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, 1999 or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-25561
BEDFORD HOLDINGS, INC.
(Name of Small Business Issuer in Its Charter)
NEW JERSEY 13-3901466
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
90 WEST STREET
NEW YORK, NEW YORK 10005
(Address of Principal Executive Offices) (Zip Code)
(212) 385-3600
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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 |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 27,237,000 shares of the
Company's Common Stock, no par value, were outstanding as of October 10, 1999.
<PAGE>
ITEM 1 FINANCIAL STATEMENTS
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
30-Sep-99 31-Dec-98
<S> <C> <C>
ASSETS
Current assets:
Cash $ 11,776 $ 1,760,372
Accounts receivable 37,010 0
Deposits with clearing broker 52,977 66,796
Other assets 5,600 8,747
----------- -----------
Total Current Assets 107,363 1,835,915
Other assets:
Security deposit 5,304 5,304
Equipment 100,910 100,910
Less accumulated depreciation (71,780) (62,900)
----------- -----------
Total Assets $ 141,797 $ 1,879,229
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,113 $ 8,405
Short term loans payable 957,787 2,191,531
----------- -----------
Total Current Liabilities 964,900 2,199,936
Shareholders' Equity:
Common stock, $001 par value; authorized
40,000,000 shares, issued, and outstanding
27,243,500 at September 30, 1999 and 27,243,500 at
December 31, 1998 27,243 27,243
Additional paid in capital 963,445 963,445
Treasury stock, 31,500 shares at cost (6,500) (6,500)
Retained earnings (1,807,291) (1,304,895)
----------- -----------
Total Liabilities & Shareholders' Equity $ 141,797 $ 1,879,229
=========== ===========
</TABLE>
Please see notes to the consolidated financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE ENDING SEPTEMBER 30,1999 AND TWELVE MONTHS
ENDING DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Nine months ending Twelve months ending
30-Sep-99 30-Sep-98 31-Dec-98 31-Dec-97
<S> <C> <C> <C> <C>
Commission revenues $ 314 $ 0 $ 0 $ 348,480
Trading gains (losses) (154,401) (85,089) (220,216) (254,581)
------------ ------------ ------------ ------------
Gross revenues (losses) (154,087) (85,089) (220,216) 93,899
Less selling, general, and administrative expenses (197,969) (190,914) (329,843) (327,377)
Less salaries (16,878) (16,575) (32,300) (22,100)
Less depreciation (8,880) (8,880) (13,430) (13,430)
------------ ------------ ------------ ------------
Income (loss) from Operations (377,814) (301,458) (595,789) (269,008)
Other Income (expenses):
Interest income 167 464 1,205 26,681
Interest expense (124,750) (15,500) (9,273) 0
------------ ------------ ------------ ------------
Net Income (loss) before income taxes (502,397) (316,494) (603,857) (242,327)
Provision for income tax expense 0 0 0 0
------------ ------------ ------------ ------------
Net Income (Loss) $ (502,397) $ (316,494) $ (603,857) $ (242,327)
============ ============ ============ ============
Earnings per common share:
Basic $ (0.02) $ (0.01) $ (0.02) $ (0.01)
Fully Diluted $ (0.02) $ (0.01) $ (0.02) $ (0.01)
Weighted average of common shares:
Basic 27,243,500 27,243,250 27,243,500 27,244,000
Fully Diluted 27,243,500 27,243,250 27,243,500 27,244,000
</TABLE>
Please see notes to the consolidated financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE ENDING SEPTEMBER 30,1999 AND TWELVE MONTHS
ENDING DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Nine months ending Twelve months ending
30-Sep-99 30-Sep-98 31-Dec-98 31-Dec-97
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ (502,397) $ (316,494) $ (603,857) $ (242,327)
Adjustments to reconcile net income items
not requiring the use of cash:
Depreciation and amortization 8,880 8,880 13,430 13,430
Changes in other operating assets and liabilities:
Accounts receivable (37,010) 0 0 0
Deposits with clearing broker 13,819 44,593 128,499 82,631
Other assets 3,147 3,222 (6,304) 3,423
Write off of residual fixed asset 0 0 704 0
Accounts payable (1,292) 0 (4,113) 621
----------- ----------- ----------- -----------
Net cash provided by (used by) operations (514,852) (259,800) (471,641) (142,222)
Financing Activities:
