================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2000
Commission File No. 000-28523
BEVERLY HILLS LTD., INC.
-------------------------------------
(Exact name of Registrant as specified in its Charter)
Utah 87-0281305
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16 N. Fort Harrison, Clearwater, Florida 33755
----------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (727) 298-8771
--------------------------------------------------- --------------
Former name, former address and former fiscal year,
if changed since last report: None
---------------------------------------------------
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 a 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 [ ]
As of August 18, 2000, there were 18,379,327 shares of Common Stock, $.001 par
value outstanding.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
<TABLE>
<CAPTION>
Consolidated Balance Sheets
BEVERLY HILLS LTD., INC.
ASSETS
June 30, December 31,
2000 1999
-------------- --------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 48,134 $ 34,692
Accounts receivable 250,825 126,608
Due from affiliated companies 50,000 75,000
Inventories 381,924 448,027
Prepaid advertising 3,088,491 1,832,025
TOTAL CURRENT ASSETS 3,819,374 2,516,352
PROPERTY & EQUIPMENT
Furniture, fixtures and equipment 146,758 136,724
Computer equipment and software 812,126 777,655
Leasehold improvements 23,282 23,282
Less: allowance for depreciation (629,678) (493,686)
352,488 443,975
OTHER ASSETS
Investment 55,000 55,000
Goodwill, net 3,132,123 3,044,567
Deposits 8,344 10,594
3,195,467 3,110,161
-------------- --------------
$ 7,367,329 $ 6,070,488
============== ==============
The Notes to Consolidated Financial Statements are an integral part of these Statements.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
-------------- --------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 2,173,407 $ 2,243,176
Accrued interest 219,237 101,790
Due to affiliate companies 170,857 141,192
Loans payable to affiliates 822,400 537,968
Line of credit 44,067 423,520
Current maturities of long-term debt 9,736 21,863
-------------- --------------
TOTAL CURRENT LIABILITIES 3,439,704 3,469,509
-------------- --------------
LONG TERM LIABILITIES
Notes payable to stockholders 957,308 863,871
Notes payable, net of current maturities 1,927,938 1,529,198
-------------- --------------
2,885,246 2,393,069
-------------- --------------
STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Preferred stock, par value $0.001 per share:
Authorized - 25,000,000 shares -0- -0-
Issued and outstanding shares -0- -0-
Convertible Preferred Stock, Series A,
par value $.001 per share:
Authorized - 1,500,000 shares -0- -0-
Issued and outstanding shares -0- -0-
Cumulative Convertible Preferred Stock, Series B
par value $.001 per share:
Authorized - 1,500,000 shares -0- -0-
Issued and outstanding shares -0- -0-
Common stock, par value $0.001 per share:
Authorized - 50,000,000 shares
Issued 16,406,424 & 15,123,042 and
outstanding 16,932,741 & 15,245,957 16,407 15,124
Additional paid-in capital 11,617,576 7,698,283
Additional paid-in capital - stock options 2,110,400 1,838,900
Additional paid-in capital - warrants 11,250 -0-
Additional paid-in capital - stock payable 526,316 263,275
Accumulated other comprehensive income (25,156) 11,567
Accumulated deficit (13,214,414) (9,619,239)
-------------- --------------
1,042,379 207,910
-------------- --------------
$ 7,367,329 $ 6,070,488
============== ==============
The Notes to Consolidated Financial Statements are an integral part of these Statements.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
BEVERLY HILLS LTD., INC.
For Three Months Ended For Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- -------------- -------------- -------------
Unaudited Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C>
SALES $ 409,747 $ 430,767 $ 939,422 $ 707,285
COST OF SALES 271,810 234,085 616,555 381,502
------------- -------------- -------------- -------------
GROSS PROFIT 137,937 196,682 322,867 325,783
OPERATING EXPENSES
Advertising 330,599 178,779 715,543 285,946
Amortization and depreciation 345,779 293,836 616,237 334,200
Insurance 18,399 11,416 31,384 25,567
Licenses and permits 555 1,985 660 2,293
Office expenses 54,975 20,178 71,077 29,729
Professional fees 16,670 277,033 1,130,014 519,009
Rental expense 34,279 42,777 63,023 61,511
Compensation expense 296,787 1,985,195 966,423 2,566,843
Bad debt expense 354 0 100,226 0
Foreign currency loss (gain) (48,241) 4,667 (4,088) 4,667
Interest expense 99,013 34,404 179,656 53,923
Service charges 8,848 7,794 17,264 11,621
Travel and entertainment 14,337 56,116 37,723 57,521
Utilities 19,623 19,446 39,513 29,353
Miscellaneous (90,381) 12,836 (46,613) 33,082
------------- -------------- -------------- -------------
Total operating expense 1,101,596 2,946,462 3,918,042 4,015,265
------------- -------------- -------------- -------------
NET LOSS $ (963,659) $ (2,749,780) $ (3,595,175) $ (3,689,482)
============= ============== ============== =============
NET LOSS PER SHARE $ (.06) $ (.21) $ (.23) $ (.29)
============= ============== ============== =============
DILUTED LOSS PER SHARE $ (.05) $ (.20) $ (.21) $ (.27)
============= ============== ============== =============
WEIGHTED AVERAGE COMMON SHARES 15,920,331 13,269,952 15,570,831 12,653,099
============= ============== ============== =============
WEIGHTED AVERAGE DILUTED SHARES 17,053,831 13,611,245 17,341,453 13,779,599
============= ============== ============== =============
The Notes to Consolidated Financial Statements are an integral part of these Statements.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholder's Equity (Deficiency in Assets) - Unaudited
For the six Months Ended June 30, 1999 and 2000
BEVERLY HILLS LTD., INC.
