IBM. In the period under review, the Company
recognized no revenue in respect of its Agreements with Sun and
IBM.
b) Software Products:
-----------------
i) Monarque: the Company represents Treasury Management
Systems, Inc. (``TMS'') in the sales of TMS' Monarque product.
Monarque is complementary to IBS-90 and Abraxsys, supporting
front-end dealing functions within a bank's treasury operation.
In the year ended April 30, 1995, the Company recognized $20,000
net revenue from its arrangement with TMS.
ii) Synergy: MTi Trading Systems is an Authorized Reseller
for Synergy's range of technical analysis and charting products.
These products complement the TradeWizard information
integration workstation by providing specialist tools for the
analysis and manipulation of real-time information. Since
inception (1992) some 1600 licenses have been sold by MTi
Trading Systems.
iii) Applix: MTi Trading Systems is an authorized Reseller
for the Applix spreadsheet. The Applix spreadsheet is fast
becoming the de facto standard for arithmetic modeling and
"what-if" analysis in UNIX based trading rooms and the financial
16
sector as a whole. Since inception, January 1995, 65 licenses
have been sold.
Competition
-----------
The financial institutions software industry is highly
competitive. The Company believes that the principal factors
affecting the marketing of software packages are product
availability, advanced technology, comprehensiveness of product
applications, flexibility, ease-of-use to meet customer needs,
software enhancements, maintenance, customer support, training,
documentation, efficient use of computer hardware and customer
references. Price is a primary consideration to penetrate
certain market segments, particularly smaller banks where
automation may be postponed if its cost is deemed prohibitive.
The Company encounters its primary competition from other
software vendors.
The Company competes with many companies which have greater
financial resources, more technical personnel and more extensive
service capabilities than the Company. The market is highly
fragmented; however, the Company views MISYS, Internet Systems
Corp. ("Internet") IBIS, Reuters and Micrognosis as its
principal industry competitors. The Company is also subject to
substantial competition from potential customers with existing
comprehensive applications software packages for international
banking insofar as such companies might elect to modify rather
than replace existing systems. The Company's ability to compete
successfully requires that it continues to develop and maintain
17
the necessary technical proficiency for easy assimilation of
future technological advances, that it continue to offer
marketable and reliable applications software programs which
satisfy the information management and competitive requirements
of banks and financial institutions, and that it provide
sufficient customer support and related services, as to any of
which there can be no assurance.
Dependence on few major Customers
---------------------------------
Digital Equipment Corporation owns several subsidiaries which
act as prime contractors to many of the Company's end customers.
The Company has no customers which in fiscal year ended April
30, 1995 contributed 10% or more of the Company's revenues. The
Company does not consider that it is dependent on any one
customer for its future business success.
During fiscal 1994, O.K.H.B., Depravna Bank, Banca Nazionale Del
Lavoro, Algemene Bank Nederland accounted for 32%, 11%, 15% and
11%, of the Company's revenues, respectively, representing an
aggregate of 69% of such revenues.
Foreign Operations
------------------
In the year ended April 30, 1995, the Company acquired operating
subsidiaries in the United Kingdom, in Singapore and in Hong
Kong. The Company had no material foreign operations in fiscal
1994.
Subsidiaries outside the United States account for 86% of the
Company's revenues in the year ended April 30, 1995.
18
Included in North America revenues for the years ended April 30,
1995 and 1994 were export revenues of $140,000 and $206,000,
respectively.
Research and Development
------------------------
The Company continues to be engaged in computer software
development and improvements of its existing software products.
The development of applications software packages for banks and
financial institutions is a continuous process. Technological
advances in computer hardware, systems software, industry
deregulation and other regulatory changes affecting banking
institutions require software modifications and result in more
complex and comprehensive processing needs. In the event the
Company fails to continue to update its product line, the
Company's products may become obsolete. The Company believes
that its principal products remain competitive. However, the
Company is continuing to engage in research and development
activities, principally, in the "open systems" area.
Accordingly, the Company is committed to retaining and
developing competitive product lines.
The Company does not have any material contracts relating to
third-party research and development.
Approximately 45% of the Company's staff, or some 90 people, are
engaged in developing products. Of these, nearly 50 are engaged
in developing OpenTrade and TradeWizard, which is essentially
funded by the Company. Some 25 people are engaged in developing
Abraxsys, again funded by the Company. Some 15 people at any
19
one time are engaged in developing enhancements to Abraxsys and
IBS-90, which are specifically ordered and funded by particular
customers. In the year ended April 30, 1995, research and
development expenses amounted to approximately $5,847,000.
There was no such cost in the year ended April 30, 1994.
Employees
---------
As of April 30, 1995 the Company had 195 salaried employees, as
compared with 27 employees as of April 30, 1994. The Company
increased its staff during the year ended April 30, 1995 as a
result of the acquisitions of the Winter Partners subsidiaries
and of the DESISCo subsidiary. The Company's employees are not
represented by any union or other collective bargaining unit.
The Company believes that it has a satisfactory relationship
with its employees.
Trademarks, Copyrights and Licenses
-----------------------------------
The Company does not own any patents, registered trademarks or
service marks or registered copyrights. The Company believes
that rapid technological advances in the computer software
industry make it impractical for the Company to obtain patent
protection and that it must rely principally upon innovative
software engineering skills and contractual safeguards. The
Company seeks to protect its proprietary software products
through restrictions in its license agreements which prohibit
resale, transfer, disclosure or reproduction of the software,
except for archival purposes or to provide back-up copies, and
20
which restrict the customer's use to designated sites. The
Company's software cannot be modified without the source code,
which the Company keeps secure. The Company also requires
employees to enter into non-disclosure agreements prior to
joining the Company. To date, the Company has not been required
to enforce the contractual safeguards relating to the use of its
software. The Company also retains exclusive ownership rights
to all software it develops. Pursuant to the indemnification
provisions of its license agreements, the Company agrees to
indemnify customers from losses resulting from any third-party
claims that the Company's software infringes upon proprietary
rights of such third-party. The amount of such indemnification
is generally limited to the amount of the license fee paid by
such customer. To date, there have been no such claims.
General
-------
The Company exited the year ended April 30, 1995 with a backlog
of orders in excess of $5,000,000, together with signed
maintenance contracts worth nearly $6,000,000 in revenues for
fiscal 1996. Its business is not seasonal, nor does the
Company do any business with the United States nor any other
Government.
21
Item 2. Description of Properties
The Company's principal executive offices are located at its 630
Third Avenue site in New York City. The Company leases
approximately 6,200 square feet of office space from a non-
affiliate company. The annual base rent is $191,075. The lease
expires on May 31, 2001.
In addition, the Company sublets approximately 15,300 square
feet of office space from a non-affiliated company at 335
Madison Avenue, New York, New York. The minimum annual base
rental is $290,700 under a sublease expiring December 31, 1996.
The Company's rent was abated during the first six months of the
sublease, i.e., through August 1993, and the Company also
received a $229,700 rebate from the sub lessor. In November of
1993, the Company entered into a lease modification agreement
for an additional 15,300 square feet to office space for an
additional $95,000 per annum. The Company, in turn, has
subleased this space to NPSC, an affiliated company. These
agreements are subject to approval from superior landlords,
which has not been granted. In November of 1994, the Company
subleased its original 15,300 square feet space at 335 Madison
Avenue to NPSC and Financial Performance Corp. (``PC''). The
Company does not occupy any of the space at Madison Avenue and
is finalizing the settlement agreement with MCI. The Company
and MCI have agreed, subject to the execution of a settlement
agreement, that the Company's obligations to MCI will be
satisfied in full by the payment of the sum of $300,000, of
22
which approximately $100,000 is posted security, and the balance
of $200,000 is to be payable over a six month period.
Pursuant to a certain agreement with Midland Associates, the
Company provides two offices free of charge to FPC, currently at
its Madison Avenue site. FPC has agreed that if it does not
accept two rent free offices at the Company's Third Avenue site,
that the Company will no longer be obligated to provide said
offices rent free.
In July 1992 the Company entered into a ten-year lease for space
to be used as its London sales office. Annual rent under the
lease is 25,400 British pounds or approximately $38,000.
Possession of this space returned to the landlord in the Fall of
1994.
By lease dated September 9, 1987, Winter Partners Limited leased
office space from a non-affiliated company at the Hop Exchange,
24a Southwark Street, London, England. Annual rent is 216,450
British pounds or approximately $347,000. The lease expires
December 1997.
By lease dated August 30, 1994, Winter Partners Pte Ltd leased
office space from a non-affiliate company for a minimum annual
consideration of 240,900 Singapore dollars or approximately
$169,000. The lease expires August 31, 1997.
By License Agreement (the ``License'') dated December 22, 1994,
MTi Holdings leased office space at Harefield Place, Uxbridge,
West London, England for an annual consideration of 449,040
23
British pounds, or approximately $719,000. The lease expires on
December 31, 1996.
24
Item 3. Legal Proceedings
1. Matter involving Barrington Fludgate v. MTI
Barrington J. Fludgate ("Fludgate"), a former Officer and
Director of the Company, commenced an action in the U.S.
District Court for the Southern District of New York against the
Company, claiming the Company violated certain ERISA laws, in
addition to damages claimed by Mr. Fludgate as a result of
breach of his Employment Contract with MTI. The Company moved
to dismiss the action on jurisdictional grounds and was
successful in its motion to dismiss. Fludgate had claimed the
sum of $1,900,000 in damages, in addition to other unspecific
damages and legal fees.
As a result of the dismissal by the Court, Fludgate cannot
proceed in the District Court. On July 26, 1995, Fludgate
commenced an action in the New York State Supreme Court, New
York County, claiming breach of contact in violation of New York
State Labor Law. The action claims damages in the sum of
$3,500,000 and additional unspecified damages. The Company has
not as yet interposed an answer to the complaint, as the time to
answer is August 15, 1995. The Company believes it has both
technical and substantive meritorious defenses to the claim.
2. Claim of Registration Rights for Unit Holders of the
Company
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,
25
on a pre-split basis, in 1993 and 1994. The Private Placement
terms involved registration rights to the Unit Holders which
further provided for the Company to use its best efforts to
register the shares and the additional shares underlying the
Class "C" Warrants for Unit Holders. The Company filed a Form
S-3 Registration Statement for the underlying shares and 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. A number of Unit
Holders have made claims against the Company, alleging that the
Company agreed to afford Unit Holders options to purchase shares
of Common Stock at a below market price as a form of
compensation to Unit Holders for losses occurring as a result of
the Company's not proceeding with the Registration of their
shares.
The Company informed Unit Holders that it would commence action
to prepare and file a new form of registration of their shares;
however, to-date, the Company has not filed or prepared to file
a Registration Statement, and a number of Unit Holders have
claimed damages. The Company is in the process of preparing and
proposing a plan to Unit Holders so as to avoid legal action by
Unit Holders against the Company.
3. Claim of Sharon F. Merrill (`Merrill'')
Merrill, a stockholder in the Company, received 250,000 shares
of restricted stock as a result of the acquisition of the shares
of MTi Merken, Inc. in 1992. In that regard, the Company agreed
26
to use its best efforts to register Ms. Merrill's shares within
180 days from the acquisition date. A claim has been made that
the Company has not used its best efforts and that Ms. Merrill
has sustained losses as a result of a decline in the price of
the stock of the Company and, resultantly, Ms. Merrill has
claimed a loss of $450,000. The Company's position is that it
has used its best efforts with respect to the registration of
the shares owned by Ms. Merrill and that it is not liable for
any losses claimed by Ms. Merrill.
The Company is not a party to any other material litigation.
27
Item 4. Submission of Matters to a Vote of Security Holders
None.
28
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock are traded in the over-the-counter
market under the National Association of Securities Dealers
Automated Quotation System (``NASDAQ'') symbols MTCI. The
Company's Class ``A'' Warrants and Class ``C'' Warrants expired
on January 31, 1994. The Class ``A''Warrants were traded in
the over the counter market under the NASDAQ symbol MTCW. The
Company's Class ``C'' Warrants and other warrants are not
publicly traded. Class ``C'' Warrants and other warrants are
described in Item 7, Note 15.
On April 28, 1995, the Company's shareholders resolved to
reverse split the Company's issued and outstanding common stock
on a one for seven basis. The reverse split took effect on May
15, 1995.
The following sets forth the high and low closing bid prices for
Common Stock and Class ``A'' Warrants for the periods indicated
as reported by NASDAQ, adjusted to give effect to the May 15,
1995 reverse split. Such prices represent prices between
dealers without adjustment for retail mark-ups, mark-downs or
commissions and may not necessarily represent actual
transactions.
Class Class
A Warrants A Warrants Common Common
29
stock stock
High Low High Low
($) ($) ($) ($)
May 1-Jul 3 15/16 1 3/4 12 1/4 7
31, 1993
Aug 1-Oct 6 9/16 1 5/16 16 5/8 5 1/4
31, 1993
Nov 1-Jan 7/16 7/32 11 13/16 6 1/8
31, 1994
Feb 1-Apr n/a n/a 8 5/16 3 15/16
30, 1994
May 1-Jul n/a n/a 3 15/16 5 1/4
31, 1994
Aug 1-Oct n/a n/a 4 3/8 3 9/32
31, 1994
Nov 1-Jan n/a n/a 4 3/8 1 31/32
31, 1995
Feb 1-Apr n/a n/a 2 13/32 1 31/32
30, 1995
On July 31, 1995 the closing bid prices of the Common Stock was
$7/8.
The approximate number of stockholders of record on July 27,
1995, was 403, and a substantial number of shares are held in
``street-name'' by approximately 3,000 individuals or entities.
30
The Company has never paid any cash dividends on its Common
Stock. The Company does not anticipate paying any dividends in
the foreseeable future.
31
Item 6. Management's Discussion and Analysis of and Results of
Operations Financial Condition
Results of Operations
General
The Company's revenue consists of license fees from the
Company's software products, which include agency commissions,
maintenance fees and customer service fees.
The Company recognizes revenue for licensing of its IBS-90 and
Abraxsys products according to the standards set in Statement of
Position 91-1 (`SOP-91-1''), and it is therefore recognizing
license fees as revenues upon delivery, 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. Billings made in advance of delivery are
recorded as deferred income. The amount by which recognized
revenue exceeds billings to customer is shown as unbilled
accounts receivable. Revenues from licensing the OpenTrade
product are recognized on the percentage of completion method of
accounting as costs are incurred in conformity to the standard
set out in Statement of Position 81-1 (`SOP 81-1'')
The Company's IBS-90 licenses with its customers typically
provide for payments to be made pursuant to specified schedules,
certain of which payments are generally received prior to
delivery to the customer. Such payments prior to delivery are
32
not recognized by the Company as revenue, but are reflected as
deferred income on the Company's Consolidated Balance Sheet.
