UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 000-25561
BEDFORD HOLDINGS, INC.
(Exact name of Registrant as specified in its Charter)
New Jersey 13-3901466
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
300 Blaisedell Road, Orangeburg, NY 10962
(Address of principal executive offices) (Zip Code)
(914) 398-1844
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT
OF 1934:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934:
Common Stock, no par value
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. YES |X| NO |_|
Indicate by check mark whether the Registrant (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 |_|
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at December 31, 1999 was approximately $315,800.
The number of shares of Registrant's Common Stock outstanding on December 31,
1999 was 21,263,500.
Revenue for the most recent fiscal year was $(20,797).
<PAGE>
Part I
Item 1. Description of 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 has been in
business since 1989 and 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.
During the early to mid-1990s the Company derived substantial commission
revenues primarily from commissions earned on currency and other commodity
trading on behalf of customers in countries located in the former USSR. With the
turmoil in the Russian economy of the mid to late 1990s the 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. This strategy was based on (i) using
the Company's "window to Wall Street" as a broker-dealer to open access to the
U.S. capital market for companies located in the former USSR, and (ii)
developing an online commodities and securities trading operation. The first
portion of this strategy is currently "on hold" as a result of the unsettled
conditions in the countries of the former USSR.
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, and 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.
In March, 1999 the Company entered into an Exchange Agreement with
O'zsanoatqurilishbank, a substantially privatized Uzbekistan bank ("SQ Bank")
under which it offered to exchange shares representing 80% of its outstanding
common stock for the outstanding common shares of SQ Bank. In early May of 1999
the parties jointly determined that has a result of various uncertainties in
Uzbekistan, none of which related specifically to SQ Bank, the exchange offer
should be suspended indefinitely, 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 Company is in the process of installing an online trading system which will
provide for execution of both securities and commodities trades. The Web page
will appear in four languages - English, French, Russian and either German or
Chinese. The Company believes that
<PAGE>
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.
The Company intends to lease the system, rather than buying it, under a lease
which will require payments of approximately $3,500 per month. A web site is
currently in operation which provides online commodity futures trading, and the
site is expected to be fully operational, including online securities trading,
by the end of April. The Company intends to begin a series of courses for
investors on online trading, also commencing in April, as a means of developing
its customer base in this area.
Pending completion of the online trading system, the Company has not been
actively pursuing new accounts. However, it has received on an unsolicited
basis, and executed, several orders from one U.S. customer. Aside from this
limited activity, the Company does not have any current source of revenues, and
does not anticipate having a source of current revenues until its online trading
system becomes substantially operational.
COMPETITION
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. There is
also significant competition in all aspects of the commodities futures business.
However, the number of firms offering both securities and commodities futures
trading online is extremely limited, and the Company's strategy is to focus on
the niche market consisting of investors who desire both types of accounts from
a single investment firm.
EMPLOYEES
At December 31, 1999, the Company had 2 employees, Mr. Zapoll and Mr. Samila.
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"). The Securities and Exchange
Commission ("Commission") is the Federal agency that is primarily responsible
for the regulation of broker-dealers and investment
<PAGE>
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.
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.
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 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.
"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.
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 greater of $5,000 or 6 2/3% of aggregate indebtedness.
As of December 31, 1999, the Company was in excess of net capital requirements
by $47,052 and had an aggregate indebtedness to excess net capital ratio of 23%.
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
<PAGE>
defined, of the greater of $30,000 or $3,000 per associated person, as defined.
As of December 31, 1999, the Company was in excess of these net capital
requirements by $22,042.
Item 2. Description of Property
The Company's operations are located in a 6,000 square foot leased facility in
Orangeburg, New York. The term of the lease is 10 years and current monthly
rental is approximately $5,000. The Company has no special requirements beyond
ordinary commercial office space, and management believes that this facility
will be adequate for its purposes for the foreseeable future.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last quarter
of the period covered by this report.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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 dcaler prices,
without retail markup, mark down or commission and may not represent actual
transactions.
BID PRICES
YEAR PERIOD HIGH LOW
1997 Third Quarter $0.80 $0.25
Fourth Quarter $1.10 $0.60
1998 First Quarter $0.65 $0.60
Second Quarter $1.10 $0.65
Third Quarter $1.125 $0.688
Fourth Quarter $2.875 $2.25
1999 First Quarter $2.25 $0.438
Second Quarter $2.50 $1.375
Third Quarter $1.375 $0.125
Fourth Quarter $6.00 $0.188
The Company's securities were not publicly traded prior to August, 1997. As of
March 28, 2000 the reported bid price for the Company's common stock was $1.50
per share.
