UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from________ to__________
Commission file number _____________________________
Bell Technology Group Ltd.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3781263
(State or other jurisdiction of incorp. or organization) (IRS Employer Id. No.)
611 Broadway, Suite 415, New York, NY 10012
(Address of principal executive offices)
(212) 982-0800
(Issuer's telephone number)
None
(Former name, address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (x) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes or
common equity, as of the latest practicable date:
3,040,352 shares of Common Stock as of June 30, 1996
Transitional Small Business Disclosure Format (Check One): Yes ( ) No (X)
SEC 2334 (3/94)
Bell Technology Group Ltd.
and Subsidiaries
Table of Contents
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets 2
Consolidated Statements of Operations
For the Nine Months Ended June 30, 1996 and 1995 3
Consolidated Statements of Operations
For the Nine Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II - OTHER INFORMATION 11
Bell Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
June 30 September 30,
1996 1995
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 4,285,741 $ 222,367
Accounts receivable, net of allowance for doubtful
accounts of $11,493 and $29,049 as of June 30,
1996 and September 30, 1995, respectively 1,854,043 1,423,548
Due from landlord 400,000 0
Inventories 584,564 843,904
Prepaid expenses and other current assets 125,733 12,061
__________ __________
Total current assets 7,250,081 2,501,880
Property and equipment, net 932,412 413,306
Deferred stock offering costs 0 25,000
Other assets 123,501 21,364
__________ __________
Total assets $ 8,305,994 $ 2,961,550
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts receivable credit line $ 0 $ 711,952
Current portion of notes payable 59,720 75,865
Accounts payable 858,626 1,319,532
Accrued expenses 66,859 118,414
Deferred revenues 116,640 75,562
Deferred income taxes 23,713 20,816
__________ __________
Total current liabilities 1,125,558 2,322,141
Long term notes payable, net of current portion 0 47,050
Note payable stockholder 0 287,000
Deferred income taxes 6,235 6,562
__________ __________
Total liabilities 1,131,793 2,662,753
__________ __________
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 500,000 shares
authorized; no shares issued and outstanding 0 0
Common Stock, $.01 par value; 10,000,000 shares
authorized; 3,040,352 and 1,725,000 shares
issued and outstanding 30,404 17,250
Additional paid-in capital 8,055,498 362,333
Accumulated deficit (911,701) (80,786)
___________ ___________
Total stockholders' equity 7,174,201 298,797
___________ ___________
Total liabilities and stockholders' equity $ 8,305,994 $ 2,961,550
=========== ===========
(See accompanying notes)
Page - 2 -
Bell Technology Group Ltd.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
1996 1995
Revenues $ 3,170,702 $ 2,672,483
Costs and expenses:
Cost of revenues 2,451,109 2,262,352
Selling, general and administrative 898,866 360,429
Depreciation and amortization 103,999 36,700
__________ __________
Total costs and expenses 3,453,974 2,659,481
__________ __________
Income (loss) from operations (283,272) 13,002
Interest income (expense), net 72,483 (24,207)
Write-off of Debt Issuance Costs 0 0
__________ __________
Income (loss) before taxes (210,789) (11,205)
Provision for taxes 0 (936)
__________ __________
Net income (loss) $ (210,789) $ (10,269)
========== ==========
Net earnings (loss) per share ($0.07) ($0.01)
Weighted average shares outstanding 3,040,352 1,725,000
(See accompanying notes)
Page - 3 -
Bell Technology Group Ltd.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended
June 30,
1996 1995
Revenues $ 7,935,579 $ 8,376,089
Costs and expenses:
Cost of revenues 6,341,812 6,908,453
Selling, general and administrative 2,025,573 1,175,287
Depreciation and amortization 171,180 98,426
__________ __________
Total costs and expenses 8,538,565 8,182,166
__________ __________
Income (loss) from operations (602,986) 193,923
Interest income (expense), net 28,422 (71,472)
Write-off of Debt Issuance Costs (256,351) 0
__________ __________
Income (loss) before taxes (830,915) 122,451
Provision for taxes 0 49,491
__________ __________
Net income (loss) $ (830,915) $ 72,960
========== ==========
Net earnings (loss) per share ($0.34) $0.04
Weighted average shares outstanding 2,464,185 1,725,000
(See accompanying notes)
Page - 4 -
Bell Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended June 30,
1996 1995
Cash flows from operating activities:
Net (loss) income $ (875,215) $ 72,960
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities
Depreciation 134,051 98,426
Write-off and amortization of debt issuance 293,500 0
Provision for deferred taxes 2,570 3,877
Changes in operating assets and liabilities:
