SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File Number 0-19503
ended December 31, 1997
BENTLEY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 0-19503 43-1325291
(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction of
organization)
9719 Conway Road 63124
St. Louis, Missouri (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (314) 569-1659
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value: $.18
(Title of Class)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Registrant's revenues for the 1997 fiscal year were $12,713,313.
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: approximately $1,319,430 as of March 17, 1998. (Approximately
606,870 shares held by approximately 500 non-affiliates at $2.00 per share).
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: As of March 17,
1998, 2,813,285 shares of Common Stock, par value $0.18, were outstanding.
1
<PAGE>
Note: This report contains certain forward looking statements of the type
described in the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The results of management's plans are
beyond the ability of the company to control. Economic conditions,
product and service demand, competitive pricing and other factors could
cause materially different results from those planned by management.
PART I
Item 1. Description of Business
Business
Bentley International, Inc. (formerly Megacards, Inc.), a Missouri
corporation ("Bentley" or the "Company"), through its operating subsidiary,
Windsor Art, Inc., a Missouri corporation ("Windsor"), manufacturers and
distributes decorative mirrors and framed prints to furniture stores, designers,
hotels and department stores throughout the United States. Windsor has operated
profitably and increased sales since 1995.
The Company is currently investigating acquisition opportunities in
specialty marketing and information management. No opportunity has developed to
the stage where any acquisition appears likely. Management is researching
acquisitions of speciality marketing and information management firms because
management believes that such businesses produce a very high return on equity,
require little debt, generate substantial cash flow and possess significant
growth potential. There can be no assurance that management's plans will have
the desired results, given economic conditions, product and service demand,
competitive pricing and other factors.
Products
Framed Art Products. Windsor's framed art products consist of framed
lithographs, original acrylic paintings, limited edition reproductions and
original prints. Sales of framed lithographs comprise the largest portion of
Windsor's revenues. Windsor's sales and design personnel select images and
framing materials to match fashion trends in the home furnishing industry.
Framed Mirrors. Windsor's design staff develops frame designs and finishes
in an attempt to offer unique and innovative products that differentiate
Windsor's products from those of its competitors. Some of the mirror designs
consist of traditional styles, such as Chippendale and Early American, that
enjoy enduring demand.
Marketing and Distribution
Windsor markets its products through independent sales representatives who
are paid on a commission basis. Windsor leases four showrooms in High Point,
Atlanta, Dallas and San
2
<PAGE>
Francisco to display products at the industry or trade shows held in these
cities and to maintain a presence in these major furniture markets.
Windsor's products are sold primarily in the United States. To date,
Windsor's sales in international markets have not been material to the Company's
business. Windsor attempts to anticipate sales and stock an adequate inventory
to meet demand for its products. There can be no assurance that Windsor will
continue to be able to do so.
Competition
Windsor is subject to significant existing and potential competition.
Windsor competes for sales with other companies that market framed art and
mirrors. A number of such competitors have greater financial, marketing and
other resources than Windsor. Windsor believes that the principal areas of
competition are breadth of product line, new designs and the ability to deliver
product on a timely basis.
Sources of Supply
Windsor obtains all of its raw materials from domestic and international
outside suppliers. These include major publishers of prints, artists and
manufacturers of glass, mirrors, imported moldings and frames. Windsor does not
anticipate significant difficultly in obtaining desired quantities of print and
mirror framing supplies, acrylic paintings or print and mirror products. There
can be no assurance, however, that Windsor will be able to continue to obtain
desired quantities of products on a timely basis at favorable prices.
Seasonality
Windsor's business historically has not been subject to seasonal
fluctuations, other than a brief slowdown in sales ahead of the major industry
shows occurring in April and October of each year.
Customers
Windsor's principal customers consist of various national and regional
retailers, including furniture stores, department stores and catalog houses. For
the year ended December 31, 1997, sales to one customer accounted for
approximately 20% of Windsor's sales.
Employees
As of February 28, 1998, the Company employed approximately 100 persons on
a full-time basis. The Company has a collective bargaining unit covering
approximately 80 manufacturing employees at Windsor. The agreement expires on
February 28, 2002. The Company believes that its relations with its employees
are good. The Company attempts to maintain an optimum level of staffing relative
to production requirements by increasing and decreasing the number of
manufacturing personnel and utilizing overtime when necessary.