Maintenance fee revenues are recognized proportionately over the
period of the contract; the unrecognizable portion is recorded
as deferred income. There was deferred income of $3,548,000 as
of April 30, 1995 and $309,000 as of April 30, 1994. There was
no non-current deferred income as of April 30, 1995.
Customer service fees are recognized as revenue as work is
performed under the service arrangement.
The Company's revenues and results of operations are subject to
significant fluctuations, depending primarily on the number of
software components delivered in any period. License fees range
from $100,000 to $2,000,000 on a per-site basis. As is typical
in the software industry, maintenance fees are a more stable
source of revenue.
Effective April 30, 1994, and in anticipation of the acquisition
of the Winter Partners subsidiaries, the Company decided to
write down all remaining capitalized software development costs
of approximately $2,893,000 related to then existing products.
The write down was taken to reflect the declining market place
for mainframe based systems.
Starting with the year ended April 30, 1995, costs of software
products consist of the cost of third party products resold with
the Company's products and the amortization of acquired software
technology. Other costs of software products, such as the
costs of duplicating products from product masters and physical
33
packaging of the Company's software, are immaterial. In fiscal
1994, costs of software products consisted of the planned
amortization of capitalized software. The costs of providing
maintenance and customer service are allocated between
maintenance and customer service fees in proportion to their
respective revenues. Management believes that such allocations
are reasonable.
The Company has additionally undertaken substantial
restructuring in connection with the Winter Partners and
DESISCo acquisitions, including a reduction in personnel and
associated costs. A provision for severance payments of
$760,000 has been provided for in the year ended April 30, 1995.
Effective November 15, 1993, the Company acquired 75% of NPSC in
transactions resulting in an investment of approximately
$1,000,000 in cash and other consideration for 1,650,000 shares
of common stock and 200,000 warrants to purchase one share of
common stock at $6.00 until September 28, 1998.
NPSC is engaged in the development, marketing, licensing and
support of Copernicus (TM), a software product that allows
different applications that run on different hardware platforms
to share data. As of April 30, 1995 the company maintained a
61% ownership of, and a 17.6% voting right in, NPSC and
accounted for this ownership under equity accounting
conventions. The Company has written down its investment in
NPSC to zero, effective July 31, 1994 and has no further
financial obligations to NPSC.
34
The Company incurred a net loss of $12,687,000 in the year ended
April 30, 1995. At April 30, 1995 the Company had a working
capital deficiency of $9,006,000. The Company believes that
there is continued interest in the existing products and
products in process acquired with the Winter Partners and
DESISCo acquisitions in the marketplace and that these
acquisitions will ultimately enhance its software license and
associated maintenance and service revenues, although no
assurance can be given that this will be the case. Historical
revenues of the Winter Partners subsidiaries were approximately
$10,775,000 and $7,855,000 for the twelve months ended April 30,
1994 and 1993, respectively. Historical revenues of DESISCo
were 13,228,000 pounds sterling and 14,412,000 pounds sterling,
or approximately $20,807,644 and $21,769,326 for the years ended
June 30, 1994 and 1993, respectively.
The Company continues to seek other consulting relationships and
business collaborations with third parties in order to enhance
revenues. In particular, the Company is focusing marketing
arrangements with hardware vendors and/or joint marketing
arrangements with software vendors, whose products complement
those of the Company. If revenues from operations do not prove
to be sufficient to fund operations of the Company or to permit
its continuance as a going concern, the Company will seek to
obtain funds in the manner described under ``Liquidity and
Capital Resources''below.
Comparison of Fiscal Years
35
During the fiscal years ended April 30, 1995 and 1994 the
company's total revenues were $18,687,000 and $2,320,000,
respectively. This increase in revenue is due to revenues from
sales of software products, which increased to $11,901,000 in
the year ended April 30, 1995 from $912,000 in fiscal 1994,
increased maintenance and customer service fees, which increased
to $4,556,000 and $2,230,000 in the year ended April 30, 1995
from $1,141,000 and $267,000 in the year ended April 30, 1994,
respectively. The increases in revenues from software products,
maintenance fees and customer service fees are largely due to
the revenues from newly acquired Abraxsys and OpenTrade
subsidiaries. During the year ended April 30, 1995, the Company
decided to discontinue direct support of its ManTec product
line. Revenues by category for the Abraxsys subsidiaries and the
OpenTrade subsidiaries for the periods of July 13, 1994 (date of
acquisition) to April 30, 1995 and from January 1st (date of
acquisition) to April 30, 1995, respectively, are as follows:
Software Maintenan Customer
Products ce Service
Abraxsys $8,163,0 $2,140,00 $2,166,00
00 0 0
OpenTrade $3,513,0 $1,794,00 $94,000
00 0
The Company's license revenues are subject to significant
fluctuations due to the relatively high cost of license fees, as
a result of which one additional product site could
36
significantly affect revenues. In addition, differing
installation schedules for different components and systems, may
result in revenues being recognized at different rates.
Costs of software products, consisting of the amortization of
previously capitalized software development expenses in fiscal
1994 and consisting of cost of third party products resold with
the Company's products and amortization of acquired software
technology in fiscal 1995, were $1,063,000 and $1,076,000 during
the year ended April 30, 1995 and 1994, respectively. As a
result of the different method of allocating costs to cost of
software products, these costs are not comparable between the
years ended April 30, 1994 and April 30, 1995.
Costs of maintenance were $2,893,000 and $635,000 for fiscal
years 1995 and 1994, respectively. The increase in cost of
maintenance is a result of the addition of the Abraxsys, IBS-90,
and OpenTrade products to the Company's offerings. The cost of
maintenance of the OpenTrade product from January 1st to April
30, 1995 was approximately $1,142,000, while the cost of
maintenance of the IBS-90 and Abraxsys products from July 13,
1994 to April 30, 1995 was approximately $1,295,000.
Costs of customer service fees were $968,000 and $153,000 for
the fiscal years 1995 and 1994, respectively. The increase in
cost of customer service is a result of the addition of the
Abraxsys, IBS-90, and OpenTrade products to the Company's
offerings. The cost of customer services related to the
OpenTrade product from January 1st to April 30, 1995 was
37
approximately $60,000, while the cost of customer service
related to the IBS-90 and Abraxsys products from July 13, 1994
to April 30, 1995 was approximately $902,000.
The Company's selling, general and administrative expenses were
$14,035,000 and $4,055,000 for fiscal years ended 1995 and 1994,
respectively, or 75% and 175% of revenue, respectively. The
increase is mainly due to the acquisition of new operating
companies in the US, in the UK and in Singapore during the
fiscal year.
The Company recognized net losses of $12,687,000 and $8,050,000
in the years ended April 30, 1995 and 1994, respectively, or 68%
and 350% of gross revenue. The increase in net loss in dollar
terms is primarily due to an increase in share of loss in the
NPSC affiliate to $1,112,000 from $403,000 in the years ended
April 30, 1995 and April 30, 1994, respectively and by the
write off of acquired research and development during the year
ended April 30, 1995, in the amount of $8,740,000.
The Company currently conducts substantially all of its business
in United States dollars. As a result of the Winter Partners
and DESISCo acquisitions, the Company conducts a part of its
business in currencies other than the United States dollar,
although a large part of the Company's business abroad is
conducted in United States dollars. Revenue from subsidiaries
outside the United States amount to 86% of the Company's revenue
in the year ended April 30, 1995.
38
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
As of April 30, 1995, the Company had a working capital
deficiency of $9,006,000.
As of April 30, 1995, the Company owed D.H. Blair Investment
Banking Corp.(``Blair Banking'') $323,117 plus interest on an
8% convertible subordinated notes. Subsequent to year end, this
obligation was satisfied by conversion to equity.
The increase in current assets to $8,909,000 at April 30, 1995
from $ 821,000 at April 30, 1994 reflect the inclusion of the
Abraxsys and OpenTrade businesses as a result of the
acquisitions consummated during the fiscal year. The Company's
financial statements include an allowance for doubtful accounts
of $961,000 to reflect the Company's uncertainty that it can
collect certain accounts receivable. Although the Company does
not anticipate that it will experience significant bad debts in
the future, there can be no assurance that this will be the
case. To the Company's knowledge, only one of its customers is
experiencing financial difficulties.
At April 30, 1995, the Company had net operating loss carry-
forwards for federal income tax purposes in the United States of
$32,600,000, subject to Internal Revenue Service review, which
are available to offset future federal taxable income, if any,
through 2010 and are subject to annual limitations in use.
39
In the year ended April 30, 1995, the Company issued an
aggregate of 10,569,028 shares of Common Stock and 4,010,000
Warrants to private investors for on aggregate consideration of
$20,472,000.
The Company believes that until such time as it may experience a
substantially expanded cash flow from operations, it will be
required to seek alternative sources of funds for working
capital and to fund the continuation of its development and
marketing efforts. The Company intends, to the extent required
to provide working capital and to satisfy all outstanding debt,
to continue to sell its securities directly to investors in
private placements and it may, in the future, attempt to
arrange an offering through a private placement agent or
underwriter.
The Company's long-term liquidity and its ability to continue as
a going concern will ultimately depend upon the Company's
ability to realize sufficient revenues from operations.
40
Item 7. Financial Statements
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
April 30, 1995 and 1994
With Independent Auditors' Reports Thereon
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
41
Table of Contents
Independent Auditors' Reports
Consolidated Balance Sheet
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
42
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Management Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of
Management Technologies, Inc. and subsidiaries as of April 30,
1995 and the related consolidated statement of operations,
stockholders' equity, and cash flows for the year then ended.
These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audit.
43
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of Management Technologies, Inc. and
subsidiaries at April 30, 1995, and the results of its
operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 3 to the financial statements, the Company
has suffered recurring losses from operations and at April 30,
1995, has a working capital deficiency that raises substantial
doubt about its ability to continue as a going concern.
44
Management's plans in regard to these matters are also
described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
August 15, 1995 (Signed) KPMG PEAT MARWICK LLP
KPMG Member firm of Klynveld Peat Marwick Goerdler
45
GOLDSTEIN AND MORRIS
CERTIFIED PUBLIC ACCOUNTANTS, P.C
501 FIFTH AVENUE
NEW YORK, N.Y. 10017
ALBERT M. GOLDSTEIN
EDWARD B. MORRIS TELEPHONE
(212) 682-3378
ALAN J. GOLDBERGER FAX (212) 599-
6438
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Management Technologies, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of
Management Technologies, Inc. and subsidiaries as at April 30,
1994 and 1993 and the consolidated statements of changes in
shareholders' equity, operations and cash flows for the years
ended April 30, 1994 and 1993. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
46
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Management Technologies, Inc. and
subsidiaries at April 30, 1994 and 1993 and the results of its
operations and its cash flows for the years ended April 30, 1994
and 1993 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note A to the financial statements, the Company has
incurred substantial losses from operations and as at April 30,
1994 has a working capital deficiency and a capital deficiency
that raise substantial doubt about its ability to continue as a
47
going concern. Management's plans in regard to these matters
are also described in Note A. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
New York, New York /s/ Goldstein & Morris
July 26, 1994
48
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
April 30, 1995
(in $'000)
ASSETS
Current assets:
Cash 833
Accounts receivable; billed; net of allowance for 4,655
doubtful accounts of $473
unbilled; net of 1,618
allowance for doubtful accounts of $488
Prepaid expenses and other current assets 1,803
TOTAL CURRENT ASSETS 8,909
Investment in affiliate -
Property and equipment, net of accumulated depreciation 1,810
Intangible assets, less accumulated amortization 14,663
Other assets 1,839
49
TOTAL ASSETS 27,221
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 2,898
Accrued expenses 4,545
Taxes payable 2,053
Note payable on acquisition 3,607
Deferred income 3,632
Other current liabilities 1,180
TOTAL CURRENT LIABILITIES 17,915
Non current note payable on acquisition 1,766
Other long term liabilities 1,521
TOTAL LIABILITIES 21,202
Stockholders' equity
Common stock $.01 par value. Authorized shares, 140
200,000,000 issued shares 14,540,169
Additional paid in capital 42,472
Accumulated deficit (36,063)
50
Foreign currency translation adjustment (530)
Total stockholders' equity 6,019
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 27,221
The accompanying notes are an
integral part of these financial statements
51
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(in $000 except share data)
Additi
onal
Common Stock paid Retai Transl Total
in ned ation
stock amoun capita Earni Adjust
t l ngs ment
Balances at April 2,083,388 21 14,604 (15,326) (701)
30, 1993
Issuance of common 20,911 0 218 218
stock for
compensation and
services
52
Sale of common 1,108,316 11 4,554 4,565
shares
Issuance of common 46,286 1 304 305
stock for
cancellation of
indebtedness
Issuance of common 493,669 7 2,034 2,041
stock for
cancellation of
subordinated notes
Issuance of common 35,714 0 625 625
stock for business
acquisition
Shares paid for and 182,857 0
yet to be issued
Net loss for the (8,050) (8,050)
year
Balances at April 3,971,141 40 22,339 (23,376) 0 (997)
30, 1994
53
Issuance of common
stock for
compensation and 84,236 1 285 286
services
Issuance of common
stock for
cancellation of 549,05 5 739 744
subordinated notes 6
Issuance of Common 9,935,736 94 19,109 19,203
Stock
Net loss for the (12,687) (12,687)
year
Translation (530) (530)
adjustment
Balances at April 14,540,169 140 42,472 (36,063) (530) 6,019
30, 1995
The accompanying notes are an integral part of these financial
54
statements
55
56
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
Years ended April 30, 1995 and 1994
(in $'000)
1995 1994
Revenues
Software products 11,901 912
Maintenance Fees 4,556 1,141
Customer service fees 2,230 267
Total Revenues 18,687 2,320
Cost and expenses
Cost of software products 1,063 1,076
Cost of maintenance 2,893 635
Costs of customer service 968 153
Selling, general and administrative 14,036 4,055
Amortization of Goodwill 409
57
Write down of program development costs 2,893
Depreciation 571 333
Restructuring charges 655
Severance costs 760
Acquired research and development 8,740
Total costs and expenses 29,440 9,800
Loss from operations (10,753) (7,480)
Share of loss in affiliate (1,112) (403)
Interest expense (822) (167)
Net loss (12,687) (8,050)
Net loss per share outstanding (1.70) (2.79)
Weighted average number of common shares 7,445,421 2,886,777
outstanding
58
The accompanying notes are an integral part of these financial
statements
59
MANAGEMENT TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Twelve months ended April 30, 1995 and 1994
(in $000)
1995 1994
Cash flow from operating activities (12,687 (8,050)
Net income (loss)
Adjustments to reconcile net income
provided by (used in) operating
Write off of purchased research and 8,740
Write off investment in affiliate 647
Depreciation and amortization 1,183 1,409
Amortization of financing costs 196
Write off of property, plan & 102
Provision for doubtful accounts 491
Accrued interest maturing with long 163
Write down of program development 2,893
Issuance of stock for compensation 243
Changes in assets and liabilities
(Increase) Decrease in accounts (1,633) 99
(Increase) Decrease in unbilled (1,614)
(Increase) Decrease in other (729) 367
(Increase) Decrease in other 75 5
Increase (Decrease) in accounts 1,521 (199)
Increase (Decrease) in accrued 1,599
Increase (Decrease) in payroll 1,036 (103)
Increase (Decrease) in deferred (2,902) (694)
Increase (Decrease) in other (495)
Net cash provided by (used in) operating (4,666) (3,671)
CashPflowstfrom investingractivities:f cash (10,944
Payment for DESISCo net of cash acquired (5,931)
Proceeds from sale (acquisition) of fixed 531 (49)
Investment in affiliate (647)
Net cash provided (used in) from investing (16,344 (696)
CashProceedsofromnnotesgpayableties 3,033
Repayment of notes payable (764) (60)
Reduction in bank overdraft 0 (50)
Proceeds from issuance of common stock 19,423 4,565
Net cash provided in financing activities 21,692 4,455
Effect of exchange rate on cash (39)
INCREASE IN CASH AND CASH EQUIVALENTS 643 88
60
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 190 102
CASH AND CASH EQUIVALENTS - END OF PERIOD 833 190
Supplemental disclosure of cash flow
Cash paid during the year for interest 53 4
Non-cash financing activities
Issuance of common stock for business 0 625
Issuance of common stock in conversion of 0 2,041
Issuance of common stock in conversion of 730
Issuance of common stock for cancellation 66
Capital lease obligations 517
The accompanying notes are an integral part of these financial
61
(1) Summary of Significant Accounting Policies
------------------------------------------
Description of Business
The primary business of Management Technologies , Inc.
is the development, installation, marketing,
maintenance and support of an integrated line of
standardized, international, banking application
software packages.