(Increase) in accounts receivable (430,495) (587,451)
(Increase) in due from landlord (400,000) 0
Decrease (increase) in inventories 259,340 (412,765)
(Increase) in prepaid exp. & other curr. assets (113,672) (28,966)
(Increase) in other assets (77,137) (32,955)
(Decrease) increase in accounts payable (460,906) 577,033
(Decrease) in accrued expenses (51,555) (45,060)
Increase in deferred revenues 85,378 34,370
___________ __________
Net cash (used in) operating activities (1,634,141) (320,531)
___________ __________
Cash flows from investing activities:
Purchases of property and equipment (653,157) (220,355)
___________ __________
Net cash (used in) investing activities (653,157) (220,355)
___________ __________
Cash flows from financing activities:
Repayment of accounts receivable credit line (711,952) 697,070
Repayments of notes payable (350,195) 62,850
Proceeds from initial public offering,
net of offering costs of $1,602,175 7,412,819 0
__________ __________
Net cash provided by financing activities 6,350,672 759,920
__________ __________
Net increase in cash and cash equivalents 4,063,374 219,034
Cash and cash equivalents, beginning of period 222,367 68,150
___________ ___________
Cash and cash equivalents, end of period $ 4,285,741 $ 287,184
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest 49,562 47,265
Cash paid for income taxes 0 1,807
Noncash financing activity:
Issuance of common stock in connection with
bridge financing 250,000 0
(See accompanying notes)
Page - 5 -
BELL TECHNOLOGY GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
The consolidated balance sheets as of June 30, 1996 and statements of
operations and statements of cash flows for the nine months ended June 30,
1996, and for the three months ended June 30, 1996 and 1995 have been prepared
by Bell Technology Group Ltd. (the "Company") without audit. All material
intercompany accounts and transactions have been eliminated. The consolidated
results should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Form SB-2 registration statement
on file with the Securities and Exchange Commission, and which was declared
effective on January 24, 1996. Results of operations for the nine and three
month periods are not necessarily indicative of what the operating results
will be for the full year. Interim statements are prepared on a basis
consistent with year end statements.
In the opinion of management, the unaudited interim financial statements
furnished herein include all adjustments necessary for a fair presentation of
the results of operations of the Company. All such adjustments are of a normal
recurring nature, except for the write-off of debt issuance costs.
2. BRIDGE FINANCING:
In October 1995, the Company borrowed $250,000 in a Bridge Financing. The
Bridge Notes issued in connection with the Bridge Financing bore interest at
9% per annum and were due on the earlier of two years from the date of the
receipt of the proceeds of the Bridge Financing by the Company, or the closing
of the public offering. In connection with the Bridge Financing, the Company
issued 35,710 shares of Common Stock to the Bridge Lenders at no cost which
has been valued at $7.00 per share when calculating debt issuance costs and
incurred approximately $43,500 of other debt issuance costs, for a total of
approximately $293,500. As of June 30, 1996 the entire $293,500 has been
written-off, $37,149 was amortized over the duration of the debt obligation
as interest expense and the remaining $256,351 was written off in January 1996
as Debt Issuance Costs upon the full repayment of the Bridge Notes.
3. INITIAL PUBLIC OFFERING:
In January 1996, the Company sold , in an initial public offering,
1,150,000 shares of Common Stock for $7.00 per share and 575,000 Redeemable
Purchase Warrants for $.10 per warrant. Each warrant entitles the holder to
purchase one share of the Company's stock for $7.70. The warrants are
redeemable by the Company at $.10 per warrant any time after January 24, 1997
if certain conditions are met. The net proceeds, which the Company received
from the offering, amounted to approximately $6.6 million.
In March 1996, the underwriter of the initial public offering exercised
its over-allotment option to purchase 129,642 common shares from the Company
for $7.00 per share. The net proceeds amounted to approximately $800,000.
Page - 6 -
BELL TECHNOLOGY GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS AND CONTINGENCIES:
In February 1996 the Company entered into a lease for its new corporate
headquarters effective July 24, 1996. The lease is for eleven years and six
months starting with an initial annual base rental of $309,250 escalating to
$563,547 in the final year. Rent payments commenced on July 24, 1996. The lease
provides that the landlord is to reimburse the Company $500,000 for leasehold
improvements. As of June 30, 1996 approximately $400,000 has been recorded as
due from landlord.
