SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-QSB
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000 or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-25561
BEDFORD HOLDINGS, INC.
(Name of Small Business Issuer in Its Charter)
NEW JERSEY 13-3901466
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Blaisedell Road
Orangeburg, New York 10962
(Address of Principal Executive Offices) (Zip Code)
(914) 398-1844
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 21,263,500 shares of the
Company's Common Stock, no par value, were outstanding as of May 9, 2000.
<PAGE>
ITEM I - FINANCIAL STATEMENTS
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
3/31/2000 12/31/1999
<S> <C> <C>
ASSETS
Current assets:
Cash $ 216,669 $ 63,062
Deposits with clearing broker 51,435 1,001
Total Current Assets 268,104 64,063
Other assets:
Fixed assets (net of accumulated depreciation) 23,216 0
Security deposit 10,000 10,000
Total Assets $ 301,320 $ 74,063
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short term loans payable 909,177 869,177
Interest payable 69,695 43,819
Deferred income 219,178 0
Accrued expenses & accounts payable 8,402 12,058
Total Current Liabilities 1,206,452 925,054
Shareholders' Equity:
Common stock, $001 par value;
authorized 40,000,000 shares, issued, and
outstanding 21,263,500 at December 31, 1999 and
March 31, 2000 21,263 21,263
Additional paid in capital 1,044,468 1,044,468
Treasury stock, 6,500 shares at cost (6,500) (6,500)
Retained deficit (1,964,363) (1,910,222)
Total stockholders deficit (905,132) (850,991)
Total Liabilities & Shareholders' Equity $ 301,320 $ 74,063
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDING MARCH 31, 2000 AND MARCH 31, 1999
3/31/2000 3/31/1999
Franchise revenue $ 30,822 $ 0
Commission revenue 0 $ 0
Trading loss 0 (4,874)
Total revenues 30,822 (4,874)
Less selling, general, and
administrative expenses (57,860) (52,625)
Less depreciation expense (746) (2,960)
Loss from operations (27,784) (60,459)
Other Income (expenses):
Interest income (75) 167
Interest expense (26,282) (16,994)
Net loss before income tax provision (54,141) (77,286)
Provision for income tax 0 0
Net Loss ($54,141) ($77,286)
Loss per common share:
Basic ($0.00) ($0.00)
Weighted average of common shares:
Basic 21,263,500 21,243,500
- --------------------------------------------------------------------------------
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY
FOR THE QUARTER ENDING MARCH 31, 2000
<TABLE>
<CAPTION>
Common Stock Paid in Treasury Retained
Shares Amount Capital Stock Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 21,263,500 $21,263 $1,044,468 ($6,500) ($1,910,222) ($850,991)
Net loss for the period (54,141) (54,141)
---------- ------- ---------- -------- ------------ ---------
Balance at March 31, 2000 21,263,500 $21,263 $1,044,468 ($6,500) ($1,964,363) ($905,132)
========== ======= ========== ======== ============ =========
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDING MARCH 31, 2000 AND MARCH 31, 1999
3/31/2000 3/31/1999
Operating Activities:
Net loss ($54,141) ($77,286)
Adjustments to reconcile net income items
not requiring the use of cash:
Depreciation and amortization 746 2,960
Changes in other operating assets and
liabilities:
Deposits with clearing broker (50,434) 56,373
Deferred income 219,178 0
Short term loans payable 40,000 (1,529,970)
Interest payable 25,876 0
Accrued expenses & accounts payable (3,656) (6,404)
--------- -----------
Net cash provided by (used by)
operations 177,569 (1,554,327)
Investing activities
Purchase of office construction (11,580) 0
Purchase of office equipment & furniture (12,382) 0
--------- -----------
Net cash provided by investing activities (23,962) 0
--------- -----------
Net increase (decrease) in cash during
period 153,607 (1,554,327)
Cash balance at beginning of
period 63,062 1,760,372
--------- -----------
Cash balance at end of period $ 216,669 $ 206,045
========= ===========
Supplemental disclosures of cash flow information:
Interest paid during the quarter $ 406 $ 0
Income taxes paid during the quarter $ 0 $ 0
Please see the accompanying notes to the financial statements.
<PAGE>
BEDFORD HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000
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.
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. Deferred franchise fee deposits are amortized on a
straight-line basis over the period of the underlying franchise agreement.
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.
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.
<PAGE>
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 March 31,
2000.
Reclassifications: Certain prior year amounts have been reclassified to conform
to the March 31, 2000 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 prior periods and cannot reasonably anticipate future net
income, management has established a policy of a 100% valuation allowance
against any deferred tax assets resulting from net operating loss
carry-forwards.
Recent Pronouncements: In June 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. This statement establishes
accounting and 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 June 30, 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 March 31, 2000, the Company in excess of net capital requirements by
$215,381 and had an aggregate indebtedness to excess net capital ratio of 4%.
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 March 31, 2000, the Company was in excess
of these net capital requirements by $190,381.
Note 4: Deferred Franchise Fees
During the period, the Company received $250,000 in franchise fees. The Company
has entered into an agreement with an individual whereby the individual has
agreed to open several branch offices in the subsidiary's name for the purpose
developing brokerage commission revenues for the Company. The agreement expires
in February 2001.
Note 5: Fair Value of Financial Instruments
<PAGE>
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 March 31, 2000.
Note 6: 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 has
no other financial instruments convertible into common shares.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission,
including the Company's Registration Statement on Form 10SB, Registration No.