Purchase of treasury stock 0 0 (500) (6,000)
(Decrease) increase in short term borrowings (1,233,744) 1,148,677 2,191,531 0
----------- ----------- ----------- -----------
Net cash provided by (used by) investing activities (1,233,744) 1,148,677 2,191,031 (6,000)
----------- ----------- ----------- -----------
Net increase (decrease) in cash during period (1,748,596) 888,877 1,719,390 (148,222)
Cash balance at beginning of fiscal year 1,760,372 40,982 40,982 189,204
----------- ----------- ----------- -----------
Cash balance at end of fiscal year $ 11,776 $ 929,859 $ 1,760,372 $ 40,982
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 124,750 $ 15,500 $ 9,273 $ 0
Income taxes paid during the period $ 0 $ 0 $ 0 $ 0
</TABLE>
Please see notes to the consolidated financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1,1997 THROUGH SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Common Stock Paid in Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 27,250,000 $ 27,243 $ 963,445 $ (458,710) $ 531,978
Purchase of Treasury stock (6,000) (6,000) (6,000)
Net Income (Loss) for Fiscal Year 1997 (242,327) (242,327)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 27,244,000 27,243 957,445 (701,037) 283,651
Purchase of Treasury Stock (500) (500) (500)
Net Income (Loss) for Fiscal year 1998 (603,857) (603,857)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 27,243,500 27,243 956,945 (1,304,894) (320,706)
Net Income (Loss) through September 30, 1999 (502,397) (502,397)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 27,243,500 $ 27,243 $ 956,945 $(1,807,291) $ (823,103)
=========== =========== =========== =========== ===========
</TABLE>
Please see notes to the consolidated financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
NOTE 1: ORGANIZATION
Bedford Holdings, Inc. (the Company) is a New Jersey State Corporation formed in
July, 1996 for the purpose of purchasing and holding the common stock of various
companies for investment.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the
accounts of Bedford Holdings Inc. and its wholly owned subsidiary, Allen &
Pierce Securities Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Furniture and Fixtures. Firm assets are stated at costs and depreciation is
computed on a straight line basis over the estimated useful life of the
underlying assets, which range from 3 to 10 years. All major additions are
capitalized. Maintenance, repairs, and minor improvements are expensed as
incurred.
Treasury Stock. The Company uses the cost method in the recording of the
purchase of treasury stock. During 1997 and 1998, the Company purchased 6,500
shares of its common stock for $6,500.
NOTE 3: NET CAPITAL REQUIREMENTS
The following note applies to the Company's wholly owned subsidiary, Allen &
Pierce Securities, Inc.
(A) As a broker dealer, the Company is subject to the Securities and Exchange
Commission's Uniform Net Capital Rule 15c3-1, which requires that the ratio of
aggregate indebtedness to the excess net capital, as defined, shall not exceed
15 to 1. In addition, the Company is required to maintain net capital, as
defined, in excess of certain specified amounts. Prior to September, 1999 the
required amount was the lesser of $100,000 or 6 2/3% of aggregate indebtedness.
In September, 1999 the Company became a $5,000 broker-dealer so that at present
the required amount is the lesser of $5,000 or 6 2/3% of aggregate indebtedness.
As of September 30, 1999, the Company was in excess of net capital requirements
by $96,943 and had an aggregate indebtedness to excess net capital ratio of 7%.
The Company infused capital of $100,000 in July 1999 into the subsidiary in
order to maintain minimum net capital requirements as defined above.
(B) As an introducing broker, the Company is subject to the Commodities Futures
Trading Commission's Net Capital Rule 1.17 which requires the Company to
maintain net capital, as defined, of the lesser of $30,000 or $3,000 per
associated person, as defined. As of September 30, 1999, the Company was in
excess of these net capital requirements by $71,943.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission,
including the Company's Registration Statement on Form 10SB, Registration No.