Paid in Capital
Common Stock ----------------------------------------------- Accumulated
-------------------- (Discount Other
No. of on Common (Stock (Stock Comprehensive Accumulated
Shares Amount Stock) Options) (Warrants) Payable) Income (Deficit) Total
---------- ------- ----------- ----------- ------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1999 11,568,134 $11,568 $ 685,944 $ -0- $ -0- $ -0- $ -0- $ (1,481,346) $ (783,834)
January 1999,
stock issued
for services 344,212 345 346,767 -0- -0- -0- -0- -0- 347,112
March 1999,
stock issued
for cash 962,000 962 1,176,038 -0- -0- -0- -0- -0- 1,177,000
March 1999,
stock issued
for acquisition 80,606 81 664,919 -0- -0- -0- -0- -0- 665,000
Options issued
in the six months
ended June 30, 1999 -0- -0- -0- 1,359,900 -0- -0- -0- -0- 1,359,900
Stock outstanding
for acquisition
and services at
June 30, 1999 -0- -0- -0- -0- -0- 3,008,288 -0- -0- 3,008,288
Foreign currency
translation
adjustment -0- -0- -0- -0- -0- -0- 7,490 -0- 7,490
Net loss for the
six months ended
June 30, 1999 -0- -0- -0- -0- -0- -0- (3,689,482) (3,689,482)
---------- ------- ----------- ----------- ------- ---------- -------- ------------ -----------
Balance at
June 30, 1999 12,954,952 $12,956 $ 2,873,668 $ 1,359,900 $ 0 $3,008,288 $ 7,490 $ (5,170,828) $ 2,091,474
========== ======= =========== =========== ======= ========== ======== ============ ===========
The Notes to Consolidated Financial Statements are an integral part of these Statements.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholder's Equity (Deficiency in Assets) - Unaudited
For the six Months Ended June 30, 1999 and 2000 - Continued
BEVERLY HILLS LTD., INC.
Paid in Capital
Common Stock ----------------------------------------------- Accumulated
-------------------- (Discount Other
No. of on Common (Stock (Stock Comprehensive Accumulated
Shares Amount Stock) Options) (Warrants) Payable) Income (Deficit) Total
---------- ------- ----------- ----------- ------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 2000 15,123,042 $15,124 $ 7,698,283 $ 1,838,900 $ -0- $ 263,275 $ 11,567 $ (9,619,239) $ 207,910
January 2000,
stock issued
for services 60,000 60 59,940 -0- -0- (60,000) -0- -0- 0
January 2000,
stock issued
for services 6,575 7 6,569 -0- -0- (6,576) -0- -0- 0
January 2000,
stock issued
to retire debt 36,340 36 181,664 -0- -0- (181,700) -0- -0- 0
February 2000,
stock issued
for acquisition 250,000 250 749,750 -0- -0- -0- -0- -0- 750,000
February 2000,
warrants issued
attached to notes
payable -0- -0- -0- -0- 11,250 -0- -0- -0- 11,250
April 2000,
stock issued
for working capital 150,000 150 299,850 -0- -0- -0- -0- -0- 300,000
June 2000,
stock issued
for services 600,000 600 1,589,400 -0- -0- -0- -0- -0- 1,590,000
Options issued in
the period
ended June 30, 2000 -0- -0- -0- 1,303,800 -0- -0- -0- -0- 1,303,800
Options exercised
in the period
ended June 30, 2000 180,467 180 1,032,120 (1,032,300) -0- -0- -0- -0- 0
Stock outstanding
in exchange
for services at
June 30, 2000 -0- -0- -0- -0- -0- 511,317 -0- -0- 511,317
Foreign currency
translation
adjustment -0- -0- -0- -0- -0- -0- (36,723) -0- (36,723)
Net loss for the
six months ended
June 30, 2000 -0- -0- -0- -0- -0- -0- -0- (3,595,175) (3,595,175)
---------- ------- ----------- ----------- ------- --------- -------- ------------ -----------
Balance at
June 30, 2000 16,406,424 $16,407 $11,617,576 $ 2,110,400 $11,250 $ 526,316 $(25,156) $(13,214,414) $ 1,042,379
========== ======= =========== =========== ======= ========= ======== ============ ===========
The Notes to Consolidated Financial Statements are an integral part of these Statements.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
BEVERLY HILLS LTD., INC.
