FORM 10-QSB/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________ to_______________
COMMISSION FILE NO. 1-14168
BELL TECHNOLOGY GROUP LTD.
(Exact name of registrant as specified in its Charter)
DELAWARE
(State of Incorporation)
13-3781263
(I.R.S. Employer Identification Number)
295 Lafayette Street, 3rd Floor, New York, New York
(Address of Principal Executive Offices)
10012
(Zip Code)
(212) 334-8600
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year if changed since last
report)
Indicate by a check mark whether the registrant: (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or shorter
period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
---------- ------------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
3,084,877 shares of Common Stock as of December 31, 1996
Traditional Small Business Disclosure Format (Check One): Yes [ ] No [x]
<PAGE>
Bell Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, September 30,
1996 1995
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,063,889 $ 2,342,011
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 5,322,199 5,143,395
Property and equipment, net 2,686,098 2,151,294
Long-term investment 400,000 400,000
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; 3,084,877 and 3,083,210
shares issued and outstanding 30,849 30,832
Additional paid-in capital 8,044,779 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
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
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<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.
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<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 2,342,011 222,367
---------- ---------
Cash and cash equivalents,
end of period $ 1,063,889 $ 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
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<PAGE>
BELL TECHNOLOGY GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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/A 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 (a) tangible net worth plus indebtedness
subordinated to amounts owed to Nations, less prepaid expenses, officer/employee
receivables and other intangible assets of not less than $1.4 million at the end
of each fiscal quarter, and (b) a ratio of total liabilities to tangible net
worth of no greater than 2.5 to 1 at the end of each fiscal quarter. As of
December 31, 1996, NAFT had a tangible net worth of approximately $2,000,000 and
a ratio of total liabilities to tangible net worth of 1.1 to 1, therefore
keeping the Company in compliance with all requirements. While the Credit
Agreement give Nations the right to demand repayment if it deems itself
"insecure," Nations has given the Company no indication that it is considering
utilizing this provision. Furthermore, incurring losses as the Company builds
its new businesses was anticipated in setting its covenants with Nations in
October, 1996 and the Company deems its relationship with Nations to be normal.
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<PAGE>
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, which is classified as a long-term
investment as of December 31, and September 30, 1996.
PART I MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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. During the past six months 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
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
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<PAGE>
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 greater after market support, and (d) experience less competition from
mail order houses.
Specifically, the Company:
a) provides business solutions and desktop computer integration to the media
and publishing industries including solutions involving interactive media,
CD ROM and World Wide Web servers and installation of computer networks
(LANs and WANs)
b) is a value added reseller or value added dealer in computer hardware.
The principal manufacturers which it represents are: Silicon Graphics,
Integraph, Sun Microsystems, Compaq, Apple, Cisco, and Bay networks.
c) in conjunction with the sale of hardware, sells, installs and supports
software programs such as Alias/Wavefront, SoftImage Quark, Adobe,
Macromedia, 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 clients' 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 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.
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<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, increased approximately 53% 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 77% 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 system development and sales people to market the systems which have
not reached their revenue generation potential; (b) the
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<PAGE>
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 programming. 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 $681,000 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 the next two quarters.
LIQUIDITY AND CAPITAL RESOURCES.
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 (a) tangible net worth plus
indebtedness subordinated to amounts owed to Nations, less prepaid expenses,
officer/employee receivables and other intangible assets of not less than $1.4
million at the end of each fiscal quarter, and (b) a ratio of total liabilities
to tangible net worth of no greater than 2.5 to 1 at the end of each fiscal
quarter. As of December 31, 1996, NAFT had a tangible net worth of approximately
$2,000,000 and a ratio of total liabilities to tangible net worth of 1.1 to 1,
therefore keeping the Company in compliance with all requirements. While the
Credit Agreement give Nations the right to demand repayment if it deems itself
"insecure," Nations has given the Company no indication that it is considering
utilizing this provision. Furthermore, incurring losses as the Company builds
its new businesses was anticipated in setting its covenants with Nations in
October, 1996 and the Company deems its relationship with Nations to be normal.
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
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<PAGE>
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. In total, operations
generated a negative cash flow of $966,832.
The ratio of period-end accounts receivable to sales for the quarter then- ended
increased from .58 at June 30, 1996 to .76 at September 30, 1996 to .85 at
December 31, 1996. The Company believes that this change was caused by a number
of factors. In any given month, the Company's typical sales transaction will
exceed $10,000 and a significant number of transactions will exceed $50,000.
Consequently, the timing of the collection of the accounts receivable generated
can have a disproportionate effect on the ratio of accounts receivable to sales.
The flow of sales during a quarter also had an impact on this ratio in that
sales in the earlier part of the quarter ended June 30, 1996 were somewhat
higher than later in the quarter. Consequently, there was a longer period of
time to collect the accounts receivable generated. Sales in the quarters ended
September 30, 1996 and December 31, 1996 were somewhat more even or skewed to
the later part of the quarter. In addition, the Company believes that
collections slowed somewhat during the period because sales and the number of
customers increased while the number of employees engaged in collection activity
remained relatively stable. This was exacerbated by the disruptive effect of the
Company's relocation. However, the Company does not believe there are any known
factors which create a material uncertainty over the recovery of the accounts
receivable net of the reserves which have been established.
The variances in the Statements of Cash Flows between the quarter ended December
31, 1996 and the quarter ended December 31, 1995 are a reflection of the
development of the Company during 1996, which is discussed above, and the
Company's initial public offering which closed in the second quarter of fiscal
1996 and the aggressive expansion program which followed. The significant
increase in capital expenditures is due to the Company's continuing focus on the
development of its Internet related activities which included the purchase of
servers, routers, cabinets, monitors and other equipment necessary to create and
expand the equipment used to host web sites.
Due to the Company's negative cash flow from operations and past and future
expenditures under its aggressive program of capital expenditures, the Company
anticipates negative cash flow from operations to continue for the next two
quarters. While the Company does not anticipate failing to comply with the
financial covenants discussed above, it must either increase its borrowings
under its Nations 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.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10QSB/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 28, 1997
BELL TECHNOLOGY GROUP LTD.
By:/s/ Robert B. Bell
--------------------------
Robert B. Bell
Executive Vice President
and Chief Financial Officer
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