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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
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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 10005
(Address of Principal Executive Offices) (Zip Code)
(212) 385-3600
(Registrant's Telephone Number, Including Area Code)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: (None)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, without par value
(Title of Class)
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1 Description of Business................................................................................3
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................................9
Item 3 Description of Property...............................................................................15
Item 4 Security Ownership of Certain Beneficial Owners and Management........................................15
Item 5 Directors, Executive Officers, Promoters and Control Persons..........................................16
Item 6 Executive Compensation................................................................................16
Item 7 Certain Relationships and Related Transactions........................................................17
Item 8 Description of Securities.............................................................................17
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity and Other
Shareholder Matters. .................................................................................18
Item 2 Legal Proceedings. ...................................................................................18
Item 3 Changes In and Disagreements With Accountants.........................................................19
Item 4 Recent Sales of Unregistered Securities...............................................................19
Item 5 Indemnification of Directors and officers.............................................................19
PART F/S
Financial Statements............................................................................................1
PART III
Item 1 Index to Exhibits.....................................................................................20
Item 2 Description of Exhibits,..............................................................................20
</TABLE>
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PART I
ITEM I DESCRIPTION OF BUSINESS
BUSINESS
Bedford Holdings, Inc., (the "Company") was established in 1996 as a
holding company for Allen & Pierce Securities, Inc., a broker-dealer ("Allen &
Pierce"), and with a view toward acquiring other businesses. Allen & Pierce was
established by Mr. Leon Zapoll, a former Russian citizen, to engage in a general
securities and commodities brokerage business, and has been in business since
1989. Allen & Pierce is registered as a securities broker-dealer with the U.S.
Securities and Exchange Commission and as an introducing broker with the U.S.
Commodities Futures Trading Corporation.
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 Mr. Zapoll's language and knowledge of the countries of the CIS to
develop a new source of brokerage business. Mr. Zapoll 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 severely restricted the ability of
Russian citizens to maintain securities and commodities trading accounts abroad.
These restrictions, 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 new business strategy designed to
take advantage of the contracts Mr. Zapoll had made through travels in the CIS.
Mr. Zapoll had found that in both Russia and Uzbekistan privatization was
creating a large number of private business enterprises with one thing in common
- -- a serious and immediate need for capital. The strategies which the Company
devised was to use the Company's "window to Wall Street" as a broker-dealer to
open access to the U.S. capital market for these companies.
In October, 1997 the Company entered into an agreement with ZAO AO
VENCO, a privately held Russian company owning a stake of approximately 60% in a
privately owned Russian oil company which holds development rights to five oil
fields in Siberia. Under this agreement, the Company was to issue 52% of its
common stock to the President of ZAO AO VENCO in exchange for the shares it was
acquiring. In addition, the Company was to raise at least $35 million dollars to
finance the construction of a pipeline connecting the oil fields to the main
pipeline running through Siberia. The Company was unable to raise the required
financing, in part due to unsettled conditions in Russia, and in 1998 the
parties terminated that agreement by mutual consent.
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The countries of the former USSR vary widely in both social stability
and governmental attitudes toward outside investment. The Company has selected
Uzbekistan as having the most promising combination of business enterprises and
government policies toward outside capital. Uzbekistan is the third-largest of
the former USSR, and a major manufacturing center for the aircraft and
automotive industries, as well as being rich in natural resources. In early 1998
the Company began discussions with O'zsanoatqurilishbank, a substantially
privatized Uzbekistan bank ("SQ Bank") with a view toward creating an opening to
the U.S. capital markets for the bank and its customers.
In March, 1999 the Company entered into an Exchange Agreement under
which it offered to exchange shares representing 80% of its outstanding
common stock for the outstanding common shares of SQ Bank. If this exchange
offer had been successfully concluded, SQ Bank would have become a subsidiary
of the Company, and if all SQ Bank shareholders had accepted the offer the
former shareholders of SQ Bank would have owned 80% of the Company's stock.
In early May of 1999 the parties jointly determined that as a result of
various uncertainties in Uzbekistan, none of which related specifically to SQ
Bank, the exchange offer should be suspended for an indefinite period of time,
and that neither of the parties would have any further obligation under the
exchange agreement. The Company anticipates that if and when the various
uncertainties in Uzbekistan are resolved, the parties may reinstate the exchange
offer, but neither party is obligated to do so and no assurances can be given
in that regard.
