UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number _____1-14168______________
Bell Technology Group Ltd.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3781263
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
295 Lafayette Street, 3rd. Floor, New York, NY 10012
(Address of principal executive offices)
(212) 334-8500
(Issuer's telephone number)
611 Broadway, Suite 415, New York, NY 10012
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes or
common equity, as of the latest practicable date:
3,084,877 shares of Common Stock as of December 31, 1996
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [x]
SEC 2334 (3/94-)
Bell Technology Group Ltd.
and Subsidiaries
Table of Contents
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets 2
Consolidated Statements of Operations
For the Three Months Ended December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6-9
and Results of Operations
PART II - OTHER INFORMATION 10
Bell Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, September 30,
Assets 1996 1995
(Unaudited)
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; 3,084,877 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.
Page - 2 -
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.
Page - 3 -
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
Page - 4 -
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
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.
Page - 5 -
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
landlords in wiring buildings, and better opportunities toward which it can
direct its efforts.
Page - 6 -
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.
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.
Page - 7 -
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
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.
Page - 8 -
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 1.5%.
Pursuant to the terms of these agreements, NAFT 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. In total,
operations generated a negative cash flow of $966,832.
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.
Page - 9 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bell Technology Group Ltd.
Date: February 12, 1997 By: /s / Marc H. Bell
-------------------------------------
Marc H. Bell, President & CEO
Date: February 12, 1997 By: /s / Robert B. Bell
-------------------------------------
Robert B. Bell, Exec.Vice President & CFO
Page - 10 -
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<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,463,889
<SECURITIES> 0
<RECEIVABLES> 3,253,237
<ALLOWANCES> 127,842
<INVENTORY> 1,005,581
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<PP&E> 3,256,797
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<CGS> 2,835,316
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