For Six Months Ended
June 30,
---------------------------------------------------
2000 1999
---------------- ----------------
Unaudited Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (3,595,175) $ (3,689,482)
Adjustments to reconcile net loss
to net cash used by operating activities:
Common stock issued for services 1,924,800 347,110
Common stock rights issued for services 1,273,367 1,893,200
Amortization & depreciation 616,237 334,200
Foreign currency translation adjustment (36,723) 7,490
Decrease (increase) in:
Accounts receivable (124,217) (411,209)
Due from affiliates 25,000 (6,916)
Inventory 66,103 89,564
Other assets, current (1,255,966) (79,758)
Other assets, noncurrent 183,950 357,545
Increase in:
Accounts payable and accruals (69,768) 27,095
Accrued interest 117,447 (58,252)
Other liabilities 314,095 (500,961)
---------------- ----------------
Total adjustments 3,034,325 1,999,108
---------------- ----------------
Net cash used by operating
activities (560,850) (1,690,374)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (44,505) (497,251)
Acquisition of subsidiaries 0 (250,000)
---------------- ----------------
Net cash used by investing
activities (44,505) (747,251)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit - net (379,453) 269,726
Proceeds from loans 480,050 1,192,518
Proceeds from issuance of common stock rights 218,200 0
Proceeds from issuance of common stock 300,000 1,177,000
---------------- ----------------
Net cash provided by
financing activities 618,797 2,639,244
---------------- ----------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 13,442 201,619
CASH AND CASH EQUIVALENTS ( OVERDRAFT)
AT THE BEGINNING OF PERIOD 34,692 (41,310)
---------------- ----------------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 48,134 $ 160,309
================ ================
The Notes to Consolidated Financial Statements are an integral part of these Statements.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows - Continued
BEVERLY HILLS LTD., INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
For Six Months Ended
June 30,
---------------------------------------------------
2000 1999
---------------- ----------------
Unaudited Unaudited
<S> <C> <C>
INTEREST PAID $ 62,209 $ 112,175
================ ================
ACQUISITION OF SUBSIDIARIES
During the six months ended June 30, 1999
Pro's Edge Golf Shoes Focused Total
------------------ ------------------- ------------------ -------------------
Goodwill $ 176,007 $ 786,995 $ 2,490,512 $ 3,453,514
Assets acquired 160,782 457,438 546,147 1,164,367
Liabilities acquired (136,789) (344,433) (379,959) (861,181)
Stock to be issued -0- (665,000) (2,656,700) (3,321,700)
Notes payable issued -0- (185,000) -0- (185,000)
------------------ ------------------- ------------------ -------------------
Net cash $ 200,000 $ 50,000 $ 0 $ 250,000
================== =================== ================== ===================
<CAPTION>
During the six months ended June 30, 2000
Keynote
------------------
<S> <C>
Goodwill $ 749,500
Assets acquired 500
Liabilities acquired -0-
Stock issued (750,000)
Notes payable issued -0-
------------------
Net cash $ -0-
==================
The Notes to Consolidated Financial Statements are an integral part of these Statements.
</TABLE>
-8-
<PAGE>
Notes to Consolidated Financial Statements
BEVERLY HILLS LTD., INC.
JUNE 30, 2000
Note A - Summary of Significant Accounting Policies
Organization
Beverly Hills Ltd., Inc. (the Company) was first incorporated in Utah on April
29, 1939 as Ophir Queen Mines Company. On June 15, 1974, Ophir Queen Mines
Company changed its name to Hawk International. The Company had substantial
operations until March 15, 1996 when the Company discontinued operations and
entered the Development Stage. Hawk International changed its name to Beverly
Hills Country Club on February 28, 1998. Beverly Hills Country Club then changed
its name to Beverly Hills Ltd., Inc. on August 13, 1998.
The Company was a developmental stage company from March 15, 1996 to December
31, 1998 as defined in Financial Accounting Standards Board Statement No. 7. The
Company elected not to be a developmental stage company in 1999 due to the
acquisitions of the subsidiaries.
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, HMW Golf d/b/a The Hanlon Group, a shell, Golf Shoes
Plus, Inc., a retail and internet golf company, Pro's Edge Wholesale, Inc., a
wholesale golf company and Focus Media Limited involved in digitalization of
information for dissemination, distribution and promotion through digital media
and Keynote Acquisition Corporation. All intercompany transactions have been
eliminated.
Accounting Method
The Company recognizes income and expense on the accrual basis of accounting.
Cash and Equivalents
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Property and Equipment
All property and equipment is recorded at cost and depreciated over their
estimated useful lives, which is three years for computers and website
development costs, five to ten years for furniture and equipment and ten years
for leasehold improvements, using the straight-line method. Depreciation expense
for the six months ended June 30, 2000 and 1999 totaled $135,993 and $61,898,
respectively. For the three months ended June 30, 2000 and 1999, depreciation
expense was $72,139 and $61,659, respectively.
-9-
<PAGE>
Investment
The Company has a less than twenty percent investment in the equity of an
investee. The Company accounts for the investment using the cost method.
Inventory
Inventory is stated at the lower of cost or market using the first-in, first-out
method.
Goodwill
Goodwill is amortized on the straight-line basis over four years. Amortization
expense of goodwill for the six months ended June 30, 2000 and 1999 was $480,244
and $272,302, respectively. For the three months ended June 30, 2000 and 1999,
amortization expense of goodwill was $273,640 and $232,177, respectively.
Income Taxes
The Company accounts for income taxes under the liability method. Under this
method, deferred income taxes are recorded to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income taxes.
