<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 Number: 0-21633
BRISTOL RETAIL SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 58-2235556
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5000 Birch Street, Suite 205, Newport Beach, California 92660
(Address of principal executive offices) (Zip code)
(714) 475-0800
(Issuer's telephone number, including area code)
Not Applicable
(Former Name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $.001 par value - 5,528,927 shares as of October 31, 1997
Class A Redeemable Common Stock Purchase Warrants - 718,750 as of October
31, 1997
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BRISTOL RETAIL SOLUTIONS, INC.
Index
<TABLE>
<CAPTION>
Part I -- FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of September 30, 1997 3
Consolidated Statements of Operations for the three
months ended September 30, 1997 and 1996 4
Consolidated Statements of Operations for the nine months ended 5
September 30, 1997 and for the period from inception (April 3,
1996) to September 30, 1996
Consolidated Statements of Cash Flows for the nine months ended 6-7
September 30, 1997 and for the period from inception (April 3,
1996) to September 30, 1996
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-18
Part II --- OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
Page 2
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BRISTOL RETAIL SOLUTIONS, INC.
Consolidated Balance Sheet
(Unaudited)
September 30, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 467,846
Accounts receivable, net of allowance for doubtful accounts of $214,175 3,408,554
Inventories 3,646,748
Prepaid expenses and other current assets 528,633
Current portion of note receivable 107,806
Amounts due from related parties 60,051
------------
Total current assets 8,219,638
Property and equipment, at cost:
Furniture and equipment 630,200
Automobiles 202,806
Leasehold improvements 106,018
------------
939,024
Accumulated depreciation and amortization (157,801)
------------
Property and equipment, net 781,223
Intangible assets, net of accumulated amortization of $141,535 6,092,720
Note receivable - noncurrent portion 333,358
Other assets 732,466
------------
Total assets $ 16,159,405
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 961,411
Accounts payable 1,967,814
Accrued salaries, wages and related benefits 794,157
Accrued expenses 406,664
Deferred revenue 1,646,268
Customer advances 519,671
Current portion of capital lease obligations 21,249
Current portion of long-term debt 43,839
------------
Total current liabilities 6,361,073
Capital lease obligations - noncurrent portion 24,318
Long-term debt 16,976
Other long-term liabilities 57,998
Commitments and contingencies
Stockholders' equity
Preferred stock, $.001 par value:
4,000,000 shares authorized --
None issued and outstanding
Common stock, $.001 par value:
20,000,000 shares authorized
5,528,927 shares issued and outstanding 5,529
Additional paid-in capital 11,228,964
Accumulated deficit (1,510,828)
------------
9,723,665
Less 5,000 shares of treasury stock, at cost (24,625)
------------
Total stockholders' equity 9,699,040
------------
Total liabilities and stockholders' equity $ 16,159,405
============
</TABLE>
See accompanying notes to financial statements.
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BRISTOL RETAIL SOLUTIONS, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenue:
System sales and installation $4,568,572 $1,582,736
Service and supplies sales 2,552,585 537,002
---------- ----------
Net revenue 7,121,157 2,119,738
Cost of revenue:
System sales and installation 2,819,210 1,079,727
Service and supplies sales 1,742,418 334,516
---------- ----------
Total cost of revenue 4,561,628 1,414,243
---------- ----------
Gross margin 2,559,529 705,495
Selling, general and administrative expenses 2,574,024 670,949
Research and development costs 163,534 --
---------- ----------
Total operating expenses 2,737,558 670,949
---------- ----------
Operating income (loss) (178,029) 34,546
Other (income) expense:
Interest income (15,540) (5,699)
Interest expense 32,050 25,679
---------- ----------
Total other expense 16,510 19,980
---------- ----------
Income (loss) before income taxes (194,539) 14,566
Provision for income tax 1,450 --
---------- ----------
Net income (loss) $ (195,989) $ 14,566
========== ==========
Net income (loss) per share $ (0.04) $ 0.004
========== ==========
Weighted average common shares 5,503,929 3,250,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
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BRISTOL RETAIL SOLUTIONS, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Inception
Ended (April 3, 1996) to
September 30, September 30,
1997 1996
------------ ------------------
<S> <C> <C>
Revenue:
System sales and installation $ 9,409,550 $ 1,582,736
Service and supplies sales 4,956,326 537,002
------------ ------------
Net revenue 14,365,876 2,119,738
Cost of revenue:
Cost of system sales and installation 6,098,678 1,079,727
Cost of service and supplies sales 3,521,376 334,516
------------ ------------
Total cost of revenue 9,620,054 1,414,243
------------ ------------
Gross margin 4,745,822 705,495
Selling, general and administrative expenses 5,971,986 702,199
Research and development costs 235,636 --
------------ ------------
Total operating expenses 6,207,622 702,199
------------ ------------
Operating income (loss) (1,461,800) 3,296
Other (income) expense:
Investment income (124,473) (5,699)
Interest expense 64,376 25,679
------------ ------------
Total other (income) expense (60,097) 19,980
------------ ------------
Loss before income taxes (1,401,703) (16,684)
Provision for income tax 2,500 --
------------ ------------
Net loss $ (1,404,203) $ (16,684)
============ ============
Net loss per share $ (0.28) $ (0.006)
============ ============
Weighted average common shares 5,086,616 2,954,355
============ ============
</TABLE>
See accompanying notes to financial statements.
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BRISTOL RETAIL SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Inception
Nine Months Ended (April 3, 1996) to
September 30, September 30,
1997 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,404,203) $ (16,684)
Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities,
net of effect of acquisitions:
Depreciation 138,677 12,386
Amortization 213,278 7,356
Provision for doubtful accounts 48,946 13,000
Reserve for excess and obsolete inventories 43,681 --
Compensation expense 8,021 --
Deferred income taxes -- 3,006
Changes in operating assets and liabilities
Accounts receivable (312,200) (276,702)
Inventories (92,526) (307,829)
Prepaid expenses and other assets (423,513) (271,683)
Accounts payable (55,884) 364,838
Other accrued expenses 134,545 145,012
Deferred revenue 202,168 24,901
Customer advances 81,254 141,426
Other long-term liabilities 23,969 --
----------- -----------
Net cash and cash equivalents used in operating activities (1,393,787) (160,973)
Cash flows from investing activities
Capital expenditures (173,123) (65,148)
Cash paid for acquisitions, net of cash acquired (3,007,702) (949,427)
Receivables from rescinded acquisition (600,000) --
----------- -----------
Net cash and cash equivalents used in investing activities (3,780,825) (1,014,575)
Cash flows from financing activities
Net borrowings (repayments) on lines of credit 272,970 (30,022)
Repayment of note payable to related party (47,922) --
Repayment of capital lease obligations (16,341) (5,423)
Repayment of long-term debt (17,298) --
Issuance of subordinated notes payable -- 817,500
Issuance (repurchase) of common stock (24,625) 552,248
----------- -----------
Net cash and cash equivalents provided by financing
activities 166,784 1,334,303
Net increase (decrease) in cash and cash equivalents (5,007,828) 158,755
Cash and cash equivalents at beginning of period 5,475,674 --
----------- -----------
Cash and cash equivalents at end of period $ 467,846 $ 158,755
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 64,376 $ 3,151
=========== ===========
Cash paid for income taxes, net $ 97,959 $ 4,000
=========== ===========
Capital lease obligations $ -- $ 59,608
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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BRISTOL RETAIL SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Supplemental disclosures of cash flow information (continued):
The Company issued common stock and cash in connection with certain business
combinations completed during the nine months ended September 30, 1997 and the
period from inception (April 3, 1996) to September 30, 1996. The fair values of
the assets acquired and the liabilities assumed at the dates of the respective
acquisitions are presented as follows:
<TABLE>
<CAPTION>
Inception
Nine Months Ended (April 3, 1996) to
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Current assets, net of cash acquired $ 3,534,044 $ 1,771,481
Property and equipment 895,255 69,490
Long-term assets 270,032 --
Intangible assets 4,522,266 557,724
Current liabilities (2,888,479) (1,449,268)
Long-term debt, net of current portion (380,563) --
----------- -----------
Net assets acquired $ 5,952,555 $ 949,427
=========== ===========
The acquisitions were funded as follows:
Cash $ 3,007,702 $ 949,427
Common stock 2,944,853 --
----------- -----------
$ 5,952,555 $ 949,427
=========== ===========
</TABLE>
Effective June 1, 1997, the Company transferred certain land, buildings and
building improvements acquired as part of the EBM acquisition with a fair value
of $381,000 and certain loans aggregating $381,000 assumed as part of the EBM
acquisition to the former owner of EBM.