The second prong of the Company's strategy is to take advantage of the
Company's unique characteristics to target certain niche markets in the
securities and commodities brokerage field in which the Company believes it has
a competitive advantage. The Company is in the process of installing an online
trading system. Unlike most smaller brokerage firms with an online presence, the
system being installed by the Company will provide for execution of both
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securities and commodities trades. The Web page will appear in four languages-
English, French, Russian and either German or Chinese. The Company believes
that in many cases high net worth individuals whose first language is not
English, and companies owned by such individuals, are more comfortable dealing
in their native language in financial matters and will find the Company's system
attractive. Initially the system will provide for transmission over the Internet
of customer orders to the Company's offices and immediate verification of the
customer's margin status. Thereafter, the actual trade will be executed by an
Allen & Pierce broker through telephone connection to the appropriate stock
exchange, commodities exchange or other market via telephone to the floor broker
or market maker. This system will allow direct supervision of the trades by a
responsible individual during the initial development of the system. It is
anticipated that at a later date execution will be fully automated.
COMPETITION
Securities Business
There is significant competition in all aspects of the securities
business. In addition to competition from firms currently in the securities
business, there has been increasing competition from other sources, such as
commercial banks and investment boutiques. As a result of pending legislative
and regulatory initiatives in the U.S. to remove or relieve certain restrictions
on commercial banks, it is anticipated that competition in some markets
currently dominated by investment banks and securities firms may increase in the
near future. Such competition could also affect the Company's ability to attract
and retain highly skilled individuals to conduct its businesses. The principal
competitive factors influencing the Company's business are expected to be its
existing client relationships, and its market capabilities. The Company's
ability to compete effectively in securities brokerage and investment banking
activities will also be influenced by the adequacy of its capital levels.
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EMPLOYEES
At May 15, 1999, the Company had 2 employees, Mr. Zapoll and Mr.
Samila. See Item 5.
REGULATION
The Company's business and the securities industry in general are
subject to extensive regulation in the U.S. at both the Federal and state level,
as well as by industry Self Regulatory Organizations ("SROs"). A number of
Federal regulatory agencies are charged with safeguarding the integrity of the
securities and other financial markets and with protecting the interests of
customers participating in those markets. The Securities and Exchange Commission
("Commission") is the Federal agency that is primarily responsible for the
regulation of broker-dealers and investment advisers doing business in the U.S.,
and the Commodities Futures Trading Corporation ("CFTC") is primarily
responsible for the regulation of the futures business. In addition, the
Department of the Treasury and the Municipal Securities Rulemaking Board have
the authority to promulgate regulations relating to U.S. government and agency
securities and to municipal securities, respectively, and the Board of Governors
of the Federal Reserve System promulgates regulations applicable to securities
credit transactions involving broker-dealers and certain other U.S.
institutions. Broker-dealers and investment advisers are subject to registration
and regulation by state securities regulators in those states in which they
conduct business. Industry SROs, each of which has authority over the firms that
are its members, include the NASD, the NYSE and other securities exchanges, the
National Futures Association (the "NFA") and the commodities exchanges.
Allen & Pierce is registered as a broker-dealer with the Commission and
is a member of, and subject to regulation by, a number of securities industry
SROs, including the NASD. Allen & Pierce is also registered as a broker-dealer
in New York, and as an introducing broker with the CFTC.
As a result of registration and SRO memberships, the U.S.
Broker-Dealers are subject to overlapping schemes of regulation which cover all
aspects of their securities business. Such regulations cover matters including
capital requirements, the use and safekeeping of customers' funds and
securities, record keeping and reporting requirements, supervisory and
organizational procedures intended to assure compliance with securities laws and
rules of the SROs and to prevent the improper trading on "material nonpublic"
information, employee-related matters, limitations on extensions of credit in
securities transactions, and clearance and settlement procedures. A particular
focus of the applicable regulations concerns the relationship between
broker-dealers and their customers. As a result, the U.S. Broker-Dealers in some
instances may
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be required to make "suitability" determinations as to certain customer
transactions, are limited in the amounts that they may charge customers, cannot
trade ahead of their customers and must make certain required disclosures to
their customers.
Allen & Pierce Securities, as a registered introducing broker, is
subject to the capital and other requirements of the CFTC under the Commodity
Exchange Act. These requirements include the provision of certain disclosure
documents, prohibitions against trading ahead of customers and other fraudulent
trading practices, provisions as to the handling of customer funds and reporting
and record keeping requirements.
U.S. Broker-Dealers are also subject to "Risk Assessment Rules" imposed
by the Commission and by the CFTC. These rules require, among other things, that
certain broker-dealers and introducing brokers maintain and preserve certain
information, describe risk management policies and procedures and report on the
financial condition of certain affiliates whose financial and securities
activities are reasonably likely to have a material impact on the financial and
operational condition of the broker-dealers or introducing brokers. Affiliates
of the U.S. Broker-Dealers and the activities conducted by such affiliates may
not be subject to regulation by the Commission or the CFTC. However, the
possibility exists that, on the basis of the information that they obtain from
the Risk Assessment Rules, the Commission or CFTC could seek legislative or
regulatory changes in order to expand their authority over the Company's
unregulated activities either directly or through their existing authority over
the Company's regulated subsidiary.
