<PAGE> 1
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 quarter ended June 30, 1996
Commission file number: 0-19503
BENTLEY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MEGACARDS, INC.
(Former name of registrant)
Missouri 43-1325291
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1353 North Warson Road
St. Louis, Missouri 63132
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (314) 993-3686
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 / /.
On August 13, 1996, the registrant had 562,624 outstanding shares of Common
Stock, $.18 par value.
<PAGE> 2
BENTLEY INTERNATIONAL, INC.
FORM 10-QSB
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets - June 30, 1996 and December 31, 1995
Statements of Operations - Three Months and Six Months
Ended June 30, 1996 and 1995
Statements of Cash Flows - Six Months Ended June 30, 1996
and 1995
Notes to Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
BENTLEY INTERNATIONAL, INC.
BALANCE SHEETS
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 482,110 $ 245,911
Accounts receivable (net of allowance for
returns and doubtful accounts of $1,013,000
and $846,000, respectively) 3,915,657 3,945,951
Inventories 2,571,884 5,157,435
Other current assets 285,505 173,206
----------- ------------
Total current assets 7,255,156 9,522,503
PROPERTY AND EQUIPMENT
At cost less accumulated depreciation and amortization 716,212 875,801
PROPERTY HELD FOR SALE -- 1,811,811
OTHER LONG-TERM ASSETS 239,675 117,931
----------- ------------
TOTAL ASSETS $ 8,211,043 $ 12,328,046
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,778,306 $ 2,996,112
Lines of credit-banks 3,101,498 3,732,040
Current portion of long-term debt 48,055 167,766
----------- ------------
Total current liabilities 5,927,859 6,895,918
EXCESS ACQUIRED ASSETS OVER COST 785,973 948,588
CAPITAL LEASE OBLIGATION -- 1,889,007
LONG-TERM DEBT 54,648 66,735
NOTES PAYABLE-SHAREHOLDERS 1,440,000 1,350,000
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued or outstanding 0 0
Common stock, $0.18 par value; 10,000,000 shares
authorized; issued and outstanding, 562,624 shares 101,272 101,272
Additional paid-in capital 1,905,297 1,905,297
Accumulated deficit (2,004,006) (828,771)
----------- ------------
Total shareholders' equity (deficit) (2,563) 1,177,798
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,211,043 $ 12,328,046
=========== ============
See notes to financial statements.
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
BENTLEY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $5,565,897 3,564,044 $11,037,678 $7,914,801
Cost of sales 4,688,685 2,865,717 9,258,397 5,861,178
---------- ---------- ----------- ----------
Gross margin 877,212 698,327 1,779,281 2,053,623
Selling, general and administrative expenses 1,259,227 1,118,832 2,804,997 2,056,416
---------- ---------- ----------- ----------
Loss from operations (382,015) (420,505) (1,025,716) (2,793)
Interest expense 111,530 55,258 286,351 135,045
Other income (133,827) (5,066) (136,832) (5,066)
---------- ---------- ----------- ----------
Net loss $ (359,718) $ (470,697) $(1,175,235) $ (132,772)
========== ========== =========== ==========
Net loss per common share $ (0.64) $ (1.11) $ (2.09) $ (0.31)
---------- ---------- ----------- ----------
Weighted average number of
common shares outstanding 562,624 423,500 562,264 423,500
See notes to financial statements.
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
BENTLEY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended June 30,
---------------------------
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,175,235) $ (132,772)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 380,206 192,389
Amortization of excess of acquired
assets over cost (162,615) (162,615)
Net gain on sale of assets (28,579) --
Net changes in assets and liabilities:
Accounts receivable 30,294 (170,427)
Inventories 2,585,551 (76,673)
Other assets (259,043) (37,639)
Accounts payable and other liabilities (217,806) (313,356)
------------ ----------
Net cash provided by (used in) operating activities 1,152,773 (700,793)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (356,043) (217,935)
Proceeds from sale of assets 2,000,816 --
------------ ----------
Net cash provided by (used) in investing activities 1,644,773 (217,935)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on bank debt (527,839) 459,900
Proceeds from long-term debt (234,501) --
Net proceeds (repayments) from notes payable to shareholders 90,000 250,000
Repayment of capital lease obligation (1,889,007) --
------------ ----------
Net cash provided by (used in) financing activities (2,561,347) 709,900
------------ ----------
NET INCREASE IN CASH 236,199 (208,828)
CASH, BEGINNING OF PERIOD 245,911 20,471
------------ ----------
CASH, END OF PERIOD $ 482,710 $ (188,357)
============ ==========
See notes to financial statements.