See accompanying notes to financial statements.
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BRISTOL RETAIL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1997
Organization and Basis of Presentation
Bristol Retail Solutions, Inc. (the Company, formerly Bristol
Technology Systems, Inc.) was incorporated on April 3, 1996 in the state of
Delaware for the purpose of acquiring and operating a national network of full
service retail automation solution providers. As of September 30, 1997, the
Company has acquired six companies (three "hubs" and three "spokes") that sell,
install and maintain point-of-sale (POS) systems and turnkey retail automation
(VAR) systems throughout the United States (see Acquisitions). The Company
changed its name to Bristol Retail Solutions, Inc. in July 1997.
The accompanying consolidated financial statements have been prepared
by the Company without audit in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-QSB and Item 310 of Regulation S-B. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. The accompanying consolidated
financial statements do not include certain footnotes and financial
presentations normally required under generally accepted accounting principles
(GAAP) and, therefore, should be read in conjunction with the audited financial
statements included in the Company's Annual Report on Form 10-KSB for the period
from inception (April 3, 1996) to December 31, 1996. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the full year.
Operations
The Company anticipates that its current cash on hand, cash flow from
operations and additional financing available under its various credit
facilities will be sufficient to meet the Company's liquidity requirements for
its operations through the end of fiscal 1998. However, the Company intends to
identify, evaluate and acquire additional retail automation solution businesses
during the remainder of fiscal 1997 and fiscal 1998. These acquisitions are
expected to be funded through a combination of cash and common stock and may
necessitate additional costs and expenditures to expand operational and
financial systems and corporate management and administration. The Company will
require additional financing in order to continue this acquisition program. The
Company currently intends to obtain financing through a combination of
promissory notes and future issuances of debt or equity securities during the
remainder of fiscal 1997 and fiscal 1998. However, there can be no assurance
that the Company will be able to successfully obtain financing or that such
financing will be available on terms the Company deems acceptable. The Company's
long-term success is dependent upon its ability to obtain necessary financing,
the successful execution of management's strategic plan and the achievement of
sustained profitable operations.
Acquisitions
During the period from inception (April 3, 1996) to December 31, 1996,
the Company acquired all of the outstanding common stock of Cash Registers,
Incorporated (CRI) and Automated Register Systems, Inc. (ARS) for aggregate cash
consideration of $2,058,000, including acquisition costs of $150,000, and 58,154
shares of non-registered, restricted common stock of the Company which were
valued at $683,000 at the acquisition date.
On April 1, 1997, the Company, though its wholly-owned subsidiary CRI,
acquired all of the outstanding common stock of MicroData, Inc. (MicroData), a
POS dealer with operations in Illinois and Kentucky, for consideration of
$98,000 in cash, including $19,000 of acquisition costs, and 11,415 shares of
non-registered, restricted common stock of the Company valued at approximately
$136,000. The transaction was recorded under the purchase method of accounting.
On May 29, 1997, the Company acquired Smyth Systems, Inc. (Smyth) for
consideration of $2,369,000 in cash, including $20,000 of acquisition costs, and
569,408 shares of non-registered, restricted common stock of the Company valued
at approximately $2,064,000. Smyth operates through two divisions which (i)
provide VAR systems to customers throughout the United States and (ii) provide
POS systems to customers in Southern California and Ohio. The transaction was
recorded under the purchase method of accounting.
On June 6, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired Electronic Business Machines, Inc. (EBM), a POS dealer with operations
in Indiana and Kentucky, for consideration of $483,000 in cash, including
$62,000 of acquisition costs, and 147,033 shares of non-registered, restricted
common stock of the Company valued at approximately $579,000. The transaction
was recorded under the purchase method of accounting.
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On August 5, 1997, the Company acquired all of the outstanding common
stock of Pacific Cash Register and Computer, Inc. (PCR), a POS dealer with
operations in Northern California, for consideration of $165,000 in cash,
including $13,000 of acquisition costs, and 75,000 shares of non-registered,
restricted common stock of the Company valued at approximately $225,000 at the
acquisition date. The retention by the former shareholders of PCR of 19,583 of
the shares of non-registered, restricted common stock is contingent upon PCR
achieving a specified level of pre-tax earnings, as defined, for the fiscal year
ended December 31, 1997. To the extent that PCR's pre-tax earnings are less than
the specified level, then a proportional amount of the 19,583 shares will be
returned to the Company and canceled. The transaction was recorded under the
purchase method of accounting.
The acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based upon the fair values at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired has been recorded as goodwill and is being amortized over its
estimated useful life. The purchase price allocation related to the Smyth and
EBM acquisitions is preliminary and may involve the assignment of amounts to
specifically identifiable intangible assets other than goodwill which may be
amortized over different periods. In accordance with 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 No. 121), long-lived assets
and certain identifiable intangibles held and used by the Company will be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company intends
to assess the recoverability of goodwill during the fourth quarter in accordance
with SFAS No. 121.
The Company's consolidated statements of operations include the
revenues and expenses of CRI, ARS, MicroData and Smyth subsequent to the
acquisitions' respective closing dates. Pursuant to the EBM and PCR acquisition
agreements, the Company assumed control of EBM's and PCR's operations on May 31,
1997 and July 31, 1997, respectively, and has included the revenues and expenses
of EBM and PCR from such dates in its consolidated statements of operations.
The following presents the unaudited pro forma results of operations of
the Company for the nine-month period ended September 30, 1997 and for the
period from inception (April 3, 1996) to September 30, 1996 as if the CRI, ARS,
Smyth and EBM acquisitions had been consummated on April 3, 1996, and includes
certain pro forma adjustments resulting from the acquisitions, including the
amortization of goodwill.
<TABLE>
<CAPTION>
Period from inception
Nine Months Ended (April 3, 1996) to
September 30, 1997 September 30, 1996
------------------ ---------------------
<S> <C> <C>
Net revenue $ 20,160,000 $ 13,979,000
Net income (loss) $ (1,546,000) $ 416,000
Net income (loss) per share $ (0.28) $ 0.08
Shares used in computing net income per share 5,479,298 5,459,049
</TABLE>
The pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred on April 3, 1996 or the results which may
occur in the future.