Additional legislation and regulations, including those relating to the
activities of affiliates of broker-dealers, changes in rules promulgated by the
Commission, the CFTC or other U.S. or foreign governmental regulatory
authorities and SROs or changes in the interpretation or enforcement of existing
laws and rules may adversely affect the manner of operation and profitability of
the Company. Among other things, the SEC has recently become active in the
enforcement of its regulations in the area of online trading activities in an
effort to curb various abuses which have occurred in that area. It may be
anticipated that such enforcement will continue or increase, and that additional
regulations may be adopted, some of which could adversely affect the Company's
plans to move into this area.
The Company's businesses may be materially affected not only by
regulations applicable to it as a financial market intermediary, but also by
regulations of general application. For example, the volume of the Company's
proposed investment banking businesses in any year could be affected by, among
other things, existing and proposed tax legislation, antitrust policy and other
governmental regulations and policies (including the interest rate policies of
the Federal Reserve Board) and changes in interpretation or enforcement of
existing laws and rules that affect the business and financial communities.
NET CAPITAL REQUIREMENTS
As a broker-dealers registered with the Commission, Allen & Pierce
Securities is subject to the capital requirements of the Commission. These
capital requirements specify minimum
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levels of capital, computed in accordance with regulatory requirements ("net
capital"), that the U.S. Broker-Dealers are required to maintain and also limit
the amount of leverage that the U.S. Broker-Dealers are able to obtain in their
businesses. As an introducing broker, Allen & Pierce is also subject to the
capital requirements of the CFTC.
Under the method selected by Allen & Pierce for computing its net
capital requirements, it is required by the Commission to maintain regulatory
net capital, computed in accordance with the Commission's regulations, equal to
the lesser of $100,00 or 6 2/3% of Aggregate Indebtedness calculated in
accordance with Commission regulations. Further, under CFTC and CBOT capital
regulations, Allen & Pierce Securities must maintain capital in an amount equal
to at least the lesser of $30,000 or $3,000 per associated person.
"Net capital" is essentially defined as net worth (assets minus
liabilities, as determined under generally accepted accounting principles), plus
qualifying subordinated borrowings, less the value of all of a broker-dealer's
assets that are not readily convertible into cash (such as goodwill, furniture,
prepaid expenses, exchange seats and unsecured receivables), and further reduced
by certain percentages (commonly called "haircuts") of the market value of a
broker-dealer's positions in securities and other financial instruments.
A failure by a U.S. Broker-Dealer to maintain its minimum required
capital would require it to cease executing customer transactions until it came
back into capital compliance, and could cause it to lose its right to
registration with the Commission or CFTC, or require its liquidation. Further,
the decline in a U.S. Broker-Dealer's net capital below certain "early warning
levels," even though above minimum capital requirements, could cause material
adverse consequences to the firm. For example, the Commission's capital
regulations prohibit payment of dividends, redemption of stock and the
prepayment of subordinated indebtedness if a broker-dealer's net capital
thereafter would be less than 120% of the minimum dollar amount required and
prohibit principal payments in respect of subordinated indebtedness if a
broker-dealer's net capital thereafter would be less than 120% of the minimum
dollar amount required or $36,000 or $4,500 per associated person.
The Commission's capital rules also (i) require that the U.S.
Broker-Dealers notify the Commission and, the CFTC, in writing, two business
days prior to making withdrawals or other distributions of equity capital or
lending money to certain related persons, if those withdrawals would exceed, in
any 30 day period, 30% of the broker-dealer's excess net capital and that they
provide such notice within two business days after any such withdrawal or loan
that would exceed, in any 30 day period, 20% of the broker-dealer's excess net
capital, (ii) prohibit a U.S. Broker-Dealer from withdrawing or otherwise
distributing equity capital or making related party loans if after such
distribution or loan, the U.S. Broker-Dealer has net capital of less than 120%
of the minimum dollar amount required and in certain other circumstances, and
(iii) provide that the Commission may, by order, prohibit withdrawals of capital
from the U.S. Broker-Dealers for a period of up to 20 business days, if the
withdrawals would exceed, in any 30 day period, 30% of the broker-dealer's
excess net capital and the Commission believes such withdrawals would be
detrimental to the financial integrity of the firm or would unduly jeopardize
the broker-dealer's ability to pay its customer claims or other liabilities.