<PAGE>
SHAREHOLDERS
As of December 31, 1999, the Company had 21,263,500 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 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report on Form 10-KSB 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 the
Company developed a significant number of new trading accounts which, 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 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 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.
RESULTS OF OPERATIONS
The major factor affecting the Company's results of operations for the twelve
months ended December 31, 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.
<PAGE>
The Company effectively ceased significant proprietary trading for its own
account in early 1999. 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. 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 twelve months ended
December 31, 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 twelve months of 1998.
The other major factor affecting operations was interest expense. Interest
expense of $106,058 during the twelve months ended December 31, 1999 as against
$9,273 during the corresponding twelve months of 1998 reflected an increase in
the short-term borrowings referred to below.
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 expects that its online trading system will be fully
operational by the end of calendar 2000.
In December 1999, the Company relocated from 90 West Street in New York City,
New York to 300 Blaisdale Road in Orangeburg, New York. The lease for this
facility calls for monthly rental of approximately $5,000. Management determined
that it would not be economic to move the furniture and office equipment at the
90 West Street location. Accordingly, the $24,580 book value of the furniture
and office equipment at the time of the relocation was expensed to "loss on
abandoned fixed assets" at December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in total assets to $74,063 as of December 31, 1999 from $1,879,272
as of December 31, 1998 reflects primarily the write-off of $150,000 in bad
debts expense 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
December 31, 1999, the Company had issued unsecured promissory notes in
aggregate principal amounts outstanding at any time of approximately $2.2
million to 11 accredited investors, including 4 corporations and 7 individuals.
The terms of these notes ranged from 1 month through 1 year and the notes bore
interest at rates ranging from 8.5% to 25%. As of December 31, 1999 the
aggregate amount of such notes outstanding was $869,177. During 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 effectively ceased trading for its
own account the proceeds of these additional borrowings were not required for
liquidity purposes.
As of December 31, 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 so 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.
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.
Item 7. Financial Statements
<PAGE>
BRIAN DONAHUE, C.P.A
CERTIFIED PUBLIC ACCOUNTANT
354 Main Street, Chatham, NJ 07928
Phone: (973)635-2111 Fax: (973)635-0992
INDEPENDENT AUDITORS REPORT
The Shareholders
Bedford Holdings Inc.
I have audited the accompanying balance sheet of Bedford Holdings Inc. (the
Company) as of December 31, 1999 and December 31, 1998 and the related
statements of income and change in owners' equity, and cash flows for the fiscal
years then ended. These financial statements are the responsibility of
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bedford Holdings Inc. as of
December 31, 1999 and December 31, 1998 and the results of operations and cash
flows for the fiscal years then ended in conformity with generally accepted
accounting principles consistently applied.
As more fully discussed in Note 6 to the consolidated financial statements,
there are significant matters concerning the Company that raise substantial
doubt as to the ability of the Company to continue as a going concern.
Management's plans with regard to these matters are also described in Note 6 to
the consolidated financial statements. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets or the
<PAGE>
amounts and classifications of recorded liabilities that
might be necessary in the event that the Company cannot continue in existence.
/s/ Brian Donahue
Chatham, New Jersey
March 24, 2000
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
1999 1998
ASSETS
Current assets:
Cash $63,062 $1,760,372
Deposits with clearing broker 1,001 66,796
---------- -----------
Total Current Assets 64,063 1,827,168
Other assets:
Fixed assets (net of accumualted 0 38,010
Security deposit 10,000 14,094
---------- -----------
$74,063 $1,879,272
========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short term loans payable 869,177 2,182,257
Interest payable 43,819 9,274
Accrued expenses & accounts payable 12,058 8,405
---------- -----------
Total Current Liabilities 925,054 2,199,936
Shareholders' Equity:
Common stock, $001 par value; authorized
40,000,000 shares, issued, and
outstanding 21,263 21,243
<PAGE>
21,263,500 at December 31, 1999 and
December 31, 1998
Additional paid in capital 1,044,468 969,488
Treasury stock, 6,500 shares at cost (6,500) (6,500)
Retained deficit (1,910,222) (1,304,895)
---------- -----------
---------- -----------
Total stockholders deficit (850,991) (320,664)
---------- -----------
$74,063 $1,879,272
========== ===========
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Commission revenue $314 $0
Trading loss (21,111) (220,216)