On May 9, 1997, pursuant to a merger agreement dated April 30, 1997,
the Company acquired all of the outstanding common stock of International
Systems & Electronics Corporation (ISE), a POS dealer with operations in
Florida, for consideration of $1,192,000 in cash, including $92,000 of
acquisition costs, and 130,434 shares of non-registered, restricted common stock
of the Company valued at approximately $750,000. On July 23, 1997, the Company
entered into a Rescission Agreement whereby the merger agreement and all of the
transactions contemplated thereunder were rescinded in their entirety effective
as of April 30, 1997. In accordance with the Rescission Agreement, (i) all of
the 130,434 shares of common stock have been returned to the Company and
canceled; (ii) the shareholder of ISE has refunded to the Company $250,000 in
cash; (iii) the shareholder of ISE has delivered to the Company a promissory
note in the amount of $350,000 bearing interest at 8.5% to be paid in thirty
equal monthly installments commencing in January 1998; (iv) the shareholder of
ISE will from time to time make monthly transfers of finished goods inventory to
the Company with an aggregate market value of up to $250,000; and (v) a
consulting agreement has been executed by the shareholder of ISE to provide
consulting services to the Company through December 31, 2001 for a fee of
$250,000, which fee has been prepaid by the Company. All costs incurred related
to the acquisition and the subsequent rescission have been expensed in the
accompanying statements of operations.
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Income Taxes
The Company provides for income taxes in interim periods based on the
estimated effective income tax rate for the complete fiscal year. For the nine
months ended September 30, 1997 and the period from inception (April 3, 1996) to
September 30, 1996, the estimated effective income tax rate is less than the
U.S. statutory rate primarily due to a 100% valuation allowance provided against
the deferred tax assets that arose from the current operating loss.
Per Share Information
Net loss per share is based on the weighted average number of common
shares outstanding. Common stock equivalents, which consist of stock options and
warrants, were antidilutive for the nine months ended September 30, 1997. No
common stock equivalents were outstanding during the period from inception
(April 3, 1996) to September 30, 1996.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, Earnings per Share
(EPS) (SFAS No. 128), which is effective for financial statements for interim
and annual periods ending after December 15, 1997. SFAS No. 128 requires the
Company to report Basic EPS, as defined therein, which excludes all common share
equivalents from the earnings per share computation, and Diluted EPS, as defined
therein, which is calculated similar to the Company's primary earnings per share
computation. The Company has determined that the adoption of this statement
would not have had a material impact on the earnings per share calculations for
the periods presented in the accompanying consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS No. 130). This statement
establishes standards for the reporting of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during a period from non-owner sources. Examples
of items to be included in comprehensive income which are excluded from net
income include foreign currency translation adjustments and unrealized gain/loss
on available-for-sale securities. The disclosures prescribed by SFAS No. 130 are
effective for interim periods and fiscal years beginning after December 15,
1997.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131). This statement establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosure about products
and services, geographic areas and major customers. The Company has not yet
determined the impact, if any, of adopting this new standard. The disclosures
prescribed by SFAS No. 131 are effective for interim periods and fiscal years
beginning after December 15, 1997.
Contingencies
The Company is subject to legal proceedings and claims which arise in
the normal course of its business. Management believes that the resolution of
such matters will not have a material adverse effect on the Company's financial
position or future results of operations.
On or about August 7, 1997, a class action complaint was filed against
the Company and certain of the Company's officers and directors. Underwriters
for the Company's initial public offering are also named as defendants. The
class action plaintiffs are Lincoln Adair, Antique Prints, Ltd., and Martha
Seamons, on behalf of themselves and all others similarly situated. The case is
pending in the United States District Court for the Southern District of New
York. In addition to seeking themselves declared proper plaintiffs and having
the case certified as a class action, plaintiffs seek unspecified monetary
damages. The plaintiffs' complaint alleges claims under the federal securities
laws for alleged misrepresentations and omissions in connection with purchases
of securities. The Company disputes the allegations made in the complaint and
intends to vigorously defend itself.
Debt
CRI has a line of credit with a bank which provides for aggregate
borrowings up to $600,000; bears interest at the bank's prime rate plus 1%;
matures on July 22, 1998; and is collateralized by CRI's accounts receivable and
inventory. CRI had outstanding borrowings of $306,000 bearing interest at 9.5%
at September 30, 1997. The line is guaranteed by the Company.
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ARS has a line of credit with a bank which provides for aggregate
borrowings up to $475,000 based on the value of ARS's accounts receivable and
inventory; bears interest at the bank's prime rate plus 1%; matures on June 1,
1998; and is collateralized by ARS's accounts receivable and inventory. ARS had
outstanding borrowings of $255,000 bearing interest at 9.5% at September 30,
1997. The line requires ARS to maintain certain financial covenants with which
ARS was in compliance at September 30, 1997. The line is guaranteed by the
Company and restricts the Company's ability to dispose of substantially all of
its assets without the approval of the bank.
Smyth has available a $1 million line of credit with a commercial bank
which bears interest at the bank's base lending rate plus 0.5%. Borrowings under
the line are collateralized by the assets of Smyth and are payable on demand. At
September 30, 1997, $400,000 was outstanding under the line at an interest rate
of 9.0%. The line requires Smyth to maintain certain financial covenants with
which Smyth was in compliance at September 30, 1997. The line is guaranteed by
the Company and restricts the Company's ability to dispose of substantially all
of its assets without the approval of the bank.
Page 11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
The following information includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed in
"Fluctuations in Quarterly Results of Operations" and "Additional Factors That
May Affect Future Results," below.
OVERVIEW
The Company was formed on April 3, 1996 to establish a national network
of full service retail automation solution providers. As of September 30, 1997,
the Company has acquired six subsidiaries (three "hubs" and three "spokes") that
sell, install and maintain point-of-sale (POS) systems and turnkey retail
automation (VAR) systems. The Company changed its name to Bristol Retail
Solutions, Inc. in July 1997. The Company's former name was Bristol Technology
Systems, Inc.
RESULTS OF OPERATIONS
Net revenue
The Company's net revenue is comprised of two components: (i) revenue
derived from the sale and installation of hardware and software (Systems
Revenue) and (ii) revenue derived from the sale of services and supplies
(Service Revenue). Net revenue for the quarter ended September 30, 1997 was
$7,121,000 and was comprised of net revenue from the Company's wholly-owned
subsidiaries CRI, ARS, MicroData, Smyth and EBM for the entire quarter and PCR
from the date of its acquisition (see Notes to Consolidated Financial
Statements, Acquisitions). This represents an increase of 236% from the
Company's net revenue of $2,120,000 for the quarter ended September 30, 1996.
Net revenue for the period from inception (April 3, 1996) to September 30, 1996
is the same as net revenue for the quarter ended September 30, 1996, as it is
comprised solely of revenue of CRI subsequent to the Company's acquisition of
CRI on June 28, 1996. The increase in revenue from the quarter ended September
30, 1996 to the quarter ended September 30, 1997 is due primarily to the revenue
contributed by the additional acquired businesses. Net revenue for the nine
months ended September 30, 1997 was $14,366,000 and was comprised of net revenue
from the Company's wholly-owned subsidiaries CRI and ARS for the entire
nine-month period and MicroData, Smyth, EBM and PCR from the date of their
respective acquisitions.
Net revenue for the quarter ended September 30, 1997 was comprised of
64% Systems Revenue and 36% Service Revenue, as compared to a revenue
composition of 75% Systems Revenue and 25% Service Revenue for the quarter ended
September 30, 1996. The mix of revenue changed from 1996 to 1997 due to the
following: (i) a decline in systems sales in 1997 to Seed Restaurant Group,
CRI's largest customer during 1996; (ii) an increase in Service Revenue in 1997
derived from additional maintenance contracts obtained as a result of a high
volume of systems sold by CRI during the last half of 1996; and (iii) different
revenue mixes at ARS and at the subsidiaries acquired in 1997. Net revenue for
the nine months ended September 30, 1997 was comprised of 65% Systems Revenue
and 35% Service Revenue.