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Compliance with regulatory capital requirements could limit those
operations of Allen & Pierce that require the intensive use of capital, such as
trading activities, and the financing of customer account balances, and also
could restrict the Company's ability to withdraw capital from Allen & Pierce,
which in turn could limit the Company's ability to pay dividends, pay interest,
repay debt, and redeem or purchase shares of its outstanding capital stock.
The Company believes that at all times Allen & Pierce has been in
compliance in all material respects with the applicable minimum capital rules of
the Commission, and the CFTC except for one instance in 1992 when Allen & Pierce
was assessed a modest penalty by the NASD for violation of its net capital
rules. As of January 31, 1999, Allen & Pierce Securities was required to
maintain minimum "net capital," in accordance with Commission and CFTC rules, of
approximately $100,000 and had total net capital of $257,156.
YEAR 2000 DISCLOSURE
The Company in its securities and commodities transactions acts as an
introducing broker. Actual transaction records are prepared by its clearing
broker. The Company is seeking assurance from its clearing brokers that Year
2000 issues will not have any serious impact on the functions they are
performing for the Company. The Company's brokerage operations are also
dependent upon continuing quotation information provided by E.D.F. Man
International, and on the availability of financial information provided by
Bloomberg L.P. The Company is similarly seeking appropriate assurances from
these vendors. Since the Company is entirely dependent on outside vendors with
respect to the major portions of its operations, there can be no assurance that
the necessary modifications and conversions by the vendors will be adequate or
completely thorough, which could have a material adverse effect on its results
of operations. The total cost to the Company associated with the required
modifications and conversions are not expected to be material to the Company's
results of operations and financial position and are being expensed as incurred.
ITEM 2 - MANAGEMENT'S DISCUSSION OF ANALYSTS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains certain forward-looking statements
that are subject to business and economic risks and uncertainties, and the
Company's actual results could differ materially from those forward-looking
statements. 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 which was established in 1989 by Mr. Leon Zapoll, a former
Russian citizen, and Mr. Robert Samila, to engage in a general securities and
commodities brokerage business. For its initial two years, Allen & Pierce
carried out a general securities and commodities brokerage
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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 Mr. Zapoll's language and knowledge of the CIS to develop a new
source of brokerage business. Mr. Zapoll 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 new business strategy designed to
take advantage of the contracts Mr. Zapoll had made through his earlier travels
in the CIS.
RESULTS OF OPERATIONS
Revenues declined from $120,580 for the year ended December 31, 1997
to ($219,011) for the fiscal year ended December 31, 1998. The primary
factors contributing to this decline were the reduction in commission
revenues and interest income. The Company's commission revenues declined from
$348,480 in 1997 to $0 in 1998. This decline was due to the complete absence
in 1998 of any brokerage transactions as a result primarily of the cessation
of exchange futures and other commodities trading in the U.S. by its
customers in the states of the former USSR. Interest income declined from
$26,681 in 1997 to $1,205 in 1998 because market losses reduced the amount of
funds on deposit. In late 1997 the Company, in an effort to offset the
reduced commission revenues, began proprietary trading for its own account.
It incurred losses in such trading of $254,581 in 1997 and $220,216 in 1998,
a decrease of 13.5%. As of the first quarter of 1999 the Company had ceased
proprietary trading for its own account, and does not contemplate any such
trading in the future.
Expenses increased by 6% from $362,907 to $384,846 for the fiscal
years ended December 31, and 1997 and 1998, respectively. The increase was
due to a 46% increase in salary expense, as the Company's President had taken
no salary in 1997 and took a $10,200 salary in 1998, and $9,273 in interest
expense incurred for the fiscal year ended December 31, 1998 as a result of
the short-term borrowings referred to below.
The Company ceased its trading operations for its own account in
January of 1999, resulting in a reduction in the trading loss for the quarter
ended March 31, 1999 from ($121,087) to ($4,874). Interest expense of $16,994
for the quarter ended March 31, 1999 was the result of the short term
borrowing described below. The Company had not done any such borrowing in the
quarter ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The increase in total assets from $296,168 as of December 31, 1997
to $1,879,229 as of December 31, 1998 reflects primarily borrowed funds. 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
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January 31, 1999, the Company 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. The increase in
the Company's cash position from $40,982 as of December 31, 1997 to $1,760,372
was due entirely to such borrowing. The 66% decline in receivables from brokers
(representing cash held by the Company's clearing broker and one broker abroad)
was the result of the decline in the Company's commission business.
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, reducing the amount of its short-term loans payable
from $2,191,531 to $661,561. The 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.
As of March 31, 1999 the Company's liquidity position was precarious.