Following, and as a result of the acquisitions noted
below, the Company decided to discontinue directly
selling and supporting its former product known as
ManTec. The Company is organized into two operating
divisions (Abraxsys Systems and Trading Systems)
reflecting the Company's principal product lines.
Principles of Consolidation
The consolidated financial statements include the
accounts of Management Technologies, Inc. and its
wholly-owned subsidiaries . All significant
intercompany balances and transactions have been
eliminated in consolidation. The results of the
62
Company include the operations of its subsidiaries that
were acquired during the course of the year as
follows:-
Winter Partners from July 14, 1994.
companies
DESISCo from January 1, 1995.
As used hereafter, ``Company'' refers to Management
Technologies Inc., and its consolidated subsidiaries
unless otherwise stated.
Revenue Recognition
The Company accounts for revenue in conformity with
Statements of Position (SOP) 91-1 and 81-1.
In accordance with SOP 91-1, revenue from IBS-90 and
Abraxsys license fees are recognized 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. Billings made in advance
of delivery are recorded as deferred income. The
63
amount by which recognized revenue exceeds billings to
customers is shown as unbilled accounts receivable.
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.
Such fees are billed to customers and revenue is
recognized as the work is performed.
Revenues and profits on delivery of the OpenTrade
product are recognized on the percentage-of-completion
method of accounting as costs are incurred (cost to
cost basis) in conformity with SOP 81-1. A prudent
estimate is made of the profit attributable to work
completed and is recognized once the outcome of the
contract can be assessed with reasonable certainty. If
the estimate indicates a loss, the entire loss is
accrued immediately. The amount by which recognized
revenue exceeds billings to customers is shown as
unbilled accounts receivable.
Maintenance fees are recognized proportionately over
the term of the maintenance agreement. Maintenance
fees that have yet to be recognized as income are
recorded as deferred income.
64
Foreign currency translation
Foreign curr ency transactions and financial statements
of foreign subsidiaries are translated into US dollars
at prevailing or current rates respectively except for
revenues, costs and expenses that are translated at
average current rates during each reporting period.
Gains and losses resulting from foreign currency
transactions are included in income currently. Gains
and losses resulting from the translation of financial
statements are excluded from the statement of income
and are credited or charged directly to a separate
component of shareholders' equity.
Product research and development
Costs associated with product research, development and
enhancement are recorded as follows:
Speculative technical research, usually incurred as
input to discussions related to product planning
are expensed until the point at which the product
reaches technological feasibility. Subsequent
costs incurred to the point where the product is
65
available for general release to the customer are
capitalized.
The costs of development specific to individual
customers and not generally applicable to other
customers are expensed.
Development costs applicable to core products,
which are predominantly of a maintenance nature,
are expensed as incurred. Such development is
generally designed to insure that products are kept
up to date with regulatory requirements, accounting
policies and banking practices and do not result in
new sellable products.
Research and development expense for the year ended
April 30, 1995, amounted to $5,847 which is included in
selling, general and administrative expenses. In
addition, the Company had a one time charge of $8,740
of in-process research and development as a result of
the acquisitions and as discussed in note 2. There
were no such costs for the year ended April 30, 1994.
No research and development costs were capitalized
during the year ended April 30, 1995.
66
Property, plant and equipment
Property, plant, and equipment are stated at cost.
Plant and equipment under capital leases are stated at
the present value of minimum lease payments.
Plant and equipment under capital leases are
depreciated straight line over the shorter of the lease
term or estimated useful life of the assets.
Depreciation on plant and equipment is calculated on
the straight-line method over the estimated useful
lives of the assets as follows:
Computer Equipment two to five years
Furniture, fixtures four to five years
and fittings
Leasehold over the minimum period of
improvements the lease
Motor vehicles four years
Income Taxes
The Company conforms to the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for
67
Income Taxes . Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable
to differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recogn ized
in income in the period that includes the enactment
date.
Income (loss) per common share
Income (loss) per common share is calculated using the
weighted average number of common shares outstanding
for each period adjusted for incremental shares assumed
issued for common stock equivalents using the treasury
stock method, provided that the effect is not anti-
dilutive.
Intangibles
68
The Company recorded the fair value of software
technology acquired as a result of the purchase of
Winter Partners and DESISCo. Software technology is
amortized straight line over its estimated useful life
of ten years. Amortization expense of acquired software
technology is included as a component of cost of
software product.
The Company has recorded as goodwill, the cost in
excess of the fair value of net assets of companies
acquired in purchase transactions. Goodwill is
amortized straight line over fifteen years.
The Company annually evaluates whether the goodwill is
fully recoverable based on undiscounted projected net
cash flows of the related businesses. In the event
that the Company determines that unamortized balances
of goodwill are not likely to be fully recovered, the
Company will recognize the consequent impairment of the
value of goodwill in its operating results.
(2) Acquisitions
------------
The Winter Partners companies
-----------------------------
69
On July 14, 1994, the Company acquired Winter Partners
Limited, Winter Partners, Inc, (subsequently renamed
MTi Abraxsys Systems, Inc), Winter Partners Pte Limited
(subsequently renamed MTi Abraxsys Systems Pte
Limited), and Winter Partners (HK) Limited
(subsequently renamed MTi Abraxsys Systems (HK)
Limited) from Winter Partners Holding AG. The
companies, hereafter referred to as the WP companies,
formed the international banking software division of
Winter Partners, a Zurich, Switzerland based company.
The Company paid a total of $ 12,800 for the WP
companies. The Company financed the acquisition through
a combination of cash from its own resources, short
term borrowings and proceeds from new share issuances.
The transaction was accounted for as a purchase and on
this basis resulted in a one-time charge of $7,000 for
purchased research and development that was in process
at the date of acquisition. The Company recognized
$1,300 in acquired software technology in this
transaction and recorded goodwill of $5,270 as the
excess of the purchase price over the fair value of the
net assets acquired.
70
In the twelve months ended April 30, 1994, the WP
companies generated net revenues after the cost of
products sold of $ 9,760 and income before interest,
taxes and write-off of research and development, of $
450. The Company included in its results for the year
ended April 30, 1995, the results of the Winter
Partners companies for the period July 14, 1994,(date
of acquisition) to April 30, 1995, inclusive. During
that period the Winter Partners companies recorded
revenues of approximately $ 12,500 and income before
interest, taxes and the write-off of in-process
research and development of approximately $1,460.
The Company has not yet registered the acquisition of
Winter Partners Limited with, or paid the appropriate
ad valorem duties to, the regulatory authorities in the
United Kingdom. Accordingly, the official records in
the UK continue to show the ownership of Winter
Partners Limited as Winter Partners Holding AG, its
former parent company. However, Winter Partners
Holding has no further claim against the Company, nor
can it reclaim ownership of Winter Partners Limited.
Digital Equipment Service Industries Solutions Company
-------------------------------------------------------
Limited
-------
71
Effective January 1, 1995, the Company acquired all the
issued and outstanding shares of Digital Equipment
Service Industries Solutions Company Limited
(``DESISCo'') (subsequently renamed MTi Trading Systems
Limited) from Digital Equipment Co. Limited and
associated companies.
The purchase price for DESISCo, hereafter referred to as
MTi Trading Systems, was $10,169. The Company financed
the acquisition through a combination of short term
borrowings, its own resources, new share issuances and
deferred payment arrangements. The Company expects to
meet payments due under the deferred payment arrangement
through a combination of its own cash resources and
proceeds from new share issuances.
The transac tion was accounted for as a purchase and on
this basis resulted in a one-time charge of $1,740 for
purchased research and development that was in process
at the date of acquisition. The Company recognized
$3,000 in acquired software technology in this
transaction and recorded goodwill of $5,700 as the
excess of the purchase price over the fair value of net
assets acquired.
72
In the twelve months ended June 30, 1994, DESISCo
reported net revenues after cost of product sold of $
14,000 and losses before interest, taxes and charge for
research and development, of $8,800. The Company
included in its results for the year ended April 30,
1995, the results of MTi Trading Systems for the period
January 1, 1995,(date of acquisition) to April 30,
1995, inclusive. During that period MTi Trading
Systems recorded revenues of approximately $5,400 and
income before interest, taxes and the charge for in-
process research and development of approximately $185.
See also notes 7, 8 and 11.
(3) Liquidity
---------
The Company has suffered recurring losses from
operations and at April 30, 1995, has a working capital
deficiency of $ 9,006.
The Company believes that until such time as it may
experience a substantially expanded cash flow from
operations, it will be required to seek alternative
sources of funds for working capital and to fund the
continuation of its development and marketing efforts.
The Company intends, to the extent required to provide
73
working capital and to satisfy all outstanding debt, to
continue to sell its securities directly to investors in
private placements. It may, in the future, attempt to
arrange an offering through a private placement agent or
underwriter.
The Company believes that it will be able to arrange
sufficient debt and/or equity financing that it
anticipates will, together with funds generated from
operations, be sufficient for the Company's requirements
for the coming year. There is, however, no certainty
that it will be successful in making such arrangements.
(4) Prepaid expenses and other current assets
-----------------------------------------
Prepaid expenses and o ther current assets consist
principally of prepaid expenses and other items.
74
(5) Investment in Affiliated Company
--------------------------------
The Company owns approximately sixty-one per cent (1994
- 68%) of New Paradigm Software Corporation, Inc.
(``NPSC''), which is a non-public company engaged in
software development. The Company does not have a
controlling voting power commensurate with its equity
ownership. The Company accounts for its investment in
accordance with the equity accounting convention and
accordingly has fully written off its investment in and
advances to NPSC in the year ended April 30, 1995. The
Company does not have any additional financial
obligation to NPSC and therefore has not recorded
losses in excess of its total investment in NPSC.
Summarized financial information of NPSC at March 31,
1995,(NPSC's fiscal year end) is shown below on a 100
per cent basis.
$
Current assets 424
Non current 628
assets
Current (433)
liabilities
75
Long-term debt (1,820)
Stockholders' (1,200)
equity
Revenues 70
Expenses 2,644
--
Net loss (2,574)
-------
MTI's aggregated investment in and advances to NPSC at
April 30, 1995, and 1994 were $0 and $894 respectively.
76
(6) Property, plant and equipment
-----------------------------
Balances of major classes of assets and allowances for
depreciation and amortization are as follows:
1995
----
Computer Equipment 1,738
Leasehold improvement 90
Office Furniture and Equipment 77
Automobiles 450
-
2,355
less accumulated depreciation and 545
amortization
-
1,810
-
77
(7) Intangible Assets
-----------------
Intangible assets as of April 30, 1995 are made up of
software products acquired with the Winter Partners and
DESISCo businesses and goodwill.
$
Goodwill 10,566
less accumulated
depreciation
(1955 of $404)
Acquired software 4,097
technology
less accumulated
amortization
(1995 of $203)
--
14,663
------
See also notes 2, 8 and 11.
78
(8) Other assets
------------
Other assets relate to a receivable from Digital
Equipment Co. Ltd ( ``igital'') and affiliated
companies. Under the purchase agreement, Digital will
repay $ 1,839 (1,143 pounds sterling), the cash held in
MTi Trading Systems immediately prior to the date of
acquisition, once the Company has paid the full
purchase price for MTi Trading Systems. The Company
anticipates making the final payment by 30 June 1996 in
accordance with the terms of the purchase agreement,
unless a different schedule is agreed with Digital.
See also notes 2, 7 and 11.
79
(9) Accrued expenses
----------------
Accrued expense s include payroll, severance and other
staff related liabilities. The major components of
accrued expenses are as follows:-
$
Staff related costs 1,514
Accrued Legal, professional and 731
other fees
Restructuring/severance 1,113
Accrue interest 140
Accrued cost of product sold 345
Other accrued expenses 702
---
4,545
-----
(10) Taxes Payable
-------------
Taxes payable comprise payroll deductions plus
estimated penalties and interest for late payment.
80
(11) Notes payable on acquisition
----------------------------
As discussed in Note 2, the Company has agreed to a
deferred payment schedule with Digital Equipment in
respect of its acquisition of DESISCo. Interest is due
at the rate of 10% per annum until the debt is fully
repaid. Payments under this arrangement are as
follows:
$
Due June 30, 1995 1,998
Due December 31, 1995 1,609
-----
Total due in less than one year 3,607
Due June 30, 1996 1,766
-----
Total deferred purchase liability 5,373
-----
Digital Equipment has agreed, in principle, to a
proposal from the Company with respect to rescheduling
the payment due June 30, 1995. The proposal from the
Company includes assignment of some specific trade
receivables, the proceeds of which would be applied
against the outstanding payment. However, no specific
details of the rescheduling have been agreed.
81
See also notes 2, 7, and 8.