</TABLE>
- 5 -
<PAGE> 6
BENTLEY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pursuant to an agreement dated July 17, 1995, Bentley International, Inc.
("Bentley") acquired all of the outstanding common stock of Windsor Art, Inc.
("Windsor") in exchange for 2,541,000 shares of Bentley's Common Stock and
acquired all of the outstanding Common Stock of Janco Designs, Inc. ("Janco")
for a nominal amount of cash (the acquisition by Bentley of all of the
outstanding capital stock of Windsor and Janco is referred to as the
"Business Combination"). Bentley International, Inc. was formerly known as
Megacards, Inc. until an amendment to its Articles of Incorporation in July
1996 to effect such name change. As used herein the term "Company" refers to
Janco and Windsor for periods prior to the Business Combination and to
Bentley, Janco and Windsor for periods subsequent to the Business
Combination. As used herein the term "Megacards" refers to the sports
picture card operation of Bentley.
The Business Combination is accounted for as a reverse acquisition under
the purchase method of accounting. Under this approach, the accounting for
the transaction differs from the legal form of the transaction as described
above. Therefore, Megacards is not assumed to be the acquiror in the
Business Combination but rather Windsor and Janco are. Accordingly, the
historical financial statements of the Company reflect the financial position
and the results of operations of Windsor and Janco. The historical financial
statements have been restated for all periods prior to the Business
Combination to include the combined results of operations and financial
position of both Windsor and Janco due to the common ownership of Windsor and
Janco prior to the Business Combination. Adjustments have been made to
eliminate the impact of intercompany transactions. The components of
shareholders' equity are stated in terms of Windsor's and Janco's
shareholders' equity on a combined basis prior to the Business Combination
with an adjustment to reflect the effects of the Business Combination on the
equity components. The number of shares outstanding for purposes of
presenting shareholders' equity on a comparative basis have been
retroactively restated to the earliest period presented in order to reflect
the effect of the recapitalization that occurred in the Business Combination.
The Company's financial statements for the year ended December 31, 1995
included disclosures regarding factors indicating that the Company may have
been unable to continue as a going concern for a reasonable period of time.
Included in these factors were significant operating losses and noncompliance
with certain of the Company's loan covenant requirements related to its lines
of credit.
The Company has implemented various initiatives to reduce its costs and to
improve its liquidity position including: (i) disposing of its retail store;
(ii) closing its Iowa facility; (iii) selling its interest in the Erie,
Pennsylvania facility, terminating the sublease thereof and eliminating the
staff associated with the operation of this facility; and (iv) consolidating
the operations of Megacards with those of Janco in St. Louis.
- 6 -
<PAGE> 7
Losses of $1,175,235 in the six months ended June 30, 1996, as well as a
lack of resolution regarding the Company's bank loans, substantially all of
which matured on or before July 1996, continue to indicate that the Company
may be unable to continue as a going concern. Management believes, however,
that its previous and continuing efforts to reduce costs will significantly
reduce the Company's break-even point and should help the Company return to
profitability. The Company's management is actively attempting to obtain
waivers with respect to non-compliance with certain covenants related to its
credit facilities and renegotiate its existing credit facilities. See Note
2. Management believes that it will be able to continue to obtain financing
to fund the operating activities of Windsor and Megacards under their
existing credit facilities, however there can be no assurance in this regard.
The accompanying unaudited financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations. Reference is made to the Company's audited financial
statements included in the Company's annual report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 1995.
In the opinion of the management of the Company, the unaudited financial
statements contain all adjustments (which include only normally recurring
adjustments) necessary for a fair statement of the results of operations for
the three and six months ended June 30, 1996 and 1995, respectively. The
results of operations for the three and six months ended June 30, 1996 are
not necessarily indicative of the results for the full year.