In the absence of substantial additional revenues, 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. There can be no assurance
that these lenders will continue to renew their loans. If any substantial
portion of such lenders were to require payment in full of such loans the
Company would not be a position to maintain the net capital requirements of
Allen & Pierce Securities, Inc. and would be forced to terminate its operations
as a broker-dealer, which would severely impact its ability to carry out its
plan of operations and to continue as a going concern.
ITEM 3 - DESCRIPTION OF PROPERTY
The Company's offices are presently located at 90 West Street, New
York, New York and occupy approximately 1,800 square feet under a lease
currently extending through 1999. The Company believes this space will be
sufficient for its operations for the foreseeable future. The Company's
requirements are limited to general-purpose office space, and the Company
believes that at the present time such space is readily available in downtown
New York.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 15, 1999, certain
information with respect to the Company's equity securities believed by the
Company to be owned of record or beneficially by (i) each Director of the
Company; (ii) each person who owns beneficially more than 5% of each class of
the Company's outstanding equity securities; and (iii) all Directors and
Executive Officers as a group.
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Owner Number of % of Class
- --------------- ------------------------------------- --------- ----------
Shares
------
<S> <C> <C> <C>
Common Stock Leon Zapoll 20 million 94.1%
36 Wescott St.
Old Tappan, NJ 07675
Common Stock Robert Samila - -
617 Salem Road
Union, NJ 07083
</TABLE>
The beneficial owners of securities listed above have sole investment
and voting power with respect to such shares. Beneficial ownership is determined
in accordance with the rules of the Commission and generally includes voting or
investment power with respect to securities. Shares of stock subject to options
or warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding such
options or warrants, but are not deemed outstanding for purposes of computing
the percentage of any other person.
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ITEM 5 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the current
directors and executive officers of the Company, the principal offices and
positions with the Company held by each person and the date such person became a
director or executive officer of the Company. The executive officers of the
Company are elected annually by the Board of Directors. The directors serve one
year terms and until their successors are elected. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors.
<TABLE>
<CAPTION>
Name Age Positions Date became director or
executive officer
<S> <C> <C>
Leon Zapoll 48 President July 1996
Robert Samila 57 Chief Financial Officer, Secretary and July 1996
Treasurer
</TABLE>
There are no family relationships between any of the directors and
executive officers. There was no arrangement or understanding between any
executive officer and any other person pursuant to which any person was selected
as an executive officer.
LEON ZAPOLL. Mr. Zapoll has been the President of the Company or its
predecessor since 1989. He is licensed by the Commodities Futures Trading
Corporation as a commodities principal and an associated person.
ROBERT SAMILA. Mr. Samila has been the Chief Financial Officer of the
Company or its predecessor since 1989. Prior to that time he was employed in
various capacities by a number of firms in the securities industry, and as an
examiner for the National Association of Securities Dealers, Inc. He is licensed
by the Securities and Exchange Commission as a general securities principal,
financial operations principal, registered options principal, and municipal bond
principal, and by the Commodities Futures Trading Corporation as a supervising
sole principal, associated person and commodities principal. He is registered as
a Branch Manager with the New York Stock Exchange and was in the past an Allied
Member of the American Stock Exchange. He is currently licensed as a salesperson
in the state of New York and as in the past been licensed in a number of other
states. He holds a bachelor's degree in Business Administration from Seton Hall
University.
ITEM 6 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information
for services rendered in all capacities during each of the prior three (3)
fiscal years. No bonuses or stock options were granted and no additional
compensation was paid or deferred.
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<TABLE>
<CAPTION>
NAME AND PRINCIPAL
POSITION YEAR SALARY
<S> <C> <C>
Leon Zapoll, President 1998 10,200
1997 -
1996 -*
Robert Samila Chief Financial 1998 $22,100
Officer, Treasurer and
Secretary
1997 $22,100
1996 $22,100
</TABLE>
* Prior to August, 1996, Allen & Pierce Securities, Inc. operated as an S
Corporation; Mr. Zapoll was its sole shareholder. It showed a loss for the 1996
partial year.
COMPENSATION OF DIRECTORS
No Director receives or has received any compensation from the Company
for service as a member of the Board of Directors.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 8 - DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Certificate of Incorporation authorizes the issuance of
40 million shares of Common Stock, without par value, of which 27,243,000 shares
were issued and outstanding as of May 15, 1999. Holders of shares of Common
Stock are entitled to one vote for each, share on all matters to be voted on by
the shareholders. Holders of Common Stock have no cumulative voting rights.
Holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of Common Stock have no preemptive rights to
purchase the Company's common stock. There are no conversion rights or
redemption or sinking fund provisions with respect to the common stock. All of
the outstanding shares of Common Stock are fully paid and non-assessable.