000-25561.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
OVERVIEW
The Company is a holding company for Allen & Pierce, a securities and
commodities broker established in 1989. For its initial two years, Allen &
Pierce carried out a general securities and commodities brokerage business. With
the disintegration of the former USSR and the opening of the Russian economy in
the early 1990s the Company saw an opportunity to take advantage of its
President's language and knowledge of the former USSR to develop a new source of
brokerage business. Mr. Zapoll, the President, traveled extensively in Russia
and Uzbekistan in the early 1990s and was successful in developing a significant
number of new trading accounts which, over the next several years yielded
substantial commission revenues. With the turmoil in the Russian economy of the
mid to late 1990s Russian government prohibited Russian citizens from
maintaining securities and commodities trading accounts abroad. This
restriction, coupled with substantial losses suffered by certain of the
Company's customers, resulted in a precipitous drop in the Company's commission
revenues. In 1997, seeking to replace the lost commission revenues, the Company
turned to commodities trading for its own account. However, in part because of
its limited capital, its trading activities generated losses rather than gains.
In late 1997 the Company began to develop a two pronged business strategy. The
first prong of this strategy was to use the Company's "window to Wall Street" as
a broker-dealer to open access to the U.S. capital markets for the many private
business enterprises with a serious and immediate need for capital. This portion
of the strategy is "on hold" because of current unsettled conditions in the
region. The second prong of the strategy is to install an online trading system
directed toward a certain niche markets in the securities and commodities
brokerage field where the Company believes it has a competitive advantage. The
online trading system is expected to become fully operational during the second
quarter of 2000. The Company has also begun a cautious extension of its
brokerage activities. During the quarter ended March 31, 2000, the Company
entered into an agreement under which an individual agreed to open several
branch offices in the name of the Company's Allen & Pierce brokerage subsidiary
for the purpose of developing brokerage commission revenues. This agreement has
not yet been reduced to writing. It will require that the Company provide
various support services, including a hiring the necessary supervisors with
appropriate securities licenses to permit operations of the brances in
accordance with the requirements of the National Association of Securities
Dealers, Inc. The Company is also actively pursuing the possibility of a merger
with one or more other business entities.
RESULTS OF OPERATIONS
The Company is in the final stages of completing its online brokerage
service, which is expected to be operational during the first quarter of 2000.
As of the date of this report, no revenues had been derived from that source.
The Company received $300,000 during the quarter as advance payment for the
privilege of opening several branch offices under the Company's name, and for
certain support services which the Company is to
<PAGE>
provide to those offices. Of the $300,000 the Company recognized $30,000 in
revenue during the quarter ended March 31, 2000, all of which was related to
this transaction.
The Company moved to new offices during the quarter ended March 31, 2000
and determined that it would not be economical to move most of its furnishings
to the new location. Accordingly, it wrote off the remaining book value relating
to those items, resulting in a reduction in depreciation expense from $2,960 in
the quarter ended March 31, 1999 to $746 in the quarter ended March 31, 2000.
The increase in interest expense from $16,994 in the 1999 quarter to $26,282 in
the 2000 quarter reflects an increase in the amount of the Company's short-term
borrowings and a slightly higher average interest rate on those borrowings. The
increase in selling, general and administrative expense to $57,860 for the March
31, 2000 quarter compared to $52,625 for the corresponding 1999 quarter reflects
primarily an increase in the rental payable at the Company's new offices in
Orangeburg, New York
LIQUIDITY AND CAPITAL RESOURCES
The increase in total assets to $301,320 as of March 31, 2000 compared to
$74,063 as of December 31, 1999 reflects primarily the receipt of the $300,000
advance payment referred to above. The Company applied approximately $50,000 to
an increase in its deposits with its clearing broker in preparation for bringing
its online trading service into operation, and approximately $23,000 to
leasehold improvements and the purchase of furniture and other fixed assets
relating to its move to its new offices.
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 from a limited number of accredited investors. As of March
31, 2000, the amount outstanding on these borrowings aggregated $1,206,452, with
interest rates ranging from 8.5% to 25%, payable at maturity. All of these notes
mature during the year 2000.
Management believes the Company has reached a turning point. Although the
Company's liquidity position remained precarious as of March 31, 2000,
management is cautiously optimistic. The futures trading portion of its online
brokerage service became operational during the last few days of the quarter and
the remaining portions of this operation are expected to be fully implemented
during the second quarter. The Company anticipates that it will begin to realize
revenue from its online trading operations during the second quarter of 2000,
and that the expected expansion of its other brokerage operations through the
opening of new offices will generate additional revenue. 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 implementation of its online trading system and opens its
initial additional offices. 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.
The Company's Allen & Pierce subsidiary is a $5,000 broker-dealer.
Provided its short-term lenders remain willing to roll over their notes as they
mature, the Company believes it will be able to maintain Allen & Pierce's
capital requirements for at least the next 12 months without any additional
infusion of capital.
PART II -- OTHER INFORMATION
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
- -----------
27 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEDFORD HOLDINGS, INC.
(Registrant)
Date: May 11, 2000
/s/ Leon Zapoll
-----------------------------------------
Leon Zapoll
President
Date: May 11,2000
/s/ Robert Samila
-----------------------------------------
Robert Samila
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BEDFORD
HOLDINGS, INC. FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 216,669
<RECEIVABLES> 0
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 23,216
<TOTAL-ASSETS> 301,320
<SHORT-TERM> 0
<PAYABLES> 8,402
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 21,263
<OTHER-SE> (926,395)
<TOTAL-LIABILITY-AND-EQUITY> 301,320
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> (75)
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 26,282
<COMPENSATION> 16,878
<INCOME-PRETAX> (54,141)
<INCOME-PRE-EXTRAORDINARY> (54,141)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,141)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