------------ ------------
Total revenues (20,797) (220,216)
Less selling, general, and administrative (290,629) (362,143)
Less depreciation expense (13,430) (13,430)
Less bad debt expense (150,000) 0
------------ ------------
Loss from operations (474,856) (595,789)
Other Income (expenses):
Interest income 167 1,205
Interest expense (106,058) (9,273)
Loss on abandoned fixed assets (24,580) 0
------------ ------------
Net loss before income tax provision (605,327) (603,857)
Provision for income tax 0 0
------------ ------------
Net Loss ($605,327) ($603,857)
============ ============
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Loss per common share:
Basic ($0.03) ($0.03)
Weighted average of common shares:
Basic 21,246,349 21,243,500
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Paid in Treasury Retained
Shares Amount Capital Stock Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 21,244,000 $21,243 $969,488 ($6,000) ($701,038) $283,693
Purchase of treasury stock (500) (500) (500)
Net loss for fiscal year (603,857) (603,857)
------------- --------- ------------- ----------- -------------- -----------
Balance at December 31, 1998 21,243,500 $21,243 $969,488 ($6,500) ($1,304,895) ($320,664)
Issuance of common stock
for compensation 20,000 20 74,980 75,000
Net loss for fiscal year (605,327) (605,327)
------------- --------- ------------- ----------- -------------- -----------
Balance at December 31, 1999 21,263,500 $21,263 $1,044,468 ($6,500) ($1,910,222) ($850,991)
============= ========= ============= =========== ============== ===========
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
1999 1998
Operating Activities:
Net loss ($605,327) ($603,857)
Adjustments to reconcile net income items
not requiring the use of cash:
Depreciation and amortization 13,430 13,341
Loss on abandoned of fixed assets 24,580 1,293
Issuance of common stock for 75,000 0
Changes in other operating assets and liabilities:
Deposits with clearing broker 65,795 128,499
Security deposit 4,094 (6,804)
Short term loans payable (1,313,080) 2,182,257
Interest payable 34,545 9,274
Accrued expenses & accounts payable 3,653 (4,113)
----------- -----------
Net cash used by operations (1,697,310) 1,719,890
Financing Activities:
Purchase of treasury stock 0 (500)
----------- -----------
Net cash provided by financing activities 0 (500)
----------- -----------
Net decrease in cash during fiscal year (1,697,310) 1,719,390
Cash balance at beginning of fiscal year 1,760,372 40,982
----------- -----------
<PAGE>
Cash balance at end of fiscal year $63,062 $1,760,372
=========== ===========
Supplemental disclosures of cash flow
Interest paid during the fiscal year $62,239 $0
Income taxes paid during the fiscal year $0 $0
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
Note 1: Organization of the Company
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. The consolidated financial statements includes the
accounts of the Company's wholly owned subsidiary, Allen & Pierce Securities
Inc.
Allen & Pierce Securities, Inc. (the subsidiary) is a New York State Corporation
formed on January 5, 1989 for the purpose of conducting business as a broker
dealer in securities and as an introducing broker in futures and options. The
Company purchased 100% of the issued and outstanding stock of Allen & Pierce
Securities Inc. in August 1996 by issuing common stock.
The subsidiary operates under the provisions of paragraph (k)(2)(ii) of Rule
15c3-3 of the Securities and Exchange Commission and accordingly, is exempt from
the remaining provision of the rule. Essentially, the requirements of paragraph
(k)(2)(ii) provide that the subsidiary clear all transactions on behalf of
customers on a fully disclosed basis with a clearing broker dealer. The clearing
broker dealer carries the accounts of the Company's customers and maintains all
related books and records required to service the Company's customers. Likewise,
as an introducing broker in futures and options, the Company is required to
carry all customer accounts on a fully disclosed basis with a clearing futures
commission merchant. The clearing futures commission merchant is required to
maintain the books and records that are required to service these customers.
Note 2: Summary of Significant Accounting Principles
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principals requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
<PAGE>
Revenue Recognition: All transactions are recorded on a settlement date basis
which is generally five business days for security transactions and same day for
commodity transactions.
Bad debt expense: During fiscal 1998, the Company had deposited U.S dollars of
$150,000 with a Russian financial institution for the purpose of buying Russian
government bonds. In August 1999, the Russian financial institution became
insolvent and the recovery of the deposit became unlikely. Management decided to
write off the full amount of this deposit to bad debt expense.
Fixed assets: Firm assets are stated at costs and depreciation is computed on a
straight line basis over the estimated useful life of the underlying asset
ranging from 3 to 10 years.
In December 1999, the Company relocated from 90 West Street in New York City,
New York to 300 Blaisdale Road in Orangeburg, New York. At the time of the
relocation, management decided to abandon the furniture and office equipment at
the 90 West Street location. The book value of the furniture and office
equipment at the time of the relocation was $24,580 and was expensed to "loss on
abandoned fixed assets" at December 31, 1999.