TRANSFER AGENT
The Company's transfer agent is the American Securities Transfer Inc.
division of Wells Fargo.
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PART II
ITEM I - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATTON
The Company's Common Stock is quoted under the symbol "BFHI" on the
NASDAQ Electronic Bulletin Board. The following table sets forth the high and
low bid prices for shares of the Company Common Stock for the periods noted, as
reported by the NASD. NASDAQ Bulletin Board. Quotations reflect inter dealer
prices, without retail markup, mark down or commission and may not represent
actual transactions. <TABLE><CAPTION>
BID PRICES
YEAR PERIOD HIGH LOW
<S> <C> <C> <C>
1997 Third Quarter $0.825 $0.25
Fourth Quarter $1.125 $0.60
1998 First Quarter $0.625 $0.625
Second Quarter $1.125 $0.625
Third Quarter N/A* N/A*
Fourth Quarter $2.875 $2.25
1999 First Quarter $2.25 $0.438
</TABLE>
*Bid prices are not available for the third quarter of 1998.
The Company's securities were not publicly traded prior to August,
1996. As of May 20, 1999 the reported bid price for the Company's common stock
was $1.75 per share.
SHAREHOLDERS
As of May 20, 1999, the Company had 27,243,500 shares of Common
Stock outstanding held by 10 shareholders of record.
DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past
and does not anticipate doing so in the foreseeable future.
ITEM 2 - LEGAL PROCEEDINGS
The Company is not currently involved in any litigation.
14
<PAGE>
ITEM 3 CHANGES IN AND DISAGREEMENTS WTTH ACCOUNTANTS
Effective July, 1996 Donahue Associates, Inc., Certified Public
Accountants, were engaged by the Company as their principal accountant to audit
the Company's financial statements. There have been no changes in accountants or
disagreements of the type required to be reported under this Item 3 between the
Company and its independent auditors since their date of engagement, nor during
the Company's two most recent fiscal years or any later interim period.
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
In July of 1996, the Company completed an offering of 1.2 million
shares of its Common Stock at a price of $0.25 per share to a total of 2
accredited investors and 17 non-accredited investors. Aggregate proceeds of that
offering were $300,000. The sales were made in reliance on the Commission's Rule
504 under the Securities Act of 1933, as amended.
During the period from April, 1998 through January 31, 1999, the
Company issued unsecured promissory notes in an aggregate principal amount of
$2,191,531 to 6 accredited investors, including 1 corporation and 5 individuals.
The terms of these notes ranged from 1 month through 1 year and the notes bore
interest at prime. These notes were issued in reliance on the exemption of
Section 4(2) of the Securities Act of 1933, as amended. The Company also issued
a similar unsecured promissory note in the amount of $25,000 and bearing
interest at 20% to one individual who, it later determined, was not an
accredited investor. The Company repaid that loan with interest immediately upon
determining that the investor was not accredited.
In 1997, the Company issued 6 million shares of its common stock to SQ
Bank as a good faith deposit based on the assumption that the two companies
would merge. Since the parties subsequently negotiated a different arrangement,
those shares were canceled by mutual agreement in March, 1999.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation laws of the State of New jersey and the Company's
Certificate of Incorporation provide for indemnification of the Company's
Directors for liabilities and expenses that they may incur in such capacities.
In general, Directors and Officers are indemnified with respect to actions taken
in good faith in a manner reasonably believed to be in, or not opposed to, the
best interests of the Company, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. The personal liability of the Directors is also limited as provided in
the Company's Certificate of Incorporation.
PART F/S
FINANCIAL STATEMENTS
The Financial Statements required by this Item are included at the end
of this report beginning on Page F1.
15
<PAGE>
BEDFORD HOLDINGS, INC..
CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years ended
December 31, 1998 and 1997 and the Quarter ended March 31, 1999 and 1998
(Unaudited)
BEDFORD HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors..................................................................................1
Consolidated Financial Statements of Bedford Holdings, Inc. and subsidiary:
Consolidated statement of Financial Condition as of December 31, 1998
and December 31, 1997, and March 31, 1999 (Unaudited).................................................2
Consolidated Statements of Operations for the years ended December 31, 1998
and 1997 and the quarters ended March 31, 1999 and 1998 (Unaudited)
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1998 and 1997 and the quarter ended March 31, 1999........................................3
Consolidated Statements of Cash flows for the years ended December 31, 1998 and 1997
and the quarters ended March 31, 1999 and 1998 (Unaudited)............................................4
Notes to Consolidated Financial Statements.............................................................5
</TABLE>
F-1
<PAGE>
DONAHUE ASSOCIATES, INC.