Prepaid Advertising
Prepaid advertising consists of advertising, valued by the advertising agency at
$2,011,250, that was purchased by the Company in exchange for 250,000 shares of
common stock. The market value at July 30, 1999 was $7.56 per share. The
contract was valued and recorded at the stock price which gave a total value of
$1,890,625. Advertising is expensed when the advertisement is first run. During
the six months ended June 30, 2000 and 1999, the Company expensed $116,757 and
zero, respectively, of advertising expense associated with the prepaid
advertising. For the three months ended June 30, 2000 and 1999, the Company
expensed $44,500 and zero, respectively, of advertising expense associated with
the prepaid advertising. The advertising can be used by the Company at any time.
On November 15, 1999 Beverly Hills Ltd., Inc. entered into an advertising
agreement whereby the Company was to issue 600,000 shares of stock in exchange
for advertising valued by the advertising agency at $2,400,000. The Company
recorded the transaction as prepaid advertising worth $1,590,000, which was
equal to the market price of the stock at the date of the contract. The market
price of the stock on November 15, 1999 was $2.65 per share. During the six
months ended June 30, 2000 and 1999, the Company expensed $216,777 and zero,
respectively, of the prepaid advertising cost. During the three months ended
June 30, 2000 and 1999, the Company expensed $103,131 and zero, respectively, of
the prepaid advertising cost. The advertising can be used by the Company at any
time.
-10-
<PAGE>
Reclassifications
Reclassification of certain amounts in the 1999 consolidated financial
statements have been made to conform to 2000 presentation. The reclassifications
did not have a material impact on the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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 could differ from those estimates.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted EPS is
computed in the same manner, except the number of weighted average shares
outstanding is adjusted for the number of additional common shares that would
have been outstanding if the potential common shares had been issued. The
following table represents the earnings per share calculations for the six
months ended June 30, 2000 and 1999.
Per
Net Share
Loss Shares Amount
----------- ----------- -------
June 30, 2000
Basic earnings per share $(3,595,175) 15,570,831 $ (.23)
Dilutive securities -0- 1,770,622 .02
----------- ----------- -------
Diluted earnings per share $(3,595,175) 17,341,453 $ (.21)
=========== =========== =======
June 30, 1999
Basic earnings per share $(3,689,482) 12,653,099 $ (.29)
Dilutive securities -0- 1,126,500 .02
----------- ----------- -------
Diluted earnings per share $(3,689,482) 13,779,599 $ (.27)
=========== =========== =======
The following table represents the earnings per share calculations for the three
months ended June 30, 2000 and 1999.
-11-
<PAGE>
Per
Net Share
Loss Shares Amount
----------- ----------- -------
June 30, 2000
Basic earnings per share $ (963,659) 15,920,331 $ (.06)
Dilutive securities -0- 1,133,500 .01
----------- ----------- -------
Diluted earnings per share $ (963,659) 17,053,831 $ (.05)
=========== ========== =======
June 30, 1999
Basic earnings per share $(2,749,780) 13,269,952 $ (.21)
Dilutive securities -0- 341,293 .01
----------- ----------- -------
Diluted earnings per share $(2,749,780) 13,611,245 $ (.20)
=========== =========== =======
Note B - Acquisition of Subsidiary
On January 27, 2000, the Company acquired Keynote Acquisition Corporation
(Keynote) by exchanging 250,000 shares of the Company's stock for 5,000,000
shares of Keynote's stock. The Company is required to provide enough shares that
are equal to $500,000 within one year of the acquisition date. The acquisition
was accounted for under the purchase method.
Keynote has no operations or equity but is currently reporting to the Securities
and Exchange Commission.
Note C - Advances and Loans Payable to Stockholders and Others
Stockholders of the Company, officers and affiliates of the Company made
multiple loans to the Company to fund working capital. Loans in the amount of
$393,257 and $537,968 at June 30, 2000 and December 31, 1999, respectively, have
no stated interest rate and are due on demand.
On March 1, 2000 a director of the company loaned the Company $100,000 on a
short term note due on May 1, 2000 with ten percent interest. Currently the
Company has not repaid the note and since May 1, 2000 the note has been accruing
interest at the rate of fifteen percent. The note is secured by the assets of
the Company. The director has not called the note as of the present date.
Accrued interest on this note at June 30, 2000 was $4,126.
On April 5, 2000, an affiliated party loaned the Company $100,000 on a short
term note due on July 5, 2000 with nine percent interest. The note is secured by
certain assets of the Company. Currently, the Company has not repaid the note.
The affiliated party has not called the note as of the present date. Accrued
interest on this note at June 30, 2000 was $2,115.
A stockholder of the Company loaned the Company $498,871 at June 30, 2000 and
December 31, 1999. These loans are secured by the assets of the Company. The
notes accrue interest at
-12-
<PAGE>
ten percent per annum. Interest is due monthly. The balance of accrued interest
at June 30, 2000 and December 31, 1999 was $52,673 and $31,638. The note plus
accrued interest is due on January 31, 2002, or upon an event of default, as
defined, or a private placement or public offering.
The Company had loans from two stockholders in the amounts of $200,000 and
$258,437 as of June 30, 2000, of which $200,000 and $140,000, respectively, was
outstanding at December 31, 1999. Both accrue interest at ten percent per annum.
At June 30, 2000, the balance of accrued interest was $24,630 and $20,767,
respectively. At December 31, 1999, the balance of accrued interest was $14,685
and $8,888, respectively. The loans are due on October 5, 2001 and July 14,
2001.