Page - 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales of Hardware and Software:
Sales of computer hardware and software products returned to previous levels
during the third quarter (ended June 30, 1996). However, the product mix being
sold is changing from prior periods. The company is focusing more on higher-end
hardware and software and, although such sales require a longer selling period
and more intensive selling effort, margins tend to be higher since such
products are not generally available from mail order sellers and require a
greater level of technical support.
The Company is still in the process of expanding its products sales force.
However, the process of recruiting qualified sales personnel is slow. The
Company feels that when it moves into its new facility in September, such move
will help with the recruiting process.
Training:
The Company is expanding all of its training operations, including training
in the areas of multimedia and 3-D animation. New, modern training facilities
(see "New Facilities").are being incorporated in the Company's new headquarters
facilities. In addition to its regular training programs, the Company is
negotiating with an established New York City college specializing in
architecture and graphic design to provide teaching facilities, instructors and
programs to its students. The Company feels that such exposure, in addition to
producing significant revenue, will provide positive exposure for the Company
in areas in which the Company would like to expand.
Internet Operations:
The Company has expanded its Internet engineering section, has created an
Internet sales force and is moving ahead with its programs to provide direct
Internet access to commercial users. The Company has begun signing contracts
with building owners in New York City to provide direct Internet access to its
tenants, and is investigating the possibility of expanding operations to major
buildings in other cities. The Company has also begun marketing its Internet
web design, web page hosting services and consulting services.
New Facilities:
In September 1996, the Company will move into its new facilities in the Puck
Building at 295 Lafayette Street, New York, New York 10012. The cost of
constructing, and furnishing the premises will be within the budget initially
established and included by the Company in its use of proceeds statement of
the Registration Statement for the initial public offering.
BlueStreak Digital:
In June, 1996 the Company changed the name of its subsidiary, Stellar Graphics
Corp., to BlueStreak Digital, Inc. BlueStreak will engage in the businesses of
(i) high-end World Wide Web site construction, (ii) animation and video post
production, and (iii) interactive application development for corporate
environments. By building a staff of qualified technicians, BlueStreak Digital
hopes to leverage and enhance the Company's existing relationships with
advertising and marketing firms to provide these services.
The Company feels that the initial reaction of the market place has been
very good. Current projects have included a 3-D animation for Samsung Corp.,
a graphic "morph" which appeared in Newsweek Magazine and will appear in
Vanity Fair Magazine, and 2-D characters (including "Dennis The Menace")
composited in live action commercials airing in the New York Region.
Page - 8 -
REVENUES FOR THE THREE AND NINE MONTH PERIODS ENDED
JUNE 30, 1996
Consolidated revenues for the three months ended June 30, 1996 increased
19% from $2.67 million in 1995 to $3.17 million in 1996. Such increase was
attributable, in part, to an increase in revenues of its Internet and
BlueStreak operations.
For the nine months ended June 30, 1996, consolidated revenues decreased 5%
from $8.38 million in 1995 to $7.94 for the comparable period ending June 30,
1995. This result was influenced by the second quarter operating results.
COST OF REVENUES FOR THE THREE AND NINE MONTH PERIODS ENDED
JUNE 30, 1996
Cost of Revenues for the three months ended June 3O, 1996 were $2.45 million
or approximately 77% of revenues, as compared to $2.26 million or approximately
85% of revenues for the comparable period in 1995. Cost of Revenues for the
nine months ended June 30, 1996 were $6.34 million or approximately 80% of
revenues, as compared to $6.91 million or approximately 82% or revenues for
the comparable period in 1995. The increase in gross profit margin was due to
a change in product mix sold by Naft International, and a slight increase in
sales in other divisions where profit margins are higher.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE
THREE AND NINE MONTH PERIODS ENDED JUNE 30, 1996
For the three months ended June 30, 1996, Selling, General and Administrative
expenses increased from approximately $360,000 (or 13% of Revenues) to $899,000
(or 28% of Revenues). This increase was due in a large part to an increase in
payroll. Beginning on February 1, 1996, the Company: (a) hired additional
hardware and software product sales personnel in an effort to increase such
sales; (b) hired engineers to complete Internet wired system development and
other Internet projects; (c) hired sales people to market the Internet Wired
system and (d) created a marketing department and organized an aggressive
selling effort. Between February 1, 1996 and June 30,1996, the number of
employees more than doubled. However, the company believes that the increase
payroll will result in increased revenues and profits.