(12) Deferred income
---------------
Deferred income consists of the following:-
$
Deferred maintenance 3,548
income
Deferred rent benefit 84
--
3,632
-----
The Company expects to recognize as revenue all
deferred income within the next fiscal year.
(13) Other current liabilities
-------------------------
Other current liabilities consist of the following:-
$
Notes payable 634
Subordinated convertible 357
82
debt
Lease liabilities 189
---
1,180
-----
Subsequent to April 30, 1995, the Company made payments
of $ 275 on the notes payable. The Company is
currently negotiating with the holders of approximately
$ 360 of the notes to extend their terms.
Subsequent to April 30, 1995, the subordinated
convertible note together with accumulated interest was
converted into shares of the Company's common stock.
(14) Other long term liabilities
---------------------------
Other long term liabilities consist of the following
$
14.75% note due July 11, 1996 923
8% convertible note payable 270
July 31, 1996
Lease liabilities 328
---
1,521
-----
83
Under the terms of the original agreement, interest on
the 14.75% note was payable on October 1, 1994, January
1, 1995, and April 1, 1995. Repayment of the note was
due July 11, 1995. Further to the Company's failure to
pay interest installments due October 1, 1994, and
January 1, 1995, by a new agreement dated January 23,
1995, the term of the note was extended to July 11,
1996, and the principal sum increased to incorporate
the unpaid interest installments. Under the new
agreement, interest is due on July 1, 1995, October 1,
1995, January 1, 1996, April 1, 1996 and July 1, 1996.
The new agreement also calls for payments of principal
calculated as 10% of the Company's reported income,
before taxes, for each fiscal quarter; such payments
are to be made 90 days after the end of each fiscal
quarter. Accordingly, the Company paid $ 102 in
principal repayment in respect of the Company's fiscal
quarter ended January 31, 1995. At August 11, 1995,
the Company has not made payment of the interest due on
July 1, 1995.
Interest on the 8% note is payable semi-annually on
January 31 and July 31 through the term of the note.
84
The note is convertible into shares of the Company's
common stock at the holder's option on or before the
due date of the note; the conversion price being 70% of
the market price over the 20 business days immediately
preceding the date of conversion. The note
automatically converts, on the same terms, on the due
date. Of the initial sum of $1,000 borrowed by the
Company, the holder elected to convert $ 730 plus
accrued interest, effective April 30, 1995.
(15) Shareholders' Equity
--------------------
Effective May 15, 1995, the Company reverse split its
common stock on a 1 for 7 basis. All share data given
in these statements is calculated on the post reverse
split basis. Any data given for prior years has been
restated accordingly.
(1) Warrants
At April 30, 1995, the Company has outstanding Class C
warrants as follows:
Number of Exercise Expiration
shares price date
85
2,696,333 $8.33 February 28,
1997
Each Class C warrant entitles the holder to purchase
one share of common stock. The expiration date is
February 28, 1997. The warrants are redeemable at the
option of the Company at $ 0.35 per warrant under
certain circumstances.
The Company has other warrants as follows:
Number of shares Exercise Expiration date
price
3,085,714 $1.75 November 4, 1997
571,429 $2.10 July 10, 2000
95,238 $4.55 none
95,238 $4.90 none
162,381 $5.25 none
86
(2) Options
At April 30, 1995, the Company had outstanding options
as follows:-
Number Exercise Not
of price e
shares
Qualified Stock
Options Plan -
Employees
Shares under option 26,657 $1.75- (a)
at April 30, 1994 $7.84
Granted 0
Lapsed (19,372
)
Exercised (428)
-----
Shares under option 6,857
at April 30, 1995
Options exercisable 6,857
at April 30, 1995
87
Non qualified Stock (b)
Options Plan for
Directors, Officers
and Consultants
Shares under option 245,357 $1.75-
at April 30, 1994 $8.75
Granted 307,428
Lapsed (120,357)
Reclassified (64,228)
Exercised (128,857)
-------
Shares under option 239,343
at April 30, 1995
Options exercisable 235,771
at April 30, 1995
Non qualified Stock
Options Plan for Key
Employees
Shares under option 76,585 $1.75-
at April 30, 1994 $15.75
88
Granted 57,142
Lapsed (42,857)
Reclassified 64,228
Exercised (14,285)
-------
Shares under option 140,813
at April 30, 1995
Options exercisable 65,236
at April 30, 1995
Other Options (d)
Warrants under 600,000
option at April 30,
1994
Granted -
Lapsed -
Exercised -
Warrants under 600,000
option at April 30,
1995
(a) The Company adopted a qualified stock
option plan under which the granting of options to
89
purchase up to 8,000,000 shares has been authorized.
The exercise price of the options is determined by the
Option's Committee appointed by the Board of Directors,
but can be no less than 85% of the fair market value of
the Company's stock on the date the option is granted.
The maximum period during which each option may be
exercised cannot exceed five years from the date of
grant.
(b) The Company adopted a non qualified stock
option plans for directors, officers and consultants
under which the granting of options to purchase up to
15,000,000 shares has been authorized. The exercise
price of the options is determined by the Option's
Committee appointed by the Board of Directors. The
maximum period during which each option may be
exercised cannot exceed five years from the date of
grant.
(c) The Company adopted a non qualified stock
option plans for key employees under which the granting
of options to purchase up to 10,000,000 shares has been
authorized. The exercise price of the options is
determined by the Option's Committee appointed by the
Board of Directors. The maximum period during which
90
each option may be exercised cannot exceed five years
from the date of grant.
(d) The Company has issued options to two
former officers of the Company in connection with their
employment and severance arrangements. The Company has
issued an option to purchase the Company's common stock
and Class ``C'' warrants to an investor. The Company has
600,000 outstanding options for C warrants. Of this
total, 428,572 options entitle the holder to purchase
142,857 units made up of 1 share of common stock and 3
Class C warrants at $7.00 per unit. The balance of
171,428 options entitle the holders to purchase one
Class C warrant at $3.01 per warrant.
(3) Conversion shares
The Company has 307,186 shares issuable upon conversion
of certain debt.
(16) Leases
------
The Company has various non cancelable operating
leases, primarily for leasehold premises, that expire
over the next three to five years. These leases
generally contain renewal options for periods ranging
91
from three to five years and require the Company to pay
all costs such as maintenance and insurance.
Future minimum lease payments under non cancelable
operating leases (with initial or remaining lease terms
in excess of one year) and future minimum capital lease
payments as of April 30, 1995, are:
Operating Capital
leases lease
$ $
Year ended April 30
1996 1,259 194
1997 1,029 152
1998 449 118
1999 207 62
2000 207 3
Later years through 0
2001
Total minimum lease 3,151 529
payments
92
Rental expense under operating leases was $ 1,337 net
of sublease income of $66 in the year ended April 30,
1995, and $ 270 in the year ended April 30, 1994.
(17) Income Taxes
------------
At April 30, 1995, the Company had net operating loss
carry-forwards for federal income tax purposes in the
United States of $ 32,600 which, subject to I.R.S.
review, will be available to offset future federal
taxable income, if any, through 20 10 and are subject to
annual limitations in use.
The Company has provided a valuation allowance equal to
the estimated future benefit to be derived from the net
operating loss carry forward as it is more likely than
not that the losses will not be utilized.
93
(18) Pension Benefits
----------------
Effective May 1, 1992 the Company commenced a non-
employer contributory 401(k) plan.
MTi Abraxsys Systems, Inc., a wholly owned subsidiary of
the Company, has a 401(k) savings plan for its
employees. MTi Abraxsys Systems, Inc. contributes 25%
of the employee's contribution up to 6% of the
employee's salary.
The employees of the Company's subsidiaries in the UK
are entitled to receive additional compensation
equivalent to 7% of their annual base salaries in lieu
of any other pension provision by the Company.
The Company's Singapore subsidiary contributes to the
Government of Singapore Central Provident Fund in
respect of all employees. The rates paid during the
year ended April 30, 1995, varied between 18.5% and 20%
of the employees' gross compensation subject to monthly
maximum payments.
The aggregated payments for pension and equivalent
benefits during the year ended April 30, 1995, were $
94
431. There were no such costs for the year ended April
30, 1994.
(19) Business and Credit Concentrations
----------------------------------
Most of the Company's customers are located in Europe
and the countries of the former Soviet Union . No
customers accounted for more than ten percent of the
Company's revenues in 1995. Three customers accounted
for 69% of total revenue in the year ended April 30,
1994.
95
(20) Industry Segment and Geographic Information
-------------------------------------------
The Company operates in one principal industry segment;
the design, production, sales and maintenance of
computer systems and software together with the
provision of associated services to international
banking and financial institutions.
The Company derives 86% of its gross revenues from its
international subsidiaries, primarily in the UK. Those
companies produced 87% of net income before allocation
of corporate overhead, the write-off of in-process
research and development, interest and taxes. These
companies represent 93% of the Company's assets.
(21) Commitments and Contingencies
-----------------------------
The Company is involved in various claims and legal
actions arising in the ordinary course of business. In
the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect
on the Company's consolidated financial position,
results of operations or liquidity.
96
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On May 9, 1995, the Company engaged KMPG Peat Marwick LLP as its
principal independent accountant to audit the Company's
financial statements starting with its fiscal year ended April
30, 1995. The decision to change principal accountant was
recommended by the audit committee of the Board of Directors.
Accordingly, the engagement of Goldstein & Morris, the Company's
prior independent accountant, was not renewed.
In connection with the audits of the fiscal years ended April
30, 1993 and April 30, 1994, there was no disagreement with
Goldstein & Morris on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedures, which disagreement, if not solved to their
satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the
disagreement.
The audit reports of Goldstein & Morris on the consolidated
financial statements of the Company and its subsidiaries as of
and for the years ended April 30, 1993 and April 30, 1994, did
not contain any adverse opinion or disclaimer opinion, nor were
they qualified or modified as to uncertainty, audit scope, or
accounting principles. However, each of the reports for the
years ended April 30, 1993 and April 30, 1994, respectively,
contained an explanatory paragraph regarding the uncertainty
about the Company's ability to continue as a going concern.
97
PART III
Item 9. Directors, Executive Officers, Promoters, Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The information required by Item 9 with respect to the Company's
directors and executive officers is as follows:
Position(s) Held
----------------
Name Age with Company Period
---- --- ------------ ------
Clifford D. 43 Director November 1994 to
Brune April 1995
Anthony J. 44 President December 1991 to
Cataldo June 1994
Chairman of the June 1994 to July
Board & Chief 1995
Executive Officer
Director November 1991 to
July 1995
Nigel J. Cole 42 Chief Financial November 1994 to
Officer present
Barrington J. 48 President May 1980 to August
98
Fludgate 1987
April 1988 to
November 1991
Chairman of the June 1986 to June
Board 1994
Chief Executive May 1980 to June
Officer 1994
Director May 1980 to
September 1994
Gerald Franz 52 Director July 1993 to April
1995
Claudio M. 33 Director February 1994 to
Guazzoni present
William L. 35 Director April 1995 to
Meaney present
Robert 45 Director March 1992 to
Oxenberg December 1994
Benjamin 76 Chief Financial January to November,
Podgor Officer 1994
Aharon 49 Senior Vice June 1990 to July
99
Schwarzbard President 1994
Daniel Sladden 26 Director April 1995 to
present
Edward S. 32 Director April 1995 to
Stone present
Peter 33 Director October 1994 to
Svennilson present
Chairman of the July 1995 to present
Board
S. Keith 44 President & Chief July 1994 to present
Williams Operating Officer
Director November 1994 to
present
Clifford D. Brune served as a Director of the Company from
November 1994 to April of 1995. Mr. Brune is a certified public
accountant and has served as Chief Financial Officer of the
Company from December 1992 to 1993. Prior to that, Mr. Brune
served as Vice President of Business Development with Policy
Management Systems Corp. Mr. Brune has also served as
consultant to the Company.
100
Anthony J. Cataldo, joined the Company as its President and a
Director in November 1991. He served as Chairman of the Board
and Chief Executive Officer from June 2nd, 1994 to July 13,
1995. From March 1986 to November 1991, Mr. Cataldo was
President of Internet Systems Japan, a producer of software for
financial institutions, where he was responsible for Japanese
sales and marketing. He still serves as a Director.
Nigel J. Cole was appointed Chief Financial Officer of the
Company on November 4, 1994. Mr. Cole is an Associate Member of
the Chartered Institute of Management Accountants in the United
Kingdom. Mr. Cole served as Chief Financial Officer of the
Winter Partners Companies for the five years preceding his
appointment.
Barrington J. Fludgate was the founder of the Company and served
as its President from May 1980 to November 1991 (except for the
period from August 1987 to April 1988). Mr. Fludgate also
served as Chief Executive Officer of the Company from May 1980
to June 2nd, 1994 (except for the period from January 1990 to
August 1990). Mr. Fludgate served on the Board of Directors from
May 1980 to September 15, 1994. He served as Chairman of the
Board from June 1986 to June 1994
Gerald Franz was appointed a director of the Company in July
1993 and served through April 28, 1995. Since 1977, Mr. Franz
has served as President of McKeown & Franz, Inc., of which he
was a co-founder. McKeown & Franz, Inc. provides environmental
services for public agencies and private sector companies,
101
including services in connection with major proposed projects
such as Trump City and the Seaport Marketplace in Manhattan.
Claudio M. Guazzoni has served on the Board of Directors of the
Company since February 1994. Mr. Guazzoni is the President and
Chief Executive Officer of Zanett Capital, Inc. Mr. Guazzoni is
engaged in the business of providing financial and strategic
consulting services to companies. Prior thereto, he served as a
Money Manager with Delphi Capital Management, Inc. for one year;
and served as an associate with Salomon Brothers, Inc. from 1985
to 1991.
William L. Meaney has served as a Director of the Company from
April 28, 1995. Mr. Meaney has served as a Managing Partner of
Genrho S.A., a Geneva, Switzerland, based international
Management consulting firm since 1992. From 1986 to 1992, Mr.
Meaney was with Strategic Planning Associates (since renamed
Mercer Management Consulting) which provides management
consulting services involving organization strategy for
international companies.
Robert Oxenberg served on the Board of Directors of the Company
from March 1992 to December 13, 1994. Mr. Oxenberg has been an
independent financial consultant since July 1991. From 1983 to
1991 he was manager of corporate investments for Anschutz Corp.
Benjamin Podgor joined the Company in October of 1993 and served
as its Chief Financial Officer from January to November of
1994. Mr. Podgor is a CPA and an attorney.
102
Aharon Schwarzbard joined the Company in 1980. In April 1984,
he was appointed a Vice President of the Company. Mr.
Schwarzbard served as a Senior Vice President from June 1990 to
July 1994 and was as a Director of the Company from July 1991 to
March 1992.