2. DEBT
The Company's third-party debt consists of various line of credit, term
loan and letter of credit agreements with several financial institutions.
Borrowing availability is determined based on certain requirements in each
agreement including the level of eligible accounts receivable and inventory.
At June 30, 1996, the Company had $41,000 available borrowing capability
under its debt agreements. The agreements include certain covenants which
require the Company and its subsidiaries to meet certain ratios and levels of
tangible net worth and restrict the declaration and payment of dividends.
As of June 30, 1996, the Company was not in compliance with certain of the
covenants of its credit facilities. Its lenders have not issued waivers
related to the noncompliance and could demand payment of the debt at any
time. Management is actively attempting to renegotiate those credit
agreements. On August 31, 1996, approximately $1 million under Windsor's
existing credit facility will become due. At present, management believes
that no demand for payment will be made and that Windsor will be able to
negotiate an extension of its credit facility. There can be no assurance
that demand will not be made in the future or that Windsor will be able to
extend its credit facility. In the event that demand is made for payment of
any or all of the outstanding debt under the credit facility, Windsor may not
be able to meet such demand with its existing capital resources.
- 7 -
<PAGE> 8
The following represents a summary of the outstanding bank debt for the
periods presented:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Borrowings under lines of credit,
$950,000 of which matures on
August 31, 1996 $ 3,101,498 $ 3,732,040
----------- -----------
Note payable - bank due in monthly
installments of $2,520 including
interest at 9.5% per annum
through June 1999 $ 78,395 $ 89,398
Note payable - due on August 31, 1996 24,308 145,103
----------- -----------
102,703 234,501
Less current portion 48,055 167,766
----------- -----------
Long-term debt $ 54,648 $ 66,735
=========== ===========
</TABLE>
Total bank borrowings are collateralized by substantially all of the
Company's personal property. Certain of the Company's shareholders have
personally guaranteed $2,975,000 of the Company's obligations.
3. STOCK SPLIT
Effective July 8, 1996, the Board of Directors and shareholders approved a
one-for-six reverse stock split and an increase in the par value, from $.03
to $.18, of the Company's common stock. All share and per share amounts in
the accompanying financial statements and footnotes have been retroactively
restated to reflect the stock split.
- 8 -
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company and its subsidiaries manufacture and distribute decorative
mirrors and framed prints and design, repackage and market sports picture
cards and sports picture card accessories and sports memorabilia products.
Subsequent to the consummation of the Business Combination, the Company's
management has continuously evaluated the prospects of the combined
businesses. In light of the Company's recent losses, the Company has sought
to eliminate certain non-performing assets, reduce staffing levels and close
certain of the Company's facilities. As a result, the Company has
implemented a plan to restructure its businesses, which is designed to
achieve substantial reductions in the Company's operating costs and attain
profitability. These efforts continued throughout the first six months of
1996 and are in progress to date.
The Company has concentrated on rationalizing the operations of its sports
picture card segment by reducing its inventories to a level more commensurate
with the needs presented by its current operations. Similarly, the Company
has greatly reduced the debt associated with the sports picture card
operation. In addition, the Company has relocated its sports picture card
operations to Janco's St. Louis facility. Effective April 29, 1996, the
Company sold its interest in the Erie facility and terminated its lease
thereof.
During 1995, Windsor entered into agreements that permit it to distribute
and sell the Dolbi-Cashier line of table-top accessories. The Company's
management anticipates that Windsor will continue to expand its new table-top
accessories and other products to complement its existing product lines. The
Company's results of operations for the six months and three months ended
June 30, 1996, reflect increases in Windsor's net sales which are in part
attributable to its expanded product offerings. The Company's management
intends to continue to enhance its framed art and mirror and home furnishings
products.