On April 12, 2000, the Company paid off an existing line of credit, including
interest thereon, by issuing a $400,000 note to the lender, who is a stockholder
of the Company. The note was originally due on May 31, 2000, but has been
extended to September 29, 2000. The interest rate is 18% per annum. At June 30,
2000, the balance of the accrued interest was $5,902. The amount outstanding
under the line of credit at December 31, 1999 was $353,496 and accrued interest
of $34,928.
Note D - Lines of Credit
Golf Shoes Plus has a line of credit with a bank that provides a credit
commitment of $75,000 available for working capital in the ordinary course of
business. The outstanding balance bears interest at eight and three-quarters
percent and is personally guaranteed by an officer of the Company. The Company's
borrowings against this commitment was $44,067 at June 30, 2000 and $70,044 at
December 31, 1999.
Note E - Notes Payable
The Company had the following notes payable:
June 30, December 31,
2000 1999
---------- ----------
Installment note payable for working capital. The note
is secured by assets of the Company and accrues
interest at 10% with balance due January 31, 2002.
The commitment is through an institution that is
wholly-owned by the majority stockholder. $1,903,276 $1,481,158
At June 30, 2000, the Company had an unsecured
commercial loan from a bank. Monthly payments of
$1,250 plus interest at 1% plus the bank's prime rate
plus 1% with final payment due August 13, 2002. 297 38,752
-13-
<PAGE>
At June 30, 2000, the Company had a note payable to a
financial institution. The note is secured by
equipment and a personal guarantee of an officer of
the Company. The note is payable in monthly principal
and interest installments with final payment due
March, 2003. The interest rate is 9%. 34,101 31,151
---------- ----------
1,937,674 1,551,061
Current portion 9,736 21,863
---------- ----------
Long-term portion $1,927,938 $1,529,198
========== ==========
Future maturities of long-term debt are as follows:
Year Ending
March 31, Amount
---------- ------
2001 $ 9,736
2002 1,919,843
2003 6,746
2004 1,349
----------
$1,937,674
==========
Note F - Stock Restrictions
Certain shares of common stock have been issued to officers or employees of the
Company. These shares are considered restricted and cannot be sold for two
years. Restricted shares totaled 11,472,585 at June 30, 2000 and 11,014,033 at
December 31, 1999.
Note G - Related Party Transactions
The Company had receivables from affiliated companies that are owned by officers
of the subsidiaries at June 30, 2000 in the amount of $40 and December 31, 1999
in the amount of $7,564 which are included in accounts receivable.
On January 20, 2000 the Company issued 36,340 shares of its stock valued at $5
per share to various creditors, some of whom are affiliates, of Global Golf,
Ltd. The transaction was recorded as an intercompany loan of $181,700 from
Beverly Hills Ltd., Inc. to its subsidiary, Focused Media Ltd., which owns
Global Golf Ltd.
On April 26, 2000, two employees of the Company, who were also former directors,
agreed to accept shares of the Company's stock as payment for amounts owed them
totaling $288,117. Accordingly, the company agreed to issue 288,117 restricted
shares of the Company's stock valued in the transaction at $1.00 per share. The
market price of the Company's stock on April 26, 2000 was $.90. The transaction
was recorded as a reduction in liabilities and an increase in equity. The shares
were issued on July 26, 2000.
-14-
<PAGE>
Note H - Stock Options
On January 11, 2000, the Company issued stock options to a member of the board
of directors. The Company granted 250,000 stock options with a strike price of
$1.50 per share. The shares may be exercised at any time through January 11,
2005.
On February 1, 2000, the Company issued stock options to an attorney in payment
of fees. The Company granted 75,000 stock options with a strike price of $1.50
per share. The shares may be exercised at any time through February 1, 2005.
On February 1, 2000, the Company issued stock options to an attorney in payment
of fees. The Company granted 75,000 stock options with a strike price of $1.50
per share. The shares may be exercised at any time through February 1, 2005.
On February 28, 2000, the Company issued stock options to a company in
conjunction with the issuance of stock to the Company. The Company granted
25,000 options with a strike price of $2.00 per share. The shares may be
exercised at any time through February 28, 2005.
On March 1, 2000, the Company issued stock options to a company in conjunction
with the lending of funds to the Company. The Company granted 50,000 options
with a strike price of $1.50 per share. The shares may be exercised at any time
through March 1, 2005.
A summary of the Company's outstanding stock options at June 30, 2000 and
December 31,1999 and the changes during the respective periods then ended is as
follow.
June 30, 2000 December 31, 1999
----------------------- ----------------------
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning
of period 3,370,900 $.05-8.01 -0- $ -0-
Granted 475,000 1.50-2.00 3,370,900 .05-7.00
Vested 50,000 5.00
Exercised (165,000) .05 -0-
--------- ----------
At end of period 3,730,900 .05-8.01 3,370,900 .05-7.00
--------- --------- ----------
Exercisable at June 30, 2000 3,630,900 $.05-8.01
========= =========
In accordance with the provision of SFAS No. 123, Accounting for Stock-Based
Compensation, the Company has elected to continue to record compensation cost
under Accounting Principles Board Opinion (APB) No. 25 and, accordingly, does
not recognize compensation cost for options granted at or above market value of
the related stock. The Company had outstanding stock
-15-
<PAGE>
options payable, net of exercised options, of $2,110,400 and $1,838,900 at June
30, 2000 and December 31, 1999, respectively, which represent the value of
options issued below fair market value.
