AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH __, 1997
REGISTRATION NO. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BELL TECHNOLOGY GROUP LTD.
(Exact name of small business issuer in its charter)
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Delaware 7373 13-3781263
<S> <C> <C>
(State or other jurisdiction of in (Primary Standard Industrial (I.R.S. Employer Identification No.)
corporation) Classification Code No.)
MARC H. BELL
Bell Technology Group Ltd.
295 Lafayette Street 295 Lafayette Street 295 Lafayette Street
New York, NY 10012 New York, NY 10012 New York, NY 10012
(212) 334-8510 (212) 334-8510 (212) 334-8510
(Address and telephone number of (Address and telephone number of (Address and telephone number of
principal executive offices) agent for service of process) business or intended place of
business)
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Copy to:
Arnold N. Bressler, Esq.
Milberg Weiss Bershad Hynes & Lerach LLP
One Pennsylvania Plaza
New York, NY 10119-0165
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If any of these securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration number of the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [X ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Securities to be Amount Proposed Proposed Amount of
Registered to be Maximum Maximum Registration Fee
Registered Offering Price Aggregate
per Security(1) Offering Price (1)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
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Common Stock, $.01 par value underlying 661,250 $7.50 $ 4,959,375 (2)
Outstanding Redeemable Warrants
- ----------------------------------------------------------------------------------------------------------------------------------
Class B Redeemable Warrants..... 661,250
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value underlying Class B 661,250 $12.875(3) $8,513,594 $2,935.72
Redeemable Warrants
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Total Registration Fee...............
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Footnotes on following page
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(1) Estimated solely for the purpose of calculating
the registration fee.
(2) Fee previously paid in connection with the
Registration Statement on Form SB-2, File No. 33-98978.
(3) Based upon the average of the high and low prices reported
on the Nasdaq SmallCap Market as of March 7, 1997 of $12.875 per share.
Pursuant to Rule 429 of the Securities Act of 1933, as
amended, this form incorporates by reference and updates all the information
contained in the Registration Statement on Form SB-2, File No. 33-98978.
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine. Pursuant to Rule 429 of the Securities Act of 1933,
as amended, this form incorporates by reference and updates all the information
3
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BELL TECHNOLOGY GROUP LTD.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
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ITEM NUMBER AND HEADING IN
FORM SB-2 REGISTRATION STATEMENT Location in Prospectus
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1. Front of Registration Statement and Outside Front Cover of Front of Registration Statement; Outside of Front Cover Page
Prospectus........................................
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors.............. Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Outside Front Cover Page; Risk Factors; Plan of
Price............................................. Distribution
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page; Plan of Distribution
9. Legal Proceedings................................. Business
10. Directors, Executive Officers, Promoters and
Control Persons................................... Principal Stockholders; Management
11. Security Ownership of Certain Beneficial Owners and
Management........................................ Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel............. Not Applicable
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14. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities........................ Description of Capital Stock
15. Organization Within Last Five Years............... Prospectus Summary; Certain Transactions
16. Description of Business........................... Prospectus Summary; Risk Factors; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business
17. Management's Discussion and Analysis or Plan
of Operation...................................... Management's Discussion and Analysis of Financial Condition
and Results of Operations
18. Description of Property........................... Business-- Properties
19. Certain Relationships and Related Transactions.... Certain Transactions; Principal Stockholders
20. Market for Common Equity
and Related Stockholder Matters................... Outside Front Cover Page; Risk Factors; Dividend Policy;
Description of Capital
Stock; Shares Eligible for
Future Sale; Market for
Company's Common Stock
21. Executive Compensation............................ Management
22. Financial Statements.............................. Financial Statements
23. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.......................... Not Applicable
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5
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PRELIMINARY PROSPECTUS DATED MARCH __, 1997 SUBJECT TO COMPLETION
BELL TECHNOLOGY GROUP LTD.
1,322,500 SHARES OF COMMON STOCK AND
661,250 REDEEMABLE CLASS B COMMON STOCK PURCHASE WARRANTS
This Prospectus is an offering ("Offering") by Bell Technology
Group Ltd. (the "Company") to the holders of its currently outstanding
redeemable Common Stock purchase Warrants (the "Old Warrants") in connection
with the exercise of the Old Warrants. This Offering includes 661,250 shares of
Common Stock, $.01 par value ("Common Stock") to be issued upon the exercise of
the Old Warrants at a reduced exercise price of $7.50 per share, along with
661,250 redeemable Common Stock purchase warrants (the "Class B Warrants") and
661,250 shares of Common Stock to be issued upon the exercise of the Class B
Warrants (together, the "Securities"). Payment of the reduced exercise price of
$7.50 will entitle the holder to receive one share of Common Stock and one Class
B Warrant. The Class B Warrants may not be purchased separately, but will be
transferable separately after issuance. THIS OFFER WILL EXPIRE ON April __, 1997
unless extended in the sole discretion of the Company to a date no later than
__________.
The Company has reduced the exercise price of the Old Warrants
from $7.70 per share to $7.50 per share and included the issuance of the Class B
Warrant upon exercise of the Old Warrants to encourage the holders of the Old
Warrants to exercise them. Upon the completion of the Offering the exercise
price of the Old Warrants will revert to $7.70 per share, subject to adjustment
in certain events, and the holders of the Old Warrants will not be entitled to
purchase a Class B Warrant. The Old Warrants were issued by the Company in
January 1996 in connection with the Company's initial public offering.
Upon completion of the Offering, each Old Warrant will
continue to entitle the registered holder thereof to purchase one share of
Common Stock at an exercise price of $7.70 per share, subject to adjustment in
certain events, at any time prior to January 24, 2001. The Old Warrants are
subject to redemption by the Company at $.10 per Old Warrant at any time, on not
less than 30 days' prior written notice to the holders of the Old Warrants,
provided the average closing bid quotation of the Common Stock of the Company as
reported on The Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange, has been at least 150% of the then current exercise price of the
Warrants (currently $11.55 per share), for a period of twenty consecutive
6
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trading days ending on the third day prior to the date on which the Company
gives notice of redemption. The Old Warrants are exercisable until the closing
of the business day immediately preceding the date fixed for redemption. See
"Description of Securities - Old Warrants."
Each Class B Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $________, subject to
adjustment in certain events, at any time prior to the fifth anniversary of the
date hereof. The Class B Warrants are subject to redemption by the Company at
$.10 per Class B Warrant at any time commencing 12 months after the date hereof,
on not less than 30 days' prior written notice to the holders of the Class B
Warrants, provided the average closing bid quotation of the Common Stock as
reported on The Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange, has been at least 135% of the then current exercise price of the Class
B Warrants (initially $________ per share), for a period of 20 consecutive
trading days ending on the third day prior to the date on which the Company
gives notice of redemption. The Class B Warrants will be exercisable until the
close of business on the day immediately preceding the date fixed for
redemption. See "Description of Securities -- Class B Warrants."
THIS OFFER ENTITLING HOLDERS OF OLD WARRANTS TO RECEIVE ONE
SHARE OF COMMON STOCK AT THE REDUCED EXERCISE PRICE AND ONE CLASS B WARRANT UPON
THE EXERCISE OF THE OLD WARRANT, SHALL EXPIRE WITHOUT ANY FURTHER NOTICE AT 5
O'CLOCK IN THE P.M. ON APRIL , 1997. HOWEVER, THE COMPANY, IN ITS SOLE
DISCRETION MAY EXTEND SUCH DATE ON ONE OR MORE OCCASIONS, BUT NOT TO A DATE
BEYOND _______________________.
Prior to the Offering, there has been no public market for the
Class B Warrants, and a limited public market for the Common Stock and the Old
Warrants. There can be no assurance that any public market for the Common Stock
or the Old Warrants will continue after the closing of the Offering, or that a
public market will develop for the Class B Warrants after the close of the
Offering. The reduced exercise price of the Old Warrants, and the initial
exercise price and other terms of the Class B Warrants were established by the
Company and do not necessarily bear any direct relationship to the Company's
assets, earnings, book value per share or other generally accepted criteria of
value. The Company's Common Stock and Old Warrants are presently quoted on The
Nasdaq SmallCap Market ("Nasdaq") under the trading symbols "BELT" and "BELTW,"
respectively, and on the Boston Stock Exchange under the trading symbols "BTG"
and "BTGW," respectively. The Company intends to apply for quotation of the
Class B Warrants on Nasdaq under the trading symbol "BELTZ", and on the Boston
Stock Exchange under the trading symbol "BTGZ".
7
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FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN
THE COMPANY, SEE "RISK FACTORS" (PAGE __).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ________, __ 1997
8
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Atlanta Regional Office of the Commission at
3475 Lenox Road, N.E., Suite 1000, Atlanta, Georgia 30326-7232. Copies of such
materials may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site (C://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file such information electronically. The Common
Stock of the Company is quoted on The Nasdaq SmallCap Market. Reports, proxy
statements and other information concerning the Company may be inspected at the
offices of Nasdaq, 1735 K. Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock and Class B Warrants offered hereby. This
Prospectus, which is a part of the registration statement, does not contain all
the information set forth in, or annexed as exhibits to, such registration
statement, certain portions of which have been omitted pursuant to rules and
regulations of the Commission. For further information with respect to the
Company, the Common Stock, the Old Warrants and the Class B Warrants, reference
is made to such registration statement, including the exhibits thereto, copies
of which may be inspected and copied at the aforementioned facilities of the
Commission. Copies of such registration statement, including the exhibits, may
be obtained from the Public Reference Section of the Commission at the
aforementioned address upon payment of the fee prescribed by the Commission.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS
CERTAIN TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE GLOSSARY ON PAGE __
9
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THE COMPANY
The Company: (a) provides dedicated Internet access, web
hosting services and customized Internet application development; (b) provides
web design, interactive development and Internet commerce solutions; (c)
consults with clients relative to the design and configuration of computer
systems - primarily in the publishing, advertising and graphics arts industries;
(d) sells and installs computer hardware and; (e) provides 3-D animation and
interactive services and (f) provides training for employees of various types of
institutions and corporations in the use of computer programs and commercial
Internet access. Through its various divisions, the Company:
o is a diversified Internet solutions provider in
New York City. Its state-of-the-art Network
Operations Center provides sophisticated Internet
connectivity available for direct, high-speed
Internet connections and World Wide Web hosting
and co-location facilities. The Company also
offers a complete range of Internet consulting
services.
o is a digital media company producing broadcast
quality 2D and 3D animation, interactive CD-ROM
presentations, and high-impact World Wide Web sites.
The Company's designers and animators are skilled in
using advanced production tools such as SoftImage,
Alias/Wavefront, Macromedia Authorware and Director.
The Company is currently building one of the few
motion capture studios in the New York City area.
o is engaged in the sale of computer hardware,
software and peripherals. Among the principal
products sold by the Company are computer
operating systems manufactured by Silicon
Graphics, Sun, Apple and Integraph, and computer
software systems such as SoftImage and Alias. In
general, The Company deals primarily with large
commercial operations and systems which require
vendor support, and products which cannot be
purchased through mail order catalogues.
o is a service support and training operation. The
Company maintains several training rooms at its
headquarters facility which it rents out to
corporations for the training of their
10
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professional staff. The Company provides a
variety of modern operating equipment and current
programs, together with instructors to teach how
to use such equipment and programs. Some
instructors are on staff and others are hired on
a freelance basis as needs dictate. The Company
typically charges a fixed price depending upon
the size of the class, the complexity of the group
and the equipment required. The Company also
prepares equipment sold to customers, installs
LANs, provides warranty support for major
hardware manufacturers, and provides ongoing service
support for its customers in the form of hardware
repairs and software consulting.
The Company was originally incorporated in the state of New
York in 1989 by Marc H. Bell as NAFT International Ltd. ("NAFT"). In July 1994,
the assets and liabilities of NAFT and its affiliated corporations were acquired
by PFM Technologies Corporation ("PFMT") in a tax-free exchange of common stock.
In September 1995, the Company was reincorporated by merger into Bell Technology
Group Ltd., a Delaware corporation. The Company's executive offices are located
at 295 Lafayette Street, 3rd Floor, New York, New York 10012, and its telephone
number is (212) 334-8510.
The Company had a successful initial public offering of
1,279,642 shares of its Common Stock, together with 661,250 Old Warrants to
purchase an additional 661,250 shares of Common Stock in the second quarter of
fiscal 1996. The Company's Common Stock and Old Warrants are listed on The
Nasdaq SmallCap Market ("Nasdaq") under the symbols "BELT" and "BELTW,"
respectively and on the Boston Stock Exchange under the symbols "BTG" and
"BTGW," respectively. It is anticipated that the Company's Common Stock and
unexercised Old Warrants, if sufficient in number, will continue to be so
listed, and that the Class B Warrants will be listed on Nasdaq under the symbols
"BELTZ" and on the Boston Stock Exchange under the symbol "BTGZ."
THE OFFERING
This Prospectus is an offering ("Offering") by Bell Technology
Group Ltd. (the "Company") to the holders of its currently outstanding
redeemable Common Stock purchase Warrants (the "Old Warrants") in connection
with the exercise of the Old Warrants. This Offering includes 661,250 shares of
Common Stock, $.01 par value ("Common Stock") to be issued upon the exercise of
the Old Warrants at a reduced exercise price of $7.50 per share, along with
661,250 redeemable Common Stock purchase warrants (the "Class B Warrants") and
661,250 shares of Common Stock to be
11
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issued upon the exercise of the Class B Warrants (together, the "Securities").
Payment of the reduced exercise price of $7.50 will entitle the holder to
receive one share of Common Stock and one Class B Warrant. The Class B Warrants
may not be purchased separately, but will be transferable separately after
issuance. THIS OFFER WILL EXPIRE ON April __, 1997 unless extended in the sole
discretion of the Company to a date no later than _______.
The Company has reduced the exercise price of the Old Warrants
from $7.70 per share to $7.50 per share and included the Class B Warrant to
encourage the holders of the Old Warrants to exercise them. Upon the completion
of the Offering the exercise price of the Old Warrants will revert to $7.70 per
share, subject to adjustment in certain events and the holders of the Old
Warrants will not be entitled to purchase a Class B Warrant. The Old Warrants
were issued by the Company in January 1996 in connection with the Company's
initial public offering.
Upon completion of the Offering, each Old Warrant will
continue to entitle the registered holder thereof to purchase one share of
Common Stock at an exercise price of $7.70 per share, subject to adjustment in
certain events, at any time prior to January 24, 2001. The Old Warrants are
subject to redemption by the Company at $.10 per Old Warrant at any time on not
less than 30 days' prior written notice to the holders of the Old Warrants,
provided the average closing bid quotation of the Common Stock as reported on
The Nasdaq Stock Market, if traded thereon, or if not traded thereon, the
average closing sale price if listed on a national securities exchange, has been
at least 150% of the then current exercise price of the Old Warrants (initially
$11.55 per share), for a period of twenty consecutive trading days ending on the
third day prior to the date on which the Company gives notice of redemption. The
Old Warrants are exercisable until the closing of the business day immediately
preceding the date fixed for redemption. See "Description of Securities - Old
Warrants."
Each Class B Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $_________, subject
to adjustment in certain events, at any time prior to the fifth anniversary of
the date hereof. The Class B Warrants are subject to redemption by the Company
at $.10 per Class B Warrant at any time commencing 12 months after the date
hereof, on not less than 30 days' prior written notice to the holders of the
Class B Warrants, provided the average closing bid quotation of the Common Stock
as reported on The Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange, has been at least 135% of the then current exercise price of the Class
B Warrants (initially $________ per share), for a period of 20 consecutive
trading days ending on the third day prior to the date on which the Company
gives notice of redemption. The Class
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B Warrants will be exercisable until the close of business on the day
immediately preceding the date fixed for redemption. See "Description of
Securities -- Class B Warrants."
OFFERING SUMMARY
The Warrant Modification Offer The exercise price of the Old
Warrants has been reduced from
$7.70 to $7.50 from the date
hereof until____, 1997 (the
"Special Exercise Period"). Upon
exercise of the Old Warrants
during the Special Exercise
Period, the Company will issue
and deliver one share of Common
Stock and one Class B Warrant.