Daniel Sladden has served as a Director of the Company from
April 28, 1995. Mr. Sladden is currently a principal of Keynote,
an international consulting firm based in London, England. In
1991, he graduated from King's College, Cambridge University
with honors (first class) in Computer Science. Thereafter until
1992, he was Technical Manager at Solidisk Technology, a
computer hardware manufacturer in Cambridge, England. From 1992
to 1994, Mr. Sladden served as a Senior Consultant with
Evaluation Services, an international management consulting firm
based in London, England. In 1994, he briefly served as a
Corporate Finance Executive with Morgan Grenfell in London,
England before leaving to establish Keynote. Mr. Sladden
received a Master of Arts degree from King's College, Cambridge,
England in 1995.
Edward S. Stone has served as a Director of the Company from
April 28, 1995. Mr. Stone is an attorney at law and president
of Stone International LLC, a consulting firm engaged in
financing and strategic venture formation. He is also President
of Settler's Funding LLC, a company that purchases deferred
obligations of the Joint Underwriting Association and Market
Transition Facility of the State of New Jersey. From June 1987
103
to March 1991, Mr. Stone was an Associate Attorney with Kevin
MacCarthy Associates, P.C.
Peter Svennilson has served as Director of the Company since
October 21, 1994 and as Chairman of the Board since July, 1995.
From 1983 to 1993, Mr. Svennilson was an Associate Managing
Director for Nomura International plc. in London, England. From
1993 to the present, Mr. Svennilson served as a Managing
Director of Stoneporch Limited, in London, England. Stoneporch
Limited, under the trade name of Irongate, provides strategic
advice to several US and European corporations. Mr. Svennilson
is also a non-executive Director of Skandigen AB, a public
Swedish biotechnology company.
S. Keith Williams was appointed President and Chief Operating
Officer in July of 1994, and a Director in November of 1994.
Mr. Williams was employed as General Manager of the Winter
Partners subsidiaries for the five years preceding his
employment with the Company.
Each of the directors of the Company has been elected for up to
a one year term, expiring at the next annual meeting of the
shareholders of the Company.
Compliance with Section 16(a) of the Exchange Act
The Company has received a copy of reports on Form 5 filed by
Mssrs. Cole, Svennilson and Williams, and has not received copy
of any Forms 5 with respect to the fiscal year ended April 30,
1995 or any representations from any officer, director or 10%
shareholder of the Company, that any such Form 5 was not
104
required to be filed. Accordingly, Messrs. Brune, Cataldo,
Fludgate, Oxenberg, Guazzoni, Franz, Oxenberg, Podgor,
Schwarzbard, as well as any other person who, at any time during
such fiscal year, was a director, officer or beneficial owner of
more than ten percent of the Company's Common Stock may not have
filed, on a timely basis, reports required by Section 16(a)
during the most recent fiscal year.
The following table shows, for the years ended April 30, 1995,
1994 and 1993, the total cash compensation paid by the Company
to its chief executive officers and two most highly compensated
executive officers.
SUMMARY COMPENSATION TABLE
105
(1) Effective April 30, 1992, Mr. Fludgate entered into an
employment agreement with the Company which terminates on July
31, 1995, pursuant to which he received $200,000 per year and a
bonus equal to 10.5% of the Company's pre-tax profit. Mr.
Fludgate was also entitled to receive an expense allowance of
$4,000 per month. Pursuant to the employment agreement, the
Company issued to Mr. Fludgate options to purchase 500,000 Class
C Warrants; the agreement provides that 250,000 of such options
are to become exercisable as of May 1 of each of 1992 and 1993.
Mr. Fludgate was the insured under two participating whole-life
life insurance policies in the amount of $200,000 and $800,000,
106
of which he named the beneficiaries (currently, members of Mr.
Fludgate's immediate family). The Company was responsible for
all premiums on such policies at a cost of approximately $20,000
per annum. Effective June 1, 1994, Mr. Fludgate resigned his
position as Chairman and Chief Executive Officer. Mr. Fludgate
resigned as a Director in September of 1994. See Item 3, Legal
Proceedings.
(2) Effective December 31, 1991, Mr. Cataldo entered into an
employment agreement with the Company to serve as its President.
The term of the agreement expired on July 31, 1995, and was
extended to July 31, 1997 by an Amendment and Extension
Agreement dated August 1, 1994 (the ``Amendment and Extension
Agreement'). Under the terms of Mr. Cataldo's original
employment contract, he received an annual salary of $150,000,
plus a bonus equal to 2% of the Company's annual revenues as
reported in the Company's annual report. Mr. Cataldo was also
entitled to receive an expense allowance of $2,000 per month.
Pursuant to his employment agreement, Mr. Cataldo also received
options, to purchase 700,000 shares of Common Stock at $0.25 per
share and options to purchase 700,000 Class C Warrants at $0.43
per warrant. The employment agreement provided that options to
purchase 150,000, 200,000, 200,000 and 150,000 options of each
type are to be exercisable as of December 31, 1991, 1992, 1993
and 1994, respectively. Mr. Cataldo received $12,500 for
consulting services rendered in November and December of 1991.
On September 22, 1993 and September 15, 1994, Mr. Cataldo
107
exercised options to purchase 75,000 and 100,000 shares of
Common Stock, respectively, at an exercise price of $.25 per
share. Under the terms of the Amendment and Extension
Agreement, Mr. Cataldo's contract was extended to August 1,
1997. He was entitled to a annual compensation of $250,000 and
to an expense allowance of $25,000 per annum. He no longer
received a bonus. In addition, the Amendment and Extension
Agreement provided for the grant, each year, of options to
purchase 400,000 common shares of the Company at $0.625 each.
Effective July 13, 1995, Mr. Cataldo resigned as Chairman and
Chief Executive Officer. By Separation Agreement and Release
dated July 6 and 7, 1995 (the ``Separation Agreement''), the
Company agreed to pay Mr. Cataldo $300,000 in consulting fees in
twelve $25,000 monthly installments, to be applied against fees
for financial consulting services Mr. Cataldo may render to the
Company; in addition, the Company agreed to grant Mr. Cataldo a
non-recourse, interest free $280,000 loan to purchase common
shares of the Company; the loan is secured by said common
shares. The Separation Agreement also provides that Mr.
Cataldo relinquishes all stock options and warrants granted to
him under his employment agreements.
(3) On July 12, 1994, Mr. Williams entered into an employment
agreement with the Company which terminates May 31, 1997,
providing for a minimum base salary of 155,000 British pounds
per annum, or approximately $248,000. In addition, Mr. Williams
is entitled to a $100,000 sign on bonus. Mr. Williams is also
108
entitled to a bonus based on the Winter Partners subsidiaries
gross contribution to profit. In addition, Mr. Williams will be
granted options to purchase a total of 142,857 shares of the
Company at $5.25 per share, in three equal installments due
after one, two and three full years of employment, respectively.
Mr. Williams also receives the use of a Company car, or a 1,200
British pounds per month allowance, or approximately $1922.00.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning
options granted to officers during the fiscal year ended April
30, 1995.
109
Individual Grants
Name Options Percent of Exercise or Expiration
----
Granted Total Base Date
------- ----
Options Price
-----
(#)
---
Granted to
($/Sh)
------
Employees
in Fiscal
--------
(a)
(b) Year
----
(c)
(e)
(d)
Anthony J. 57,142 100 $4.375 August 1,
Cataldo 1997
Aggregated Options/SAR Exercises in Last Fiscal Year and FY End
Options/SAR Value
Number Of Value of
Unexercised Unexercised
Securities In-The-
Underlying Money
Shares Options/SAR Options/SAR
Acquired On Value s at FY End s At FY
Name Exercise Realized (#) End($)
110
(a) (#) ($) Exercisable Exercisable
(b) (c) /Unexercisa /Unexercisa
ble (d) ble(e)
CEO Anthony 100,000 31,250 925,000/400 0
J. Cataldo ,000
The Company does not have long-term incentive plans.
Other than health, life and 401(k) plan benefits available to
all employees, and the stock option plans described below which
the Company may determine to pay to officers and/or employees,
the Company does not currently have in effect any pension,
profit sharing or other employee benefit plan.
The Company has a standard Directors and Officers liability
insurance policy with an aggregate coverage of $1,000,000 for
its officers and directors.
Compensation of Directors
The Company pays $5,000 per year to non-employee directors and
reimburses them for travel and lodging expenses incurred in
connection with their services in that capacity. Additionally,
non-employee directors were granted of stock options pursuant to
the Non-Qualified Stock Option Plans as follows.
Name Option Date Award Price
---- ----------- ----- -----
Robert Feb. 28, 1992 7,143 $7.00
Oxenberg
Feb. 28, 1993 7,143 $7.00
111
Feb. 28, 1994 7,143 $5.6875
Gerald Franz July 14, 1993 7,143 $10.50
July 14, 1994 7,143 $4.8125
Claudio Feb. 7, 1994 7,143 $6.34375
Guazzoni
Barrington June 2, 1994 7,143 $4.8125
Fludgate
Qualified Incentive Stock Option Plan
On April 20, 1990 the shareholders of the Company approved a
qualified incentive stock option plan (the ``ISOP''). The
QISOP provides for the granting of options, at the Board of
Directors' discretion, to purchase up to an aggregate of
1,000,000 shares of Common Stock to eligible employees at an
exercise price determinable at the discretion of the Option's
Committee (the `Committee'')as appointed by the Company's Board
of Directors but no less than 85% of the market value of the
common stock on the date the option is granted. Options may be
granted to all salaried employees of the Company and its
subsidiaries. Options granted under the QISOP are exercisable
according to a vesting schedule which is determined by the
Option Committee. Subject to the provisions of the Options Plan
with respect to death and termination, the maximum period each
option may be exercised shall be fixed by the committee at the
112
time the option is granted, but shall not exceed five years. On
April 28, 1995, the shareholders of the Company approved an
increase in the number of stock options under the QISOP from
1,000,000 to 8,000,000, at $0.01 par value.
As of April 30, 1995, there were outstanding options to purchase
a total of 6,857 shares, at an average exercise price of
$5.7925, under the QISOP.
Key Executive Stock Bonus Grant
Concurrently with the approval of the QISOP, the shareholders of
the Company approved a Key Executive Stock Bonus Grant Plan (the
``onus Plan'') for key executives. The Bonus Plan provides for
the issuance of up to an aggregate of 100,000 shares of Common
Stock to officers or key employees of the Company for little or
no consideration. The grants require the approval of the Board
of Directors. Qualification criteria are established by the
Board of Directors and are based on the Key Executive's
potential and dedication to the Company. The grants are subject
to a two year vesting period and terminate if the executive's
employment with the Company terminates during the vesting
period.
As of the fiscal year ended April 30, 1995, there were no
outstanding grants under the Bonus Plan.
Non qualified Stock Option Plan for Key Employees
The shareholders of the Company approved a non qualified stock
option plan for key employees(the ``NSOPKEY'' on April 20,
1990. The NSOPKEY provides for the granting of options to
113
purchase up to an aggregate of 1,000,000 shares of Common Stock
to key employees of the Company, with an exercise price
determined by an option committee at the time of grant. No part
of any option granted under the NSOPKEY will be exercisable more
than five years after the date of grant. On April 28, 1995, the
shareholders of the Company approved an increase in the number
of stock options under the NSOPKEY from 1,000,000 to 10,000,000,
at $0.01 par value.
As of the fiscal year ended April 30, 1995, there were
outstanding options to purchase a total of 140,714 shares, at an
average exercise price of $3.57, under the NSOPKEY.
Non qualified Stock Option Plan for Directors, Officers and
Consultants
The shareholders of the Company approved a non qualified stock
option plan for Directors, Officers and Consultants (the
``SOPDOC'') on April 20, 1990. The NSOPDOC provides for the
granting of options to purchase up to an aggregate of 2,000,000
shares of Common Stock to consultants and non-employee directors
of the Company. No part of any option granted under the NSOPDOC
will be exercisable more than five years after the date of
grant. On April 28, 1995, the shareholders of the Company
approved an increase in the number of stock options under the
NSOPDOC from 2,000,000 to 15,000,000, at $0.01 par value.
As of the fiscal year ended April 30, 1995, there were
outstanding options to purchase a total of 239,342 shares, at an
average exercise price of $6.30, under the NSOPDOC.
114
Other Options
The Company has issued 171,428 options to purchase Class C
Warrants at a price of $3.01 per warrant to two former officers
of the Company in connection with their employment arrangements.
The Company also issued an investor an option to purchase
428,572 units consisting of one share of common stock and three
Class ``'' Warrants to purchase one share of common stock each.
401(k) Plan and other pension plans
In September 1988, the Company adopted a 401(k) Plan (the
`Plan''). Pursuant to the Plan, the Company matched employee
contributions, in an amount equal to up to one percent (1%) of
each employee's base salary. Contributions to the Plan were
suspended effective April 30, 1991 due to poor financial
performance. Effective May 1, 1992 the Company restructured the
Plan as a non-employer contributory 401(k) plan and employee
contributions resumed in August 1992.
MTi Abraxsys Systems, Inc., a wholly owned subsidiary of the
Company, has a 401(k) savings plan for its employees. MTi
Abraxsys Systems, Inc. contributes 25% of the employee's
contribution up to 6% of the employee's salary.
The employees of the Company's subsidiaries in the UK are
entitled to receive additional compensation equivalent to 7% of
their annual base salaries in lieu of any other pension
provision by the Company.
The Company's Singapore subsidiary contributes to the Government
of Singapore Central Provident Fund in respect to all employees
115
matching employee contributions, currently 8.75% of the
employees' gross compensation.
All officers have executed non-compete agreements which provide
that the individual will not compete with the Company during
employment or for a period of one year following termination.
116
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of July 31, 1995, certain
information regarding beneficial ownership of Common Stock (i)
by each person who is known to the Company to be the beneficial
owner of more than 5% of the Common Stock, (ii) by each of the
directors and executive officers of the Company and (iii) by all
directors and executive officers of the Company as a group.