Note I - Commitments and Contingencies
Litigation
The Company, Marc Barhonovich, Steven Velte and Michael Hanlon, an officer of
Global Golf, are defendants in an action pending in the United States District
Court for the Northern District of Georgia brought by NBC Sports International
Limited. The parties have settled this matter and it will be dismissed upon the
Company fully performing its obligations under the terms of the settlement
agreement. The Company is required to pay a remaining $400,000 for advertising
they had used in connection with an earlier agreement with CNBC Sports
International Limited. Through June 30, 2000 the Company had paid $376,000 to
CNBC leaving a balance accrued of $24,000 still owing at that time. Subsequent
to June 30, 2000 the remaining balance of $24,000 has been paid.
The Company and one of its stockholders, Lehigh Enterprise, Ltd. (Lehigh) are
plaintiffs in a lawsuit against Friss Asset Management Company (Friss), an
associated individual, Irvin Freedman, The Grand Master Company, Chautauqua
Asset Management Company, and New Generation Polymers, LLC which is pending in
the U.S. District Court for the Middle District of Florida, Tampa Division,
Civil Case No. 99-2286-CIV-26C. This lawsuit arises from (a) certain abortive
acquisition transactions, pursuant to which the Company would have acquired
various companies, including The Grand Master Company, Chautauqua Asset
Management Company and New Generation Polymers, LLC, in exchange for stock and
capital funding to be provided by the Company to each of the companies to be
acquired; and (b) an aborted financing transaction pursuant to a separate
agreement between Lehigh and Friss, in which Lehigh agreed to furnish 1,600,000
of its shares in the Company to Friss as consideration for $8,000,000 of capital
funding to be provided by Friss to the Company.
The Company declined to conclude the acquisition transactions because
information and documentation necessary and material to the transactions, and
which were to have been provided pursuant to the acquisition agreements, were
never forthcoming, and because the companies to be acquired were found by the
Company not to be as represented. Lehigh declined to transfer any of its shares
in the Company to Friss because of the foregoing, and because Friss did not
provide $8,000,000 in capital funding to the Company as agreed.
In the lawsuit, the Company seeks to rescind the relevant acquisition agreements
and the agreement between the Company and Friss, based upon fraud in the
inducement, and also seeks damages for breach of each of those agreements. The
defendants have filed counterclaims in which they allege breach of the subject
agreements by The Company and seek monumental damages totaling $128,000,000. The
Company believes the counterclaims to be wholly without merit or subject to
valid defenses based upon, among other things, fraud in the inducement and
material breaches by the opposing parties. The lawsuit is now in the discovery
phase.
-16-
<PAGE>
On January 26, 1999, the Company concluded its acquisitions of two of its
present subsidiaries, Golf Shoes Plus, Inc. and Pro's Edge Wholesale, Inc.
(respectively, GSP and PEW) from their former stockholder, Randall J. (Hap)
Personett. The Company has certain outstanding obligations, in cash and also,
possibly, additional (restricted) shares of the Company's common stock,
representing the balance of the consideration which it agreed to pay for GSP.
The Company believes the cash The Company believes the cash portion of its
remaining obligation to Mr. Personett for the acquisition of GSP to be in the
approximate amount of $185,000. The Company and Mr. Personett agree that the
number of additional shares of the Company's common stock to which Mr. Personett
is entitled totaled 232,335 shares. These shares were issued to Mr. Personett on
July 26, 2000.
Mr. Personett has also asserted that he is entitled to (a) payment by the
Company of unpaid salaries pursuant to Beverly Hills' guarantee of his
Employment Agreements with GSP and PEW; (b) payment by GSP and PEW of unpaid
rents on business premises of which he is the lessor and GSP and PEW are the
lessees; and (c) payment or reimbursement of other sums which he claims to have
advanced to GSP and/or PEW or paid on their behalf since January 26, 1999.
In the first of these lawsuits referenced above, GSP, PEW and the Company have
sued Mr. Personett for breach of his Employment Agreements with GSP and PEW and
for breach of his fiduciary obligations to GSP, PEW and Beverly Hills, and seek
both damages and injunctive relief. In the second (Mr. Personett's Circuit Court
suit), Mr. Personett seeks damages against the Company for alleged breaches of
the Stock Purchase Agreement relating to the Company's acquisition of GSP,
including principally the Company's failure to pay the balance of the cash and
stock representing the agreed consideration for that company. He also seeks to
recover his alleged unpaid salaries from GSP, PEW and the Company. Finally, in
the third (Mr. Personett's County Court suit), Mr. Personett seeks judgment for
possession of the business premises of which he is the lessor and GSP and PEW
are the lessees; the imposition and foreclosure of a landlord's lien against
GSP's and PEW's assets for unpaid rents and other damages together with
interest, costs and attorney's fees.
Among its defenses to Mr. Personett's claims, the Company, GSP and PEW have
noted that Mr. Personett has continued to be in charge of the business
operations of those corporations notwithstanding their acquisition by the
Company and have asserted that any failure on the part of GSP and PEW to meet
their obligations for salaries and rents have been attributable to Mr.