No customer accounted for more than 10% of sales for the three- and
nine-month periods ended September 30, 1997. Sales to Seed Restaurant Group
accounted for approximately 41% of net revenue for the quarter ended September
30, 1996. Sales of products from the Company's three main hardware vendors,
Panasonic, ERC Parts, Inc. (ERC), a distributor of Panasonic products, and NCR
Corporation (NCR), accounted for approximately 26% and 37% of net revenue for
the three- and nine-month periods ended September 30, 1997, respectively, and
approximately 53% of net revenue for the three months ended September 30, 1996.
The Company has supply agreements with these manufacturers. The agreements are
non-exclusive, have geographic limitations and have renewable one-year terms. A
change in the Company's relationships with these principal vendors could have a
material adverse effect on the Company's financial condition and results of
operations.
Gross Margin
Gross margin for the quarter ended September 30, 1997 was 36% and was
comprised of gross margin for Systems Revenue of 38% and gross margin for
Service Revenue of 32%. Gross margin for the quarter ended September 30, 1996
was 33% and was comprised of gross margin for Systems Revenue of 32% and gross
margin for Service Revenue of 38%. The increase in gross margin between years is
primarily due to higher margins realized on Systems Revenue at the subsidiaries
acquired in 1997. Gross margin for the nine months ended September 30, 1997 was
33% and was comprised of gross margin for Systems Revenue of 35% and gross
margin for Service Revenue of 29%. Gross margin for the period from inception
(April 3, 1996) to September 30, 1996 is the same as gross margin for the
quarter ended September 30, 1996 and is comprised solely of gross margin of CRI
subsequent to the acquisition of CRI on June 28, 1996.
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Selling, General and Administrative Expenses
Total selling, general and administrative expenses in the third quarter
of 1997 of $2,574,000 increased by $1,903,000 from the comparable prior-year
period and represented 36% of total revenue, versus 32% of total revenue in the
comparable prior year period. Selling, general and administrative expenses
totaled $5,972,000 for the nine months ended September 30, 1997, or 42% of net
revenue, and totaled $702,000 for the period from inception (April 3, 1996) to
September 30, 1996, or 33% of net revenue. The increase in selling, general and
administrative expenses as a percentage of net revenue during the quarter ended
September 30, 1997 over the comparable prior year quarter is primarily due to
planned staffing additions at corporate headquarters needed to integrate
acquired companies and to support future growth.
Research and Development Costs
Research and development costs were $164,000 and $236,000,
respectively, during the three- and nine-month periods ended September 30, 1997
and consist primarily of internal costs to develop proprietary software incurred
at the Company's wholly-owned subsidiary Smyth, which was acquired on May 29,
1997. The Company's policy is to expense such costs until technological
feasibility is established.
Interest Income and Interest Expense
The Company earned interest income of $16,000 and $124,000,
respectively, for the three- and nine-month periods ended September 30, 1996
compared to $6,000 for both the quarter ended September 30, 1996 and the period
from inception (April 3, 1996) to September 30, 1996. Interest income in fiscal
1997 was derived primarily from interest earned on the investment of the
Company's proceeds from its initial public offering in November 1996.
The proceeds are invested in a short-term, interest-bearing money market fund.
The Company recognized interest expense of $32,000 and $64,000,
respectively, for the three- and nine-month periods ended September 30, 1996
compared to $26,000 for both the quarter ended September 30, 1996 and the period
from inception (April 3, 1996) to September 30, 1996. Interest expense in fiscal
1997 consisted primarily of interest on outstanding balances on the Company's
lines of credit. Interest expense in fiscal 1996 consisted primarily of interest
on $817,500 of subordinated notes payable that were issued on June 30, 1996.
Income Tax Provision
The Company recorded an effective income tax provision of (1%) and 0%
for the three- and nine-month periods ended September 30, 1997 and 0% for the
quarter ended September 30, 1996 and the period from inception (April 3, 1996)
to December 31, 1996. Income tax expense in fiscal 1997 consisted solely of
state taxes as the Company had a taxable loss for federal income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
The Company had cash and cash equivalents of $468,000 and working
capital of $1,859,000 at September 30, 1997, compared to cash and cash
equivalents of $5,476,000 and working capital of $6,164,000 at December 31,
1996. During the nine months ended September 30, 1997, the Company used
$1,394,000 of cash in operations; used $173,000 for the purchase of property and
equipment and used $3,008,000 for the acquisitions of MicroData, Smyth, EBM and
PCR; and generated $167,000 from financing activities, which consists of the net
impact of borrowings and repayments under the Company's various debt agreements
and the purchase of treasury stock. In addition, the Company used $600,000
during the period for an acquisition which was later rescinded. These funds are
recorded as receivables at September 30, 1997 and will be returned to the
Company as provided in the Rescission Agreement (see Notes to Consolidated
Financial Statements, Acquisitions).
CRI has a line of credit with a bank which provides for aggregate
borrowings up to $600,000; bears interest at the bank's prime rate plus 1%;
matures on July 22, 1998; and is collateralized by CRI's accounts receivable and
inventory. CRI had outstanding borrowings of $306,000 bearing interest at 9.5%
at September 30, 1997. The line is guaranteed by the Company.
ARS has a line of credit with a bank which provides for aggregate
borrowings up to $475,000 based on the value of ARS's accounts receivable and
inventory; bears interest at the bank's prime rate plus 1%; matures on June 1,
1998; and is collateralized by ARS's accounts receivable and inventory. ARS had
outstanding borrowings of $255,000 bearing interest at 9.5% at September 30,
1997. The line requires ARS to maintain certain financial covenants with which
ARS was in compliance at September 30, 1997. The line is guaranteed by the
Company and restricts the Company's ability to dispose of substantially all of
its assets without the approval of the bank.
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Smyth has available a $1 million line of credit with a commercial bank
which bears interest at the bank's base lending rate plus 0.5%. Borrowings under
the line are collateralized by the assets of Smyth and are payable on demand. At
September 30, 1997, $400,000 was outstanding under the line at an interest rate
of 9.0%. The line requires Smyth to maintain certain financial covenants with
which Smyth was in compliance at September 30, 1997. The line is guaranteed by
the Company and restricts the Company's ability to dispose of substantially all
of its assets without the approval of the bank.
On April 1, 1997, the Company, though its wholly-owned subsidiary CRI,
acquired all of the outstanding common stock of MicroData, a POS dealer with
operations in Illinois and Kentucky, for consideration of $98,000 in cash,
including $19,000 of acquisition costs, and 11,415 shares of non-registered,
restricted common stock of the Company valued at approximately $136,000. The
transaction was recorded under the purchase method of accounting.
On May 29, 1997, the Company acquired Smyth for consideration of
$2,369,000 in cash, including $20,000 of acquisition costs, and 569,408 shares
of non-registered, restricted common stock of the Company valued at
approximately $2,064,000. Smyth operates through two divisions which (i) provide
VAR systems to customers throughout the United States and (ii) provide POS
systems to customers in Southern California and Ohio. The transaction was
recorded under the purchase method of accounting.
On June 6, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired EBM, a POS dealer with operations in Indiana and Kentucky, for
consideration of $483,000 in cash, including $62,000 of acquisition costs, and
147,033 shares of non-registered, restricted common stock of the Company valued
at approximately $579,000. The transaction was recorded under the purchase
method of accounting.