Ownership is expressed in post May 15, 1995 split shares:
Name and Address of Amount and Nature of Percent of
-------------------- ----------
Beneficial Holder or
Beneficial Ownership Class
-------------------- -----
Identity of Group
Common stock Common Stock(1)
------------ ---------------
Wellbourne Trust 9,068,175(2) 41.06
c/o Citadel
Administration, 24-
28 rue Goethe, L-
1637 Luxemburg
Credit Suisse 1,651,678 7.48
23/F Three Exchange
Place,
Central
G.P.O. Box 18
117
Hong Kong
D.H. Blair 889,574(3) 4.03
Investment Banking
Corp., 44 Wall
Street, New York, NY
10005
S. Keith Williams 0 0
18 Broomfield Road
Oxshott, Surrey
England
Nigel C. Cole 0 0
115 Mount Grace Road
Potters Bar, Herts
England
Anthony J. Cataldo 257,697 1.17
63 North East
Village Rd
Concord, NH 03301
Barrington J. 194,838(4) 0.88
Fludgate
118
12 Hilltop Drive
North Salem, NY
10560
Gerald Franz 37,500(5) 0.17
th
236 E. 47 Street ]
New York, NY 10017
Aharon Schwarzbard 28,929 0.13
21 Guild Court
Plainview, NY 11803
Robert Oxenberg 14,136 (6) 0.06
P.O. Box 12381
Aspen, CO 81612
Claudio Guazzoni 7,143 (7) 0.03
1339 Cooper Station
New York 10276
Daniel J. Sladden 0 0
12 Old Bond Street
London, England
119
William L Meaney 0 0
12 rue du Vieux
College
Geneva, Switzerland
Edward S. Stone 0 0
425 Park Avenue
New York, New York
Peter Svennilson 0 0
12 Old Bond Street
London, England
All Officers and 264,840 1.20
Directors as a Group
(8 persons)
(1) Based on an aggregate of post May 15, 1995 split shares of
Common Stock (``hares'') outstanding as of July 28, 1995 of
15,685,669.
(2) Includes 2,550,000 Shares underlying certain warrants to
purchase 2,550,000 Shares.
(3) Includes (i) 426,605 Shares underlying Class ``C'' Warrants
to purchase 426,605 Shares and (ii) 3,142 Shares owned by
Rivkalex Corporation.
120
(4) Includes 28,929 Shares underlying Class ``C'' warrants to
purchase 28,929 Shares.
(5) Includes 4,321 Shares underlying Class ``C'' Warrants to
purchase 4,321 Shares.
(6) Includes 7,143 Shares underlying certain options to
purchase 7,143 Shares granted in consideration for Mr. Franz
serving as Director of the Company.
(7) Includes 7,143 Shares underlying certain options to
purchase 7,143 Shares granted in consideration for Mr. Guazzoni
serving as Director of the Company.
121
Item 12. Certain Relationships and Related Transactions
D.H. Blair & Co., Inc., D.H. Blair Investment Banking Corp.,
D. H. Blair Holdings, Inc.
In conjunction with the Company's April 1992 private offering,
D.H. Blair & Co., Inc. (``D.H. Blair'') and the Company agreed
to modify the terms of a secured 8% subordinated convertible
promissory note issued by the Company to D.H. Blair in the
principal amount of $1,350,000 (the `Blair Note '', so as to
make the note, plus accrued interest as of the date of the
offering of $309,000, due on May 1, 1994, with subsequent
interest payable quarterly and convertible into Common Stock of
the Company on the same terms as the notes issued by the Company
in the offering. Effective November 4 and December 31, 1992,
the due date of $63,000 and $27,000, respectively, of accrued
interest on such note was extended to May 1, 1993.
The Company also borrowed funds pursuant to (i) an unsecured
promissory note dated February 7, 1992 in the principal amount
of $135,000 made to D.H. Blair Holdings, Inc. (``Blair
Holdings'); and (ii) an unsecured promissory note dated May
26, 1992 in the principal amount of $500,000 made to Blair
Banking. The $500,000 note bore interest at the rate of 10% per
annum, and the $135,000 note bore interest at a rate per annum
equal to prime rate as announced in the Wall Street Journal
rounded to the nearest / of 1%. Such notes were originally due
in August, 1992, but the payment of principal and interest on
each such note was extended to August 1, 1993.
122
On February 22, 1993, the Company and Blair Holdings consummated
a refinancing transaction (the ``Refinancing Transaction''),
pursuant to which the Company issued to Blair Holdings 1,423,333
units, each consisting of one share of Common Stock and one
Class C Warrant, in exchange for the cancellation by Blair
Holdings of $2,135,000 of indebtedness consisting of $439,000 of
interest and $1,696,000 of principal, owed by the Company to
Blair Holdings. The amount of the outstanding indebtedness was
reduced to $289,000. The Refinancing Transaction was in lieu of
the proposed issuance to Blair Holdings of preferred stock of
the Company in exchange for the cancellation of $1,935,000 of
indebtedness.
On July 28, 1993, Blair Banking agreed to the cancellation of
such $289,000 principal amount of indebtedness in consideration
for the issuance of additional equity securities of the Company.
Effective June 16, 1995, Blair Banking and the Company converted
$323,117 in principal and $56,939.41 of a Subordinated
Convertible debt held by Blair Banking.
In July of 1994, the Company borrowed $250,000 from Edelson
Technology Partners III and placed equity with Edelson
Technology Partners III for a $500,000 consideration. Blair
Banking raised a $37,500 claim for finder's fee in relationship
to the Edelson Technology Partners III transactions.
At April 30, 1995, the Company owed a balance of approximately
$377,000, including accrued interest, on an outstanding
Subordinated Convertible Note held by Blair Banking.
123
Mark Blundell, Mark Blundell & Associates, Inc., New Paradigm
Software Corporation
In January 1993, the Company entered into an agreement (the
``BA Agreement'') with Mark Blundell Associates, Inc. (``MBA''),
a corporation in which Mark Blundell, the Company's then Chief
Operating Officer and Chief Financial Officer, had a 25%
interest, pursuant to which the Company licensed a certain
software product from MBA. To date, $5,000 of royalties have
been paid under the MBA Agreement.
Effective November 15, 1993, the Company entered into a series
of agreements through which it acquired approximately 75% of
NPSC and terminated the MBA Agreement.
In November of 1993, the Company entered into a lease
modification agreement with MCI for 15,300 square feet to office
space for $95,000 per annum. The Company, in turn, subleased
this space to NPSC. These agreements are subject to approval
from superior landlords, which has not been granted. In
November of 1994, the Company agreed to sublease to NPSC space
its leases from MCI for the sum of $8,000 per month.
On September 6, 1994, the Company amended its agreements with
NPSC, and agreed to incorporate sums due the Company by NPSC
into a convertible subordinated loan due September 30, 2001. By
agreements dated May 26 and 31, 1995, NPSC and the Company
agreed to the cancellation of the convertible subordinated loan
in exchange for (i) 180,000 warrants to purchase common stock of
NPSC at $3.75 a share and (ii) a restructuring of the sublease
124
agreement under which NPSC occupies office space leased by the
Company from MCI, raising the consideration from $8,000 per
month to $16,857.56 per month. Rent in arrears are due and
payable on September 30, 1995 or on closing of a certain initial
public offering by NPSC.
On December 7, 1993, the Company appointed Mark Blundell to the
Board of Directors of the Company.
On December 31, 1993, Mr. Mark Blundell resigned as Chief
Financial Officer and Chief Operating Officer.
On March 7, 1994, Mr. Mark Blundell resigned as a Director of
the Company.
Robert S. Trump, Gerald Franz, Midland & Associates
Pursuant to a letter agreement dated April 26, 1993, Gerald
Franz, prior to becoming a director of the Company, purchased
7,142 units, each consisting of one share of common stock and
three Class C Warrants (each a ``nit''), at a price of $7.00
per Unit, and purchased a $50,000 convertible note from the
Company. The convertible note did not bear interest and was
convertible into 50,000 Units at Mr. Franz' option at a
conversion price of $1.00 per share. The Company also agreed to
place the sum of $100,000 in an escrow account with its counsel
for the specific purpose of repayment of the $50,000 loan made
by Mr. Franz and for payment by the Company under a joint
marketing agreement with Financial Performance Corp., a software
company of which both Messrs. Franz and Trump are affiliates.
The funds in the escrow account have been disbursed as
125
determined by Mr. Franz, in his sole discretion, including a
$40,222.15 payment made to Mr. Franz.
In addition, Mr. Franz received an option to purchase a minimum
of 7,142 Units and a maximum of 23,809 Units at $7.00 per Unit,
exercisable until February 28, 1997 and conditioned upon the
Company's achieving $2,000,000 in gross sales of its Genesis
product line. The grant of the options was in consideration for
the purchase by Mr. Franz of the $50,000 convertible note from
the Company and for services previously rendered by Mr. Franz to
the Company, as well as services to be performed by Mr. Franz in
connection with the promotion of the Company's software
products. Mr. Franz also received, as a success and consulting
fee $20,000 in cash and 1,428 units, each consisting of one
share of Common Stock and one Class C Warrant.
In conjunction with the April 26, 1993 transactions involving
Mr. Franz, pursuant to a letter agreement dated April 26, 1993,
Robert S. Trump purchased 42,857 Units at $7.00 per Unit. In
addition, Mr. Trump received an option to purchase a minimum of
42,857 and a maximum of 142,857 additional Units at $7.00 per
Unit, exercisable until February 28, 1997 and conditioned upon
the Company's achieving $2,000,000 in gross sales of its Genesis
product line. Mr. Trump also agreed to assist the Company in
promoting its software products. The grant of the options was
in consideration for his purchase of 42,857 Units and for
services previously rendered by Mr. Trump to the Company, as
126
well services to be performed by Mr. Trump in connection with
the promotion of the Company's software products.
On July 14, 1993, Mr. Franz was appointed a Director of the
Company. Mr. Franz received an option to purchase 7,142 shares
of common stock at $10.50 as part of the consideration for
serving as a Director of the Company. Mr. Franz was not re-
elected a Director of the Company at the shareholders' meeting
held on April 28, 1995.
As a consequence of a transaction with Midland Associates, a
general partnership in which Mr. Trump is a partner, in July of
1994, the Company entered into a financial consulting agreement
with Mr. Gerald Franz to perform financial consulting services,
and agreed to pay Mr. Franz or his designee a fee in the sum of
$60,000, as well as affording Mr. Franz 28,571 warrants to
purchase 28,571 shares of common stock at $5.25 per share, for a
period of three years, expiring on July 14, 1997.
Claudio Guazzoni, Finmanagement S.A., Zanett Capital, Inc.
On February 7, 1994, the Company appointed Mr. Claudio Guazzoni
to the Board of Directors of the Company.
On July 13, 1994, the Company borrowed the sum of $1,000,000
from Finmanagement S.A. pursuant to a Loan Conversion Agreement
and a Promissory Note. This transaction was arranged by Mr.
Claudio Guazzoni, a Director of the Company, and the President
of Zanett Capital, Inc. Mr. Guazzoni and /or Zanett Capital,
Inc. were not compensated for arranging this transaction.
127
On October 11, 1994, the Company placed equity with Roberto
Jimenez Collie, Bruno Guazzoni, and TOTEAM Ltd, Inc. for a total
consideration of $565,889.71, pursuant to Regulation ``S'' under
the Securities Act of 1933, as amended. The transaction was
arranged by Mr. Claudio Guazzoni. Mr. Bruno Guazzoni is related
to Mr. Claudio Guazzoni. Mr. Guazzoni and /or Zanett capital,
Inc. were not compensated for arranging this transaction.
On November 4, 1994, the Company placed equity with Roberto
Jimenez Collie, Bruno Guazzoni, and TOTEAM Ltd, Inc. for a total
consideration of $235,855.93, pursuant to Regulation ``S'' under
the Securities Act of 1933, as amended. The transaction was
arranged by Mr. Claudio Guazzoni. Mr. Bruno Guazzoni is related
to Mr. Claudio Guazzoni. Mr. Guazzoni and /or Zanett capital,
Inc. were not compensated for arranging this transaction
In April of 1994, the Company placed equity with Caisse Centrale
des Banques Populaires, Bruno Guazzoni, and Coutts and Co. S.A.
for a total consideration of $499,200, pursuant to Regulation
``'' under the Securities Act of 1933, as amended. The
transaction was arranged by Mr. Claudio Guazzoni. Mr. Bruno
Guazzoni is related to Mr. Claudio Guazzoni. Mr. Guazzoni and
/or Zanett capital, Inc. were not compensated for arranging this
transaction.
In January of 1995, the Company borrowed $200,000 from Mr. Bruno
Guazzoni. The Company agreed to issue Mr. Bruno Guazzoni 10,000
shares of its common stock for every day between the due date of
the loan and the full settlement. The loan was due on January
128
19, 1995 and was repaid in full on May 11, 1995. Mr. Guazzoni
and the Company have reached a tentative agreement with regard
to the issuance of the 10,000 per day.
Peter Svennilson, Daniel Sladden, the Wellbourne Trust
Mr. Peter Svennilson was appointed a Director of the Company in
October of 1994, and the Chairman of the Company in July of
1995. Mr. Svennilson is the Managing Director of Stoneporch
Limited and an advisor to the Wellbourne Trust. Stoneporch
Limited conducts business under the trading name of Irongate.
Mr. Daniel Sladden was elected a Director of the Company on
April 28, 1995. Mr. Sladden is an advisor to the Wellbourne
Trust.
In July of 1994, the Company sold equity to the Wellbourne Trust
for an aggregate consideration of $6,150,000; the subscription,
by agreement between the Wellbourne Trust and the Company, was
subsequently reduced to $5,550,000. The Wellbourne Trust
received 2,550,000 warrants expiring in November of 1997 to
purchase 2,550,000 shares of common stock at $1.75 per share.
Mr. Svennilson assisted in arranging this transaction. Mr.
Svennilson, Mr. Sladden and /or Stoneporch Limited were not
compensated for their efforts in arranging this transaction.
In November of 1994, the Company sold equity to the Wellbourne
Trust for an aggregate consideration of $1,726,562. Mr.
Svennilson arranged this transaction. Mr. Svennilson, Mr.
Sladden and /or Stoneporch Limited were not compensated for
their efforts in arranging this transaction.
129
In February of 1995, the Company sold equity to the Wellbourne
Trust for an aggregate consideration of $4,500,000. Mr.
Svennilson arranged this transaction. Mr. Svennilson, Mr.
Sladden and /or Stoneporch Limited were not compensated for
their efforts in arranging this transaction.
In March of 1995, the Company sold equity to the Wellbourne
Trust for an aggregate consideration of $1,531,000. Mr.
Svennilson arranged this transaction. Mr. Svennilson, Mr.
Sladden and /or Stoneporch Limited were not compensated for
their efforts in arranging this transaction.
The Wellbourne Trust was paid $100,000 in fees and expenses in
relationship to the financing of the Winter Partners and DESISCo
acquisitions.
Genhro S.A., William L. Meaney
The Company has retained the services of Genhro S.A. to provide
consulting services for a period of four to six months starting
July 1995. Genhro S.A. is providing the services of Mr. Stefan
Weber as acting Chief Executive Officer at a cost of 34,000
Swiss Francs per month, or approximately $28,000, plus all out-
of-pocket expenses during the term of the consulting assignment.