Expiration Date of the Offer The Special Exercise Period will
expire on _____ __, 1997. The
Company in its sole discretion
may extend the Special Exercise
Period on one or more occasions
but not beyond _____, 1997.
Securities Offered Each of the 661,250 Old Warrants
is exercisable to purchase one
share of Common Stock and one
Class B Warrant during the
Special Exercise Period. Each
Class B Warrant entitles the
registered holder thereof to
purchase one share of Common
Stock on or before ____, 2002
for $_____, subject to adjustment
in certain events and may be
redeemed by the Company at $.10
per Class B Warrant under
certain circumstances. The Common
Stock and the Class B Warrants can be
separately traded and are
transferable immediately upon
issuance. See "Description of
Securities".
Exercise Price of $7.50 for one share of Common
Old Warrants During Stock and one Class B Warrant
Special Exercise Period
Common Stock Outstanding:
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Prior to the Offering 3,044,351 shares of Common Stock
After the Offering (1): 3,705,601 shares of Common Stock
Old Warrants Outstanding
Prior to the Offering: 661,250
Class B Warrants Outstanding
After the Offering(1) 661,250
Exercise Price
Of Old Warrants $7.70 per share, subject to
adjustment in certain
circumstances. See "Description
of Securities - Old Warrants."
Exercise Period
of Old Warrants Anytime prior to January 24,
2001.
Redemption of
Old Warrants Redeemable by the Company at any
time at a price of $.10 per Old
Warrant, upon not less than 30
days' prior written notice to
the holders of the Old Warrants,
provided the average closing bid
quotation of the Common Stock as
reported on The Nasdaq Stock
Market, if traded thereon, or if
not traded thereon, the average
closing sales price if listed on
a national securities exchange
(or other reporting system that
provides last sale prices), has
been at least 150% of the then
current exercise price of the
Old Warrants (currently $11.55 per
share) for a period of 20
consecutive trading days ending
on the third day prior to the
date on which the Company gives
notice of redemption. The Old
Warrants will be exercisable
until the close of business on
the day immediately preceding
the date fixed for redemption. See
"Description of Securities-- Old
Warrants."
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Exercise Price of $___ per share, subject to
Class B Warrants adjustment in certain
circumstances. See "Description
of Securities -- Class B
Warrants."
Exercise Period of The period commencing on the date
Class B Warrants of this Prospectus and expiring
on _______ 2002 (five years
after the date of this Prospectus).
Redemption of Redeemable by the Company at any
Class B Warrants time commencing 12 months after
the date of this
Prospectus at a price of
$.10 per Class B
Warrant, upon not less
than 30 days' prior
written notice to the
holders of the Class B
Warrants, provided the
average closing bid
quotation of the Common
Stock as reported on The
Nasdaq Stock Market, if
traded thereon, or if
not traded thereon, the
average closing sales
price if listed on a
national securities
exchange (or other
reporting system that
provides last sale
prices), has been at
least 135% of the then
current exercise price
of the Class B Warrants
(initially $_______ per
share) for a period of
20 consecutive trading
days ending on the third
day prior to the date on
which the Company gives
notice of redemption.
The Class B Warrants
will be exercisable
until the close of
business on the day
immediately preceding
the date fixed for
redemption. See
"Description of
Securities -- Class B
Warrants."
Use of Proceeds Assuming exercise of the Old
Warrants in full, estimated net
proceeds to the Company would
be, approximately $4,500,000, after
deduction of warrant
solicitation fee and expenses estimated
at approximately $459,375, however
there is no assurance that any of
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the Old Warrants will be
exercised in which case there
will be no net proceeds to the
Company from this Offering.
Assuming exercise of the Old
Warrants in full, the net
proceeds will be used to: expand
and upgrade the Company's
Internet access and networking
business and for working capital
and other general corporate
purposes. See "Use of Proceeds."
Risk Factors The securities offered hereby
involve a high degree of risk.
See "Risk Factors."
Withdrawal Rights Exercise of the Old Warrants
pursuant to this offering may be
withdrawn prior to the
expiration of the Special Exercise
Period after which, such tenders will
be irrevocable except that they
may be withdrawn after _____, 1997
(i.e. 40 business days from the
commencement of the Offering)
unless previously accepted by
the Company.
Delivery of Securities The Company will deliver the
certificates for the shares of
Common Stock and the Class B
Warrants issuable upon exercise
of the Old Warrants as promptly
as practicable upon expiration
of the Special Exercise Period and
any extensions thereof.
Nasdaq Symbols Common Stock -- BELT; Old
Warrants -- BELTW; Class B Warrants -
BELTZ
Boston Stock Exchange
Symbols Common Stock -- BTG; Old Warrants
-- BTGW, Class B Warrants - BTGZ
(1) Assuming exercise of all the Old Warrants. However, there
can be no assurance that any of the Old Warrants will be
exercised pursuant to this Offering. Does not include (i)
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up to 661,250 shares of Common Stock which will be issued
upon the exercise of the Class B Warrants and (ii) an
aggregate of 360,000 shares of Common Stock reserved for
issuance pursuant to options available for grant under the
Company's 1995 Stock Option Plan, approximately 261,563 of
which options have been granted to date.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial data for the fiscal years
ended September 30, 1995 and September 30, 1996, and for the three month period
ended December 31, 1995 and December 31, 1996 have been derived from the
Company's financial statements included elsewhere in this Prospectus. The nine
month period ended September 30, 1995 and year ended September 30, 1996 which
have been audited by Arthur Andersen LLP, independent public accountants, whose
report thereon is also included elsewhere in this Prospectus. The summary
consolidated financial data for the three month period ended December 31, 1996
are unaudited and in the opinion of management include all adjustments,
consisting of only normal recurring adjustments necessary for a fair
presentation of such data. In 1995, the Company changed its fiscal year end from
December 31 to September 30. The summary consolidated financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and Notes thereto included elsewhere in this Prospectus.
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9 MONTHS ENDED YEAR ENDED 3 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------- ------------- -------------
1995 1996 1995 1996
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Statement of Operations Data:
Revenues......................... $8,738,410 $10,373,664 $2,422,261 $3,696,399
---------- ----------- ---------- ----------
Gross profit..................... 1,446,178 1,774,423 409,021 861,083
Income (loss) from operations 130,839 (1,688,721) (166,211) (695,162)
Net income (loss)................ 38,859 (1,893,480) (190,628) (680,806)
========== =========== ========== ==========
Net income (loss) per common and
equivalent share ............. $0.02 ($0.72) ($0.11) ($0.22)
Shares used in computing net income
(loss) per share amounts ........ 1,725,000 2,633,400 1,742,855 3,042,018
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(UNAUDITED)
1995 1996 1995
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........ $222,367 2,742,011 $1,463,889
Working Capital.................. 179,979 3,823,313 2,663,252
Other assets..................... 21,364 115,093 71,196
Total assets..................... 2,961,550 7,809,782 8,479,493
Current liabilities.............. 2,322,141 1,720,082 3,058,937
Long-term liabilities............ 340,612 0 0
Stockholders' equity 298,797 6,089,700 5,420,556
</TABLE>
GLOSSARY
Backbone A centralized high-speed network that interconnects
smaller, independent networks.
Bandwidth The number of bits of information which can move
through a communications medium in a given amount
of time.
CSU/DSU A high-speed modem, used with dedicated network
connections, capable of handling connection speeds
of up to 45 Mbps or more.
Firewall A system placed between networks that filters
18
<PAGE>
data passing through it and removes unauthorized
traffic, thereby enhancing the security of the
network.
HTML Hyper-Text Markup Language. Used in writing pages
for the World Wide Web, it permits the text to
include code that defines font, layout, embedded
graphics and hypertext links.
Internet A global collection of interconnected computer
networks which uses TCP/IP, a common communications
protocol.
Intranet The use of the hypertext transfer protocol (http)
within a private network for the purpose of
disseminating html content. An Intranet is usually
confined to a local area network (LAN) or private
wide area network (WAN).
ISDN Integrated Services Digital Network. A
communications protocol used by telephone companies
to permit copper telephone wires to carry voice,
data and other source materials at high speeds.
LAN Local Area Network. A data communications network
designed to interconnect personal computers,
workstations, minicomputers, file servers and other
communications and computing devices within a
localized environment.
Mbps Megabits per second. A transmission rate. One
megabit equals 1,024 kilobits.
Render Farm The process of creating an image on a computer
from a collection of mathematical formulas is
called rendering, a micro-processor intensive
activity. A render farm is a collection of
multiple computers (and therefrom micro-
processors) linked together to act as a single
unit.
Router A system placed between networks that relays data
to those networks based upon a destination
19
<PAGE>
address contained in the data packets being routed.
TCP/IP Transmission Control Protocol/Internet Protocol.
A suite of network protocols that allow
computers with different architectures and
operating system software to communicate with other
computers on the Internet.
WAN Wide Area Network. A data communications network
designed to connect personal computers,
workstations, minicomputers, file servers and other
communications and computing devices over a
geographically dispersed area.
World Wide
Web or Web A collection of computer systems supporting
a communications protocol that permits multi-media
presentation of information over the Internet.
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE CERTAIN RISKS. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER, ALONG WITH OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY:
1. LIMITED OPERATING HISTORY. The Company's consulting
services business has been in operation for approximately six years, and the
Company's VAR business has been in operation for approximately four years.
However, the Company's Internet and on-line service businesses have been in
operation only since early 1995 and the Company's graphic design and interactive
design business has been in operation for approximately nine months, and have
not yet produced significant operating revenues. In addition, as a group, the
Company's officers have relatively limited operating experience in the Internet
services industry.
2. PRIOR LOSSES. The Company incurred a net loss for the
fiscal year ended September 30, 1996 in the amount of $1,893,480, and a net loss
in the first quarter of the current fiscal year in the amount of $190,628. There
can be no assurance
20
<PAGE>
that the Company will be profitable in future operating periods or that it will
have sufficient cash available to meet continuing losses and necessary capital
expenditures.
3. PRESSURE ON PROFIT MARGINS OF VALUE-ADDED RESELLERS. As a
reseller of computer and peripheral equipment to corporations and other
organizations, the Company faces intense competition and the use of mass
marketing channels in which price-cutting is the dominant form of competition.
Over the past decade, technological improvements in computer and peripheral
products, and increased competition, have been accompanied by a consistent
decline in their prices. This decline in prices has resulted in decreasing
profit margins for computer resellers, including the Company. The industry trend
is for users to hire on-staff MIS personnel or independent MIS consultants which
enables the user to purchase equipment from catalogs rather than engage the
services of a reseller such as the Company to design and/or install a
computer system.
4. DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF
SUPPLY. The Company relies on other companies to supply certain components of
its computer inventory, service and diagnostic equipment, as well as its network
infrastructure (including telecommunications services and networking equipment)
which, in the quantities and quality required by the Company, are available only
from sole or limited sources. The Company has in the past, and may from time to
time, experience delays in receiving telecommunications services and shipments
of merchandise purchased for resale. There can be no assurance that the Company
will be able to obtain such telecommunication services and shipments of
merchandise on the scale and at the times required by the Company at an
affordable cost. There can be no assurance that the Company's suppliers, will
not enter into exclusive arrangements with the Company's competitors or stop
selling their products or components to the Company at commercially reasonable
prices, or at all.
5. COMPETITION WITH SUPPLIERS. The Company is dependent upon
continued service from an Internet access provider ("IAP") that may, for
competitive reasons, discontinue service to the Company at any time. Although
there are other IAPs from whom the Company could obtain a comparable level of
service, a change in access providers would likely involve significant costs and
result in delays in the Company's service to its customers. In addition, these
other access providers are, by definition, competitors of the Company, and may
also discontinue service to the Company.
21
<PAGE>
In order to provide Internet access and other on-line services
to its customers, the Company leases long distance fiber optic
telecommunications lines from more than one national telecommunications services
provider does. The Company is dependent upon these providers of data
communications facilities.
Certain of the Company's suppliers, including the regional
bell operating companies ("RBOCs") and local exchange carriers ("LECs")
currently are subject to various price constraints, including tariff controls,
which in the future may change. In addition, regulatory proposals are pending
that may affect the prices charged by the RBOCs and LECs to the Company. Such
regulatory changes could result in increased prices of products and services,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
6. INTERNET RELATED RISK FACTORS.
DIFFICULTY IN ESTABLISHING INTERNET ACCESS
BUSINESS. The Company's success in establishing an Internet access business will
depend upon its ability to develop a reputation for reliability over the long
term and the security of its current and future Internet connections. The
Company must continue to expand and adapt its network infrastructure as the
number of users and the amount of information they wish to transfer increases,
and as the requirements of its customers change. The expansion of the Company's
Internet network infrastructure will require substantial capital expenditures to
purchase network-related hardware and telecommunications lines. The Company may
experience insufficient revenue growth to achieve and maintain profitability if
it is unable to obtain and expand an ongoing client base. If the Internet access
market fails to grow, grows more slowly than anticipated, or becomes saturated
with competitors, the Company's business, financial condition and results of
operations would be materially adversely affected.
PHYSICAL RISKS ASSOCIATED WITH INTERNET ACCESS
BUSINESS. The Company's Internet operations are dependent upon the protection of
its network infrastructure against damage from acts of nature, power failures,
telecommunications failures and similar events. Physical protection of the
Company's network infrastructure will be the primary responsibility of the
Company. However, because it leases its lines from long-distance
telecommunications companies, RBOCs and LECs, the Company is dependent upon
these companies for physical repair and maintenance of the leased lines. Despite
precautions taken by the Company, the occurrence of a natural disaster or other
22
<PAGE>
unanticipated problems at the Company's headquarters and network operations
center in New York City, may cause interruptions in the services provided by the
Company. In addition, failure of the Company's telecommunications providers to
provide the data communications capacity required by the Company as a result of
a natural disaster, operational disruption or for any other reason could cause
interruptions in the services provided by the Company.
SECURITY RISKS ASSOCIATED WITH INTERNET ACCESS
BUSINESS. Despite the implementation of security measures, the core of the
Company's network infrastructure is vulnerable to computer viruses and
disruptive problems. The Company and other IAPs may in the future experience
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Unauthorized use could
also potentially jeopardize the security of confidential information stored in
the computer systems of the Company and its customers, which may result in
liability of the Company to its customers and deter potential subscribers.
Although the Company intends to continue to implement industry-standard security
measures, such measures have been circumvented in the past, and there can be no
assurance that measures implemented by the Company will not be circumvented in
the future. Eliminating computer viruses and alleviating other security problems
may cause interruptions, delays or cessation of service to the Company's
customers. The Company does not carry any insurance against these risks due to
the unavailability of such insurance at a reasonable cost.
7. COMPETITION. The Company engages in an array of technology
and computer-related businesses, each of which carries its own particular
commercial and financial risks. There are no substantial barriers to entry into
any of the Company's lines of business, and the Company encounters significant
competition in each of them. The Company's competitors include (i) value-added
resellers of computer, network and peripheral equipment, (ii) computer repair
services and training providers, (iii) network consultants, (iv) IAPs, and (v)
graphic design and consulting firms. Many of the Company's current and potential
competitors have substantially greater financial, technical, marketing and other
resources and larger installed customer bases than the Company. The Company
expects that competition will intensify in each of its lines of business,
particularly in the area of Internet services, as more competitors enter the
marketplace. There can be no assurance that the Company will have the financial
resources, technical expertise or marketing and support capabilities to
successfully meet its competition.
23
<PAGE>
8. RISKS OF TECHNOLOGICAL CHANGE; DEFECTS. The markets for the
Company's products and services are generally characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
product and service introductions. There can be no assurance that the Company
can successfully identify new product opportunities and develop and bring new
products and services to market in a timely manner. The Company's pursuit of
necessary technological advances will require substantial time and expense, and
there can be no assurance that the Company will succeed in adapting its computer
distribution and Internet services businesses to changing technology standards
and customer requirements.