- 9 -
<PAGE> 10
RESULTS OF OPERATIONS
The following tables present the results of operations for the six months
and three months ended June 30, 1996, respectively, for each of the Company's
two business segments, sports picture cards (Megacards) and decorative
mirrors and framed art (Windsor/Janco) and the results of operations for
Windsor/Janco for the six months and three months ended June 30, 1995,
respectively:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------
1996 1995
--------------------------------------- ----
Windsor/Janco Megacards Total Windsor/Janco
------------- --------- ----- -------------
<S> <C> <C> <C> <C>
Net sales $8,339,438 $2,698,240 $11,037,678 $7,914,801
Cost of sales 6,811,563 2,446,834 9,258,397 5,861,178
Selling, general and
administrative
expense 1,902,918 902,079 2,804,997 2,056,416
Loss from operations (375,043) (650,673) (1,025,716) (2,793)
Interest expense 154,198 132,153 286,351 135,045
Other income (298) (136,534) (136,832) (5,066)
Net loss (528,943) (646,292) (1,175,235) (132,772)
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------------
1996 1995
--------------------------------------- ----
Windsor/Janco Megacards Total Windsor/Janco
------------- --------- ----- -------------
<S> <C> <C> <C> <C>
Net sales $4,454,509 $1,111,388 $ 5,565,897 $3,564,044
Cost of sales 3,470,419 1,218,266 4,688,685 2,865,717
Selling, general and
administrative
expense 860,804 398,423 1,259,227 1,118,832
Income (loss) from
operations 123,286 (505,301) (382,015) (420,505)
Interest expense 71,199 40,331 111,530 55,258
Other income (298) (133,529) (133,827) (5,066)
Net income (loss) 52,385 (412,103) (359,718) (470,697)
</TABLE>
For the six months ended June 30, 1996, Windsor's and Janco's net sales
increased 5.4% to $8.3 million compared to the six months ended June 30,
1995. Windsor's and Janco's net sales for the quarter ended June 30, 1996
increased 25% to $4.5 million compared to the second quarter of 1995. These
increases in net sales are attributable to a 21% increase in Windsor's net
sales for the six months ended June 30, 1996 compared to the corresponding
period of 1995, which was the result of expansion of the products which
Windsor offers. The increase in Windsor's sales was offset by decreases in
Janco's sales which resulted from interruptions in producing and shipping new
products due to the relocation of its facilities and the loss of a
significant customer.
- 10 -
<PAGE> 11
Cost of sales for the combined Windsor/Janco operations increased
$950,000, or 16%, from the same six-month period last year. Cost of sales
for Windsor and Janco during the second quarter of 1996 increased by 21%
compared to the second quarter of 1995. The increases in cost of sales were
a result of the Company's continuing effort to reduce its slow moving
inventory at reduced margins or even below cost, as well as a write down of
obsolete inventory to realizable value.
Windsor's and Janco's selling and administrative expenses for the six
months and three months ended June 30, 1996 decreased $153,000 and $258,000,
respectively, compared to the corresponding periods of the prior year. The
decreases in administrative and selling expenses were due primarily to
additional expenses incurred by Windsor in 1995 for audit fees and decreases
in administrative salaries paid by Janco during 1996.
Interest expense for Windsor and Janco increased 14% to $154,000 for the
six-month period ended June 30, 1996 and 29% to $71,000 for the second
quarter of 1996 compared to the corresponding prior year periods. The
increases are attributable to additional borrowing by Windsor to fund new
product development.
Windsor and Janco reported a net loss of $529,000 for year-to-date 1996
and net income of $52,000 for the second quarter of 1996 compared to a net
loss of $133,000 and $471,000, respectively, for the corresponding periods of
the prior year.
Megacards reported a loss of $646,292 for the first six months of 1996.
This net loss reflects the write down of inventory due to obsolescence. The
loss was offset by the gain of $133,000 attributable to the sale of the
Company's interest in its Erie facility.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1996, the Company's operating, investing
and financing activities generated $236,000 in cash, despite its net loss of
$1,175,000. Inventories for all three operating divisions decreased
$2,586,000 during the six-month period ended June 30, 1996. The reduction in
inventories reflect both increased sales, as well as write down in inventory
levels due to obsolescence and slow movement.
As of June 30, 1996, the Company was not in compliance with certain of the
covenants of its credit facilities. Its lenders have not issued waivers
related to the noncompliance and can now call the debt at any time.