000-25561.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
OVERVIEW
The Company is a holding company for Allen & Pierce, a securities and
commodities broker established in 1989. For its initial two years, Allen &
Pierce carried out a general securities and commodities brokerage business. With
the disintegration of the former USSR and the opening of the Russian economy in
the early 1990s the Company saw an opportunity to take advantage of its
President's language and knowledge of the former USSR to develop a new source of
brokerage business. Mr. Zapoll, the President, traveled extensively in Russia
and Uzbekistan in the early 1990s and was successful in developing a significant
number of new trading accounts which, over the next several years yielded
substantial commission revenues. With the turmoil in the Russian economy of the
mid to late 1990s Russian government prohibited Russian citizens from
maintaining securities and commodities trading accounts abroad. This
restriction, coupled with substantial losses suffered by certain of the
Company's customers, resulted in a precipitous drop in the Company's commission
revenues. In 1997, seeking to replace the lost commission revenues, the Company
turned to commodities trading for its own account. However, in part because of
its limited capital, its trading activities generated losses rather than gains.
In late 1997 the Company began to develop a two pronged business strategy. The
first prong of this strategy was to use the Company's "window to Wall Street" as
a broker-dealer to open access to the U.S. capital markets for the many private
business enterprises with a serious and immediate need for capital. This portion
of the strategy is "on hold" because of current unsettled conditions in the
region. The second prong of the strategy is to install an online trading system
directed toward a certain niche markets in the securities and commodities
brokerage field where the Company believes it has a competitive advantage. The
Company is also actively pursuing the possibility of a merger with one or more
other business entities.
The Company has elected to shows certain items in its financial Statements
included in this report in greater detail than those items were previously shown
in its Registration Statement on Form 10SB or its previous Quarterly Report on
Form 10Q. This presentation does not reflect any reclassification of accounts or
change in accounting principles.
RESULTS OF OPERATIONS
The major factor affecting the Company's results of operations for the
nine months ended September 30, 1999 was a charge taken for a trading loss of
$154,401 which the Company discovered after the close of the second quarter it
had incurred some time earlier.
The Company had ceased proprietary trading for its own account in early
1999 and does not intend to engage in such trading in the future. However, in
May of 1997 Allen & Pierce had transferred $150,000 to an account maintained by
Annesley Co., Ltd., an investment fund, with INCOMBANK Cyprus. The purpose of
the transfer was to purchase Russian government treasury bills. In August, 1998
when the price of Russian government securities declined precipitously the
Company had made inquiries about its potential loss and was informed that the
$150,000 had not been used to purchase Russian treasury bills but was instead
held in cash in
<PAGE>
U.S. dollars. Thereafter the Company received letters every six months from
Annesley confirming that the $150,000 originally transferred remained in its
account awaiting instructions. Based on these confirmations, the Company
continued to carry the $150,000 account as an asset on its balance sheet and
Allen & Pierce continued to the carry the account as an asset in computing its
compliance with net capital requirements.
On July 29, 1999 the Company was informed in the course of an NASD
inspection that INCOMBANK Cyprus was in liquidation. The Company requested a
return of the balance in its account and was informed for the first time that
the $150,000 had in fact been applied to buy Russian government treasury bills,
and that the investment was substantially worthless.
The $314 in revenue recorded by the Company during the nine months ended
September 30, 1999 represented commissions on orders which the Company received
on an unsolicited basis from a single customer. It had had no revenue during the
corresponding six months of 1998.
The other major factor affecting operations was interest expense. Interest
expense of $124,750 during the nine months ended September 30, 1999 as against
$15,500 during the corresponding nine months of 1998 reflected an increase in
the short-term borrowings referred to below. The Company had not done any such
borrowing in the first quarter of 1998.