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.
Short term loans payable: Short-term loans payable include unsecured promissory
notes due to individuals. The notes mature in fiscal year 2000 with interest
rates ranging from 8.5% to 25% payable at maturity. Interest payable includes
the amount of accrued interest payable on the short-term notes as of December
31, 1999.
Reclassifications: Certain prior year amounts have been reclassified to conform
to the 1999 presentation
Income Taxes: The Company accounts for income taxes under the accrual method
established by Statement of financial accounting standards No. 109, which
requires recognition of deferred tax assets and liabilities for the expected
futures tax consequences and events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements and tax bases of assets and liabilities using enacted rates for the
year in which the differences are expected to reverse. Since the Company has
experienced losses in fiscal 1999 and 1998 and cannot reasonably anticipate
future net income, management cannot estimate any future benefit in the form of
a deferred tax asset from any loss carry-forwards against future profits.
Recent Pronouncements: In June 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. This statement establishes
accounting and
<PAGE>
reporting standards for derivative instruments and requires
recognition of all derivative assets and liabilities in the statement of
financial position and measurement of these instruments at fair value. The
statement is effective for the Company in the year 2001. Management
believes that the adoption of SFAS No. 133 will not have a material impact on
the financial position of the Company or its results of operations and changes
in cash flows.
Note 3: Net Capital Requirements
The following note applies to the Company's wholly owned subsidiary, Allen &
Pierce Securities, Inc.
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 greater of $5,000 or 6 2/3% of aggregate indebtedness.
As of December 31, 1999, the Company was in excess of net capital requirements
by $47,052 and had an aggregate indebtedness to excess net capital ratio of 23%.
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 greater of $30,000 or $3,000 per
associated person, as defined. As of December 31, 1999, the Company was in
excess of these net capital requirements by $22,042.
Note 4: Commitments and Contingencies
In November 1999, through its wholly owned subsidiary, the Company became
committed to a non-cancelable operating lease for office space. Future minimum
lease payments required under this lease is as follows:
<PAGE>
November 2000 $60,000
November 2001 61,200
November 2002 62,424
November 2003 63,672
November 2004 64,945
Through November 2009 344,738
--------
Total minimum lease payments $656,980
========
Rent expense for fiscal year 1999 was $45,925.
Note 5: Litigation
The Company has no legal proceedings against it nor is aware of any pending,
threatened or contemplated, or unsatisfied judgements against it.
Note 6: Going Concern Discussion
The accompanying financial statements have been presented in accordance with
generally accepted accounting principals, which assumes the continuity of the
Company as a going concern. However, during the twelve months ending December
31, 1999 and in the prior several fiscal years, the Company has experienced, and
continues to experience, certain going concern and liquidity problems. The
Company has incurred net losses of $605,327 and $603,857 for the years ending
December 31, 1999 and December 31, 1998, respectively. This condition raises
substantial doubt to the ability of the Company to continue as a going concern.
Management's plans with regard to this matter is as follows:
The Company, through a plan formalized in fiscal year 1998, intends to develop
an "on-line trading web-site" that will accommodate both equity and futures
trading for retail brokerage. Management expects that implementation of the
web-site to be completed in fiscal year 2000. Management expects that the
implementation of its "on-line" trading will generate significant commission
brokerage revenues. The proceeds of these anticipated revenues will be used to
pay the Company's outstanding short-term notes and to expand its anticipated
base of customers globally.
The eventual outcome of the success of management's plans cannot be ascertained
with any degree of certainty. The accompanying consolidated financial statements
do not include any
<PAGE>
adjustments that might result from the outcome of this uncertainty.
Note 7: Income Taxes
At December 31, 1999, the Company had $872,110 of net operating loss
carry-forwards which expire in years 2013 and 2014. No portion of the net
operating loss carry-forwards have been recognized as an intangible asset. The
following represents a reconciliation between net losses and loss carry-forwards
for 1999 and 1998:
1999 1998
--------- ---------
Net loss $605,327 $603,857
Excess of capital
losses over capital
gains (18,111) (318,963)
--------- ---------
Taxable losses $587,216 $284,894
========= =========
Note 8: Common Stock Transactions
In November 1999, the Company issued 20,000 of common stock to an advertising
company in return for services rendered. The Company recorded $75,000 in
compensation expense, which represented the fair market value of the shares
issued at the date of the transaction.
Note 9: Fair Value of Financial Instruments
The carrying amounts of cash, deposits with brokers, short-term borrowings, and
accounts payable and accrued expenses are estimated by the Company to
approximate fair value at December 31, 1999.