Personett's mismanagement, neglect and/or malfeasance.
Notwithstanding that these lawsuits are being actively prosecuted and defended
by both sides, there is continuing communications between the parties in an
effort to achieve amicable resolutions.
In May 2000, the Company infused approximately $177,000 into GSP. The funds were
used to pay various vendors and to pay down the balances on a bank loan and
GSP's line of credit.
-17-
<PAGE>
Note J - Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has minimal assets, has
lacked working capital for the past several years, and is dependent upon
financing to continue operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Management
is currently seeking adequate financing to continue operations of the Company
and its Subsidiaries.
Note K - Subsequent Events
On May 12, 2000, the Company assumed the lease of two golf stores at an airport
location. They also obtained the rights to open golf stores in other airports.
They also assumed the inventory line of credit not to exceed $150,000 in
exchange for the lease agreement and rights, Beverly Hills has agreed to
exchange one and one-half percent of the stock of Focus Media Limited. The
Company also agreed to issue 250,000 shares of restricted stock. The restriction
will be lifted at the rate of 62,500 shares for every three months the agreement
is in effect. The agreement may be terminated if the Company does not secure a
minimum of $2,500,000 in funding by July 31, 2000. The Company has not taken
possession of assets as of the date of expiration of the agreement. The Company
may still acquire the assets in the near term.
On May 12, 2000, the Company agreed to purchase logos to be used in connection
with merchandise sold at the golf stores discussed above. The Company has agreed
to exchange one and one-half percent ownership in Focus Media Limited. The
Company also agreed to issue 250,000 shares of restricted stock. The restriction
will be lifted at the rate of 62,500 shares for every three months the agreement
is in effect. The agreement may be terminated if the Company does not secure a
minimum of $2,500,000 in funding by July 31, 2000. The Company has not taken
possession of assets as of the date of expiration of the agreement. The Company
may still acquire the assets in the near term.
-18-
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements, including,
among others:
o Our ability to execute our business strategies and generate
revenues from our Internet-based operations; and
o Our ability to finance future growth and possible acquisitions
through the issuance of shares of our common stock.
These forward-looking statements are based upon a number of assumptions
and estimates that, while considered reasonable by us when taken as a whole, are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond our control, and are
based upon specific assumptions with respect to future business decisions, many
of which will change. It can be anticipated that some or all of the assumptions
underlying the projections and forward-looking statements included herein will
not materialize or will vary significantly from actual results. Accordingly, it
can be expected that actual results will vary from the projections and that such
variations, in all likelihood, will be material and are likely to increase over
time.
In addition to the other risks described elsewhere in this report,
important factors to consider and evaluate in such forward-looking statements
include:
o changes in the external competitive market factors or in our
internal budgeting process which might impact our results of
operations;
o unanticipated working capital or other cash requirements; and
o changes in our business strategy or an inability to execute
our strategy due to unanticipated changes in our targeted
market.
In light of these risks and uncertainties, many of which are described
in greater detail elsewhere in this report, we cannot give assurance that the
forward-looking statements contained in this report will in fact transpire.
OVERVIEW
Revenues for the three months ended June 30, 2000 were approximately $410,000
compared to $431,000 for the three months ended June 30, 1999 and for the six
months ended June 30, 2000 revenues were approximately $939,000 compared to
$707,000 for the like period in 1999. The decrease in revenues for the three
month period was due to the repositioning of inventories to accommodate the new
emphasis on internet sales by our golf related entities. The increase in
revenues for the six month period is attributed to the Golf outlets being open
the full six months
-19-
<PAGE>
in 2000 whereas, they were acquired in at the end of January last year and the
1999 figure only includes five months' revenue.
Cost of sales for the three months ended June 30, 2000 was approximately
$272,000 compared to $234,000 for the three months ended June 30, 1999 and for
the six months ended June 30, 2000 cost of sales was approximately $617,000
compared to $382,000 for the six months ended June 30, 1999. Cost of sales
consists of cost of hard goods sold through Golf Shoes Plus's retail outlets and
the internet and through Pro's Edge Wholesale's outlet. The increased cost of
sales reflects the repositioning of inventories to accommodate the internet and
the disposition of our stale inventories.
Advertising costs were approximately $331,000 for the three months ended June
30, 2000 compared to $179,000 for the same period of 1999 and for the six months
ended June 30, 2000, advertising costs were approximately $716,000 compared to
$286,000 for the like period in 1999, increases of $152,000 and $430,000
respectively. Of the $430,000 increase, approximately $334,000 is attributable
to the use of prepaid advertising for which stock was issued. The prepaid
advertising is radio and magazine advertising and public relations promotions
intended to build name recognition for the Beverly Hills and Global Golf names.
Amortization and depreciation costs were approximately $346,000 for the three
months ended June 30, 2000 compared to $294,000 for the three months ended June
30,1999 and for the six months ended June 30, 2000 amortization and depreciation
totaled approximately $616,000 compared to $334,000 for the six months ended
June 30, 1999, increases of $51,000 and $282,000 respectively. The increase in
amortization and depreciation is primarily due to the amortization of goodwill
(approximately $41,000 for the three month periods and approximately $208,000
for the six month periods) generated by the acquisitions completed during 1999.