3
<PAGE>
History
Windsor, which was incorporated in 1993, operates a framed art and mirror
business which began in November, 1993, when it purchased certain assets of
Windsor Art Products, Inc., a Delaware corporation, which was then subject to a
bankruptcy proceeding. In a business combination in July, 1995 the Company,
which was incorporated in 1983, acquired Windsor in a reverse acquisition. The
other businesses of the Company have been liquidated. These were the sports
picture card business of the Company, originally called Megacards, Inc., which
had been in business since 1984, and the framed art and mirror business of Janco
Designs, Inc., a Missouri corporation which was incorporated in 1990 ("Janco"),
which also was acquired in the reverse acquisition. The sports picture card
business was liquidated in 1996 and the remaining assets contributed to a joint
venture, Legends, L.P., a New York limited partnership organized in 1996
("Legends"), with Quality Baseball Cards, Inc.("Quality"), in which the Company
owns 30% of the limited partnership. Janco was the subject of an involuntary
bankruptcy petition brought in January, 1997 by three creditors. All claims of
the bankruptcy trustee against the Company and Windsor were settled with the
bankruptcy trustee in January, 1998 and a final judgment approving the
settlement was entered on February 27, 1998. The Company's business now consists
of the framed art and mirror business of Windsor and the 30% limited partnership
interest in Legends.
Item 2. Properties
The Company leases a production facility for its Windsor operations in Pico
Rivera, California. The facility has approximately 80,000 square feet. This
lease expires in November 1998. Currently negotiations are under way to renew
the lease. At this time there is no way to determine if the Company will be able
to renew the lease or the additional cost of any such renewal. If the Company is
unable to renew the lease and is required to move, the impact on the Company's
earnings could be significant.
In addition, the Company leases a showroom in High Point, and three smaller
showrooms in San Francisco, Dallas and Atlanta. The Company has a retail lease
in St. Louis which is subleased to a retail store. The Company believes that all
of these facilities are adequate for its current and planned future needs.
Item 3. Legal Proceedings
On January 10, 1996, the Company filed suit in the U.S. District Court,
Eastern District of Missouri, against Stephen G. Callendrella and Aztec Capital
Corporation, a Colorado corporation (collectively, the "Defendants"), seeking an
unspecified amount of damages for alleged violations of Section 13(d) of the
Securities Exchange Act of 1934, as amended, and acts of common law fraud in
connection with the Defendants' purchase of the Company's Common Stock. On
February 12, 1996, the Defendants filed suit (the "Countersuit") in the U.S.
District Court, District of Colorado against one current and five former
directors of the Company alleging, among other things, breaches of their
fiduciary duties to the Company in connection with the
4
<PAGE>
Business Combination. The Company was not named as a defendant in the
Countersuit, however, the Company had certain obligations to indemnify and hold
harmless the defendants named in the Countersuit. The suit and countersuit were
dismissed pursuant to an order of the court dated July 14, 1997.
On January 24, 1997, and subsequent to the termination of Janco's
operations, three of Janco's creditors filed an involuntary petition against
Janco pursuant to Chapter 7 of the United States Bankruptcy Code in the United
States District Court for the Eastern District of Missouri, Case No.
97-40682-399. As reported on Forms 8-K dated January 26, 1998 and March 9, 1998,
respectively, on January 16, 1998 the Company entered into a settlement
agreement with the Bankruptcy Trustee, which was approved by the court on
February 27, 1998, releasing Bentley and Windsor from all liability in
connection with such bankruptcy. The order results in the release of liability
of Bentley and Windsor by the Trustee and the Trustee's payment to certain note
holders, resulting in a reduction of Bentley's general liabilities, as reflected
on the consolidated balance sheet of Bentley and its subsidiaries, by
approximately $1,259,000. In addition, Bentley will recognize approximately
$1,174,000 of extraordinary income, or $0.42 per share, as a result of the
reduction in liabilities and the elimination of the reserves established to
cover potential liabilities resulting from the termination of Janco's
operations.
Currently, the Company is not a party to any legal proceeding, other than
routine proceedings in the ordinary course of business, which are not
anticipated to have a material adverse effect on its results of operation or
financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of the year ended
December 31, 1997 to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Common Equity and Related Shareholder Matters
In July, 1996, the Company's name was changed to Bentley International,
Inc. from Megacards, Inc. and the Company's common stock symbol was changed to
"BNTL" from "MEGX". The Company's Common Stock is traded on the Nasdaq OTC
Bulletin Board. As of January 1, 1998, the number of shareholders of Common
Stock was approximately 500. Set forth below are the high and low transaction
prices as reported by the Nasdaq OTC Bulletin Board. Such prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
5
<PAGE>
<TABLE>
Year Ended December 31,
1997 1996
--------------------------------------------------------------------
High(1)(2) Low(1)(2) High(1)(2) Low(1)(2)
<S> <C> <C> <C> <C>
First Quarter........................... $0.50 $0.16 $1.50 $0.75
Second Quarter.......................... 0.50 0.16 0.90 0.10
Third Quarter........................... 0.75 0.25 0.45 0.15
Fourth Quarter.......................... 1.25 0.70 0.34 0.15
1/1/98 - 3/17/98 2.00 0.81 N/A N/A
</TABLE>
- ------------------
(1) Share prices have been adjusted to reflect a four-for-one stock dividend
payable October 22, 1997 to shareholders of record on September 24, 1997.
(2) From November 19, 1995 to January 29, 1996 the Company's Common Stock was
delisted from the Nasdaq Small Cap Market. The Company appealed such action
and the stock was relisted effective January 29, 1996. The Company's stock
was again delisted from the Nasdaq Small Cap Market in August 1996.