NET LOSS FOR THE THREE AND NINE MONTH PERIODS ENDED
JUNE 30, 1996
For the three month period ended June 30, 1996, the Company incurred a net
loss of approximately $211,000 compared to approximately $10,000 for the
corresponding three month period ending June 30, 1995. For the nine month
period ended June 30, 1996, the Company incurred a net loss of approximately
$831,000 compared to net income of approximately $73,000 for the corresponding
nine month period ending June 30, 1995. Included in the loss for the nine
month period ended June 30, 1996 is approximately $293,500 of debt issuance
costs. The balance of the operating loss is primarily attributable to the
Company's change of direction, increased emphasis on Internet engineering and
marketing, the establishment of its multi-media operation, and the increase in
staffing necessary to carry out its current sales and Internet development
programs.
Page - 9 -
LIQUIDITY AND CAPITAL RESOURCES
The Company (through its NAFT subsidiary) presently has a total of
approximately $1.5 million available to it pursuant to a Business Financing
Agreement (to finance its accounts receivable), and an Agreement for Wholesale
Financing (to finance its inventory) with Deutsche Financial Services ("DFS").
As of June 30, 1996, the Company had a net outstanding of approximately
$474,000 under these agreements. These obligations are reflected in the
Company's accounts payable on the balance sheet, and are secured by a
continuing security interest in substantially all of the assets of the
Company's NAFT subsidiary and the guarantees of the Company and Marc H. Bell.
The borrowings bear interest at the prime rate plus 1.5%. Pursuant to the
terms of these agreements, NAFT is required to obtain prior written consent
from DFS before it (but not the Company) engages in certain transactions
outside of NAFT's ordinary course of business and comply with certain
financial covenants.
The Company generated a positive cash flow of approximately $4.3 million for
the nine months ended June 30, 1996. This was generated primarily from the net
proceeds of the initial public offering of approximately $7.4 million, offset
by the increase in accounts receivable and due from landlord of $830,495, the
decrease in accounts payable of $460,906, purchases of fixed assets of $653,157
and the write-off of debt issuance and stock offering costs of $293,500. In
addition, the Company repaid notes payable of $350,195 and the accounts
receivable credit line by $711,952 and inventories decreased by $259,340.
In total, operations generated a negative cash flow of $1,634,141.
In January 1996, the Company repaid the sum of $250,000 pursuant to the terms
of the Bridge Financing and wrote off the remaining unamortized debt issuance
costs. The Bridge Lenders received prior to the offering an aggregate of
35,710 fully-paid and non-assessable shares of the Common Stock of the Company.
These 35,710 shares represent a debt financing cost. The remaining deferred
stock offering costs incurred in connection with the initial public offering
have been recorded in equity as a reduction of the proceeds received from the
public offering.
FORWARD LOOKING STATEMENTS
The foregoing Management Discussion and Analysis contains certain forward
looking statements. Due to the fact that the Company faces intense competition
in a business characterized by rapidly changing technology. Actual results and
outcomes may differ materially from any such forward looking statements.
Information regarding additional factors that may affect such statements appear
in the Company's Registration Statement declared effective by the Securities
and Exchange Commission on January 25, 1966 (see in particular "Risk Factors").
Page - 10 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a) - Exibits
27) - Financial Data Schedule
b) - Reports on Form 8-K
Not applicable
SIGNATURES
Pursuant to the requirements 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.
Bell Technology Group Ltd.
Date: August 14, 1996 By: /s / Marc H. Bell
-------------------------------------
Marc H. Bell, President & CEO
Date: August 14, 1996 By: /s / Robert B. Bell
-------------------------------------
Robert B. Bell, Exec. Vice President & CFO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,285,741
<SECURITIES> 0
<RECEIVABLES> 1,865,536
<ALLOWANCES> 11,493
<INVENTORY> 584,564
<CURRENT-ASSETS> 125,733
<PP&E> 1,295,338
<DEPRECIATION> 362,926
<TOTAL-ASSETS> 8,305,994
<CURRENT-LIABILITIES> 1,125,558
<BONDS> 0
0
0
<COMMON> 30,404
<OTHER-SE> 7,143,797
<TOTAL-LIABILITY-AND-EQUITY> 7,174,201
<SALES> 7,935,579
<TOTAL-REVENUES> 7,935,579
<CGS> 6,341,812
<TOTAL-COSTS> 8,538,565
<OTHER-EXPENSES> 178,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,562
<INCOME-PRETAX> (830,915)
<INCOME-TAX> 0
<INCOME-CONTINUING> (830,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (830,915)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