We expect amortization of goodwill to increase as additional acquisitions are
closed. Our policy is to amortize goodwill over four years. The remaining
increases (approximately $10,000 for the three month periods and $74,000 for the
six month periods) represents the amortization of website development costs and
the depreciation of office equipment and store fixtures at the various
locations.
Professional fees were approximately $17,000 and $277,000, respectively, for the
three months ended June 30, 2000 and 1999. For the six months ended June 30,
2000 and 1999, professional fees were approximately $1,130,000 and $519,000,
respectively. For the six months ended June 30, 2000 and 1999, $675,000 and
$133,000, respectively, was paid with stock. The increase is attributable to
legal and accounting fees incurred, primarily in the first quarter of 2000, in
connection with the 1999 audit, related SEC filings, the Keynote acquisition and
costs associated with raising additional working capital.
Approximately $100,000 of bad debt expense for the six months ended June 30,
2000 is due to the establishment of a reserve against an amount due from "The
Golfer" magazine.
Compensation expense for the three months ended June 30, 2000 was approximately
$297,000 compared to approximately $1,985,000 for the three months ended June
30, 1999. For the six months
-20-
<PAGE>
ended June 30,2000, compensation expense was approximately $966,000 compared to
approximately $2,567,000 for the six months ended June 30, 1999. The decline
from the prior year is primarily attributable to a reduction in stock based
compensation of approximately $1,590,000. Staffing reductions at corporate and
at the Charity Auction division in the first six months of 2000 were able to
offset the increases experienced at the other subsidiaries. The increases at the
subsidiary level reflect a full six months of operating results in 2000 versus
only five months of operating results for Golf Shoes Plus and Pro's Edge
Wholesale and only three months of operating results at Focused Media in the
first six months of 1999.
Interest expense for the three months ended June 30, 2000 was approximately
$99,000 compared to approximately $34,000 for the three months ended June 30,
1999. For the six months ended June 30, 2000 interest expense was approximately
$180,000 compared to $54,000 for the six months ended June 30, 1999. These
increases are attributable to the increase in our notes payable issued for
working capital and to higher interest rates.
The remaining operating costs were approximately $12,000 for the three months
ended June 30, 2000 as compared to $177,000 for the three months ended June 30,
1999. For the six months ended June 30, 2000 other operating costs were
approximately $210,000 compared to $255,000 for the six months ended June 30,
1999. Costs included herewith are: insurance, rent, travel & entertainment,
utilities, and miscellaneous other. The decrease is mostly attributable to the
operating subsidiaries and the settlement of certain liabilities for lesser
amounts, the effect of which is reflected in miscellaneous expense.
Liquidity and Capital Resources
Our auditors have raised the issue that there is substantial doubt that we will
be able to continue as a going concern as a result of significant losses and
negative working capital. A significant amount of capital has been expended
towards building corporate infrastructure and operating and capital expenditures
in connection with certain acquisitions and the establishment of our programs.
These expenditures have been incurred in advance of the realization of revenue
that may occur as a result of such programs. As a result our Liquidity and
capital resources have diminished significantly. Liquidity and capital resources
could improve within the short term by a combination of any one or more of the
following factors: (I) an increase in revenues and gross profit from operations;
and (ii) financing activities. An inability to generate cash from either of
these factors within the short term could adversely affect our operations and
plans for future growth. If these issues are not addressed, we may have to
materially reduce the size and scope of our planned operations.
Beverly Hills had a negative cash flow from operations of approximately
$561,000, and $1,690,000 for the six months ended June 30, 2000 and 1999,
respectively. The change is primarily due to the increase in the issuance of
common stock and common stock rights for services in the six months ended June
30, 2000. The change in cash flow from investing activities from approximately
$(747,000) in the six months ended June 30, 1999 to $(45,000) in the six months
ended June 30, 2000 is due to the acquisition of subsidiaries for cash and to
the investment in website development for the Charity Auction and for Global
Golf in 1999. Cash
-21-
<PAGE>
flow generated by financing activities decreased from approximately $2,639,000
in the six months ended June 30, 1999 to $619,000 for the six months ended June
30, 2000. This was primarily because there were fewer issuances of common stock
and notes payable in the first six months of 2000. Substantial additional cash
will be required to implement our business plan.
Operations and working capital requirements have been met primarily through
issuance of the Company's equity securities and short and long term debt
instruments as well as vendor financing.
The Company has adopted a three-pronged financing plan:
o Seek mergers, joint ventures or financing arrangements with
larger private or public entities in related industries.
o Seek short and long term financing through private placements
of debt and equity securities in the capital markets.
o Mount an aggressive campaign to acquire companies for cash, if
available, and otherwise for registered Beverly Hills common
stock. This will require substantial working capital to fund
operating and merger and acquisition expenses and to pay the
significant cost of compliance with applicable securities
laws.
There can be no assurance that financing will be available in amounts or on
terms acceptable to Beverly Hills, if at all. Should the Company be unsuccessful
in its efforts to raise capital, it may be required to curtail operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No change from prior filing.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
27 Financial Data Schedule
(b) Reports on Form 8-K
1. Form 8-K Report dated March 10, 2000
2. Form 8-K Report dated April 28, 2000
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: August 21, 2000 BEVERLY HILLS LTD, INC.
By: /s/ Marc Barhonovich
----------------------------
Marc Barhonovich, President
-23-