Genhro S.A. is entitled to 200,000 Warrants exercisable at
$1.00, expiring in September of 1997.
Mr. William L. Meaney is a Director of the Company and a
Director of Genhro S.A.
130
Item 13. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this
report:
1. Financial Statements Page No.
Independent Auditors' Report
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statements of
Stockholders' Equity
Consolidated Statements of
Operations
Consolidated Statements of Cash
Flows
Notes to Consolidated Financial
Statements
2. Exhibits
Exhibit Number
--------------
3.1 Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Amendment
No. 4 on Form 8 to Registrant's Annual Report on Form
10-K for the fiscal year ended April 30, 1992, filed
131
with the Commission on February 24, 1993 (``Amendment
No. 4'')).
3.2 Form of Amendment to Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 (File
No. 33-25528) filed with the Commission on November 15,
1988).
3.3 Certificate of Amendment to Certificate of
Incorporation, dated May, 1995.
3.4 By-Laws of the Registrant (incorporated by reference to
Exhibit 3.5 to the Registrant's Registration Statement
on Form S-18 (File No. 33-10342-NY) dated May 13, 1987
(the ``Form S-18'')).
10.1 Form of Warrant Agreement dated May 21, 1987 between the
Company, D.H. Blair & Co., Inc. and American Stock
Transfer & Trust Company (incorporated by reference to
Exhibit 10.4 to the Form S-18).
10.2 Class C Warrant Agreement dated as of February 28, 1992
among the Company, D.H. Blair & Co., Inc. and American
Stock Transfer & Trust Company (the ``Class C Warrant
Agreement'') (incorporated by reference to Exhibit C to
the Company's Current Report on Form 8-K dated March 11,
1992 (the ``March 11 8-K'')).
10.3 Amendment dated as of July 20, 1992 to the Class C
Warrant Agreement (incorporated by reference to Exhibit
132
C to the Registrant's Current Report on Form 8-K dated
July 24, 1992 (the ``July 24 8-K'')).
10.4 Amendment dated as of August 24, 1992 to the Class C
Warrant Agreement (incorporated by reference to Exhibit
10.4 to Amendment No. 4).
10.5 Amendment dated as of December 11, 1992 to the Class C
Warrant Agreement (incorporated by reference to Exhibit
10.5 to Amendment No. 4).
10.5.1 Amendment dated as of February 22, 1993 to the
Class Warrant Agreement (incorporated by reference to
Exhibit 10.5.1 to the Registrant's Current Report on
Form 8-K dated February 22, 1993).
10.5.2 Form of Underwriting Agreement dated May 14, 1987
between the Company and D.H. Blair & Co., Inc.
(incorporated by reference to Exhibit 1.1 to
the Form S-18).
10.5.3 Form of Agency Agreement dated February 6, 1993
between the Company and D.H. Blair & Co., Inc.
(incorporated by reference to Exhibit A to the March
11 8-K).
10.6 Form of Subordinated Convertible Note (incorporated by
reference to Exhibit B to the March 11 8-K).
10.6.1 Unit Purchase Option dated January 28, 1992 made
by the Company to D.H. Blair & Co., Inc. (incorporated
by reference to Exhibit 10.6.1 to Amendment No. 5 on
133
Form 8 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended April 30, 1992, filed with
the Commission on April 5, 1993 (``mendment No.
5')).
10.7 8% Subordinated Mortgage Note dated April 28, 1989
made by the Company to D.H. Blair Holdings, Inc.
(incorporated by reference to Exhibit B to the
Registrant's Current Report on Form 8-K dated May 2,
1989 (the `May 2 8-K'')).
10.8 Amendment No. 1 to the 8% Subordinated Mortgage Note
held by D.H. Blair Holdings, Inc. (incorporated by
reference to Exhibit E to the March 11 8-K).
10.9 Security Agreement and Chattel Mortgage between the
Company and D.H. Blair & Co., Inc. (incorporated by
reference to Exhibit A to the May 2 8-K).
10.10 Assignment of Software Codes as Security for
Subordinated Mortgage Note made by the Company to D.H.
Blair & Co., Inc. (incorporated by reference to
Exhibit C to the May 2 8-K).
10.11 Pledge Agreement made by Barrington J. Fludgate
to D.H. Blair & Co., Inc. (incorporated by reference
to Exhibit D to the May 2 8-K).
10.12 Promissory Note dated February 7, 1992 made by
the Company to D.H. Blair Holdings, Inc., as amended
(incorporated by reference to Exhibit 10.12 to
Amendment No. 4).
134
10.13 Loan Agreement dated May 26, 1992 between the
Company and D.H. Blair Investment Banking Corp.
(incorporated by reference to Exhibit A to the
Company's Current Report on Form 8-K dated May 26,
1992 (the ``ay 26 8-K'')).
10.14 Promissory Note dated May 26, 1992 made by the
Company to D.H. Blair Investment Banking Corp., as
amended (incorporated by reference to Exhibit 10.14 to
Amendment No. 4).
10.15 Letter Agreement dated December 31, 1992 between
D.H. Blair Investment Banking Corp. and the Company
(incorporated by reference to Exhibit 10.15 to
Amendment No. 4).
10.16 Letter Agreement dated December 3, 1991 between
the Company and ABN/AMRO Bank N.V. (``BN'')
(incorporated by reference to Exhibit 10.16 to
Amendment No. 4).
10.17 Promissory Note dated December 13, 1991 made by
the Company to ABN (incorporated by reference to
Exhibit 10.17 to Amendment No. 4).
10.18 General Liability Agreement dated November 27,
1991 between the Company and ABN, with attached
Guaranty dated November 27, 1991 given by Barrington
J. Fludgate to ABN (incorporated by reference to
Exhibit 10.18 to Amendment No. 4).
135
10.19 Security Agreement dated November 27, 1991
between the Company and ABN (incorporated by reference
to Exhibit 10.19 to Amendment No. 4).
10.20 Corporate Guarantee dated November 26, 1991 from
Management Technologies Financial Consultants Pty. to
ABN (incorporated by reference to Exhibit 10.20 to
Amendment No. 4).
10.21 Corporate Guarantee dated November 26, 1991 from
Management Technologies Trade Services, Inc. to ABN
(incorporated by reference to Exhibit 10.21 to
Amendment No. 4).
10.22 Purchase Agreement dated as of July 17, 1992
between the Company and Michael Bollag, as amended
(incorporated by reference to Exhibit A to the July 24
8-K and Exhibit D to the September 17 8-K).
10.23 Registration Rights Agreement dated as of July
23, 1992 between the Company and Michael Bollag
(incorporated by reference to Exhibit B to the July 24
8-K).
10.24 Purchase Agreement dated as of September 15, 1992
among the Company, Michael Bollag, Naomi Bollag and
William Karon (incorporated by reference to Exhibit B
to the September 17 8-K).
10.25 Registration Rights Agreement dated as of
September 5, 1992 among the Company, Michael Bollag,
136
Naomi Bollag and William Karon (incorporated by
reference to Exhibit B to the September 17 8-K).
10.26 Purchase Agreement dated as of October 6, 1992
between the Company and S. Sungyull Koo (incorporated
by reference to Exhibit 4.18 to the Company's
Registration Statement on Form S-3, Registration Nos.
33-25528 and 33-52074).
10.27 Subscription Agreement dated as of December 14,
1992 between the Company and Robert Trump
(incorporated by reference to Exhibit 10.27 to
Amendment No. 4).
10.28 Purchase Agreement dated as of December 18, 1992
between the Company and Clarion Capital (incorporated
by reference to Exhibit 10.28 to Amendment No. 4).
10.29 Software Distribution License Agreement dated May
28, 1991 between the Company and Global Financial
Systems Inc. (the ``istribution Agreement''), as
amended (incorporated by reference to Exhibit 10.29 to
Amendment No. 4).
10.30 Software Development and Marketing Agreement
dated December 23, 1992 between the Company and
Hewlett Packard Company (incorporated by reference to
Exhibit 10.30 to Amendment No. 5).
10.31 Employment Agreement dated December 31, 1991
between the Company and Anthony Cataldo (incorporated
by reference to Exhibit F to the Company's Current
137
Report on Form 8-K dated March 11, 1992 (the `March
11 8-K'').
10.32 Employment Agreement dated December 31, 1991
between the Company and Clifford Brune (incorporated
by reference to Exhibit G to the March 11 8-K).
10.33 Employment Agreement dated April 30, 1992 between
the Company and Barrington Fludgate (incorporated by
reference to Exhibit A to the Company's Current Report
on Form 8-K dated May 13, 1992).
10.34 Employment Agreement dated October 31, 1992
between the Company and Mark Blundell (incorporated by
reference to Exhibit 10.34 to Amendment No. 4).
10.35 Severance Agreement dated June 15, 1992 between
the Company and Peter LoRe (incorporated by reference
to Exhibit B to the May 26 8-K).
10.36 Agreement dated January 1993 between the Company
and Blundell & Associates, Inc., as supplemented
(incorporated by reference to Exhibit 10.36 to
Amendment No. 4).
10.37 Incentive Stock Option Plans (incorporated by
reference to Exhibit 10.37 to Amendment No. 4).
10.38 Lease for the Company's premises at One Penn
Plaza, New York, New York (incorporated by reference
to Exhibit 10.4 to the Form S-18).
10.39 Lease Termination Agreement dated February 3,
1993 by and between the Company and Delta Airlines
138
(incorporated by reference to Exhibit 3 to the
Company's Current Report on Form 8-K dated February
26, 1993 (the ``ebruary 26 8-K'')).
10.40 Agreement of Sublease dated February 26, 1993
between BT North America, Inc. and the Company
(incorporated by reference to Exhibit 2 to the
February 26 8-K).
10.41 Subscription Agreement dated as of February 22,
1993 between the Company and D.H. Blair Holdings, Inc.
(incorporated by reference to Exhibit 3 to the
Company's Current Report on Form 8-K dated February
22, 1993).
10.42 Irrevocable Voting Proxy dated February 23, 1993
from D.H. Blair Investment Banking Corp. in favor of
Anthony J. Cataldo (incorporated by reference to
Exhibit 1 to the February 26 8-K).
10.43 Mutual Release and Hold Harmless Agreement dated
January 19, 1993 between MCN-CSI Computer Services,
Inc. and the Company (incorporated by reference to
10.43 to Amendment No. 5).
10.44 Subscription Agreement dated April 26, 993,
between Robert S. Trump and the Company (incorporated
by reference to Exhibit A to the Company's Current
Report on Form 8-K dated April 30, 1993 (the ``pril
30 8-K'').
139
10.45 Letter Agreement dated April 36, 1993, between
Robert S. Trump and the Company dated April 26, 1993
(incorporated by reference to Exhibit B to the April
30 8-K).
10.46 Letter Agreement dated April 26, 1993 between
Gerald Franz and the Company (incorporated by
reference to Exhibit C to the April 30 8-K).
10.47 Escrow Agreement dated April 26, 1993 among
Gerald Franz, Baratta & Goldstein, as escrow agent,
and the Company (incorporated be reference to Exhibit
D to the April 30 8-K).
10.48 Letter Agreement dated April 26, 1993 between
Gerald Franz and the Company (incorporated by
reference to Exhibit E to the April 30 8-K).
10.49 Letter Agreement dated April 26, 1993 between
Gerald Franz and the Company (incorporated by
reference to Exhibit F to the Company's April 30 8-K).
10.50 $50,000 Convertible Note executed by the Company
in favor of Gerald Franz dated April 26, 1993
(incorporated by reference to Exhibit G to the
Company's April 30 8-K).
10.51 Letter Agreement dated August 13, 1993 between
Sharon S. Merrill and the Company (incorporated be
reference to Exhibit A to the July 29, 1993 8-K).
10.52 Subscription Agreement dated July 30, 1993
between D.H. Blair Holdings, Inc. and the Company
140
(incorporated by reference to Exhibit A to the August
6, 1993 8-K).
10.53 Subscription Agreement dated August 6, 1993
between Bruno Guazzoni and the Company (incorporated
by reference to Exhibit B to the Company's August 25,
1993 8-K).
10.54 Subscription Agreement dated August 9, 1993
between Duncan Robertson and the Company (incorporated
by reference to Exhibit B to the Company's August 25,
1993 8-K).
10.55 Subscription Agreement dated August 9, 1993
between Caisse Centrale des Banques Populaires and the
Company (incorporated by reference to Exhibit B to the
Company's August 25, 1993 8-K).
10.56 Stock Purchase Agreement dated July 29, 1993
among the MTI Merken Corporation, Sharon F. Merrill
and the Company (incorporated by reference to Exhibit
A to the Company's September 16, 1993 8-K).
10.57 Agreement dated August 30, 1993 between Mark
Blundell Associates, Inc. and New Paradigm Software
Corp. (incorporated by reference to Exhibit 1 to the
Company's November 30, 1993 8-K).
10.58 Agreement dated August 25, 1993 between New
Paradigm Software Corp. and the Company (incorporated
by reference to Exhibit 2 to the Company's November
30, 1993 8-K).
141
10.59 Agreement dated August 25, 1993 between New
Paradigm Software Corp. and the Company (incorporated
by reference to Exhibit 3 to the Company's November
30, 1993 8-K).
10.60 Proxy dated November 19, 1993 by the Company
(incorporated by reference to Exhibit 4 to the
Company's November 30, 1993 8-K).
10.61 Letter Agreement dated November 19, 1993 between
New Paradigm Software Corp. and the Company
(incorporated by reference to Exhibit 5 to the
Company's November 30, 1993 8-K).
10.62 Heads of Agreement dated February 10, 1994
between Winter Partners Holding A.G. and the Company
(incorporated by reference to Exhibit 2 to the
Company's February 7, 1994 8-K).
10.63 Subscription Agreement dated July 8, 1994 between
Edelson Partners III and the Company (incorporated by
reference to Exhibit A to the Company's July 12, 1994
8-K).
10.64 Employment Agreement dated July 12, 1994 between
Keith Williams and the Company (incorporated by
reference to Exhibit 2 to the Company's July 13, 1994
8-K).
10.65 Purchase and Sale Agreement dated July 13, 1994
between Winter Partners Holding A.G. and the Company
142
(incorporated by reference to Exhibit 1 to the
Company's July 13, 1994 8-K).
10.66 Purchase of Stock Agreement dated July 11, 1994
between Robert Trump and the Company (incorporated by
reference to Exhibit A to the Company's July 13, 1994
8-K).
10.67 Amendment to Option Agreement dated July 11, 1994
between Robert Trump and the Company (incorporated by
reference to Exhibit B to the Company's July 13, 1994
8-K).
10.68 Secured Promissory Note in favor of Midland
Associates dated July 11, 1994 (incorporated by
reference to Exhibit C to the Company's July 13, 1994
8-K).