Note 10: Earnings per Share
The Company applies SFAS No. 128, Earnings per Share. In accordance with SFAS
No. 128, basic net income per share has been computed based upon the weighted
average of common shares outstanding during the year. All net losses reported in
the financial statements are available to common stockholders. The Company had
no other financial instruments convertible into common shares during 1999 and
1998.
<PAGE>
Note 11: Year 2000 Readiness
The Company is actively addressing the issues related to the date change in year
2000. This is necessary because many computer systems were programmed using only
two digits to contain the year in the date fields. On January 1, 2000, many of
these programs might have failed to perform date calculations correctly and
produce erroneous results. This could have temporarily prevented the Company
from processing business transactions. The Company began efforts to address this
issue during 1999. As of the date of this report, the Company or its significant
vendors has experienced no disruption of business due to the year 2000 issue.
The costs associated with the remediation efforts had been externally generated.
These costs related principally to consulting costs in relation to upgrading
current systems.
There are significant risks associated with the year 2000 issues. Many of these
risks such as those associated with electrical power or telecommunications are
outside the reasonable control of the Company. Also, the failure of a
significant number of the Company's business relationships could have a material
impact on the Company's operations. These risks are largely outside the control
of the Company. Although the Company believes its remediation and contingency
planning efforts adequately identified and addressed the year 2000 issues that
are within the Company's reasonable control, there can be no assurance that the
Company's efforts will be fully effective in the event of future disruptions
associated with this problem. Due to the significant risks, the Company's
management continues to monitor the year 2000 issue very closely.
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors and Executive Officers of the Registrant; Compliance With
Section 16(a) of the Exchange Act
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.
Date became director or
Name Age Positions executive officer
- ---- --- --------- -----------------
Leon Zapoll 48 President and Director July 1996
Robert Samila 57 Chief Financial Officer, Secretary July 1996
Treasurer and Director
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 since its
organization in 1996, and Vice President of Allen & Pierce Securities, 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 and President of Allen & Pierce Securities, its predecessor, since 1989.
He became an officer and director of the Company upon its organization as a
holding company in 1996. 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 qualified as a
general securities principal, financial operations principal, registered options
principal, and municipal bond principal, and is licensed 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 10. Executive Compensation
<PAGE>
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.
<TABLE>
<CAPTION>
Securities
Other Under-
Annual Restricted lying
Compen- Stock Options/
Name and Principal Position Year Salary Bonus sation Awards SARs
- --------------------------- ---- ------ ----- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Leon Zapoll, President 1999 -- 0 0 0 0
1998 $10,200 0 0 0 0
1997 -- 0 0 0 0
Robert Samila Chief Financial 1999 $22,100 0 0 0 0
Officer, Treasurer and 1998 $22,100 0 0 0 0
Secretary 1997 $22,100 0 0 0 0
1996 $22,100 0 0 0 0
</TABLE>
* Prior to August, 1996, Allen & Pierce Securities, Inc. operated as in 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 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 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 Shares % of Class
- --------------- ------------------------------------- ---------------- ----------
<S> <C> <C> <C>
Common Stock Leon Zapoll 20 million 94.1%
36 Wescott St.
Old Tappan, NJ 07675
All officers and directors 20 million 94.1%
as a group
</TABLE>
<PAGE>
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. The securities listed above are held by Mr. Zapoll's wife, who has
sole investment and voting power with respect to such shares. 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.
Item 12. Certain Relationships and Related Transactions
Not applicable.
Item 14. Exhibits and Reports on Form 8K
The Company has not filed any reports on Form 8-K during the last quarter of the
period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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)
By: /s/ Leon Zapoll
--------------------------------------
Leon Zapoll, President
Dated April 3, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Leon Zapoll
- ------------------------ Chairman of the Board, Treasurer
Leon Zapoll and Director April 3, 2000
<PAGE>
/s/ Robert Samila
- ------------------------ President and Director April 3, 2000
Robert Samila
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 63,062
<SECURITIES> 0
<RECEIVABLES> 1,001
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,063
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,063
<CURRENT-LIABILITIES> 925,054
<BONDS> 0
0
0
<COMMON> 21,263
<OTHER-SE> (872,254)
<TOTAL-LIABILITY-AND-EQUITY> 74,063
<SALES> 314
<TOTAL-REVENUES> (20,797)
<CGS> 0
<TOTAL-COSTS> 454,059
<OTHER-EXPENSES> 24,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,058
<INCOME-PRETAX> (605,327)
<INCOME-TAX> 0
<INCOME-CONTINUING> (605,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (605,327)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