9. TECHNICAL OBSOLESCENCE. The introduction of new products
and services could render the Company's existing products and services obsolete
and unmarketable. This risk is present in each of the Company's product lines,
but particularly in its Internet services business, which relies on the
continued widespread commercial use of Transmission Control Protocol /
Internetwork Protocol ("TCP/IP"). Alternative open protocol and proprietary
protocol standards have been or are being developed. If any of these alternative
protocols become widely adopted, there may be a reduction in the use of TCP/IP.
There can be no assurance that the announcement or introduction of new products
or services by the Company or its competitors or any change in industry
standards will not cause customers to defer or cancel purchases of existing
products or services, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Products and services as complex as those offered by the
Company may contain undetected errors or defects when first introduced or as new
versions are released. The failure by the Company's suppliers to introduce a new
product, service or product enhancement on a timely basis could also delay or
hinder market acceptance. There can be no assurance that, despite testing by the
Company or its customers, errors will not be found in new products after
commencement of commercial deployment, resulting in product redevelopment costs
and loss of, or delay in, market acceptance, delays in collecting accounts
receivable and additional service costs.
10. DEPENDENCE UPON CHIEF EXECUTIVE OFFICER; NEED TO MANAGE
GROWTH AND EXPANSION. The Company's success will depend upon the continued
service of its President and CEO, Marc H. Bell. Mr. Bell has entered into an
employment agreement with the Company pursuant to which Mr. Bell will be
employed by the Company through September 30, 2000. In addition, the Company has
obtained a key person life insurance policy on Mr. Bell in the
24
<PAGE>
amount of $1,000,000. The Company is the beneficiary of such policy.
The Company's success also depends upon its ability to attract
and retain additional highly qualified management, technical and sales and
marketing personnel. Competition for qualified employees is intense and salaries
are escalating very quickly. In addition, the process of locating such personnel
with the combination of skills and attributes required to carry out the
Company's strategy is often lengthy.
As of February 28, 1997, the Company had approximately 70
full-time employees and 4 part-time employees. The Company has hired additional
full-time sales staff, engineers and technicians the cost of which, at least
initially, is greater than the revenue which they will generate. To manage its
growth, the Company must hire and train additional qualified personnel; and must
continue to expand and upgrade its sales capacity and build its network
infrastructure. Failure to manage its growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations.
11. GEOGRAPHIC CONCENTRATION; INDUSTRY CONCENTRATION.
Almost all of the Company's current revenues are generated
within the New York City metropolitan area. In addition, approximately 50% of
the Company's sales are currently made to organizations engaged in the
advertising and publishing industries. As a result, the Company is susceptible
to fluctuations in its business caused by economic conditions in the New York
City metropolitan area and/or in those industries.
12. GOVERNMENT REGULATION. The Internet access operations of
the Company are not currently subject to direct regulation by the Federal
Communications Commission or any other agency, other than regulations applicable
to businesses generally. Changes in the regulatory environment relating to the
Internet access industry, including regulatory changes which directly or
indirectly affect telecommunication costs or increase the likelihood or scope of
competition from regional telephone companies or others, could have an adverse
effect on the Company's business. The Company cannot predict the impact, if any,
that future regulation or regulatory changes may have on its business.
13. SUBSTANTIAL CONTROL BY PRINCIPAL STOCKHOLDERS. Marc H.
Bell and Harpoon Holdings, Ltd. (together, the "Principal Stockholders")
beneficially own or control approximately 56.9% of
25
<PAGE>
the outstanding shares of Common Stock. If all the Old Warrants are exercised,
the Principal Stockholders will own or control approximately 47.1% of the
outstanding shares of Common Stock. Harpoon has entered into a ten year
Irrevocable Proxy Agreement with Marc H. Bell (the "Irrevocable Proxy"),
pursuant to which Marc H. Bell has the power to vote all shares owned by Harpoon
(the "Harpoon Shares") in the election of the Company's directors. The
Irrevocable Proxy is intended to enable Mr. Bell to maintain control over the
Company. Thus, as a practical matter, Marc H. Bell will be able to control
election of the Company's Board of Directors. The Irrevocable Proxy could have
the effect of depressing the market price of the Company's securities since it
adversely affects the ability of other stockholders to effect changes in
management of the Company. See "Principal Stockholders."
14. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK.
The Company's Certificate of Incorporation authorizes the issuance of 500,000
shares of "blank check" Preferred Stock, with designations, rights and
preferences that may be determined from time to time by the Board of Directors.
At this time, none of the shares of Preferred Stock are issued or outstanding.
However, the Board of Directors is empowered, without further stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In addition, such charter provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock and may have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Stock also could decrease the amount of earnings and assets available
for distribution to the holders of Common Stock. There can be no assurance that
the Company will not issue Preferred Stock at some time in the future.
15. SHARES AVAILABLE FOR FUTURE SALE. Future sales of shares
of Common Stock by Principal Stockholders under Rule 144 of the Securities Act
or the issuance of shares of Common Stock upon the exercise of options or
warrants could materially and adversely affect the market price of the Common
Stock and could materially impair the Company's future ability to raise capital
through an offering of equity securities. A substantial number of shares of
Common Stock will become available for sale in the public market at various
times. No predictions can be made as to the effect, if any, that market sales of
such shares or the availability of such shares for future sale will have on the
market price of the Securities prevailing from time to time. See "Principal
Stockholders" and "Shares Eligible for Future Sales."
26
<PAGE>
16. BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately
$2,075,000 of the net proceeds, if any, received upon the exercise of the Old
Warrants will be applied to working capital and general corporate purposes.
Accordingly, the Company will have broad discretion as to the application of
such proceeds without prior stockholder approval. In addition, the management of
the Company has broad discretion to adjust the application and allocation of the
net proceeds upon exercise of the Old Warrants, in order to address changed
circumstances and business opportunities. As a result of the foregoing, the
success of the Company will be substantially dependent upon the discretion and
judgment of the management of the Company. See "Use of Proceeds."
17. ABSENCE OF DIVIDENDS. The Company has not paid any cash
dividends on the Common Stock since July 1994, when NAFT and an affiliated
company, both Subchapter S Corporations under the Internal Revenue Code, were
acquired by PFMT, the Company's immediate corporate predecessor. As Subchapter S
Corporations, NAFT and its affiliated company made several distributions to
their sole shareholder, Marc H. Bell. The Company does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future.
18. SECURITIES LAWS RESTRICTIONS ON EXERCISE OF WARRANTS. In
certain cases, the sale of the Class B Warrants and the Common Stock issuable
upon exercise of the Class B Warrants pursuant to exercise of the Old Warrants
could violate the securities laws of certain states or other jurisdictions. The
Company has used and will continue to use its best efforts to cause the
Registration Statement of which this Prospectus is a part to be declared
effective under the laws of various states as may be required to cause the sale
of securities upon exercise of Old Warrants and the Class B Warrants to be
lawful. However, the Company is not required to accept the exercise of the Old
Warrants, if, in the opinion of counsel, the sale of the Class B Warrants and
Common Stock issuable upon exercise of the Class B Warrants would be unlawful.
In such cases, the Old Warrants will not be accepted for exercise, and the
holder of the Old Warrants will be required to sell the Old Warrants in the open
market, if such market is available, or hold such warrants until expiration or
redemption. See "Description of Securities -- Old Warrants."
19. POSSIBLE REDEMPTION OF OLD WARRANTS AFTER SPECIAL EXERCISE
PERIOD. The Old Warrants are subject to redemption by the Company at $.10 per
Old Warrant at any time, on not less than 30 days' prior written notice to the
holders of the Old Warrants, provided the average closing bid quotation of the
Common Stock of the Company as reported on The Nasdaq Stock Market, if traded
thereon, or if not traded thereon, the average closing sale price
27
<PAGE>
if listed on a national securities exchange, has been at least 150% of the then
current exercise price of the Old Warrants (currently $11.55 per share), for a
period of twenty consecutive trading days ending on the third day prior to the
date on which the Company gives notice of redemption. The Old Warrants are
exercisable until the closing of the business day immediately preceding the date
fixed for redemption. In the event of a redemption by the Company, holders of
Old Warrants will be required to either exercise such Old Warrants by paying
$7.70 per share and receiving one share of Common Stock per Old Warrant but not
a Class B Warrant, or submit such Old Warrant to the Company and receive the
redemption price of $.10 per Old Warrant. See "Description of Securities - Old
Warrants."
20. POSSIBLE DELISTING AND RISK OF LOW-PRICED SECURITIES. The
Company's Common Stock and Old Warrants are listed on Nasdaq and on the Boston
Stock Exchange. There can be no assurance that the Company will continue to be
able to satisfy certain specified financial tests and market related criteria
required for continued listing on Nasdaq and the Boston Stock Exchange. In
particular, the Nasdaq requires that at least 100,000 Old Warrants remain
outstanding to continue trading. If the Company is unable to satisfy such
maintenance criteria in the future, the Securities may be delisted from trading
on Nasdaq or the Boston Stock Exchange, as the case may be. If the Securities
were to be delisted from trading on each of the Nasdaq SmallCap Market or the
Boston Stock Exchange, trading, if any, would thereafter be conducted in the
over-the-counter market so-called "pink sheets" or the "Electronic Bulletin
Board" of the National Association of Securities Dealers, Inc., and consequently
an investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to be an equity security that has a
market price listed of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on Nasdaq or a national
securities exchange (such as the Boston Stock Exchange) and any equity security
issued by an issuer that has (i) net tangible assets of at least $2,000,000, if
such issuer has been in continuous operation for three years, (ii) net tangible
assets of at least $5,000,000, if such issuer has been in continuous operation
for less than three years, or (iii) average annual revenue of at least
$6,000,000, if such issuer has been in continuous operation for less than three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure
28
<PAGE>
schedule explaining the penny stock market and the risks associated therewith.
In addition, if the Company's securities are not quoted on the
Nasdaq SmallCap Market or the Boston Stock Exchange, or the Company does not
meet the other exceptions to the penny stock regulations cited above, trading in
the Company's securities would be covered by Rule 15g-9 promulgated under the
Exchange Act for non-Nasdaq and non-exchange listed securities. Under such rule,
broker/dealers who recommend such Securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities, in general, also are exempt from this
rule if the market price is at least $5.00 per share.
If the Company's securities become subject to the regulations
applicable to penny stocks, the market liquidity for the Company's securities
could be adversely affected. In such an event, the regulations on penny stocks
could limit the ability of broker/dealers to sell the Company's securities and
thus the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
21. LIMITED LIABILITY AND INDEMNIFICATION MATTERS. As
permitted by the Delaware Law, the Company has included in its Certificate of
Incorporation a provision to eliminate the personal liability of its directors
for monetary damages for breach or alleged breach of their fiduciary duties as
directors, subject to certain exceptions. In addition, the By-laws of the
Company provide that the Company is required to indemnify its officers and
directors under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and the Company is required to
advance expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. At present, the
Company is not aware of any pending or threatened litigation or proceeding
involving a director, officer, employee or agent of the Company in which
indemnification would be required or permitted.
USE OF PROCEEDS
The net proceeds to the Company if all outstanding Old
Warrants are exercised is estimated to be approximately $4,500,000 after payment
of the warrant solicitation fee and
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<PAGE>
estimated offering expenses. However, there can be no assurance that the Company
will receive any proceeds from the exercise of the Old Warrants. The Company
anticipates that the maximum net proceeds from the Offering will be used as
follows:
<TABLE>
<CAPTION>
Approximate
Percentage
Approximate of Net
Amount Proceeds
<S> <C> <C>
Upgrade of Network Operations Center (1) $1,000,000 22%
Sales and Marketing (2) 500,000 11%
Upgrade of Management Information Systems 500,000 11%
(3)
Upgrade of Facilities and Equipment (1) 425,000 10%
Working Capital and General Corporate 2,075,000 46%
Purposes (4)
Total $4,500,000 100%
</TABLE>
(1) In order to upgrade the network operation center, the Company
will need to (i) purchase additional equipment and line
capacity, and (ii) maintain a sufficient inventory of network
capacity to satisfy customer requirements on a timely basis.
Expenditures may include the purchase of additional network
servers, routers, CSU/DSUs and network computers, as well as
high-speed telecommunications lines (T-1s and T-3s). These
costs, along with other investments in Internet related
capital equipment are estimated by the Company to be
approximately $1,000,000.
(2) Represents funds required to implement the Company's sales and
marketing program, including participation in trade shows, the
hiring of additional sales personnel, the placing of
advertising in various media, and the marketing of the
Company's Internet services and promotion of the Company's
other products and services.
(3) In order to integrate more efficiently the Company's various
data bases and systems, the Company intends to upgrade its
management information system. In connection with this project
the Company will need to purchase additional equipment and
programming services.
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<PAGE>
(4) If fewer than all the Old Warrants are exercised, the Company
will reduce the amount of net proceeds for Working Capital and
General Corporate purposes.
The foregoing uses of proceeds are estimates only and there
could be significant variations in the anticipated use of the proceeds due to
changes in business or economic circumstances and the amount of capital received
pursuant to this Offering. Accordingly, the Company reserves the right to
reallocate the foregoing uses of proceeds depending upon any such change of
circumstances.
Pending specific application of the proceeds of the Offering,
the net proceeds of the Offering will be invested in interest-bearing savings
accounts, certificates of deposit, money market accounts, United States
government obligations or other short-term interest-bearing obligations.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common
Stock since terminating its Subchapter S status under the Internal Revenue Code.
The Company currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore does not anticipate paying
any cash dividends on the Common Stock in the foreseeable future.
CAPITALIZATION
The following table sets forth the Company's actual
capitalization as of December 31, 1996, without giving effect to or assuming the
exercise of the Old Warrants.
31
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------
Actual
-------------------------------------------------------
<S> <C>
Current portion of notes payable $27,351
Stockholders' equity (deficit)..................................... --
Preferred Stock, $.01 par value, 500,000 shares authorized, no shares issued and
outstanding; no shares issued and outstanding pro forma; no shares issued and
outstanding as
adjusted...........................................................
--
Common Stock, $.01 par value,
10,000,000 shares authorized,
3,042,018 shares issued and
outstanding at December 31, 1996...................................
30,420
Additional paid-in capital......................................... 8,045,208
Retained Earnings.................................................. (2,655,072)
Total stockholders' equity......................................... 5,420,556
Total capitalization............................................... 5,447,907
=========
</TABLE>
(1) Excludes 360,000 shares of Common Stock issuable upon
exercise of options granted under the Company's Stock
Option Plan. See "Management -- Stock Option Plan."
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data for the fiscal years
ended September 30, 1996 and September 30, 1995 (which consisted of nine months)
have been derived from the Company's financial statements included elsewhere in
this Prospectus which have been audited by Arthur Andersen & Co. LLP,
independent public accountants, whose report thereon is also included elsewhere
in this Prospectus. The selected consolidated financial data for the quarter
ended December 31, 1996 are unaudited and, in the opinion of management, include
all
32
<PAGE>
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. The selected consolidated financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
9 MONTHS ENDED YEAR ENDED 3 MONTHS ENDED
-------------- -------------- ---------------------------------
SEPT. 30, 1995 SEPT. 30, 1996 DEC. 31, 1996
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues......................... $8,738,410 $10,373,664 $2,422,261 $3,696,399
Costs and expenses:
Cost of goods sold.................... 7,292,232 8,599,241 2,013,240 2,835,316
Selling, general and
admin........................ 1,212,829 3,186,718 520,987 1,444,795
Income (loss) from operations 130,839 (1,688,721) (166,211) (695,162)
Interest income........................... 0 121,256 -0- 18,055
Interest expense.......................... (72,881) (98,520) (24,417) (3,699)
Income (loss) before taxes................ 57,958 (1,923,376) (190,628) (680,806)
Provision (benefit) for taxes............. 19,099 (29,896) -0- -0-
Net income (loss)......................... 38,859 (1,893,480) (190,628) (680,806)
Net income (loss) per common
equivalent share (1)............. $0.02 ($0.72) ($0.11) ($0.22)
Shares used in computing net income
(loss) per
share amounts (2)......................... 1,725,000 2,633,400 1,742,855 3,042,018
</TABLE>
<TABLE>
<CAPTION>
SEPT. 30, 1995 SEPT. 30, 1996 DEC. 31, 1996
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........................ $222,367 $2,742,011 $1,463,889
Working Capital.................... 179,739 3,823,313 2,663,262
Other Assets....................... 21,364 115,093 71,196
Total Assets....................... 2,961,550 7,809,782 8,479,493
Current Liabilities................ 2,322,141 1,720,082 3,058,937
Long-term Liabilities.............. 340,612 0 0
Stockholders' equity............... 298,797 6,089,700 5,420,556
</TABLE>
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
The Company is a diversified, full service Internet solutions
company and computer systems integrator, providing a wide range of Internet and
Intranet products, services and solutions. In addition, the Company provides
pre-press, video and 3-D animation and motion capture solutions to its
commercial clients. The Company's goal is to become a business-to-business,
one-stop provider of all things related to the Internet, whose business is based
upon on-going, long term, broad based relationships with its customers.