CERTIFIED PUBLIC ACCOUNTANTS
353 Main Street, Chatham, NJ. 07928 (973) 635-2111
INDEPENDENT AUDITORS REPORT
The Shareholders Bedford Holdings Inc.
We have audited the accompanying balance sheets of Bedford Holdings
Inc. as of December 31, 1998 and December 31, 1997 and the related statements of
income and change in owners' equity, and cash flows for the fiscal years ended
December 31, 1998 and December 31, 1997. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements presented are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bedford Holdings
Inc. as of December 31, 1998 and December 31, 1997 and the results of operations
and cash flows for the fiscal years ended December 31, 1998 and December 31,
1997 in conformity with generally accepted accounting principles consistently
applied.
Brian Donahue
Chatham, NJ.
March 7, 1999
F-2
<PAGE>
BEDFORD HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,1998 AND
DECEMBER 31, 1997 AND MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 QUARTER ENDED MARCH 31
---------------------- ----------------------
1998 1997 1999
<S> <C> <C> <C>
ASSETS
Cash $ 1,760,372 $ 40,982 $ 206,045
Receivables from Brokers 66,796 195,295 10,423
Fixed Assets (net of accumulated
depreciation of $62,899) 38,010 52,144 35,050
Other Assets 14,051 7,747 14,051
----------- --------- ----------
Total Assets $ 1,879,229 $ 296,168 $ 265,569
----------- --------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 8,405 $ 12,518 $ 2,000
Short term loans payable 2,191,531 0 661,561
Common Stock, nonpar value, 40,000,000 shares
authorized 27,250,000 shares issued and
27,243,500 outstanding stated value $.001 per
share, including 6,500 shares of treasury stock 27,243 27,243 27,243
Treasury Stock (6,500) (6,000) (6,500)
Contributed Capital in excess of stated value 963,445 963,445 963,445
Retained Deficit (1,304,895) (701,038) (1,382,180)
----------- --------- -----------
Total Liabilities and Shareholders' Equity $ 1,879,229 $ 296,168 $ 265,569
----------- --------- -----------
</TABLE>
Please see accompanying notes to these financial statements.
F-3
<PAGE>
BEDFORD HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDING DECEMBER 31,1998
AND DECEMBER 31, 1997 AND FOR THE QUARTERS ENDED
MARCH 31, 1999 AND MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 QUARTER ENDED MARCH 31
----------------------- ----------------------------
1998 1997 1999 1998
<S> <C> <C> <C> <C> <C>
Revenues
Commissions $0 $ 348,480 $ 0 $ 0
Interest 1,205 26,681 167 194
Trading Loss (220,216) (254,581) (4,874) (121,087)
----------- ------------ ------------ ------------
Total Revenues ($219,011) $ 120,580 (4,706) (120,893)
Expenses:
Salaries 32,300 22,100 5,525 5,525
General administrative 329,843 327,377 47,100 55,226
Interest expense 9,273 0 16,994 0
Depreciation 13,430 13,430 2,960 2,960
----------- ------------ ------------ ------------
Total expenses 384,846 362,907 72,579 63,711
----------- ------------ ------------ ------------
Net Loss ($603,857) ($242,327) ($77,285) ($184,604)
----------- ------------ ------------ ------------
Earnings per common share:
Basic: ($0.02) ($0.01) ($0.01) ($0.01)
Diluted ($0.02) ($0.01) ($0.01) ($0.01)
Weighted Average of common shares:
Basic 27,243,500 27,244,000 27,243,500 27,243,500
Diluted 27,243,500 27,244,000 27,243,500 27,243,500
</TABLE>
Please see accompanying notes to these financial statements.
F-4
<PAGE>
BEDFORD HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDING DECEMBER 31,1998
AND DECEMBER 31, 1997 AND FOR THE QUARTER ENDED
MARCH 31, 1999 AND MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 QUARTER ENDED MARCH 31
----------------------- ----------------------
1998 1997 1999 1998
<S> <C> <C> <C> <C>
Cash flows from Operating Activities:
Net Income ($603,857) ($242,328) ($77,285) ($184,604)
Adjustments to reconcile net income to cash provided
by operating activities; add back depreciation expense 13,341 13,341 2,960 2,960
---------- ---------- ------------ ----------
Net cash used by operating activities (590,516) (228,987) (74,325) (181,644)
Cash flows from operating activities:
Decrease in broker receivable 128,499 82,631 (56,373) 34,091
Decrease in accounts payable (4,113) 621 (6,405) (12,406)
Increase in other assets (6,304) 3,421 0 0
Increase in short term loans payable 2,191,531 92 (1,529,970) 0
---------- ---------- ------------ ----------
Net cash provided by operating activities 2,309,613 86,765 (1,704,327) (159,959)
Cash flows from financing activities:
Write off of residual fixed asset 793
Purchase of treasury stock (See Note 2) (500) (6,000)
---------- ---------- ------------ ----------
Net cash (used) provided by financing activities 293 (6,000) 0 254,500
---------- ---------- ------------ ----------
Net increase (decrease) in cash 1,719,390 (148,222) (1,704,327) 94,541
Cash Balance and Beginning of Year 40,982 189,204 1,760,372 40,931
---------- ---------- ------------ ----------
Cash Balance at End of Year $1,760,372 40,982 $ 206,045 $ 135,472
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
Please see accompanying notes to these financial statements.