The Company is not presently soliciting new brokerage accounts pending
completion of the installation of its online trading system. Its only source of
revenue is limited amounts of brokerage commissions generated through
unsolicited orders of one substantial customer. This situation is expected to
continue until installation of the proposed online trading system has been
completed. The Company is currently reexamining the feasibility of this plan in
view of recent changes in the online brokerage business, including recent
offerings of online brokerage service by certain large brokers with no
commission charges. If the Company decides to proceed with plans for an online
brokerage operation expects that this will occur by the end of calendar 1999.
The Company's current lease for premises at 90 West Street in New York
will expire at the end of 1999, and the Company does not intend to renew it. It
is currently considering several possible alternate locations both in New York
and New Jersey, but has not reached any final decision. It has no special
requirements beyond ordinary office space.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in total assets to $141,797 from $1,879,229 as of December
31, 1998 reflects primarily the write-off of $154,401 in trading losses
described above (which had been carried as a receivable from broker) and
repayment of borrowed funds during the first quarter of 1999.
The elimination of commission revenues commencing in mid-1997 severely
impacted the Company's liquidity. In order to sustain its operations while the
Company began implementing its new business strategy, the Company found it
necessary to resort to short-term borrowing. During the period from April, 1998
through January 31, 1999, the Company had issued unsecured promissory notes in
an aggregate principal amount of approximately $2.2 million to 6 accredited
investors, including one corporation and 5 individuals. The terms of these notes
ranged from 1 month through 1 year and the notes bore interest at prime except
for $25,000 in principal amount which bore interest at 20%. As of December 31,
1998 the aggregate amount of such notes outstanding was $2,191,531. During the
quarter ended March 31, 1999 the Company repaid a substantial amount of the
short term borrowing it had done during the year ended December 31, 1998. The
bulk of these funds had been retained in the Company's bank account, and
repayment of the loans was made from this source. The
<PAGE>
Company determined that in view of its having ceased trading for its own account
the proceeds of these additional borrowings were not required for liquidity
purposes. During the second and third quarters of 1999 it increased these
borrowings slightly so that the balance as of September 30, 1999 was $957,787.
As of September 30, 1999 the Company's liquidity position was precarious.
In the absence of substantial additional revenues, or the raising of additional
capital, the Company's ability to continue operations is dependent upon the
willingness of its short-term lenders to continue rolling over their loans to
the Company. Based on conversations with these lenders, the Company believes
that they will continue to roll this debt over for at least the next 12 months
while the Company completes installation of its online trading system. However,
they are not legally obligated to do sell and there can be no assurance that
these lenders will continue to renew their loans. Any such termination would
severely impact the Company's ability to carry out its plan of operations and to
continue as a going concern.
The Company was until September, 1999 a $100,000 broker-dealer under SEC
and NASD regulations. However its recent operations and expected operations
during the near future do not require it to remain a $100,000 broker-dealer, and
in September the Company reduced its net capital requirements to $5,000 by
becoming a $5,000 broker-dealer through an agreement with the NASD limiting by
contract the activities in which it can engage. With this change, the Company
believes it will be able to maintain Allen & Pierce's capital requirements for
at least the next 12 months without any additional infusion of capital.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
- -----------
27 Financial Data Schedule.
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.
BEDFORD HOLDINGS, INC.
(Registrant)
Date: October 12, 1999
/s/ Leon Zapoll
--------------------------------------------
Leon Zapoll
President
<PAGE>
Date: October 12, 1999
/s/ Robert Samila
--------------------------------------------
Robert Samila
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BEDFORD
HOLDINGS, INC. FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,776
<RECEIVABLES> 37,010
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 29,130
<TOTAL-ASSETS> 141,797
<SHORT-TERM> 0
<PAYABLES> 7,113
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 27,243
<OTHER-SE> (850,346)
<TOTAL-LIABILITY-AND-EQUITY> 141,797
<TRADING-REVENUE> (154,401)
<INTEREST-DIVIDENDS> 167
<COMMISSIONS> 314
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 124,750
<COMPENSATION> 16,878
<INCOME-PRETAX> (502,397)
<INCOME-PRE-EXTRAORDINARY> (502,397)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (502,397)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