INTERNET OPERATIONS
Following the date of its initial public offering, the Company
has hired a staff of Internet engineers, technicians, programming specialists
and sales personnel to work on developing its Internet network and support
facility. During this period, the Company has substantially completed the basic
engineering and programming activities necessary to provide dedicated Internet
access, web hosting services and Internet consulting and facilitation services.
The Company has now begun to aggressively market its Internet services and
capabilities to the publishing, advertising, and media communities. Revenues
from Internet related activities have been steadily increasing. Currently, the
major sources of revenue for the Company's Internet related activities are:
a) The sale and installation of dedicated, high
bandwidth, Internet connections, and
b) Web hosting and co-location services
The Company has suspended its Internet Wired program due to a
lack of interest at the user level, the difficulty of dealing with New York City
landlords in wiring buildings, and better opportunities toward which it can
direct its efforts.
SALES OF HARDWARE AND SOFTWARE
The Company has continued to diversify its offering of
hardware and software products and to emphasize those products which: (a) are
related to its Internet services operation; (b) generate higher profit margins;
(c) are of a type which require
34
<PAGE>
greater after market support, and (d) experience less competition from mail
order houses. Specifically, the Company:
o provides business solutions and desktop computer
integration to the media and publishing industries
including solutions involving interactive media and
World Wide Web servers and installation of computer
networks (LANs and WANs);
o is a value added reseller or value added dealer
in computer hardware. The principal manufacturers
which it represents are: Silicon Graphics,
Integraph, Sun Microsystems, Cisco, and Digital
Equipment networks; and
o in conjunction with the sale of hardware, sells,
installs and supports software programs such as
Alias/Wavefront, SoftImage and Avid. The Company is
also a Netscape Commercial Applications Partner and a
Microsoft Solutions Provider.
TRAINING
The Company completed construction of its new training center
at 295 Lafayette Street, New York, New York in October 1996. It now has 5
classrooms, which seat a total of 66 people and a seminar room, which can
accommodate 125 people. Each classroom is outfitted with a different hardware
and software capability such as Alias, Photoshop, etc. Instruction is provided
by both its in-house staff and independent contractors who are specialists in a
particular area. Training classes are held either on the Company's premises or
at the client's premises, depending upon the client's needs and desires.
The Company's clients include major banks, financial
institutions and advertising and graphic design firms. The Company has been
designated as an Alias Education Partner for the East Coast, is an Apple
Training Alliance Partner and an authorized training center for Netscape, Adobe,
Quark, Macromedia, and Microsoft.
During the first quarter of fiscal 1997, an arrangement was
entered into with Pratt Institute, a New York City College specializing in the
field of Graphic Arts, to provide classroom facilities on a contract basis.
Revenues from training for the first quarter of the current fiscal year were in
excess of $70,000. However, the Company expects that this amount will increase
substantially over the next three-quarters.
35
<PAGE>
INTERACTIVE MEDIA
The Interactive media division of the Company has focused its
efforts on interactive development, and 2-D and 3-D animation, including motion
capture. It recently completed a Dennis the Menace segment for Room Plus, a
regional furniture manufacturer and retailer, which combined live action and 2-D
animation. Recent projects also include the development of interactive
computer-based training modules for Prudential Corporation for distribution on
CD ROM. The Company has limited its efforts in the web design area, and in doing
so reduced its full time staff in the area by 50%. The Company is now
aggressively pursuing the interactive development and animation capture markets.
REVENUES FOR THE THREE MONTH PERIODS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
Consolidated revenues for the three months ended December 31,
1996, compared to the same period in 1995, and increased approximately 54% from
approximately $2.4 million to approximately $3.7 million. This increase was due
to an increase in every aspect of the Company's business. The Company intends to
focus its future operations primarily in the areas of Internet related
activities, the development of its CD ROM and 3-D animation operations and
training programs, and is looking toward a substantial increase in revenues from
such operations.
COST OF REVENUES FOR THE THREE MONTH PERIODS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
Cost of Revenues for the three months ended December 31, 1996
were approximately $2.8 million, or approximately 76.% of revenues, as compared
to $2 million or approximately 83% of revenues for the comparable period in
fiscal 1996. The increase in gross profit margin was due to the fact that an
increased percentage of sales came from sales of services (which generated
higher profit margins) rather than sales of products. In addition, product sales
of more sophisticated computer systems, which required greater pre-sales, and
after market customer assistance, and therefore generated higher profit margins,
increased.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE
THREE MONTH PERIODS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
For the three months ended December 31, 1996, Selling, General
and Administrative expenses increased from approximately $521,000 (or 21% of
Revenues) to approximately $1.4 million (or 39% of Revenues). This increase was
due primarily to an increase in payroll resulting from: (a) hiring engineers to
complete
36
<PAGE>
system development and sales people to market the systems which have not reached
their revenue generation potential; (b) the promotion by the Company of its
Shared Direct Access Internet program; and (c) the re-focusing and development
of its graphic arts related business. The Company anticipates that revenues from
sales of its expanded product line, and Shared Direct Access Internet
connections will continue to increase as a percentage of its revenues. However,
the Company expects to continue to show losses until such time as it receives
greater marketplace recognition for its products and services.
In the interim, commencing in January 1997, the Company has
commenced an internal cost cutting program. Specifically, it has consolidated
all of its operations at 295 Lafayette Street, New York, New York and
surrendered its premises at 611 Broadway, New York, New York. This was made
possible by the exercise by the Company of an option to acquire additional space
at its corporate headquarters at a price of $4.00 per square foot. The Company
has also begun to streamline some of its operations and has suspended its
Internet Wired program.
NET LOSS FOR THE THREE MONTH PERIODS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
For the three month period ended December 31, 1996, the
Company incurred a net loss of approximately $680,000 compared to a net loss of
approximately $191,000 for the corresponding three month period ending December
31, 1995. The Company expects to continue to suffer losses for at least the next
two quarters.
Twelve Months Ended September 30, 1996 compared With Nine Months
Ended September 30, 1995
The financial statements contain results of operations for the
twelve month period ended September 30, 1996 and the nine month period ended
September 30, 1995. The Company received the proceeds of its public offering on
February 1, 1996. These facts should be considered in reading the following
discussion.
Revenues increased from $8,738,410 in fiscal 1995 to
$10,363,664 in fiscal 1996 because of the longer fiscal year. While the
Company's actual revenues are not steady on a month by month basis, for
comparison purposes only, average monthly revenues in fiscal 1996 were
approximately $864,000 as contrasted with average monthly revenues in fiscal
1995 of approximately $971,000. This decline is due to the substantial reduction
in sales of Apple computer products which produced large sales numbers because
of the price of the products being sold. The Company is replacing these sales in
part with sales of other products and with Internet related sales, training and
service. The Company anticipates that, in the future, a greater percentage of
revenues will result from Internet related sales which have
37
<PAGE>
higher gross profit margins.
Cost of Revenues remained constant from fiscal 1995 to fiscal
1996 at approximately 83%. While the Company is now focusing on Internet related
sales, training and service, revenues for these areas accounted for less than
10% of revenues in fiscal 1996. In addition, the Company relocated its
operations in the fourth quarter of fiscal 1996, which adversely impacted
revenues and gross profit margins.
Approximately $220,000 of the Company's loss from operations
in 1996 was due to depreciation and $257,000 was due to write-off of Debt
Issuance Costs related to a debt incurred prior to the initial public offering.
The balance of the loss (in the amount of $1,416,480) can be traced directly to
Selling, General and Administrative costs. Within this category, a substantial
portion of such costs were related to payroll. The monthly payroll of the
Company increased from $162,233 for the month of October 1995 to $308,115 for
the month of October 1996. This increase in payroll was for sales staff,
engineering staff and technicians working in the Internet sales and engineering
departments of the Company. In the initial phases of operation, such increased
payroll resulted in no significant revenue. This negative trend continued in the
fourth quarter so that selling, general and administrative costs as a percentage
of revenues increased from approximately 22% in the quarter ended December 31,
1995 to approximately 39% in the quarter ended September 30, 1996.
Expenditures for research and development increased by
$23,250. This increase was for internet programming work done by the Company in
setting up its Internet network.
As a result of the above, the Company reported a net loss for
1996 of $1,893,480 or ($0.72) per share as opposed to the reported net income in
1995 of $38,859 or $0.02 per share. Losses will continue in the first half of
the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company (through its NAFT International Ltd. subsidiary)
presently has approximately $3.0 million available to it pursuant to a Revolving
Credit Agreement (to finance its accounts receivable and inventory) with
NationsCredit Commercial Corporation of America ("NationsCredit"). As of
December 31, 1996, the Company had a net outstanding of approximately $1.2
million under this agreement. Such obligation is secured by a continuing
security interest in substantially all of the assets of the Company. The
borrowings bear interest at the prime rate plus 1.5%. Pursuant to the terms of
these agreements, NAFT
38
<PAGE>
International, Ltd. is required to maintain certain liquidity ratios, which the
Company is currently maintaining.
The Company had a negative cash flow of approximately $1.3
million for the three months ended December 31, 1996. This resulted in part from
a cash loss in operations of approximately $500,000, the increase in accounts
receivable of approximately $1.3 million, offset in part by the increase in
accounts payable of approximately $500,000. In addition, the purchase of
property and equipment of approximately $700,000 was offset by the net proceeds
of short-term borrowings of approximately $800,000.
Due to the Company's negative cash flow from operations and
past and future expenditures under its aggressive program of capital
expenditures, the Company must either increase its borrowings under its
NationsCredit line of credit, and/or raise additional equity or loan capital
from outside sources. There can be no assurance that the Company could
successfully raise such additional capital.
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. Future results of operations are, in general,
difficult to forecast due to the fast moving pace of the industry.
BUSINESS
Bell Technology Group Ltd., together with its wholly-owned
subsidiaries (the "Company") provides a diversified program of services to its
clientele, including:
o dedicated Internet access, web hosting services
and customized Internet application development;
o web design, interactive development and Internet
commerce solutions;
o consultation with clients relative to the design
and configuration of computer systems primarily
for use in the publishing, advertising and
graphics arts industries;
o sale and installation of computer hardware and
software;
o 2-D and 3-D animation and interactive services;
39
<PAGE>
o training for employees of various types of
institutions and corporations in the use of
computer programs and commercial Internet access.
INTERNET SERVICES
The Company's state-of-the-art network operations center
provides sophisticated Internet connectivity available for direct, high-speed
Internet connections and World Wide Web hosting and co-location facilities. The
Company also offers a complete range of Internet consulting services.
During the past fiscal year, the Company has increased its
focus on its Internet operations. The Company will continue to develop, upgrade,
monitor and maintain its facilities as additional clients (users) are added to
the system and technology improves. During the fiscal year ended September 30,
1996, the Company hired approximately 9 graduate engineers and technicians.
The Company has developed multiple platform worldwide web
hosting and developing capabilities. The Company is able to create multi-media
web sites and provide high-speed access to the Internet for the client/user. The
Company designs the web, and hosts the site by providing the appropriate
hardware, network and maintenance services. Among the proprietary solutions
developed by the Company are an Internet based Commerce Solution, which includes
secure credit card transaction processing, a shopping cart for browsing
merchandise on-line, and a video-streaming technology that allows for
pay-per-view programming.
During the past fiscal year, the Company has spent over $1
million building a state-of-the-art network operations center at it's new
location. The 2,000 square foot network operations center offers customers the
ultimate in network connectivity. Connected to three Tier I Internet carriers
via redundant fiber optics, and providing connectivity to leased line clients
via an OC-48 on the NYNEX SONET ring, the Company is poised to service the most
demanding companies in New York City. Additionally, the network operations
center offers secure on-premises co-location services for those clients focused
on Internet publishing on the World Wide Web. The Company will use a portion of
the proceeds from the exercise of the Old Warrants, if any, to expand the
network operations center facility. See "Use of Proceeds."
Other services offered by the Company to it's customers
include dial-up Internet access, ISDN, leased lines, web hosting, programming,
firewall, network security and system design services. Due to the existence of
its sales and service operation the Company is able to offer customers support
and services on all major operating systems including UNIX, IRIX, Windows NT and
Mac OS.
40
<PAGE>
The Company provides consulting services in the areas of
inter-networking, computer and network security, network design and network
operation.
PRODUCT SALES
The Company has been shifting its emphasis from the sale of
low margin products with intense price competition to higher-end, higher margin
hardware products such as Silicon Graphics, Integraph, Sun Microsystems, Cisco,
Digital Equipment, and software products such as SoftImage, Alias/Wavefront, and
Avid. These products are generally not purchased through mail order (as are
Compaq and Apple products, for example) and require a higher level of sales
effort and after-market support such as training. The Company has continued its
original program of moving away from the more competitive computer sales market
into the area of Internet focused computer solutions.
The great majority of the Company's customers are "Fortune
1000 Companies" which maintain an ongoing relationship with the Company. The
goal of the Company is to convert its product customers to users of the various
Internet and training programs run by the Company.
SERVICE AND TRAINING
The Company services the products which it sells by providing
warranty repair services as well as contract support of system software and
hardware. Hardware contracts are issued for a fixed price and for a fixed term.
Contracts for software support and maintenance are issued on the basis of
prepaid hours where a customer prepays for a block of hours, which may be used
at any time. Payments for service contracts are accounted for ratably over the
period of the contract. Payments for prepaid hours are accounted for as the
hours are used.
The Company maintains several classrooms at its headquarters
facility which it rents out to corporations for the training of their
professional staff. The Company provides a variety of modern operating equipment
and current programs, together with instructors to teach how to use such
equipment and programs. Some instructors are on staff and others are hired on a
freelance basis as needs dictate. The Company typically charges a fixed price
depending upon the size of the class, the complexity of the group and the
equipment required.
In September, 1996, the Company began an aggressive program to
market its in-house training facilities. The Company provides training services
for the more sophisticated computer software programs which it sells. Training
is marketed to large advertising and publishing firms, banks, large financial
institutions, clothing manufacturers, and the like, which send
41
<PAGE>
their personnel to the Company's facility to attend one to five day programs.
The Company's modern classrooms at its corporate headquarters can accommodate
groups of up to 150. Training rooms are equipped with modern hardware, computer
desks and other appropriate classroom equipment and various programs are loaded
into equipment as required by the users. The Company intends to expand this
operation into a major source of revenue and include training at the customer's
own site. The Company also provides training sessions at its customers' sites.
In such events, it provides trainers, materials and any software or special
hardware required.
MULTIMEDIA AND GRAPHIC ARTS
The Company's graphic arts capabilities include creating and
assembling World-Wide Web sites, interactive applications such as computer based
training and promotional sales material, and broadcast quality 2-D and 3-D
animation. It works with content providers such as marketing firms to provide
the technical and design aspects of a project for large-scale multimedia
projects including sites to be used on the Internet.