On August 5, 1997, the Company acquired all of the outstanding common
stock of PCR, a POS dealer with operations in Northern California, for
consideration of $165,000 in cash, including $13,000 of acquisition costs, and
75,000 shares of non-registered, restricted common stock of the Company valued
at approximately $225,000 at the acquisition date. The retention by the former
shareholders of PCR of 19,583 of the shares of non-registered, restricted common
stock is contingent upon PCR achieving a specified level of pre-tax earnings, as
defined, for the fiscal year ended December 31, 1997. To the extent that PCR's
pre-tax earnings are less than the specified level, then a proportional amount
of the 19,583 shares will be returned to the Company and canceled. The
transaction was recorded under the purchase method of accounting.
The Company is currently engaged in discussions with several other
retail automation solution businesses regarding possible acquisitions, some of
which could be material. However, the Company currently has not entered into any
definitive agreements with respect to any acquisitions that are, individually or
in the aggregate, material to the Company.
The Company anticipates that its current cash on hand, cash flow from
operations and additional financing available under its various credit
facilities will be sufficient to meet the Company's liquidity requirements for
its operations through the end of fiscal 1998. However, the Company intends to
identify, evaluate and acquire additional retail automation solution businesses
during the remainder of fiscal 1997 and fiscal 1998. These acquisitions are
expected to be funded through a combination of cash and common stock and may
necessitate additional costs and expenditures to expand operational and
financial systems and corporate management and administration. The Company will
require additional financing in order to continue this acquisition program. The
Company currently intends to obtain financing through a combination of
promissory notes and future issuances of debt or equity securities during the
remainder of fiscal 1997 and fiscal 1998. However, there can be no assurance
that the Company will be able to successfully obtain financing or that such
financing will be available on terms the Company deems acceptable. The Company's
long-term success is dependent upon its ability to obtain necessary financing,
the successful execution of management's strategic plan and the achievement of
sustained profitable operations.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's business can be subject to seasonal influences. The POS
dealers which the Company has acquired to date have typically had lower net
revenues in the first quarter of the fiscal year primarily due to the lower
level of new store openings by customers during January through March. As the
Company grows through additional acquisitions, this pattern of seasonality may
or may not continue.
Quarterly results in the future may be materially affected by the
timing and magnitude of acquisitions, the timing and magnitude of costs related
to such acquisitions, the timing and extent of staffing additions at corporate
headquarters necessary to integrate acquired companies and support future growth
and general economic conditions. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent fiscal quarter or for a full fiscal year.
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ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are based on current expectations and involve a number of risks and
uncertainties. In addition, the Company may from time to time make oral
forward-looking statements. Factors that may materially affect revenues,
expenses and operating results include, without limitation, the success of the
Company's operating subsidiaries; the impact of the Company's acquisition
strategy and the Company's ability to successfully integrate and manage the
acquired subsidiaries; the ability of the Company to obtain future financing on
acceptable terms; and subsequent changes in business strategy or plan.
The forward-looking statements included herein are based on current
assumptions that the Company will continue to sell and install products on a
timely basis; that the Company will continue to sell maintenance contracts to
service its installed base; that the Company will successfully implement its
acquisition strategy; that competitive conditions within the Company's market
will not change materially or adversely; that demand for the Company's products
and services will remain strong; that the Company will retain existing key
management personnel; that inventory risks due to shifts in market demand will
be minimized; that the Company's forecasts will accurately anticipate market
demand; that the Company will be able to obtain future financing on acceptable
terms when needed; that the Company will be able to maintain key vendor
relationships; and that there will be no material adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgments that are difficult to predict accurately and are subject to many
factors that can materially affect the Company's business, financial condition
and results of operations. Budgeting and other management decisions are
subjective in many respects and are, thus, susceptible to interpretations and
periodic revisions based on actual experience and business developments, the
impact of which may cause the Company to alter its acquisition strategy,
marketing, capital expenditure, or other budgets, which may in turn affect the
Company's business, results of operations and financial condition. In light of
the factors that can materially affect the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
Because of these and other factors affecting the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition to the factors discussed above
in this section, as well as those discussed under the heading "Fluctuations in
Quarterly Results of Operations," the following factors also may materially
affect the Company's business, results of operations and financial condition and
therefore should be considered.
Limited Operating History. The Company was founded in April 1996 and,
prior to the acquisition of CRI in June 1996, the Company had no operations upon
which an evaluation of the Company and its prospects could be based. There can
be no assurance that the Company will be able to implement successfully its
strategic plan, to generate sufficient revenue to meet its expenses or to
achieve or sustain profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Risks Related to the Company's Acquisition Strategy. The Company's
strategy is to increase its revenue and the markets it serves through the
acquisition of additional POS dealers and value added resellers serving retail
end users. From its inception through September 30, 1997, the Company has
completed three "hub" acquisitions and three "spoke" acquisitions. There can be
no assurance that the Company will be able to identify, acquire or profitably
manage additional companies or successfully integrate the operations of
additional companies into those of the Company without encountering substantial
costs, delays or other problems. In addition, there can be no assurance that
companies acquired in the future will achieve sales and profitability that
justify the Company's investment in them or that acquired companies will not
have unknown liabilities that could materially adversely affect the Company's
results of operations or financial condition. The Company may compete for
acquisition and expansion opportunities with companies that have greater
resources than the Company. There can be no assurance that suitable acquisition
candidates will continue to be available, that financing for acquisitions will
be obtainable on terms acceptable to the Company, that acquisitions can be
consummated or that acquired businesses can be integrated successfully and
profitably into the Company's operations. Further, the Company's results of
operations in fiscal quarters immediately following a material acquisition may
be materially adversely effected while the Company integrates the acquired
business into its existing operations. The Company may acquire certain
businesses that have either been unprofitable or that have had inconsistent
profitability prior to their acquisition. An inability of the Company to improve
the profitability of these acquired businesses could have a material adverse
effect on the Company. Finally, the Company's acquisition strategy places
significant demands on the Company's resources and there can be no assurance
that the Company's management and operational systems and structure can be
expanded to effectively support the Company's continued acquisition strategy. If
the Company is unable to implement successfully its acquisition strategy, this
inability may have a material adverse effect on the Company's business, results
of operations and financial condition.
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Need for Additional Financing to Implement Acquisition Strategy. The
Company currently intends to effect future acquisitions with cash, promissory
notes and future issuances of debt or equity securities. There can be no
assurance that the Company will be able to obtain financing if and when it is
needed on terms the Company deems acceptable. The inability of the Company to
obtain financing would have a material adverse effect on the Company's ability
to implement its acquisition strategy, and as a result, could require the
Company to diminish or suspend its acquisition strategy.
Consideration for Acquired Companies Exceeds Asset Value. Valuations of
the companies acquired by the Company have not been undertaken based on
independent appraisals, but have been determined through arm's-length
negotiations between the Company and representatives of such companies. The
consideration for each such company has been based primarily on the judgment of
management as to the value of such company as a going concern and not on the
book value of the acquired assets. Valuations of these companies determined
solely by appraisals of the acquired assets may have been less than the
consideration paid for the companies. No assurance can be given that the future
performance of such companies will be commensurate with the consideration paid.
Moreover, the Company has incurred and expects to incur significant amortization
charges resulting from consideration paid in excess of the book value of the
assets of the companies acquired and companies which may be acquired in the
future.