Management is actively attempting to renegotiate those credit agreements. On
August 31, 1996, approximately $1 million under Windsor's existing credit
facility will become due. At present, management believes that no demand for
payment will be made and that Windsor will be able to negotiate an extension
of its credit facility. There can be no assurance that demand will not be
made in the future or that Windsor will be able to extend its credit
facility. In the event that demand is made for payment of any or all of the
outstanding debt under the credit facility, Windsor may not be able to meet
such demand with its existing capital resources. As of June 30, 1996,
Windsor had $41,000 of available borrowing capacity under its line of credit.
Megacards and Janco had no available borrowing capacity.
- 11 -
<PAGE> 12
The Company's management continues to pursue courses of action to improve
the Company's liquidity. As of April 29, 1996, the Company acquired all of
an affiliated entity's interest in the Company's Erie Pennsylvania facility,
sold all of the Company's and the affiliated entity's interest in such
facility and terminated the Company's lease obligations related thereto. The
Company continues to decrease its sports card inventory and related
indebtedness in an effort to reach a level which is more commensurate with
needs of its current operations. The Company will seek to renegotiate its
credit facilities as they come due to provide for additional financing.
The Company believes that its available credit facilities will be
sufficient to fund current operations of Windsor. The Company may seek to
raise additional capital through the private placement of debt and/or equity.
Additional financing would be required if the Company pursues identified
acquisition opportunities. There can be no assurance that such financing
will be available to the Company on favorable terms or at all.
As a result of Janco's operational difficulties, it has experienced a
severe liquidity shortage and its accounts payable have increased
substantially. Management is actively pursuing alternatives to preserve, and
enhance Janco's business, including negotiating deferred payment terms with
suppliers and other unsecured creditors. There can be no assurance that
Janco will succeed in attaining such arrangements and Janco could be forced
to pursue other alternatives.
- 12 -
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
On June 21, 1996, the Company held its Annual Meeting of Shareholders.
At the annual meeting Lloyd R. Abrams (2,731,137 votes for, 2,833 votes
against and 641,177 broker non-votes), Robert L. Wolfson (2,731,137 votes
for, 2,833 votes against and 641,177 broker non-votes) and Janet L. Salk
(2,729,870 votes for, 4,100 votes against and 641,177 broker non-votes) were
elected to serve as members of the Company's board of directors for a term of
one year or until their successors were elected and duly appointed. The
Company's shareholders also approved amendments to the Company's Amended and
Restated Articles of Incorporation to: (i) change the Company's corporate
name from "Megacards, Inc." to "Bentley International, Inc." (2,726,162 votes
for, 6,535 votes against, 1,273 votes abstaining and 641,771 broker
non-votes) and (ii) effect a one-for-six reverse stock split of all of the
Company's Common Stock and increase the par value of the Company's Common
Stock from $.03 per share to $.18 per share (2,707,127 votes for, 26,051
votes against, 792 votes abstaining and 641,771 broker non-votes).
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K: None
- 13 -
<PAGE> 14
SIGNATURE
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.
BENTLEY INTERNATIONAL, INC.
(Registrant)
August 21, 1996 By: /s/Lloyd R. Abrams
-------------------------------
Lloyd R. Abrams, President
Chief Executive Officer and
Chief Financial Officer
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 482,110
<SECURITIES> 0
<RECEIVABLES> 3,915,657
<ALLOWANCES> 1,013,000
<INVENTORY> 2,571,884
<CURRENT-ASSETS> 7,225,156
<PP&E> 716,212
<DEPRECIATION> 159,589
<TOTAL-ASSETS> 8,211,043
<CURRENT-LIABILITIES> 5,927,859
<BONDS> 0
<COMMON> 101,272
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,211,043
<SALES> 11,037,678
<TOTAL-REVENUES> 11,037,678
<CGS> 9,258,397
<TOTAL-COSTS> 12,063,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,013,000
<INTEREST-EXPENSE> 286,351
<INCOME-PRETAX> (1,175,235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,175,235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,175,235)
<EPS-PRIMARY> (2.09)
<EPS-DILUTED> (2.09)
</TABLE>