The Company designs internal communications products used by
businesses for computer based in-house training and intranet development. In
addition the Company provides front-end graphics for database driven web sites.
The Company is currently building a motion capture studio for
advanced 3D animation services.
The Company has three main areas of digital design
development: animation, interactive and web production. The animation department
is fully staffed with creative directors who specialize in Alias & SoftImage
(the two animation packages with the greatest market share) and render their
work on a state-of-the-art render farm from Silicon Graphics. The Silicon
Graphics hardware farm is such an investment and such an asset to an animator
that major national broadcast companies rent time on the farm when the Company
isn't using it. The Company's Authorware division is responsible for creating
computer based training and computer based sales tools for companies such as
BMW, Prudential and others. The Company's Web Design department is staffed with
HTML editors, programmers and producers who have already produced Internet sites
for a variety of companies in several industries. Most recently, the Company has
leveraged its Internet knowledge and expertise to develop Intranets for
companies such as Simon & Schuster.
COMPETITION
There are no substantial barriers to the entry into any of the
Company's lines of business, and the Company encounters
42
<PAGE>
significant competition in each of them. The Company's competitors include (i)
value added resellers of computer, network and peripheral equipment, (ii)
computer repair services and training providers, (iii) computer consultants,
(iv) Internet service providers, and (v) graphic design and consulting firms.
Many of the Company's current and potential competitors have substantially
greater financial, technical, marketing and other resources and larger installed
customer bases than the Company. The Company expects that competition will
intensify in each of its lines of business, particularly in the area of Internet
services, as more competitors enter the marketplace.
DEPENDENCE UPON SUPPLIERS
The Company relies on other companies to supply certain
components of its computer inventory, service and diagnostic equipment, as well
as its network infrastructure (including telecommunications services and
networking equipment) which, in the quantities and quality required by the
Company, are available only from sole or limited sources. The Company has in the
past, and may from time to time, experience delays in receiving
telecommunication services and shipments of merchandise. There can be no
assurance that the Company will be able to obtain such telecommunication
services and merchandise on the scale and at the times required by the Company
at an affordable cost.
EMPLOYEES
At February 28, 1997, the Company had approximately 70 full
time employees and 4 part-time employees.
PROPERTIES
The following table sets forth, with respect to properties
leased (none are owned) by the Company in March 1997, the location of the
property, the date on which the lease expires and the use which the Company
makes of such facilities:
<TABLE>
<CAPTION>
Expiration
Address of Lease Date Use Square Feet
<C> <C> <C> <C>
295 Lafayette Street 2007 executive & sales offices 17,000
New York, New York training facilities 3,000
service 3,000
shipping and receiving 8,000
Network Operations Center 2,000
</TABLE>
The Company considers that, in general, its physical
properties are well maintained, in good operating condition and adequate for its
purposes.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth information with respect to the
executive officers and directors of the Company as of the date of the
Prospectus.
<TABLE>
<CAPTION>
Position With The Company
Name and Age and Principal Occupation Held Office Since
<S> <C> <C>
Marc H. Bell, 29 Chairman (Chief Executive Officer) 1989
and Director
Robert B. Bell, 57 Executive Vice President, 1994
Chief Financial Officer, Director
William T. Jahnke, 41 Vice President 1997
Marc Jaffe, 28 Vice President 1997
Alan Levy, 35 Treasurer (Chief Accounting 1997
Officer)
Tsuyoshi Shiraishi, 52 Director 1995
Martin Fox, 60 Director 1995
Dr. Richard Videbeck, 73 Director 1995
</TABLE>
MARC H. BELL has been the President and Chief Executive
Officer since he founded the Company in 1989. He has had more than eight
years of experience in the computer industry. Mr. Bell has a B.S. degree in
accounting from Babson College and an M.S. degree in Real Estate Development
and Investment from New York University.
ROBERT BELL has served as Executive Vice President and Chief
Financial Officer of the Company and its corporate predecessor since 1994. Prior
to joining the Company, Mr. Bell was a practicing attorney in New York City for
more than five years. Prior to 1994, Mr. Bell was for many years also an Adjunct
Professor at New York University. He is primarily responsible for the
administration of the Company's financial affairs and day to day business
operations. Robert Bell is the father of Marc H. Bell.
44
<PAGE>
WILLIAM T. JAHNKE, 41, has been a Vice President of the
Company since March 1997 and the Director of Corporate Sales of the Company
since August 1995. Prior to joining the Company, Mr. Jahnke was president and
chief operating officer of Vernon Computer Rentals and Leasing from February
1989 to December 1994, where he pioneered and implemented a nationwide asset
management program for Apple which is used by several thousand U.S. sales
representatives. Mr. Jahnke received a B.S. Degree in Computer Science from
Seneca College in 1975.
MARC JAFFE, 28, a Vice President of the Company since March
1997 and Director of On-Line Services, joined the Company in early 1995 to run
the Company's Internet services business. Prior to joining the Company, Mr.
Jaffe has extensive experience in the use of computers and telecommunications in
the advertising and marketing industry. Mr. Jaffe recently developed an
Internet-focused marketing strategy that won the prestigious CreaTech Award,
presented by ADVERTISING AGE magazine, and has spoken at numerous Internet
conferences sponsored by Apple Computer. Prior to joining the Company, Mr. Jaffe
was a department manager at Sid Patterson Advertising Inc. in New York City
since 1989. Mr. Jaffe graduated from Colgate University in 1989, where he
received a Bachelor of Arts Degree.
ALAN LEVY, 35, joined the Company in February 1997 as the
Controller. He became Treasurer (Chief Accounting Officer) in March 1997. Prior
to joining the Company, Mr. Levy for three years was the Assistant to the Vice
President of Finance of Del Laboratories, Inc., a manufacturer and wholesaler of
cosmetics and over-the-counter pharmaceuticals. Prior to that, Mr. Levy for
three years was a Technical Manager with the American Institute of Certified
Public Accountants. He is a Certified Public Accountant and received his
Bachelors degree in Public Accounting from Long Island University, C.W. Post
Campus.
TSUYOSHI SHIRAISHI has been a director of the Company since
July 1, 1994. Mr. Shiraishi has been the Chairman of Century World PTE Ltd., an
investment consulting firm and the Managing Director of Harpoon since 1992.
Prior to that, Mr. Shiraishi was the Director of Marketing & Investment for
Kajima Overseas Asia PTE Ltd., a subsidiary of Kajima Corporation, an
international construction company, since 1990. In addition, since 1990, Mr.
Shiraishi has been Vice Chairman of Century International Hotels, which operates
and manages 17 hotels in the Pacific Rim. He is the sole shareholder of Harpoon,
which acquired 50% of the capital stock of the Company as of July 1, 1994. Mr.
Shiraishi is a Japanese citizen and a resident of Singapore.
MARTIN FOX has been a director of the Company since October
1995. Mr. Fox has been, for more than five years, the President and a director
of Initio, Inc., a publicly owned mail
45
<PAGE>
order retailer of consumer products.
RICHARD VIDEBECK has been a director of the Company since
October 1995. Since 1983, Dr. Videbeck has been an independent consultant in
consumer risk analysis, particularly for retailers and banks. From 1974 until
1986, Dr. Videbeck was a professor of sociology at the University of Illinois at
Chicago. From 1974 until 1977, Dr. Videbeck was the Dean of the Doctor of Arts
Program of the Graduate College of the University of Illinois at Chicago.
The directors serve until the next annual meeting of the
Company's stockholders and until their respective successors are duly elected
and qualified or until their earlier resignation, death or removal. Officers are
appointed by, and serve at the discretion of, the Board. Marc H. Bell and Robert
Bell have each entered into employment agreements with the Company. See
" -- Employment Arrangements."
OTHER KEY EMPLOYEES
MARC MANDEL, 30, currently serves as the Director of
Publishing Sales and is an Internet Sales Account Executive for the Company. Mr.
Mandel has been with the Company since August 1993. Prior to joining the
Company, Mr. Mandel was President of Desktop Designs Ltd., a VAR of Apple and
Silicon Graphics systems, which he founded in 1986. Mr. Mandel has degrees in
Marketing and Management from Western New England College.
MARIANNE MCCORMACK, 45, has served as the Company's Director
of Service and Training Operations since June 1994. Prior to joining the
Company, Ms. McCormack was the Director of Training and Technical Support at J&J
Computing since October 1990. She holds a Masters of Science Degree in
Educational Computing from Iona College and a Bachelor of Arts degree in
Mathematics from Rutgers University. Ms. McCormack has been actively involved in
computer education since 1974.
JERROLD HOFFMAN, 52, the Company's Director of Purchasing
since January 1994, has extensive experience in purchasing, production, sales
and budgeting. Prior to joining the Company, Mr. Hoffman served for eight years
as production manager at A. Kamhi, Inc., an apparel manufacturer. He received
his Bachelor's degree in economics from Hunter College.
46
<PAGE>
BOARD COMPENSATION
Each director of the Company who is not employed by the
Company, and who does not beneficially own more than 5% of the outstanding
Common Stock of the Company, will be entitled receive (i) the sum of $1,000 per
meeting attended by such outside director and (ii) options to purchase a total
of 3,000 shares of Common Stock per year. Such options are immediately
exercisable, have a ten-year term, subject to certain restrictions, and are
exercisable at the fair market value of the Common Stock at the date of the
grant. Of the current board members, only Mr. Fox and Dr. Videbeck are entitled
to receive such compensation. The stock options granted to them expire in
October 2005 and October 2006 and are exercisable at $7.00 and $8.625,
respectively. In addition, at the discretion of the Board of Directors,
directors may be reimbursed for reasonable travel expenses in attending Board
and committee meetings.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the
compensation received for services rendered to the Company during the past three
fiscal years by Marc H. Bell, the Chief Executive Officer. No other executive
officer received compensation in excess of $100,000 during any of the past three
fiscal years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary
<S> <C> <C>
Marc H. Bell 1996 $165,000
President and Chief 1995 $ 45,000
Executive Officer 1994(1) $149,000
</TABLE>
(1) Prior to July 1, 1994, the Company was a Subchapter S corporation for
purposes of the Internal Revenue Code. The amount shown is for a
twelve month period and includes dividend distributions made by the
Company.
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<PAGE>
STOCK OPTIONS
The Company has not granted any stock options to Marc
H. Bell. For information with respect to options granted to
certain other key employees, see " -- Stock Option Plan."
STOCK OPTION PLAN
The Company has adopted the 1995 Stock Option Plan (the "Stock
Option Plan"), pursuant to which options to acquire an aggregate of 360,000
shares of Common Stock have been reserved for issuance to employees, officers or
directors of, or consultants to, the Company. The Board has discretionary
authority to determine the types of stock options to be granted, the persons
eligible to receive stock options, those to whom options may be granted, the
number of shares to be subject to such options, the exercise price of such
option and the terms of the stock option agreements. The exercise price may be
paid in cash, certified or bank check, or in stock of the Company valued at its
then fair market value. Options are non-transferable (including pursuant to a
final divorce decree or property division settlement or agreement) except by
will or by the laws of descent and distribution. The Company has filed a
registration statement on Form S-8 with respect to the shares of Common Stock to
be issued upon the exercise of the options granted under the Stock Option Plan.
As of February 28, 1997 the Company had granted options to
purchase approximately 261,563 shares of Common Stock under the Stock Option
Plan, including options to purchase 90,000 shares granted to Robert Bell, the
Company's Executive Vice President, options to purchase 6,000 shares granted to
Mr. Fox, a director, and options to purchase 6,000 shares granted to Dr.
Videbeck, a director. The exercise price of all options granted to date is
between $7.00 and $12.625 per share and the term of the options is ten years
from the date of grant.
SHARE DEPOSIT AGREEMENT
Pursuant to a Share Deposit Agreement between the Principal
Stockholders), the Company and Rickel, the Principal Stockholders have deposited
with the Company an aggregate of 420,000 of the shares of Common Stock owned by
them. The Share Deposit Agreement was negotiated between the Principal
Stockholders and Rickel as a means for the Principal Stockholders to demonstrate
their confidence in the Company's future and their commitment to the Company.
The Principal Stockholders will retain the right to vote such shares during the
term of the
48
<PAGE>
agreement. The shares so deposited by them will not be released until January
24, 2004 unless the Company reports "pre-tax net income" (as defined in the
Share Deposit Agreement) in excess of $3,500,000 during the eight quarters
ending March 31, 1998, in which event all of such shares will be released.
EMPLOYMENT ARRANGEMENTS
In October 1995, the Company entered into an employment
agreement with Marc H. Bell, which extends for a period of five years,
terminating on September 30, 2000. Pursuant to the terms of the agreement, Mr.
Bell receives a base salary of $200,000 per year effective January 1, 1996. Mr.
Bell's base salary will increase 5% per year for each year that the Company
reports net income. In addition, Mr. Bell may at any time during the term of the
Agreement require the Company to make a five year loan to him, bearing interest
at 8.75% per annum in the amount of approximately $115,000. The agreement also
provides for a severance payment to Mr. Bell in the event of a "change of
control" of the Company equal to 2.99 times his average annual compensation,
including bonus, during the term of the agreement.
The Company has also entered into an employment agreement with
Robert Bell, Executive Vice President, for a term of two years, terminating on
September 30, 1997. Pursuant to the terms of the agreement, effective January 1,
1996, Mr. Bell's base salary is $125,000 per annum. Mr. Bell's base salary will
increase 5% per year for each year that the Company reports net income. Mr. Bell
also has the right to terminate his employment agreement on 60 days prior
written notice.
The Company has also entered into employment agreements with
several of its key employees who are not executive officers. Many of these
agreements contain non-competition provisions in the event of termination for
cause by the Company, or termination without cause by the employee.
In addition to base compensation, the Company intends to
reserve at the end of each fiscal year a sum equal to ten (10%) percent of the
consolidated net income of the Company (computed before provision for federal
and state income taxes-the "Bonus Pool"), for allocation among the officers of
the Company and certain key employees (including Marc H. Bell). Marc H. Bell
will receive an amount equal to 5% of the pre-tax income over $1 million (50% of
the Bonus Pool to the extent, if any, that the Bonus Pool exceeds $100,000). The
Board of Directors of the Company will determine the allocation of the Bonus
Pool to other employees to the extent the Bonus Pool is in excess of Mr.
Bell's allocable share as set forth above.
49
<PAGE>
In addition, the Company has obtained a key person life
insurance policy on Mr. Bell in the amount of $1,000,000. The Company is the
beneficiary of such policy.
LIMITED LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware Law, the Company has included in
its Certificate of Incorporation a provision to eliminate the personal liability
of its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, the
Bylaws of the Company provide that the Company is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and the
Company is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified. At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of the
Company in which indemnification would be required or permitted. The Company
believes that the provisions discussed above are necessary to attract and retain
qualified persons as directors and officers.
The Company has been advised that it is the position of the
Commission that insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, such provision is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
LEGAL PROCEEDINGS
In January 1997, an action was commenced, in the Supreme Court
of the State of New York, County of New York, by a company which allegedly
provides website services against General Media International, Inc., the Company
and two individuals. The Complaint alleges that the Company tortiously
interfered with the plaintiff's contractual and business relations with General
Media International, Inc. The Company believes that the action against it is
without merit and intends to vigorously defend itself.
Except for the foregoing, as of the date hereof there are no
legal proceedings pending against the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
the beneficial ownership of the Company's Common Stock as of February 28, 1997
by each beneficial owner of more than 5% of the outstanding shares thereof known
to the Company, and by
50
<PAGE>
each director and executive officer named in the Summary Compensation Table and
all executive officers and directors of the Company as a group, both before and
after giving effect to this Offering.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OF COMMON PERCENTAGE OF
BENEFICIAL OWNER(1) STOCK OUTSTANDING COMMON
BENEFICIALLY STOCK OWNED(3)
OWNED
PRIOR TO BEFORE AFTER
OFFERING(2) OFFERING OFFERING
<S> <C> <C> <C>
Marc H. Bell(4)........................... 1,802,142 56.9% 47.1%
Tsuyoshi Shiraishi (4)(5)
Harpoon Holdings, Ltd.