Substantial Competition. The POS industry is highly fragmented and
competitive. Competitive factors within the industry include product prices,
quality of products, service levels, and reputation and geographical location of
dealers. The Company primarily competes with independent POS dealers and some of
these dealers may have greater financial resources available to them than does
the Company. In addition, there are original equipment manufacturers of POS
equipment that compete in certain product areas. The Company's ability to make
acquisitions will also be subject to competition. The Company believes that,
during the next few years, POS dealers may seek growth through consolidation
with entities other than the Company. No assurance can be given, furthermore,
that the major manufacturers will not choose to effect or expand the
distribution of their products through their own wholesale organizations or
effect distribution directly to many of the retail accounts of the Company in
the markets served by the Company. Any of these developments could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Substantial Fluctuations in Future Operating Results. The Company may
experience substantial fluctuations in its annual and quarterly operating
results in future periods. The Company's operating results are affected by a
number of factors, many of which are beyond the Company's control. A substantial
portion of the Company's backlog is typically scheduled for delivery within 90
days. Delivery dates for products sold by the Company are subject to change due
to customers changing the required installation date of a automation retail
solution system. The changing of such delivery dates is beyond the Company's
control. Quarterly sales and operating results therefore depend in large part on
customer-driven delivery dates, which are subject to change. In addition, a
significant portion of the Company's operating expenses are relatively fixed in
nature and planned expenditures are based in part on anticipated orders. Any
inability to adjust spending quickly enough to compensate for any revenue
shortfall may magnify the adverse impact of such revenue shortfall on the
Company's results of operations.
Dependence on Manufacturers. A substantial portion of the Company's
total revenue is and will be derived from the sale of POS systems, ECRs and
related equipment, none of which are manufactured by the Company. The Company's
business is dependent upon close relationships with manufacturers of POS
equipment and the Company's ability to purchase equipment in the quantities
necessary and upon competitive terms so that it will be able to meet the needs
of its end user customers. During the nine months ended September 30, 1997, the
Company purchased its hardware principally from three main vendors, Panasonic,
ERC, a distributor of Panasonic products, and NCR. Sales of Panasonic, ERC and
NCR products accounted for approximately 26% and 37% of net revenue for the
three- and nine-month periods ended September 30, 1997, respectively. There can
be no assurance that the relationships with these manufacturers will continue or
that the Company's supply requirements can be met in the future. The Company's
inability to obtain equipment, parts or supplies on competitive terms from its
major manufacturers could have a material adverse effect on the Company's
business, results of operations and financial condition.
Fixed Fee Contracts. Many of the Company's service contracts are fixed
fee contracts pursuant to which the customer pays a specified fee for the
Company's performance of all necessary maintenance and remedial services during
the contract's term. Under these agreements, the Company is responsible for all
costs incurred in maintaining and repairing the equipment, including the cost of
replacement parts, regardless of actual costs incurred. Accordingly, the Company
can incur losses from fixed fee contracts if the actual cost of maintaining or
repairing the equipment exceeds the costs estimated by the Company.
Potential Inability to Market Newly Developed Products. The technology
of POS systems, ECRs, VARs and related equipment is changing rapidly. There can
be no assurance that the Company's existing manufacturers will be able to supply
competitive new products or achieve technological advances necessary to remain
competitive in the industry. Further, there can be no assurance that the Company
will be able to obtain the necessary authorizations from manufacturers to market
any newly developed equipment. The Company's Smyth subsidiary operates in the
VAR solutions segment, wherein it develops customized
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turnkey retail automation solutions, consisting of both hardware and software.
There can be no assurance that Smyth will be able to develop commercially viable
and technologically advanced VAR solutions at competitive prices.
Possible Environmental Liabilities. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real property may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances which could be located
on, in or under such property. These laws and regulations often impose liability
whether or not the owner or operator knew of or was responsible for the presence
of the hazardous or toxic substances. The costs for any required remediation or
removal of these substances could be substantial, and the liability as to any
property is generally not limited under these laws and regulations and could
exceed the value of the property and the aggregate assets of the owner or
operator. The presence of these substances or failure to remediate these
substances properly may also adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. In connection
with the ownership or operation of its acquired companies, the Company could be
liable for these and other related costs.
Reliance on Key Personnel. Implementation of the Company's acquisition
strategy is largely dependent on the efforts of a few senior officers. In
particular, the Company's operations are dependent on a great degree on the
continued efforts of Chief Executive Officer Richard H. Walker. Furthermore, the
Company will in most probability continue to be dependent on the senior
management of companies that are acquired. Competition for highly qualified
personnel is intense, and the loss of any executive officer or other key
employee, or the failure to attract and retain other skilled employees, could
have a material adverse effect upon the Company's business, results of
operations or financial condition. The Company is a party to employment
agreements with Mr. Walker, as well as with Executive Vice President Paul
Spindler. Each of the agreements with Messrs. Walker and Spindler terminate in
the year 2001, unless terminated earlier pursuant to the agreements, and each
contains confidentiality provisions and covenants not to compete. State laws,
however, may limit the enforceability of the confidentiality and/or
non-competition provisions therein. The Company is currently the beneficiary of
a key man life insurance policy in the amount of $1,000,000 on the life of Mr.
Walker for a term of three years. There can be no assurance that the Company
will maintain the policy in effect or that the coverage will be sufficient to
compensate the Company for the loss of the services of Mr. Walker.
Anti-Takeover Effects of Certain Charter and Bylaw Provisions. Certain
provisions of the Company's Certificate of Incorporation and Bylaws may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
These provisions make it more difficult for stockholders to take certain
corporate actions and could have the effect of delaying or preventing a change
in control of the Company. For example, the Company has not elected to be
excluded from the provisions of Section 203 of the Delaware General Corporation
Law, which impose certain limitations on business combinations with interested
stockholders upon acquiring 15% or more of the Common Stock. This statute may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company, even if such event would be beneficial to the
then-existing stockholders. In addition, the Company's Certificate of
Incorporation authorizes the issuance of up to 4,000,000 shares of preferred
stock with such rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors may, without
stockholder approval, issue preferred stock with dividends, liquidation,
conversion, and voting or other rights, which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock. The issuance
of preferred stock could have the effect of entrenching the Company's Board of
Directors and making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company currently has no
plans, arrangements or understanding to issue shares of preferred stock.
Volatility of Stock Price. The stock market from time to time
experiences significant price and volume fluctuations that are unrelated to the
operating performance of the particular companies. These broad market
fluctuations may materially adversely affect the market price of the Company's
common stock. In addition, the market price of the Company's common stock has
been and may continue to be highly volatile. Factors such as possible
fluctuations in the Company's business, results of operations or financial
condition, failure of the Company to meet expectations of security analysts and
investors, announcements of new acquisitions, the timing and size of
acquisitions, the loss of suppliers or customers, the announcement of new or
terminated supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its suppliers, the loss of the
services of a member of senior management, litigation and changes in general
market conditions all could have a material adverse affect on the market price
of the Company's common stock.
Maintenance Criteria for Nasdaq; Risks of Low-Priced Securities. The
Company's common stock is presently traded on the Nasdaq SmallCap Market. To
maintain inclusion on the Nasdaq SmallCap Market, the Company's common stock
must continue to be registered under Section 12(g) of the Exchange Act, and the
Company must continue to have at least $2,000,000 in net tangible assets or
$500,000 in income in two of the last three years, a public float of at least
500,000 shares, $1,000,000 in market value of public float, a minimum bid price
of $1.00 per share, at least two market makers and at least 300 stockholders.
While the Company currently meets the maintenance standards, there is no
assurance that the Company will be able to maintain the standards for Nasdaq
SmallCap Market inclusion with respect to its securities. If the Company fails
to maintain Nasdaq Small Cap Market listing, the market value of the Company's
common stock likely would decline and stockholders would find it more difficult
to dispose of or to obtain accurate quotations as to the market value of the
common stock.