10.69 Pledge Agreement and Corporate Guarantees dated
July 11, 1994 between Midland Associates and the
Company (incorporated by reference to Exhibit D to the
Company's July 13, 1994 8-K).
10.70 Common Stock Purchase Warrant dated July 11, 1994
(incorporated by reference to Exhibit E to the
Company's July 13, 1994 8-K).
10.71 Promissory Note by the Company in favor if
FINMANAGEMENT dated July 7, 1994 (incorporated by
reference to Exhibit A to the Company's July 13, 1994
8-K).
143
10.72 Common Stock Purchase Warrant (incorporated by
reference to Exhibit B to the Company's July 13, 1994
8-K).
10.73 Agreement pursuant to Regulation `S'' dated July
8, 1994 between Wellbourne Trust and the Company
(incorporated by reference to Exhibit A to the
Company's July 13, 1994 8-K).
10.74 Common Stock Purchase Warrant (incorporated by
reference to Exhibit B to the Company's July 13, 1994
8-K).
10.75 Promissory Note by the Company in favor if
Edelson Technology Partners III dated July 25, 1994
(incorporated by reference to Exhibit 1 to the
Company's July 27, 1994 8-K).
10.76 Offshore Subscription Agreement between Bruno
rd
Guazzoni and the Company dated March 3 , 1994
(incorporated by reference to Exhibit 2 to the
Company's July 25, 1994 8-K).
10.77 Offshore Subscription Agreement between COUTTS &
Co and the Company dated March 10, 1994 (incorporated
by reference to Exhibit 3 to the Company's July 25,
1994 8-K).
10.78 Offshore Subscription Agreement between Caisse
Centrale des Banques Populaires and the Company dated
March 10, 1994 (incorporated by reference to Exhibit 4
to the Company's July 25, 1994 8-K).
144
10.79 Letter Subscription Agreement between Edelson
Technology Partners III and the Company dated August
23, 1994 (incorporated by reference to Exhibit 1 to
the Company's August 23, 1994 8-K).
10.80 Offshore Subscription Agreement between Credit
Suisse (Hong Kong) and the Company dated September 9,
1994 (incorporated by reference to Exhibit 1 to the
Company's September 13, 1994 8-K).
10.81 Letter Agreement between Metrend Limited and the
Company dated September 16, 1994 (incorporated by
reference to Exhibit 2 to the Company's September 13,
1994 8-K).
10.82 Agreement between NPSC and the Company dated
September 6, 1994 (incorporated by reference to
Exhibit 1 to the Company's September 6, 1994 8-K).
10.83 Form of Subordinated Promissory Note by NPSC
(incorporated by reference to Exhibit 2 to the
Company's September 6, 1994 8-K).
10.84 Offshore Subscription Agreement between Credit
Suisse (Hong Kong) and the Company dated October 5,
1994 (incorporated by reference to Exhibit 1 to the
Company's October 5, 1994 8-K).
10.85 Offshore Subscription Agreement between Roberto
Jimenez Collie and the Company dated October 11, 1994
(incorporated by reference to Exhibit 1 to the
Company's October 11, 1994 8-K).
145
10.86 Offshore Subscription Agreement between Toteam
Ltd Inc. and the Company dated October 11, 1994
(incorporated by reference to Exhibit 2 to the
Company's October 11, 1994 8-K).
10.87 Offshore Subscription Agreement between Bruno
Guazzoni and the Company dated October 11, 1994
(incorporated by reference to Exhibit 3 to the
Company's October 11, 1994 8-K).
10.88 Offshore Subscription Agreement between
Wellbourne Trust and the Company dated November 1,
1994 (incorporated by reference to Exhibit A to the
Company's November 3, 1994 8-K).
10.89 Offshore Subscription Agreement between Toteam
Ltd., Inc. and the Company dated July 15, 1993
(incorporated by reference to Exhibit 1 to the
Company's November 4, 1994 8-K).
10.90 Offshore Subscription Agreement between Toteam
rd
Ltd., Inc. and the Company dated June 3 , 1993
(incorporated by reference to Exhibit 1 to the
Company's November 4, 1994 8-K).
10.91 Offshore Subscription Agreement between Roberto
Jimenez Collie and the Company dated June 7, 1993
(incorporated by reference to Exhibit 2 to the
Company's November 4, 1994 8-K).
10.92 Offshore Subscription Agreement between Bruno
Guazzoni and the Company dated November 1, 1994
146
(incorporated by reference to Exhibit 3 to the
Company's November 4, 1994 8-K).
10.93 Offshore Subscription Agreement between Bruno
Guazzoni and the Company dated June 10, 1993
(incorporated by reference to Exhibit 3 to the
Company's November 4, 1994 8-K).
10.94 Agreement between M.H. Meyerson & Co. and the
Company dated December 7, 1994 (incorporated by
reference to Exhibit 1 to the Company's December 7,
1994 8-K).
10.95 Heads of Agreement between Digital Equipment
International Limited, Digital Equipment International
bv, Digital Equipment (Holdings) bv, and Digital
Equipment Co. Ltd. and the Company dated December 12,
1994 (incorporated by reference to Exhibit 3 to the
Company's December 12, 1994 8-K).
10.96 Stock Purchase and Sale Agreement between Digital
Equipment International Limited, Digital Equipment
International bv, Digital Equipment (Holdings) bv, and
Digital Equipment Co. Ltd., MTi Holding and the
Company dated December 22, 1994 (incorporated by
reference to Exhibit 1 to the Company's December 22,
1994 8-K).
10.97 Assignment of Secured Loan between Digital
Equipment Co. Ltd., MTi Holding and the Company dated
147
December 22, 1994 (incorporated by reference to
Exhibit 2 to the Company's December 22, 1994 8-K).
10.98 Letter Agreement between Midland Associates and
the Company dated January 23, 1995 (incorporated by
reference to Exhibit 1 to the Company's February 16,
1995 8-K).
10.99 Letter Agreement between Digital Equipment Co.
nd
Ltd, MTi Holding and the Company dated March 2 , 1995
(incorporated by reference to Exhibit 3 to the
Company's March 10, 1995 8-K/A).
10.100 Offshore Subscription Agreement between
Wellbourne Trust and the Company dated February 23,
1995 (incorporated by reference to Exhibit 1 to the
Company's February 28, 1995 8-K).
10.101 Promissory Note in favor of Howard Schraub dated
February 17, 1995 (incorporated by reference to
Exhibit 1 to the Company's March 10, 1995 8-K).
10.102 Letter Agreement between Howard Schraub and the
Company dated February 17, 1995 (incorporated by
reference to Exhibit 2 to the Company's March 10, 1995
8-K).
10.103 Non-qualified Stock Option Agreement between
Howard Schraub and the Company (incorporated by
reference to Exhibit 3 to the Company's March 10, 1995
8-K).
148
10.104 Non-qualified Stock Option Agreement between
Howard Schraub and the Company (incorporated by
reference to Exhibit 4 to the Company's March 10, 1995
8-K).
10.105 Promissory Note in favor of Bruno Guazzoni dated
January 5, 1995 (incorporated by reference to Exhibit
5 to the Company's March 10, 1995 8-K).
10.106 Offshore Subscription Agreement between
Wellbourne Trust and the Company dated February 23,
1995 (incorporated by reference to Exhibit 1 to the
Company's March 28, 1995 8-K).
10.107 Offshore Subscription Agreement between Parkland
th
Limited and the Company dated April 4 , 1995
(incorporated by reference to Exhibit 1 to the
rd
Company's May 3 , 1995 8-K).
10.108 Offshore Subscription Agreement between Hillside
Industries, Inc. and the Company dated May 25, 1995
(incorporated by reference to Exhibit 1 to the
Company's May 23, 1995 8-K).
10.108 Offshore Subscription Agreement between Hillside
Industries, Inc. and the Company dated May 25, 1995
(incorporated by reference to Exhibit 2 to the
Company's May 23, 1995 8-K).
10.109 Separation Agreement and Release between Anthony
J. Cataldo and the Company dated July 6 and 7, 1995
149
(incorporated by reference to exhibit (a) to the
Company's August 9, 1995 8-K)
10.110 Pledge-Escrow Agreement between Anthony J.
Cataldo and the Company (incorporated by reference to
exhibit (c) to the Company's August 9, 1995 8-K)
10.111 Non-recourse Promissory Note by Anthony J.
Cataldo date July 17, 1995 (incorporated by reference
to exhibit (b) to the Company's August 9, 1995 8-K)
16.01 Letter on change of certifying accountant from
Goldstein & Morris dated May 10, 1995, (incorporated
by reference to exhibit 1 to the Company's May 9, 1995
8-K).
17.01 Resignation letter from Barrington J. Fludgate,
dated September 15, 1995 (incorporated by reference to
exhibit (a) of the Company's September 15, 1995 8-K)
17.02 Resignation letter from Robert Oxenberg, dated
December 13, 1995 (incorporated by reference to
exhibit (1) of the Company's December 13, 1995 8-K)
22.01 List of the Company's Subsidiaries
23.01 Consent by KPMG Peat Marwick LLP dated August 15,
1995
(b) Current reports on Form 8-K filed during the quarter
ended April 30, 1995:
Financial
150
Statement
Form Report Date Item Reported Filed
8 March 7, 1995 7, Financial Audited
Statements of Financial
business Statements for
acquired DESISCo years
ended June 30
1992, 1993 &
1994 Pro forma
financials
year ended
April 30,
1994, quarters
ended July 31
and October
31, 1994
8-K March 10, 1995 2, DESISCo None
acquisition
8-K February 17, 5, Internet None
1995 Systems, Inc.
litigation
settlement
8-K February 28, 5, equity None
1995 financing
8-K March 10, 1995 5, debt None
151
financing
8-K March 28, 1995 5, equity None
financing
152
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MANAGEMENT TECHNOLOGIES, INC.
By: /s/ S. Keith Williams
------------------------
S. Keith Williams, President
and Chief Operating Officer
Date: August 15, 1995
153
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant, and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
President, Chief August 15,1995
/s/ S. Keith Operating Officer
------------
and Director
Williams
--------
(Principal Executive
S. Keith Williams Officer)
/s/ Nigel J. Cole Chief Financial August 15, 1995
-----------------
Officer and
Nigel J. Cole
Principal Accounting
Officer
/s/ Peter Svennilson Chairman of the August 15, 1995
-----------------
Board and Director
Peter Svennilson
/s/ Daniel Sladden Director August 15, 1995
--------------
Daniel Sladden
154
Claudio Guazzoni Director August , 1995
/s/ Edward S. Stone August 15, 1995
----------------
Director
Edward S. Stone
/s/ William L.
--------------
Director August 15, 1995
Meaney
------
William L. Meaney
Director
---
Anthony J. Cataldo
155
156
EX-27
2
5
YEAR YEAR
APR-30-1995 APR-30-1994
APR-30-1995 APR-30-1994
833,000 190,000
0 0
7,234,000 822,000
961,000 325,000
0 0
1,803,000 134,000
2,355,000 914,000
545,000 701,000
27,221,000 1,756,000
17,915,000 2,444,000
8,074,000 1,019,000
140,000 278,000
0 0
0 0
5,879,000 (1,275,000)
27,221,000 1,756,000
18,687,000 2,320,000
18,687,000 2,320,000
4,924,000 1,864,000
29,440,000 9,800,000
1,934,000 570,000
636,000 325,000
822,000 167,000
(12,687,000) (8,050,000)
0 0
(12,687,000) (8,050,000)
0 0
0 0
0 0
(12,687,000) (8,050,000)
(1.70) (2.79)
(1.70) (2.79)
EX-23
3
Exhibit 23
The Board of Directors
Management Technologies, Inc.:
We consent to incorporation by reference in the registration
statements (No. 33-25528 and No. 33-52074) on Form S-1 and Form
S-3 respectively of management Technologies Inc. of our report
dated August 15, 1995, relating to the consolidated balance sheet
of Management Technologies, Inc. and subsidiaries as of April 30,
1995, and the related consolidated statements of operations,
stockholders equity, and cashflows for the year ended April 30,
1995, which report appears in the April 30, 1995, annual report
on Form 10-KSB of Management Technologies, Inc. and subsidiaries.
Our report dated August 15, 1995, contains an explanatory
paragraph that states that the Company has suffered recurring
losses from operations and at April 30, 1995, has a working
capital deficiency that raises substantial doubt about its
ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
New York, New York
August 15, 1995 /s/ KPMG Peat Marwick LLP
EX-3
4
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MANAGEMENT TECHNOLOGIES, INC.
Under Section 805 of the Business Corporation Law
FILER:
Baratta & Goldstein
597 Fifth Avenue
New York, NY 10017
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MANAGEMENT TECHNOLOGIES, INC.
Under Section 805 of the Business Corporation Law
The undersigned, being the Chairman of the Board and Assistant
Secretary of MANAGEMENT TECHNOLOGIES, INC. do hereby certify and
set forth as follows:
FIRST: The name of the corporation is:
MANAGEMENT TECHNOLOGIES, INC.
SECOND: The Certificate of Incorporation was filed by the
Department of State on May 9, 1980.
THIRD: The Certificate of Incorporation is hereby amended
as follows:
The Certificate of Incorporation is amended to increase the
authorized number of shares of Common Stock from One Hundred
Million (100,000,000) having a par value of One Cent ($.01) each
to Two Hundred (200,000,000) having a par value of One Cent
($.01) each, and to change the address to which the Secretary of
State shall mail a copy of any process against the corporation
served upon him.
To accomplish the foregoing amendments, paragraphs FOURTH
and FIFTH, which respectively refer to the authorized stock and
the address for service of process, are hereby amended to read as
follows:
`FOURTH: The Corporation is authorized to issue one class
of stock to be designated `Common Stock''. The aggregate number
of shares shall be Two Hundred Million (200,000,000) shares of
Common Stock with a par value of One Cent ($.01) each.''
`FIFTH: The Secretary of State is designated as agent of
the corporation upon whom process against it may be served. The
post office address to which the Secretary of State shall mail a
copy of any process against the corporation served upon him is:
c/o Baratta & Goldstein
597 Fifth Avenue
New York, New York 10017
FOURTH: The above amendments to the Certificate of
Incorporation were authorized by written consent of the Board of
Directors, followed by a majority vote of the holders of all
outstanding shares entitled to vote thereon.
IN WITNESS WHEREOF, this Certificate of Amendment has been
subscribed this day of May, 1995, by the undersigned who affirm
that the statements made herein are true under the penalties of
perjury.
/s/ Anthony J. Cataldo /s/ Keith Williams
Anthony J. Cataldo Keith Williams
Chairman of the Board Chief Operating
Officer and Assistant
Secretary