2 Handy Road, #11-09 Cathay
Building, Singapore 229233 862,500 28.4% 23.2%
Robert B. Bell (6) 90,000 2.9% 2.4%
Martin Fox 6,000 * *
2001 Tonnelle Avenue
North Bergen, NJ 07047
Richard Videbeck (7) 6,000 * *
3249 East Angler's Stream
Avon Park, FL 33825
All executive officers and
directors as a group (8
persons)(7)............................... 1,808,142 59.4% 48.8%
</TABLE>
* Less than 1%
(1) The address for Messrs. Marc and Robert Bell is c/o Bell
Technology Group Ltd., 295 Lafayette Street, New York, NY
10012.
(2) Under the rules of the Securities and Exchange Commission,
a person is deemed to be the beneficial owner of a
security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose or
direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities if that
person has the right to acquire beneficial ownership
within 60 days. Accordingly, more than one person may be deemed
to be a beneficial owner of the same securities. Unless
51
<PAGE>
otherwise indicated by footnote, the named entities or
individuals have sole voting and investment power with
respect to the shares of Common Stock beneficially owned.
(3) Represents the number of shares of Common Stock
beneficially owned as of February 28, 1997 by each named
person or group, expressed as a percentage of all of the
shares of such class outstanding as of such date. Assumes
the total number of shares of Common Stock to be
outstanding after this Offering includes 661,250 shares of
Common Stock to be issued upon the exercise of the Old
Warrants.
(4) Includes the 862,500 Harpoon Shares which are subject to
the October 1995 Irrevocable Proxy Agreement entered into
between Harpoon and Marc H. Bell, pursuant to which
Harpoon has granted Mr. Bell the sole right to vote the Harpoon
Shares with respect to the election of the Company's
directors. The Irrevocable Proxy Agreement terminates in
October 2005. Also includes 420,000 Shares subject to the
Share Deposit Agreement. See "Management-Share Deposit
Agreement." Also includes 90,000 shares with respect to
which Robert Bell, the Company's Executive Vice President,
and 30,000 with respect to which Leslie Bell, the
Company's Assistant Secretary, have currently exercisable options
to purchase. Robert Bell and his daughter Leslie Bell, have
entered into an agreement pursuant to which Marc H. Bell,
or in the alternative, the Company has the right to
acquire any shares purchased pursuant to the exercise of such
options for the fair market value of such shares on the
date of exercise.
(5) Mr. Shiraishi, a director of the Company, is the sole
shareholder of Harpoon. See "Management -- Executive
Officers and Directors."
(6) The named individual has the right to acquire the number of shares
shown pursuant to a currently exercisable stock option.
(7) Includes currently exercisable stock options to purchase
126,000 shares.
During the 40 business days prior to the date of this Prospectus, the Company,
its executive officers and directors have not effected any transactions in the
Old Warrants, nor does the Company have any contract, arrangement, understanding
or relationship directly or indirectly in connection with this Offering, with
any of its executive officers or directors.
MARKET FOR COMPANY'S COMMON STOCK
52
<PAGE>
The Company's Common Stock is traded on the Nasdaq SmallCap
Market System. The following table indicates high and low sales quotations for
the periods indicated based upon information supplied by Nasdaq, Inc. since the
Company's initial public offering in January, 1996. Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
1997 LOW HIGH
first quarter 8 7/8 9 7/8
1996 LOW HIGH
---- --- ----
second quarter 7 3/4 10 1/2
third quarter 8 5/8 10
fourth quarter 7 1/2 9 1/2
The number of holders of record of the Company's Common Stock
on February 28, 1997 was 28, which does not include individual participants in
security position listings.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of
10,000,000 shares of Common Stock, par value $.01 per share, and 500,000 shares
of Preferred Stock, par value $.01 per share. The Preferred Stock may be issued
with such rights, designations and privileges (including redemption and voting
rights) as the Board may, from time to time, determine.
COMMON STOCK
There are 3,044,351 shares of Common Stock outstanding as of
February 28, 1997 held of record by 28 registered stockholders.
Holders of Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders of the Company. The holders of
the Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to the prior liquidation
rights of any outstanding Preferred Stock. The Common Stock has no preemptive,
redemption, conversion or other subscription rights. The outstanding shares of
Common Stock are, and the shares offered by
53
<PAGE>
the Company in the Offering will be, when issued and paid for, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock, which the Company may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, without further
stockholder approval, to issue up to 500,000 shares of "blank check" Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted or imposed upon any unissued shares of Preferred Stock and
to fix the number of shares constituting any series and the designations of such
series.
The issuance of Preferred Stock may have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock or could adversely affect the rights
and powers, including voting rights, of the holders of the Common Stock. In
certain circumstances, such issuance could have the effect of decreasing the
market price of the Common Stock. As of the closing of the Offering, no shares
of Preferred Stock will be outstanding, and the Company currently has no plans
to issue any shares of Preferred Stock.
WARRANTS
OLD WARRANTS
The holders of the Old Warrants who exercise their rights
thereunder will be issued a share of Common Stock and a Class B Warrant (See
below -"Class B Warrants") for each Old Warrant exercised during the Special
Exercise Period. Each of the Old Warrants not so exercised during the Special
Exercise Period will continue to entitle the registered holder to purchase one
share of Common Stock at a price of $7.70 per share at any time until January
23, 2001. Unless exercised, the Old Warrants will automatically expire on
January 23, 2000. The Old Warrants will continue to be subject to redemption by
the Company at a redemption price of $.10 per Old Warrant upon 30 days prior
written notice to the holders of the Warrants, provided the average closing bid
quotation of the Common Stock as reported on the Nasdaq Stock Market, if traded
thereon, or if not traded thereon, the average closing price if listed on a
national securities exchange or other reporting system that provides last sale
price, has been at least 150% of the then current exercise price of the Warrants
(initially $11.55 per share), for a period of 20 consecutive trading days ending
on the third day prior to
54
<PAGE>
the date on which the Company gives notice of redemption. The Old Warrants will
be exercisable until the close of business on the day immediately preceding the
date fixed for redemption. The Warrant Agreement between the Company, Rickel and
Continental Stock Transfer & Trust Company may be amended, subject to certain
exceptions, by the Company and the warrant agent with the consent in writing of
the holders of at least a majority of the Old Warrants.
CLASS B WARRANTS
The Class B Warrants will be issued pursuant to a Warrant
Agreement between the Company and Continental Stock Transfer & Trust Company, as
warrant agent, and will be in registered form. Each of the Class B Warrants will
entitle the registered holder to purchase one share of Common Stock at a price
of $____ per share at any time during the five year period after the date of the
Prospectus. Unless exercised, the Class B Warrants will automatically expire on
_________ 2002 (60 months from the date of this Prospectus). The Class B
Warrants are subject to redemption by the Company at a redemption price of $.10
per warrant commencing _______ __, 1998 (12 months from the date of this
Prospectus) upon 30 days prior written notice to the holders of the Class B
Warrants, provided the average closing bid quotation of the Common Stock as
reported on the Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing price if listed on a national securities exchange
or other reporting system that provides last sale price, has been at least 135%
of the then current exercise price of the Class B Warrants (initially $_____ per
share), for a period of 20 consecutive trading days ending on the third day
prior to the date on which the Company gives notice of redemption. The Class B
Warrants will be exercisable until the close of business on the day immediately
preceding the date fixed for redemption. The Class B Warrant Agreement may be
amended, subject to certain exceptions, by the Company and the warrant agent
with the consent in writing of the holders of at least a majority of the
Warrants.
The holders of both the Old Warrants and the Class B Warrants
have certain anti-dilution protection upon the occurrence of certain events,
including stock dividends, stock splits, reclassifications, mergers and stock
issues at a price below both the then current market price of the Common Stock
and the exercise price of such warrants. The holders of such Warrants have no
right to vote on matters submitted to the stockholders of the Company and have
no right to receive dividends. The holders of such Warrants are not entitled to
share in the assets of the Company in the event of liquidation, dissolution or
the winding up of the Company's affairs.
The Company will use its best efforts to have a current
registration statement on file with the Commission at all
55
<PAGE>
times when the Old Warrants and the Class B Warrants may be exercised and to
effect appropriate qualifications under the laws and regulations of the states
in which the Common Stock and Class B Warrants are sold in this Offering in
order to comply with applicable laws in connection with such exercise. The
Company intends to keep current the Registration Statement comprising this
Prospectus. There is no assurance that the Registration Statement comprising
this Prospectus can or will be kept current or that the Company will file any
other registration statement covering the Common Stock underlying the Old
Warrants and the Class B Warrants, that such other registration statement, if
filed, will become effective as soon as the Old Warrants and the Class B
Warrants are exercisable or that such registration statement can or will be kept
current. In any of such events, or if such Common Stock is not registered or
qualified for sale in the state in which an Old Warrant or Class B Warrant
holder resides, the exercise of the Old Warrants or the Class B Warrants and the
resale or other disposition of Common Stock issued upon such exercise could be
unlawful and the Old Warrants and Class B Warrants will not be exercisable.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is a Delaware corporation and subject to Section
203 of the Delaware General Corporation Law (the "Delaware Law"), an
anti-takeover law. In general, Section 203 of the Delaware Law prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder, subject to certain
exceptions such as the approval of the Board of Directors and the holders of at
least 66 2/3% of the outstanding shares of voting stock not owned by the
interested stockholder. The existence of this provision would be expected to
have the effect of discouraging takeover attempts, including attempts that might
result in a premium over the market price for the shares of Common Stock held by
stockholders.
The Company's Certificate of Incorporation provides that any
action required or permitted to be taken by the stockholders of the Company may
be taken only at a duly called annual or special meeting of the stockholders.
The Certificate of Incorporation and Bylaws leave to the directors the sole
right to change the size of the Board of Directors and to fill vacancies on the
Board of Directors. The By-Laws also establish procedures, including advance
notice procedures, with regard to the nomination, other than by or at the
direction of the Board of Directors, of candidates for elections as directors or
for stockholder proposals to be submitted at stockholder meetings.
These and other provisions could have the effect of
56
<PAGE>
making it more difficult for a third party to effect a change in control of the
Board of Directors and therefore may discourage another person or entity from
making a tender offer for the Company's Common Stock, including offers at a
premium over the market price of the Common Stock, and might result in a delay
in changes in control of management. In addition, these provisions could have
the effect of making it more difficult for proposals favored by the stockholders
to be presented for stockholder consideration.
The Company's Certificate of Incorporation also includes
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware Law and to indemnify its directors and officers to the fullest
extent permitted by the Delaware Law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common
Stock and Warrants is Continental Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Except as discussed below, all the Company's Securities will
be freely tradable without restriction under the Securities Act, unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act.
If all the Old Warrants are exercised, the Company will have
outstanding 3,705,601 shares of Common Stock. Of these, 1,682,142 shares of
Common Stock were issued by the Company in private transactions in reliance upon
the "private placement" exemption under Section 4(2) of the act in two separate
transactions in July 1994 and in October 1995, and are therefore "restricted
securities" within the meaning of Rule 144 under the Securities Act ("Restricted
Shares"). All of these shares are, in reliance upon Rule 144 promulgated under
the Act, and subject to any applicable volume limitations, currently eligible to
be sold.
In general, under Rule 144, as currently in effect, a
stockholder (or stockholders whose shares are aggregated) who has beneficially
owned for at least two years (one year effective April 29, 1997) shares of
Common Stock which are treated as "restricted securities," including persons who
may be deemed affiliates of the Company, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of: (i)
one percent of the number of shares of Common Stock then outstanding (which will
equal approximately 3,705,601 shares immediately after the Offering); or (ii)
the average
57
<PAGE>
weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years (two
years effective April 29, 1997), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Prior to the Offering, there has been no public market for the
Class B Warrants of the Company and no predictions can be made as to the effect,
if any, that the issuance of the Class B Warrants will have on the market price
of the Common Stock prevailing from time to time.
PURPOSE OF THE OFFERING
The purposes of the Offering are to encourage the exercise of
the Old Warrants, strengthen the Company's capital structure by increasing
stockholders' equity and current assets, and provide the Company greater
financial flexibility. The net proceeds of this Offering will permit the Company
to continue to upgrade and expand its facilities and equipment in its network
and Internet operations, without relying on debt or other sources of capital.
The Company believes that the reduction of the exercise price of the Old
Warrants to $7.50 and the issuance of the Class B Warrants will encourage the
holders of the Old Warrants to exercise.
PLAN OF DISTRIBUTION
Upon exercise of each Old Warrant and payment to the Company
of the reduced exercise price of $7.50, the holder will receive one share of
Common Stock and one Class B Warrant.
The Company will pay to Rickel a warrant solicitation fee of
five percent (5%) of the aggregate exercise price of each Old Warrant exercised
if (i) the exercise of the Old Warrant was solicited by an NASD member, (ii) the
Old Warrant is not held in a discretionary account, (iii) the disclosure of
compensation arrangements is made at the time of the exercise of the Old
Warrant, and (iv) the solicitation is not in violation of Regulation M under the
Exchange Act.
From the proceeds of the offering, the Company will pay the
costs incurred with respect to the Offering, which are estimated to be $_____and
charges and expenses of the Transfer Agent and Registrar.
58
<PAGE>
The reduced exercise price of the Old Warrants and the initial
exercise price of the Class B Warrants were established by the Company and do
not necessarily bear any direct relationship to the Company's assets, earnings,
book value per share, or other generally accepted criteria of value.
The Company will accept any and all Old Warrants duly
exercised and not withdrawn on or prior to ________, 1997, or any extensions
thereof, subject to certain conditions. In certain cases, the sale of the Class
B Warrants (and the shares of Common Stock underlying the Class B Warrants)
pursuant to exercise of the Old Warrants may be subject to restrictions under
the securities laws of certain states or other jurisdictions. See "Risk Factors
- -- Securities Laws Restrictions on Exercise of Warrants."
LEGAL MATTERS
The validity of the issuance of the Common Stock and Class B
Warrants offered hereby has been passed upon for the Company by Milberg Weiss
Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119.
EXPERTS
The audited consolidated financial statements included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
59
<PAGE>
BELL TECHNOLOGY GROUP LTD.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements of Bell Technology Group Ltd.
and Subsidiaries
Consolidated Balance Sheets
for the Three Months Ended December 31, 1996
and the Year Ended September 30, 1996........................................ F-2
Consolidated Statements of Operations
For the Three Months Ended December 31, 1996
and 1995..................................................................... F-3
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1996
and 1995..................................................................... F-4
Notes to Consolidated Financial Statements
For the Three Months Ended December 31, 1996................................. F-5
Report of Independent Public Accountants....................................... F-6
Consolidated Balance Sheets - September 30, 1996
and September 30, 1995....................................................... F-7
Consolidated Statements of Operations - For the year ended September 30, 1996
and the nine months ended
September 30, 1995............................................................. F-8
Consolidated Statements of Changes in Stockholders' Equity - For the year ended
September 30, 1996 and
the nine months ended September 30, 1995....................................... F-9
Consolidated Statements of Cash Flows - For the year ended September 30, 1996
and the nine months ended
September 30, 1995............................................................. F-10
Notes to Consolidated Financial Statements
For the Year Ended September 30, 1996........................................ F-11 - F-19
</TABLE>
F-1
<PAGE>
Bell Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
For the Three Months Ended December 31, 1996
and the Year Ended September 30, 1996
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1996 1996
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,463,889 $ 2,742,011
Accounts receivable, net of allowance for
doubtful accounts of $127,842 and $64,842
as of December 31, 1996 and September 30,
1996, respectively 3,125,395 1,847,918
Inventories 1,005,581 758,353
Prepaid expenses and other current assets 127,334 195,113
--------- ---------
Total current assets 5,722,199 5,543,395
Property and equipment, net 2,686,098 2,151,294
Other assets 71,196 115,093
---------- ----------
Total assets $ 8,479,493 $ 7,809,782
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Short term borrowings $ 779,392 $ --
Current portion of notes payable 27,351 39,152
Accounts payable 1,794,594 1,274,197
Accrued expenses 258,257 240,116
Deferred revenues 199,343 166,617
---------- ----------
Total current liabilities 3,058,937 1,720,082
---------- ----------
Commitments and contingencies
Stockholders' equity :
Preferred Stock, $.01 par value; 500,000
shares authorized; no shares issued and
outstanding -- --
Common Stock, $.01 par value; 10,000,000
shares authorized; 3,042,018 and 3,083,210
shares issued and outstanding 30,420 30,832
Additional paid-in capital 8,045,208 8,033,134
Accumulated deficit (2,655,072) (1,974,266)
---------- ----------
Total stockholders' equity 5,420,556 6,089,700
---------- -----------
Total liabilities and stockholders'
equity $ 8,479,493 $ 7,809,782
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE>
Bell Technology Group Ltd.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
December 31,
1996 1995
Revenues $ 3,696,399 $ 2,422,261
Costs and expenses:
Cost of revenues 2,835,316 2,013,240
Selling, general and administrative 1,444,795 520,987
Depreciation and amortization (net of
$45,016 included in cost of revenues) 111,450 54,245
---------- ----------
Total costs and expenses 4,391,561 2,588,472
---------- ----------
Loss from operations (695,162) (166,211)
Interest income 18,055 --
Interest expense (3,699) (24,417)
---------- ----------
Loss before taxes (680,806) (190,628)
(Benefit from) provision for taxes -- --
---------- ----------
Net loss $ (680,806) $ (190,628)
========== ==========
Net loss per share ($0.22) ($0.11)
Weighted average shares outstanding 3,084,339 1,742,855
The accompanying notes are an integral part of these consolidated
statements.