F-5
<PAGE>
BEDFORD HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE QUARTER ENDED MARCH 31, 1999 (UNAUDITED) AND FOR THE YEARS
ENDING DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
Common Contributed Treasury Retained Total
Stock Capital Stock Earnings Capital
------- ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $21,200 $969,488 ($0) ($458,710) $ 531,978
Purchase of Treasury Stock (See Note 2) (6,000) (6,000)
Net loss (242,328) (242,328)
-------- -------- ------- ----------- ----------
Balance at December 31, 1997 $21,200 $969,488 ($6,000) ($701,038) ($283,650)
-------- -------- ------- ----------- ----------
-------- -------- ------- ----------- ----------
Purchase of Treasury Stock (See Note 2) (500) (500)
Net loss (603,857) (603,857
-------- -------- ------- ----------- ----------
Balance at December 31, 1998 $21,200 $969,488 ($6,500) ($1,304,895) ($320,707)
-------- -------- ------- ----------- ----------
-------- -------- ------- ----------- ----------
Net Income (loss) (77,285) (77,285)
-------- -------- ------- ----------- ----------
Balance at March 31, 1999 $27,243 $963,445 ($6,500) ($1,382,180) ($397,992)
-------- -------- ------- ----------- ----------
-------- -------- ------- ----------- ----------
</TABLE>
Please see accompanying notes to these financial statements.
F-6
<PAGE>
BEDFORD HOLDINGS INC.
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31,1998 AND
DECEMBER 31, 1997
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 POLICTFS
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 1998 and 1997 the Company purchased 500
shares and 6,000 shares, respectively, of its common stock for its own account.
Short term loans payable: During 1998, the Company entered into
unsecured loan agreements with various individuals. All the loans mature in
fiscal 1999 and interest is calculated at the prime rate at the date of
execution, except for one loan of $25,000 that carries interest of 20%. The
balance represented at December 31, 1998 includes the principal due plus accrued
interest as of that date.
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 the lesser of $ 100,000 or 6 2/3% of aggregate
indebtedness. As of December 31, 1998, and December 31, 1997 the Company was in
excess of net capital requirements by $157,156 and $123,708, respectively and
had an aggregate indebtedness to excess net capital ratio of 5.35% and 10.12%,
respectively
F-7
<PAGE>
(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 December 31, 1998, and December 31, 1997
the Company was in excess of net capital requirements by $227,156 and $186,209,
respectively.
F-8
<PAGE>
PART III
ITEM I - INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NO
(3.1) *Certificate of Incorporation
(3.2) *Certificate of Amendment of Certificate of Incorporation
(3.3) *Bylaws
(21) *List of Subsidiaries
(23) *Consent of Donahue Associates, Inc. Public Accountants
(27) Financial Data Schedule
* Previously Filed
ITEM 2 - DESCRIPTION OF EXHIBITS
Not applicable
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEDFORD HOLDINGS, INC.
-----------------------------
By/s/ Leon Zapoll,
Chief Executive Officer
----------------------------------
Date: May 21, 1999 By:/s/ Robert Samila
Chief Financial Officer
F-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
BALANCE SHEETS OF BEDFORD HOLDINGS INC. AS OF MARCH 31, 1999 FOR THE QUARTER
THEN ENDED, INCLUDED IN AMENDMENT NO. 1 TO THE FORM 10-SB OF THAT CORPORATION,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 206,045
<RECEIVABLES> 10,423
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 35,050
<TOTAL-ASSETS> 265,569
<SHORT-TERM> 0
<PAYABLES> 2,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 27,243
<OTHER-SE> (425,235)
<TOTAL-LIABILITY-AND-EQUITY> 265,569
<TRADING-REVENUE> (4,874)
<INTEREST-DIVIDENDS> 167
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 16,994
<COMPENSATION> 5,525
<INCOME-PRETAX> (77,285)
<INCOME-PRE-EXTRAORDINARY> (77,285)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,285)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