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Indemnification and Limitation of Liability. The Company's Certificate
of Incorporation (the "Certificate') and Bylaws include provisions that
eliminate the directors' personal liability for monetary damages to the fullest
extent possible under Delaware Law or other applicable law (the "Director
Liability Provision"). The Directory Liability Provision eliminates the
liability of directors to the Company and its stockholders for monetary damages
arising out of any violation by a director of his fiduciary duty of due care.
Under Delaware Law, however, the Director Liability Provision does not eliminate
the personal liability of a director for (i) breach of the director's duty of
loyalty, (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law, (iii) payment of dividends or
repurchases or redemptions of stock other than from lawfully available funds, or
(iv) any transaction from which the director derived an improper benefit. The
Director Liability Provision also does not affect a director's liability under
the federal securities laws or the recovery of damages by third parties.
Absence of Dividends. The Company has not paid dividends on its common
stock and does not anticipate paying cash dividends in the foreseeable future.
Although the Company's current lines of credit do not expressly prohibit the
Company from paying dividends, certain subsidiary lines of credit contain
covenants which prohibit the reduction or depletion of capital without prior
written notice to the bank. The Company anticipates that future financing,
including any lines of credit, may restrict or prohibit the Company's ability to
pay dividends.
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than three years, computer systems and software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. Although the
Company believes that its products and internal systems are Year 2000 compliant,
the Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or patch their current software systems for Year 2000
compliance. These expenditures may result in reduced funds available to purchase
software products such as those offered by the Company, which could result in a
material adverse effect on the Company's business, operating results and
financial condition.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about August 7, 1997, a class action complaint was filed against
the Company and certain of the Company's officers and directors. Underwriters
for the Company's initial public offering are also named as defendants. The
class action plaintiffs are Lincoln Adair, Antique Prints, Ltd., and Martha
Seamons, on behalf of themselves and all others similarly situated. The case is
pending in the United States District Court for the Southern District of New
York. In addition to seeking themselves declared proper plaintiffs and having
the case certified as a class action, plaintiffs seek unspecified monetary
damages. The plaintiffs' complaint alleges claims under the federal securities
laws for alleged misrepresentations and omissions in connection with purchases
of securities. The Company disputes the allegations made in the complaint and
intends to vigorously defend itself.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities
The following is a summary of transactions by the Company during the
three months ended September 30, 1997, involving sales of the Company's
Securities that were not registered under the Securities Act.
(1) On August 5, 1997, the Company issued 75,000 shares of Common Stock
to the former shareholders of PCR as partial consideration paid in
connection with the acquisition of the outstanding shares of PCR by
the Company.
Exemption from the registration requirements of the Securities Act for
the transaction described above is claimed under Section 4 (2) of the Securities
Act, on the basis that such transaction did not involve a public offering of
securities. No underwriting fees or broker's commissions were paid in connection
with the foregoing transaction.
(d) Use of Proceeds
The Company effected a registration with the Securities and Exchange
Commission on Form SB-2, Registration No. 333-5570-LA, under which the Company
completed its initial public offering of Common Stock and Class A Redeemable
Common Stock Purchase Warrants (the Warrants). The Company received total net
proceeds of $7,046,000 from the sale of the Common Stock and Warrants, after
deducting underwriting discounts and commissions and the direct expenses of the
offering. All of the direct expenses of the offering were payable to third
parties.
The Company has used $850,000 of the net proceeds to repay $817,500 in
subordinated notes payable and related accrued interest on November 22, 1996;
$350,000 to repay the outstanding balance under CRI's line of credit on March
25, 1997; $4,218,000 for the acquisitions of ARS, Micro Data, Smyth, EBM and
PCR, including approximately $200,000 for acquisition-related costs; and
approximately $1,253,000 for working capital and general corporate purposes. All
of these payments were made to unrelated third parties. The remaining net
proceeds of the offering, equal to approximately $375,000, have been invested in
a short-term, interest-bearing money market fund.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.44* Revolving Note by and between Cash Registers, Inc. and
First National Bank & Trust dated July 22, 1997.
11* Calculation of Earnings per Share
27* Financial Data Schedule
- -------------------
* Filed herewith.
(b) Reports on Form 8-K
During the three months ended September 30, 1997, the Company
filed the following Current Reports on Form 8-K:
i. On July 21, 1997, the Company filed a report on Form 8-K
reporting, under Items 5 and 7 thereof, that it has changed its
name from "Bristol Technology Systems, Inc." to "Bristol Retail
Solutions, Inc.," effective as of July 18, 1997.
ii. On July 29, 1997, the Company filed a report on Form 8-K/A to
amend Item 7 of its report on Form 8-K filed on June 12, 1997,
to include certain required financial statements and pro forma
financial information.
Financial statements filed:
(a) Audited financial statements of Smyth Systems, Inc. as of
and for the years ended December 31, 1996 and 1995.
(b) Unaudited pro forma financial statements of Bristol Retail
Solutions, Inc. as of and for the three months ended March
31, 1997 and for the period from inception (April 3, 1996)
to December 31, 1996.
iii. On July 30, 1997, the Company filed a report on Form 8-K/A
reporting, under Items 5 and 7 thereof, that on July 23, 1997,
the Company and International Systems & Electronics Corporation
(ISE) entered into a Rescission Agreement to rescind the merger
of ISE into the Company, effective as of April 30, 1997.
iv. On August 12, 1997, the Company filed a report on Form 8-K/A to
amend Item 7 of its report on Form 8-K filed on June 20, 1997,
to include certain required financial statements and pro forma
financial information.
Financial statements filed:
(a) Audited financial statements of Electronic Business
Machines, Inc. as of May 31, 1997 and December 31, 1996 and
for the five months ended May 31, 1997 and for the years
ended December 31, 1996 and 1995.
(b) Unaudited pro forma financial statements of Bristol Retail
Solutions, Inc. as of and for the three months ended March
31, 1997 and for the period from inception (April 3, 1996)
to December 31, 1996.
Page 20
<PAGE> 21
SIGNATURE
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.
Bristol Retail Solutions, Inc.
-------------------------------------
(Registrant)
November 14, 1997 By: /s/ ROGER T. MONACO
- -------------------------------- ---------------------------------
Date Roger T. Monaco
Senior Vice President and Chief
Financial Officer (Principal
financial and accounting officer)
Page 21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
10.44* Revolving Note by and between Cash Registers, Inc.
and First National Bank & Trust dated July 22, 1997
11* Calculation of Earnings per Share
27* Financial Data Schedule
- ----------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 10.44
REVOLVING NOTE
Amount $600,000 Borrower(s): Cash Registers, Inc.
- ------------------------------------------------------------------------------
Address: 503 N. Main Street
- ------------------------------------------------------------------------------
London, KY 40741
- ------------------------------------------------------------------------------
Upon Demand
- ------------------------------------------------------------------------------
promise to pay to the order of:
FIRST NATIONAL BANK AND TRUST (the Bank)
Six Hundred Thousand Dollars and no/100 Dollars
- ------------------------------------------------------------------------------
together with interest at the per annum rate checked below, from the date
hereof until fully paid, without defalcation.
INTEREST on this note shall be at a X Variable Rate Fixed Rate,
------ --------
equal to:
The bank's stated primary index rate as declared by the Bank from time
to time. The Bank's stated primary index rate may not be the lowest rate offered
by the Bank, and the Bank may make or renegotiate any loan at, above, below or
without reference to the Bank's stated primary index rate or
X One percent per annum greater than the "New York Prime" interest rate
---- as reported in the Wall Street Journal.