F-3
<PAGE>
Bell Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
December 31,
1996 1995
Cash flows from operating activities:
Net loss $(680,806) $ (190,628)
Adjustments to reconcile net (loss) income
to net cash used in operating activities
Depreciation and amortization 156,466 54,245
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,277,477) 225,485
(Increase) in inventories (247,228) (128,226)
Decrease (increase) in prepaid expenses
and other current assets 67,779 (8,244)
Decrease (increase) in other assets 43,897 (12,844)
Increase in accounts payable 520,397 85,709
Increase (decrease) in accrued expenses 29,803 (15,842)
Increase (decrease) in deferred revenues 32,726 (19,596)
----------- ----------
Net cash used in operations (1,354,443) (9,941)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment,
net of landlord reimbursement (691,270) (59,363)
----------- ----------
Net cash used in investing activities (691,270) (59,363)
----------- ----------
Cash flows from financing activities:
Net proceeds from short term borrowings (779,392) 20,052
Repayments of notes payable (11,801) (27,813)
Proceeds from bridge financing -- 250,000
Payment of debt issuance and stock
offering costs -- (113,404)
----------- ----------
Net cash provided by financing activities 767,591 128,835
----------- ----------
Net increase (decrease) in cash and
cash equivalents (1,278,122) 59,531
Cash and cash equivalents,
beginning of period 2,742,011 222,367
----------- ----------
Cash and cash equivalents,
end of period $ 1,463,889 $ 281,898
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest 395 25,041
Noncash investing and financing activities:
Issuance of common stock in connection
with bridge financing -- 250,000
The accompanying notes are an integral part of these consolidated
statements
F-4
<PAGE>
BELL TECHNOLOGY GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheets as of December 31, 1996 and 1995 and statements
of operations and statements of cash flows for the three months ended December
31, 1996 and 1995 have been prepared by Bell Technology Group Ltd. (the
"Company") without audit. All material inter-company 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 10KSB on file with the Securities and Exchange Commission.
Results of operations for the three month period are not necessarily indicative
of the operating results 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.
2. REVOLVING CREDIT AGREEMENT
The Company (through its NAFT subsidiary) presently has approximately $3.0
million available to it pursuant to a Revolving Credit Agreement (to finance its
accounts receivable and inventory) with NationsCredit ("Nations"). As of
December 31, 1996, the Company had a net outstanding of approximately $1.2
million under this agreement. Such obligation is secured by a continuing
security interest in substantially all of the assets of the Company. The
borrowings bear interest at the prime rate plus 1.75%. Pursuant to the terms of
these agreements, NAFT is required to maintain certain liquidity ratios which
the Company is currently maintaining.
3. COMMITMENTS AND CONTINGENCIES
In February 1996 the Company entered into a lease for its corporate headquarters
effective July 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. Under the lease, the landlord is to reimburse the Company $500,000 for
leasehold improvements. As of December 31, 1996 $50,000 has been recorded as Due
from landlord. The Company was required by the terms of the lease to maintain a
letter of credit in the amount of $400,000 for the duration of the lease. In
order to meet such requirement, the Company maintains a restricted certificate
of deposit in the amount of $400,000. This amount is included in "Cash and cash
equivalents" of the Company's consolidated balance sheets at December 31, and
September 30, 1996.
F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: BELL TECHNOLOGY GROUP LTD.:
We have audited the accompanying consolidated balance sheets of Bell Technology
Group Ltd. (a Delaware corporation) and Subsidiaries as of September 30, 1996
and September 30, 1995, and the related consolidated statements of operations,
and cash flows for the year and nine months then ended, respectively. 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.
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 financial position of the Bell Technology Group Ltd.
and Subsidiaries as of September 30, 1996 and September 30, 1995, the results of
its operations and its cash flows for the year and nine months then ended,
respectively, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
December 23, 1996
New York, New York
F-6
<PAGE>
Bell Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheet
September September
Assets 30, 1996 30, 1995
Current assets:
Cash and cash equivalents $2,742,011 $ 222,367
Accounts receivable, net of allowance for
doubtful accounts of $64,842 and
$11,212 as of September 30, 1996 and
September 30, 1995, respectively 1,847,918 1,423,548
Inventories 758,353 843,904
Prepaid expenses and other current assets 195,113 12,061
---------- ----------
Total current assets 5,543,395 2,501,880
Property and equipment, net 2,151,294 413,306
Deferred stock offering costs -- 25,000
Other assets 115,093 21,364
---------- ----------
Total assets $7,809,782 $2,961,550
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short term borrowings $ -- $ 711,952
Current portion of notes payable 39,152 75,865
Accounts payable 1,274,197 1,319,532
Accrued expenses 240,116 118,414
Deferred revenues 166,617 75,562
Deferred income taxes -- 20,816
---------- ----------
Total current liabilities 1,720,082 2,322,141
Long term note payable, net of curr portion -- 47,050
Note payable - Stockholder -- 287,000
Deferred income taxes -- 6,562
---------- ----------
Total liabilities 1,720,082 2,662,753
---------- ----------
Commitments and contingencies
Stockholders' equity :
Preferred Stock, $.01 par value; 500,000
shares authorized; no shares issued and
outstanding -- --
Common Stock, $.01 par value; 10,000,000
shares authorized; 3,083,210 and 1,725,000
shares issued and outstanding 30,832 17,250
Additional paid-in capital 8,033,134 362,333
Accumulated deficit (1,974,266) (80,786)
---------- ----------
Total stockholders' equity 6,089,700 298,797
---------- ----------
Total liabilities and
stockholders' equity $7,809,782 $2,961,550
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-7
<PAGE>
Bell Technology Group Ltd.
and Subsidiaries
Consolidated Statements of Operations
Nine Months
Year Ended Ended
September 30, September 30,
1996 1995
Revenues $10,373,664 $8,738,410
Costs and expenses:
Cost of revenues 8,599,241 7,292,232
Selling, general and administrative 3,186,718 1,212,829
Depreciation and amortization 219,176 68,510
Research and development 57,250 34,000
---------- ----------
Total costs and expenses 12,062,385 8,607,571
---------- ----------
Income (loss) from operations (1,688,721) 130,839
Interest income 121,256 --
Interest expense (98,520) (72,881)
Write-off of Debt Issuance Costs (257,391) --
---------- ----------
Income (loss) before taxes (1,923,721) 57,958
(Benefit from) provision for taxes (29,896) 19,099
---------- ----------
Net income (loss) $(1,893,480) $ 38,859
========== ==========
Net earnings (loss) per share ($0.72) $0.02
Weighted average shares outstanding 2,633,400 1,725,000
The accompanying notes are an integral part of these consolidated
statements.
F-8
<PAGE>
Bell Technology Group Ltd. and Subsidiaries
Consolidated Statements of Changes in
Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Stockholders
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 1,725,000 $10,625 $ 368,958 ($ 119,645) $ 259,938
Adjustment related to the
merger of PFMT and the
Company --- 6,625 (6,625) --- ---
Net income --- --- --- 38,859 38,859
--------- -------- -------- --------- ---------
Balance, September 30, 1995 1,725,000 17,250 362,333 (80,786) 298,797
Stock issuance in connection
with bridge financing 35,710 357 249,643 --- 250,000
Proceeds from Initial Public
Offering, net of expenses
of $1,602,175 1,322,500 13,225 7,421,158 --- 7,434,383
Net loss --- --- --- (1,893,480) (1,893,480)
--------- ------- ---------- ----------- ----------
Balance, September 30, 1996 3,083,210 $30,832 $8,033,134 ($1,974,266) $6,089,700
========= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
F-9
<PAGE>
Bell Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months
Year Ended Ended
September September
30, 1996 30, 1995
Cash flows from operating activities:
Net (loss) income $(1,893,480) $ 38,859
Adjustments to reconcile net (loss) income
to net cash used in operating activities
Depreciation and amortization 219,176 68,510
Write-off and amortization of debt issuance 250,000 --
(Benefit) for deferred taxes (29,896) (838)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (424,370) (111,434)
Decrease (increase) in inventories 85,551 (422,991)
(Increase) decrease in prepaid expenses
and other current assets (183,052) 4,354
(Increase) in other assets (68,729) (31,890)
(Decrease) increase in accounts payable (45,337) 99,211
Increase in accrued expenses 121,702 6,347
(Decrease) in payable due to officers -- (5,250)
Increase in deferred revenues 91,057 48,762
------------ ----------
Net cash used in operations (1,877,378) (306,360)
------------ ----------
Cash flows from investing activities:
Purchases of property and equipment,
net of landlord reimbursement (1,954,646) (149,917)
------------ ----------
Net cash used in investing activities (1,954,646) (149,917)
------------ ----------
Cash flows from financing activities:
Net (repayments of) proceeds from
short term borrowings (711,952) 417,739
Repayments of stockholder loan (287,000) (13,000)
Repayments of notes payable (83,763) (48,990)
Proceeds from initial public offering,
net of offering costs of $1,602,175 7,434,383 --
----------- ----------
Net cash provided by financing activities 6,351,668 355,749
----------- ----------
Net increase (decrease) in cash and
cash equivalents 2,519,644 (100,528)
Cash and cash equivalents, beginning 222,367 322,895
----------- ----------
Cash and cash equivalents, ending $ 2,742,011 $ 222,367
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest 53,887 60,157
Cash paid for income taxes 12,736 --
Noncash investing and financing activities:
Issuance of common stock in connection
with bridge financing 250,000 --
Equipment acquired under capital lease
obligations -- 121,422
The accompanying notes are an integral part of these
consolidated statements
F-10
<PAGE>
Bell Technology Group Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
1. The Company and Significant Accounting Policies:
Organization
Bell Technology Group Ltd. and Subsidiaries (the "Company") was
incorporated in the State of Delaware in September 1995. Shortly thereafter, the
Company succeeded by merger to all the assets and liabilities of PFM
Technologies Corporation ("PFMT"), a New York corporation (See Note 3). In July
1994, the sole stockholder of NAFT International Ltd. ("NAFT") and Stellar
Graphics Corp. ("Stellar Graphics") exchanged 100% of the common stock of both
companies for 100 shares (100%) of PFMT, then a newly formed corporation, in a
tax free exchange. Subsequent to this transaction, an additional 100 shares of
PFMT were issued to Harpoon Holdings, Ltd. ("Harpoon") in consideration for
$200,000, of which $198,000 represented additional paid-in capital. The Company
also owns 100% of the equity of NAFT Computer Service Corp. ("NCS") a New York
corporation formed in September 1994, PFM Communications Inc. ("PFMC"), a New
York corporation formed in March 1995 and GameNet Corp. ("GameNet"), a New York
corporation formed in March 1995. Prior to the merger of PFMT into the Company,
these entities were wholly owned subsidiaries of PFMT. During 1996, the Company
changed the name of Stellar Graphics Corp. to Bluestreak Digital Inc.
("Bluestreak").
The consolidated financial statements herein include the accounts of
the Company, NAFT, PFMC, NCS, GameNet and Bluestreak. All material intercompany
accounts and transactions have been eliminated. The activities of NAFT and
Bluestreak from January 1, 1994 until the formation of PFMT are included in
these consolidated financial statements at their carryover basis as they were
under common control prior to the tax free exchange discussed above. In
September 1995, the Company changed its fiscal year end from December 31 to
September 30. Accordingly, the period ended September 30, 1995 is for a nine
month period.
Operations
The Company is a provider of computer and communications services and
equipment, including Internet access, Web design, 2-D and 3-D animation and
Internet consulting services.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average
number of shares outstanding during the periods presented. The impact of
outstanding warrants and stock options has not been included in the calculation
as the effect would be anti-dilutive.
F-11
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents.
Concentrations of Cash and Accounts Receivable
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. As of September 30, 1996, the Company had concentrations of
cash in a bank in the form of demand deposits and money market accounts,
totaling approximately $2,503,416. The Company believes that concentrations of
credit risk with respect to trade accounts receivable are limited due to the
large number of entities comprising the Company's customer base. The Company
primarily operates in the New York City metropolitan area.
Inventories
Inventory consists of computer hardware and software, parts and related
items. Inventories are carried at the lower of cost or market determined by the
first-in, first-out method.
Property and Equipment
Furniture, equipment and internally developed software are recorded at
cost and are depreciated on a straight-line basis over their estimated useful
lives, generally five years. Leasehold improvements are recorded at cost and
amortized over the term of the lease or life of the asset, whichever is shorter.
Property and equipment consist of the following.
September September
30, 1996 30, 1995
Leasehold improvements $ 510,057 $ 43,935
Computer and network
equipment 1,862,416 520,805
Furniture and delivery
equipment 193,054 40,312
Less - Accumulated
depreciation (414,233) (191,746)
------------- -----------
Property and equipment, net $ 2,151,294 $ 413,306
============= ===========
F-12
<PAGE>
Included in computer and network equipment is $155,507 of assets held
under capital lease obligations at September 30, 1996 and 1995. Also included in
computer and network equipment at September 30, 1996 and September 30, 1995 is
$184,086 and $28,333, respectively, related to internally developed software
costs.
Revenue Recognition
Revenues consist primarily of computer hardware sales, maintenance
contracts, Internet access fees, network installation charges, and repair fees.
Generally, maintenance contracts are for an agreed upon number of hours and are
prepaid by customers. Repair fees and maintenance charges are recognized as the
service is provided. Payments received in advance of providing services are
deferred until the period such services are provided. Equipment sales and
installation charges are recognized when installation is completed.
Monthly subscription service revenue related to Internet access is
recognized over the period services are provided. Subscription service and
equipment installation revenues, which require the use of Company-provided
installation of equipment at a subscriber's location, are recognized at
completion of installation and upon commencement of service. Revenues related to
the Web and to 2-D and 3-D animation are recognized at the completion of each
project. Projects are generally completed within a three month period.
Cost of Revenues
Cost of revenues in the Company's Internet businesses, PFMC and GameNet,
consist primarily of local access costs, leased network backbone circuit costs,
the cost of equipment and applications sold to customers and depreciation of
network-related equipment. NAFT's primary cost of revenues is the cost of the
computer products it sells. NCS's cost of revenues consist of parts, internal
and third-party labor costs, and training and certification costs. Bluestreak's
cost of revenues consist primarily of labor, printing expenses and camera work.
Research & Development
Research and development costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
F-13
<PAGE>
Recent Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of,"
("SFAS 121"), which is effective for financial statements for fiscal years
beginning after December 15, 1995. SFAS 121 requires that long-lived assets and
certain identifiable intangible assets held and used by a company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be recoverable. The Company believes
that, as of September 30, 1996, no assets covered by SFAS 121 have been
impaired.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," ("SFAS 123".) SFAS 123 allows companies to account for
stock-based compensation to employees under either (i) the new provisions of
SFAS 123 or (ii) the provisions of APB 25 with pro forma disclosure in the
footnotes to the financial statements as if the measurement provisions of SFAS
123 had been adopted. The Company intends to continue accounting for its
stock-based compensation to employees in accordance with the provisions of APB
25. As the Company did not issue options to non-employees, the implementation of
SFAS 123 had no impact on the financial position, results of operations and cash
flows of the Company.
2. Debt
The Company (through its NAFT subsidiary) has available a total of
$1,400,000 pursuant to a Business Financing Agreement and an Agreement for
Wholesale Financing with Deutsche Financial Services ("DFS") to finance its
accounts receivable and inventory. On certain inventory purchased from Apple and
financed through DFS, Apple pays the finance charges for a thirty day period. As
of September 30, 1995 and 1996, the Company had outstanding a total of $377,261
and $1,386,170, respectively, under these agreements, of which $377,261 and
$674,218, respectively, represent the portion of the line used for the Wholesale
Financing Agreement and are included in accounts payable in the accompanying
balance sheet. At September 30, 1996, the Company had not drawn upon the
Business Financing Agreement.
F-14
<PAGE>
The borrowings under these agreements bear interest at the prime rate
plus 1.5% (9.75% as of September 30, 1996) and are secured by a continuing
security interest in substantially all of the assets of NAFT and the guarantee
of the Company. Interest expense related to such agreements was $45,000 for 1996
and $55,000 for 1995. Pursuant to the terms of these agreements, NAFT is
required to obtain prior written consent from DFS before it engages in certain
transactions outside of NAFT's ordinary course of business. These agreements
also require that NAFT comply with certain financial covenants and prohibit
dividends. NAFT presently has an accumulated deficit. Future retained earnings
will be restricted as to the payment of dividends.
The Company borrowed $300,000 from Harpoon, a stockholder of the
Company, in 1994. The debt incurred by this borrowing was repaid in full during
fiscal year 1996.
3. Stockholders' Equity and Stock Options
Initial Public Offering
In January, 1996. the Company sold, in an initial public offering,
1,150,000 shares of Common Stock at an initial offering price of $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 common stock
for $7.70 per share. The warrants are redeemable by the Company at $.10 per
warrant at any time after January 24, 1997 if certain conditions are met. The
net proceeds which the Company received from the public offering amounted to
approximately $6,600,000.
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.
Bridge Financing
In October 1995, the Company borrowed $250,000 in a Bridge Financing.
The Bridge Notes issued in connection with the Bridge Financing carried interest
at 9% per annum. Such loans were repaid at the closing of the initial 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 were registered
as part of the initial public offering. Debt issuance costs of $257,391 and
interest expense of $37,149 were incurred by the Company as a result of the
bridge loan transaction.
F-15
<PAGE>
Stock Options
The Company has an Employee Stock Option Plan (the "Stock Option Plan").
Under the Option Plan, options are exercisable for a period up to 10 years from
the date of the grant. The number of shares of Common Stock reserved for
issuance under the Option Plan is 360,000. The purchase price of the stock will
be equal to or greater than 100% of the fair market value at the date of issue.
As of September 30, 1996, options to purchase approximately 202,730
shares, at exercise prices between $7.00 and $8.75 have been issued under the
plan. In the opinion of management, options were issued at the fair market value
of the Company's Common Stock as of the date of the grant.
Merger
Pursuant to the terms of the merger of PFMT and the Company, in
September 1995, each of the 200 shares of outstanding common stock of PFMT was
exchangeable for 8,625 shares of common stock of the Company. As a result, as of
September 30, 1996 there was a total of 1,725,000 shares of common stock of the
Company issued and outstanding. All per share amounts have been adjusted
retroactively to reflect this merger.
Deposit Shares
In connection with the Company's initial public offering, Marc Bell and
Harpoon have each deposited 210,000 shares of the Common Stock owned by them
(the "Deposit Shares") with the Company. The Company will hold such shares
pursuant to a Share Deposit Agreement. The Deposit Shares will be returned to
their respective owners no later than at the end of eight years from the date of
the Prospectus for the initial public offering. However, the Deposit Shares may
be returned prior to such time, if certain levels of profitability are met.
4. Commitments and Contingencies
Capital and Operating Leases
The Company leases office equipment and office space under various
noncancellable operating leases. Rent expense for the year ended September 30,
1996 and the nine months ended September 30, 1995 was approximately $253,402 and
$81,280, respectively. The Company has entered into capital leases for computer
equipment. These capital lease obligations have been recorded at interest rates
ranging from 8% to 8.75%.
F-16
<PAGE>
Future minimum lease payments under these lease agreements are as
follows:
Year Ending
September 30, Operating Capital
1997 $ 421,160 $ 54,071
1998 392,548 --
1999 423,319 --
2000 447,362 --
2001 456,309 --
Thereafter ................. 3,240,388 --
Less: Amount representing interest -- (14,919)
Present value of net minimum lease __________ _________
payments ......................... $ 5,381,086 $ 39,152
========== =========
5. Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and income tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The provision for income taxes on
historical net income for the year ended September 30, 1996 and the nine months
ended September 30, 1995 differs from the amount computed by applying the
federal statutory rate due to the effects of state and local taxes, net of
federal tax benefit and for the year ended September 30, 1996, the difference is
also the result of the Company recording a valuation allowance.
The Company is in an accumulated loss position for both financial
reporting and income tax purposes. No current federal tax benefit has been
recorded due to the uncertainty of the Company's ability to realize benefits by
generating taxable income in the future. The Company has a tax loss carryforward
of approximately $1.5 million at September 30, 1996. This carryforward expires
in 2011. The benefit from the provision for taxes of $29,896 represents the
reversal of deferred taxes provided in prior years.
Income tax (benefit) expense consists of the following:
Nine Months
Year Ended Ended
September September
30, 1996 30, 1995
------------- ------------
CURRENT:
Federal -- $ 8,410
State and local -- 11,527
------------ -----------
Total -- 19,937
------------ -----------
DEFERRED:
Federal $ (19,759) (398)
State and local (10,137) (440)
----------- -----------
Total $ (29,896) $ (838)
----------- -----------
Total $ (29,896) $ 19,099
=========== ===========
F-17
<PAGE>
The provision for income taxes on historical net income for the year
ended September 30, 1996 and the nine months ended September 30, 1995 differs
from the amount computed by applying the federal statutory rate due to the
following:
Nine Months
Year Ended Ended
September September
30, 1996 30, 1995
---------- -----------
Statutory federal income tax rate (34%) 34%
Effect of federal graduating tax
rate ............................ -- (18%)
State and local taxes, net of
federal benefit ................. (11%) 14%
Other ........................... ( 1%) 3%
Valuation allowance ............. 44% --
------ ------
Effective income tax rate ....... ( 2%) 33%
====== ======
Significant components of the Company's deferred tax assets and
liabilities are as follows:
September September
30, 1996 30, 1995
--------- ---------
Deferred tax assets
(liabilities):
Tax depreciation and
amortization in excess
of book depreciation
and amortization ...... $ (12,920) $ (6,708)
Income not recognized
due to the change from
the cash to the accrual
method of accounting
for income tax purposes -- (25,828)
Net operating loss
carry forward ......... 733,393 --
Allowance for doubtful
accounts .............. 29,176 5,158
Valuation allowance ... (749,649) --
---------- ----------
Total net deferred tax
liabilities .......... $ -- $ (27,378)
========== ==========
F-18
<PAGE>
6. Employment Agreement
In October 1995, the Company entered into an employment agreement with
Marc H. Bell which extends for a period of five years, terminating on September
30, 2000. Pursuant to the terms of the agreement, Mr. Bell receives a base
salary of $200,000 per year and a bonus equal to 5% of the annual pre-tax net
income of the Company in excess of $1 million.
The Company also entered into employment agreements on October 1, 1995
with two officers of the Company, which extend for a period of two years.
Pursuant to the terms of these agreements, annual base salary totals $189,000
per annum. In addition to base compensation, the Company intends to reserve at
the end of each fiscal year, a sum equal to ten (10%) percent of the
consolidated net income of the Company (computed before provision for federal
and state income taxes) (the "Bonus Pool"), for allocation among the officers of
the Company and certain key employees (including Marc H. Bell) as the Board of
Directors of the Company may determine. Marc Bell will receive an amount equal
to 5% of the pre-tax income over $1 million (50% of the Bonus Pool) to the
extent, if any, that the Bonus Pool exceeds $100,000.
7. Subsequent Event
New Credit Agreement
In October, 1996, the Company entered into a new credit agreement with
NationsCredit, to replace the DFS facility discussed in Note 2. This agreement
provides for a revolving credit line of up to $3,000,000 based upon 100% of
eligible inventory and 80% of eligible trade receivables. On inventory items,
Naft will finance the purchase invoice through the line of credit and pay no
interest for the first 30 days. After the expiration of such 30 day period,
interest will accrue at the prime rate plus 1.75%. Any borrowings under this
agreement are secured by substantially all of the assets of Naft and a cross
guaranty of the Company.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits
the liability of Directors to the maximum extent permitted by Delaware General
Corporation Law. Delaware law provides that the directors of a corporation will
not be personally liable to such corporation or its stockholders for monetary
damages for breach of their fiduciary duties as directors, except for liability
(i) for any breach of their duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction
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from which the director derives an improper personal benefit. The
Company's By-laws provide that the Company shall indemnify its directors and
officers under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and the Company is required to
advance expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified.
The directors and officers of the Company are insured (subject
to certain exceptions and deductions) against liabilities that they may incur in
their capacity as such, including liabilities under the Act, other than
liabilities thereunder arising in connection with this Offering, under a
liability insurance policy carried by the Company. Such policy provides coverage
in an aggregate amount of $1,000,000 (subject to retentions ranging from $75,000
to $150,000).
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses, excluding warrant
solicitation fees, in connection with this offering are as follows:
Amount
SEC Registration Fee...................................$ 2,936.00
Boston Stock Exchange Filing Fee....................... 15,000.00
Nasdaq Filing Fee...................................... 7,500.00
Printing*.............................................. 9,500.00
Legal Fees and Expenses*............................... 98,000.00
Warrant Solicitation Fee*.............................. 248,000.00
Accounting Fees and Expenses*.......................... 7,500.00
"Blue Sky" Fees and Expenses*.......................... 65,000.00
Warrant Agent Fees*.................................... 2,500.00
Miscellaneous*......................................... 3,439.00
Total..................................................$459,375.00
* Indicates expenses that have been estimated for purposes of
this filing.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since the inception of the Company in 1989, the Company has
made the following sales of unregistered securities, all of which were exempt
from the registration requirements of the Act pursuant to Section 4(2) thereof:
In June 1994, the Company sold 100 shares of the Company's
Common Stock (or 50% of the then issued and outstanding common stock) to Harpoon
Holdings, Ltd. ("Harpoon") for $200,000; which sum was credited to capital stock
and paid-in capital.
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Simultaneously therewith, the Company received a $300,000 loan from Harpoon and
issued a promissory note in principal amount of $300,000 to Harpoon Holdings,
Ltd. to evidence such loan.
In October 1995, the Company issued 9% promissory notes in
the aggregate principal amount of $250,000 (the "Bridge Notes") due on the
earlier of the completion of its initial public offering, or October 20, 1997 to
the Bridge Lenders to evidence loans for such amount, and also issued to the
eight individual Bridge Lenders, for $.01 per share, an aggregate of 35,710
shares of the Company's fully paid and non-assessable Common Stock as a fee for
making the loan.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description No.
<S> <C>
1 Form of Underwriting Agreement between
the Company and Rickel & Associates, Inc.
("Rickel"), the Underwriter.(2)
3(a) Certificate of Incorporation of the Company,
dated September 29, 1995.(1)
3(b) By-laws of the Company.(1)
4(a) Specimen Stock Certificate.(3)
4(b) Form of Old Warrant Agent Agreement (including Form
of Redeemable Warrant).(3)
4(c) Form of Underwriter's Warrant.(3)
4(d) Specimen Old Warrant Certificate.(3)
4(e) Form of Class B Warrant Agent Agreement by
and between the Company and Continental
Stock Transfer and Trust Company.
4(f) Specimen Class B Warrant Certificate.
5 Opinion of Milberg Weiss Bershad and Hynes & Lerach LLP.
10(a) Sublease for Penthouse Suite 907D between Rhodes
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Associates, Cable Building Associates,
Team Baseballs, Inc. and Stellar Graphics Corp.,
dated as of July 7, 1995.(2)
10(b) Agreement for Wholesale Financing for MicroAge
Commercial Credit Dealers between NAFT International
Ltd. and MicroAge Computer Centers, Inc., dated
as of July 21, 1993.(1)
10(c) Bell Technology Group Ltd. 1995 Stock Option Plan,
adopted September 29, 1995.(1)(+)
10(d) Irrevocable Proxy Agreement between Harpoon Holdings
Ltd. and Marc H. Bell, dated as of October 1, 1995.(1)
10(e) Employment Agreement between Marc H. Bell and the
Company dated as of October 1, 1995.(1)(+)
10(f) Employment Agreement between Robert Bell and the Company
dated as of October 1, 1995.(1)(+)
10(g) Share Deposit Agreement between Marc H. Bell, Harpoon
Holdings Ltd., the Company, and Rickel & Associates.(3)
10(h) Form of Consulting Agreement between the Company, and
Rickel & Associates.(1)
10(j) Amendment to Employment Agreement between Marc H. Bell
and the Company dated as of January 1, 1996.(4)(+)
10(k) Amendment to Employment Agreement between Robert Bell
and the Company dated as of January 1, 1996.(4)(+)
10(l) Security Agreement with NationsCredit Commercial
Corporation of America and NAFT International Ltd.
dated October 1996.(4)
10(m) Agreement of Lease between Bell Technology Group Ltd.
and Puck Associates dated as of July 23, 1996.(4)
21 List of Subsidiaries.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Milberg Weiss Bershad Hynes & Lerach LLP
(included in its opinion filed as Exhibit 5 to this
Registration Statement)
</TABLE>
- ---------------------
(1) Incorporated by reference to Registration Statement on
Form SB-2 (File No. 33-98978) filed November 3, 1995.
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(2) Incorporated by reference to Amendment No. 1 to the
Registration Statement filed December 20, 1995.
(3) Incorporated by reference to Amendment No. 2 to the
Registration Statement filed January 23, 1996,
declared effective January 24, 1996.
(4) Incorporated by reference to the Company's Annual report on
Form 10-KSB for the year ended September 30, 1996.
(+) Denotes a management contract or compensatory plan,
contract or agreement.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that
it will:
(1) File, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement to
include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities
Act of 1933, treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933, as amended, the Registrant certifies that it has reasonable ground to
believe that it meets all the requirements for filing on Form SB 2 and has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 13, 1997
BELL TECHNOLOGY GROUP LTD.
By/S/
Marc H. Bell
Chief Executive Officer
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.
Dated: March 13, 1997 /S/
Marc H. Bell
Chief Executive Officer
and Director
Date: March 13, 1997 /S/
Robert B. Bell
Executive Vice President,
Chief Financial Officer
and Director
Date: March 13, 1997 /S/
Alan Levy
Treasurer
(Chief Accounting Officer)
Date: March 13, 1997 /S/
Martin Fox
Director
Date: March , 1997
Tsuyoshi Shiraishi
Director
Date: March 13, 1997 /S/
Richard Videbeck
Director
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EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this Form SB-2
(File No._____).
Arthur Andersen LLP
New York, New York
March 13, 1997
<PAGE>