% per annum
----
The Interest rate on this Note is 9.50%.
If the box labeled "Variable Rate" is checked above, the interest rate hereunder
shall be adjusted each time there is change in the applicable index (i.e. a
change in the Bank's primary index or "New York Prime", whichever has been
indicated above), with such new rate becoming effective the day following the
date of the next monthly Commercial Management Account statement.
This note shall be negotiable and payable at the main office of the Bank.
Fourth and Main Streets, London, Kentucky 40741.
Notwithstanding anything to the contrary contained in this Revolving Note or any
other agreement in writing, the Bank may, in the Bank's sole discretion, decline
to advance funds pursuant hereto at anytime, whether or not the Bank is entitled
to accelerate the unpaid balance.
IT IS AGREED THAT advances under the Revolving Note shall be made to the
borrower's Commercial Management Account checking account in increments of not
less than $100.00.
Repayment of this Revolving Note shall be as follows:
Principal Repayment:
X During the term of this Revolving Note, Surplus collected funds (over
---- and above the agreed upon minimum balance) in the borrower's Commercial
Management Account checking account, shall be applied by the Bank, on a
daily basis, in increments of not less the $100.00 toward any
outstanding balance owed on the Revolving Note. If not demanded sooner
by the Bank, this Revolving Note, plus any accrued interest shall be
due and payable one year from date.
% of any unpaid principal balance, or a minimum payment of
---- $20.00, whichever is greater, shall be deducted as of the monthly
statement date from the borrower's Commercial Management Account,
checking account, with
<PAGE> 2
a balloon payment equal to any unpaid principal balance, plus accrued
interest due and payable one year from date. You may make additional
payments up to the full amount you owe either by mail or in person at
the bank.
INTEREST - Interest (Finance Charge) will be calculated by the Bank on this
Revolving Note by applying the periodic annual rate (applicable rate divided by
365) to the Average Daily Balance of the Note (including current transactions)
and multiplying by the number of days in the statement or billing cycle. To get
the Average Daily Balance, we take the beginning balance of the Revolving Note
each day, add any new advances and subtract any payments or credits. This gives
us the daily balance. Then, we add up all the daily balances for the billing
cycle and divide that total by the number of days in the billing cycle. This
gives us the average daily balances. Interest is collected automatically by the
Bank as of the statement date of the customer's Commercial Management Account.
Interest collected by the Bank is charged to the Revolving Note available funds
rather than the checking account.
This is X the same X a renewal of the Note mentioned in a Commercial
----- -----
Management Account Agreement dated July 22, 1997.
--------------
IT IS AGREED that all advances shall bear interest until paid, and that upon
failure to pay the principle or any installment of interest when due or in the
case of a Demand Revolving Note, when demanded by the Bank, or in the event the
Bank shall deem itself insecure, or if it is in good faith believes that the
prospect of performance or payment is impaired, then the Bank may elect to
consider this Revolving Note and all other obligations of the maker(s) to the
Bank together with all areas of interest to be immediately due and payable and
the same may be collected at once at the option of the Bank.
The undersigned warrants that the PROCEEDS OF THIS NOTE WILL BE USED FOR
Personal Family, Household Purposes;
-----
Farm Operation
-----
X Business Purposes Only
-----
The borrower(s) agree that if, in the event of a default, this note is referred
to an attorney who is not a salaried employee of the Bank, the borrower(s) will
pay such reasonable attorneys' fees as are incurred by the Bank and actually
paid or agreed to paid by the Bank.
The failure of any party, hereto to insist upon strict performance of any of the
terms of this note, or to exercise any rights herein confirmed shall not be
construed as a waiver or relinquishment to any extent of such party's right to
assert or rely upon such terms or rights in any other instance. This note cannot
be modified, altered, or amended except be an agreement in writing duly signed
and acknowledged by authorized representatives of the parties.
The following "NOTICE" and provision is applicable only if this is a "Consumer
Credit Contract" as that term is defined in Part 433 of Title 16 of the Code of
Federal Regulations as same may be amended from time to time and/or KRS 367.600
as same may be amended from time to time.
NOTICE
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND
DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICE
OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT
EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
CASH REGISTERS, INC.
--------------------------------------
No. By: /S/ Maurice Johnson, Pres.
--------------------------- -----------------------------
/S/ Steve King, VP
-----------------------------
/S/ Andrew King, VP
-----------------------------
Due
---------------------------
<PAGE> 1
EXHIBIT 11
BRISTOL RETAIL SOLUTIONS, INC.
Computation of Income (Loss) per Share
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---------- -----------
<S> <C> <C>
PRIMARY LOSS PER SHARE
Net income (loss) $ (195,989) $ 14,566
=========== ===========
Weighted average number of common shares outstanding during
the period 5,503,929 3,250,000
Effect of stock options and warrants treated as common stock
equivalents under the treasury stock method -- --
----------- -----------
Total shares 5,503,929 3,250,000
=========== ===========
Primary income (loss) per share $ (0.04) 0.004
=========== ===========
FULLY DILUTED EARNINGS PER SHARE
Net income (loss) $ (195,989) 14,566
=========== ===========
Weighted average number of common shares outstanding during
the period 5,503,929 3,250,000
Effect of stock options and warrants treated as common stock
equivalents under the treasury stock method -- --
----------- -----------
Total shares 5,503,929 3,250,000
=========== ===========
Fully diluted income (loss) per share $ (0.04) $ 0.004
=========== ===========
</TABLE>
<PAGE> 2
EXHIBIT 11
<TABLE>
<CAPTION>
BRISTOL RETAIL SOLUTIONS, INC.
Computation of Loss per Share
Inception
Nine Months Ended (April 3, 1996) to
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
PRIMARY LOSS PER SHARE
Net loss (1,404,203) (16,684)
=========== ===========
Weighted average number of common shares outstanding
during the period 5,086,616 2,954,355
Effect of stock options and warrants treated as common
stock equivalents under the treasury stock method -- --
----------- -----------
Total shares 5,086,616 2,954,355
=========== ===========
Primary loss per share $ (0.28) $ (0.006)
=========== ===========
FULLY DILUTED EARNINGS PER SHARE
Net loss $(1,404,203) $ (16,684)
=========== ===========
Weighted average number of common shares outstanding during
the period 5,086,616 2,954,355
Effect of stock options and warrants treated as common stock
equivalents under the treasury stock method -- --
----------- -----------
Total shares 5,086,616 2,954,355
=========== ===========
Fully diluted loss per share (0.28) (0.006)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE UNAUDITED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IN THE
REPORT ON FORM 10-QSB FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 OF BRISTOL
RETAIL SOLUTIONS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 467,846
<SECURITIES> 0
<RECEIVABLES> 3,622,729
<ALLOWANCES> 214,175
<INVENTORY> 3,646,748
<CURRENT-ASSETS> 8,219,638
<PP&E> 939,024
<DEPRECIATION> 157,801
<TOTAL-ASSETS> 16,159,405
<CURRENT-LIABILITIES> 6,361,073
<BONDS> 0
0
0
<COMMON> 5,529
<OTHER-SE> 9,693,511
<TOTAL-LIABILITY-AND-EQUITY> 16,159,405
<SALES> 14,365,876
<TOTAL-REVENUES> 14,365,876
<CGS> 9,620,054
<TOTAL-COSTS> 15,827,676
<OTHER-EXPENSES> (124,473)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,376
<INCOME-PRETAX> (1,401,703)
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,404,203)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