Although there are no restrictions on dividends in the Company's corporate
authority documents, funds for a dividend would come from a dividend from
Windsor to the Company, which would be limited by the terms of a loan to Windsor
from Norwest Business Credit, Inc. ("Norwest"). This loan includes a formula
basis for paying dividends to Bentley and is incorporated herein as Exhibit
10.36.
Item 6. Management's Discussion and Analysis or Plan of Operation
Overview
Windsor increased its income from operations to $1,330,663 in 1997 from
$602,066 in 1996 primarily as a result of increased sales. In January, 1997,
Windsor closed on new financing with Norwest, which provided Windsor with an
asset based lending facility of up to $2.0 million, which management believes
should provide Windsor with the financial resources needed to facilitate a
continued reasonable growth in sales. Windsor plans to continue to develop
innovative designs that are consistent with fashion trends, to ship orders
promptly and to produce quality framed art and mirrors.
The consolidated financial statements include the accounts of Bentley,
Windsor, Alnick and Janco. All significant intercompany transactions have been
eliminated from the consolidated financial statements.
In 1996, the Company consolidated operations by closing Megacards' Iowa
sales office and Megacards' Erie, Pennsylvania manufacturing facility, and moved
all manufacturing and
6
<PAGE>
administrative functions of Megacards into the Janco facility located in St.
Louis. In 1996, the Company purchased all of the outstanding common stock of
Alnick Realty, Inc. ("Alnick"), the lessor of the Megacards' Erie facility,
terminated Megacards' lease of the Erie facility and sold the real estate owned
by Alnick to a third party. During the summer of 1996 the Company explored
opportunities to divest itself of its Megacards division. A business combination
was negotiated with Quality in which a limited partnership, Legends, was formed.
Quality became the general partner, and owned 70% of the partnership, while the
Company became a limited partner, owning 30% of the partnership. Substantially
all of the assets of Megacards, other than accounts receivable, and all of the
assets of Quality were contributed to Legends. The accounts receivable of
Megacards were collected and applied toward the repayment of Megacards' secured
debt.
Janco experienced operating difficulties in 1996 that led management to
decide to collect Janco's accounts receivable and apply the net proceeds to the
repayment of Janco's senior secured debt. On January 24, 1997, three unsecured
creditors of Janco filed a petition for involuntary bankruptcy. The Company and
Windsor were liable for certain unpaid secured debts of Janco. On January 16,
1998, the Company entered into a settlement agreement with the Bankruptcy
Trustee which requires Bentley to pay $85,000 in settlement for all claims
against the Company. In exchange, the Bankruptcy Trustee agreed to pay certain
note holders, all of whom were principal shareholders of Bentley, whose notes
were secured in part by guaranties from the Company and Windsor, one-half of the
proceeds from the liquidation of certain assets of Janco, approximately $45,000.
The Company is currently investigating acquisition opportunities.
Discussions have not developed to the stage where any acquisitions appear
likely. The Company is considering moving into a new line of business,
speciality marketing and information management. Management is researching
acquisition opportunities in this business because management believes that such
businesses produce a very high return on equity, require little debt, generate
substantial cash flow and possess significant growth potential. There can be no
assurance that management's plan will have the desired results given economic
conditions, product and service demands, competitive pricing and other factors.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The following table presents the results of operations for 1997 and 1996 by
the Company's business segments, sports picture cards (Megacards) and decorative
mirror/framed pictures (Windsor/Janco):
[the remainder of this page is intentionally left blank]
7
<PAGE>
<TABLE>
1997 1996
------------------------------------------------ -------------------------------------------------
Windsor/ General Windsor/ General
Janco Megacards Corporate Total Janco Megacards Corporate Total
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................. $12,713 $-- $-- $12,713 $16,652 $3,483 $ -- $20,135
Cost of sales............. 8,523 -- -- 8,523 13,322 2,024 -- 15,346
----------- ------------ ----------- --------- ----------- ------------ ----------- -----------
Gross Margin.............. 4,190 -- -- 4,190 3,330 1,459 -- 4,789
Selling, general and
administrative expenses 2,859 -- 267 3,126 3,948 2,131 95 6,174
----------- ------------ ----------- --------- ----------- ------------ ----------- -----------
Income (loss) from
operations........... 1,331 -- (267) 1,064 (618) (672) (95) (1,385)
Interest expense.......... (129) -- (50) (179) (296) (167) -- (463)
Other income (expense).... 325 44 (1) 368 (102) 85 (141) (158)
----------- ------------ ----------- --------- ----------- ------------ ----------- -----------
Income before extraordinary
item.................. 1,527 44 (318) 1,253 (1,016) (754) (236) (2,006)
Extraordinary gain on
extinguishment of debt 1,174 -- -- 1,174 -- -- -- --
----------- ------------ ----------- --------- ----------- ------------ ----------- -----------
Net Income $2,701 $44 ($318) $2,427 ($1,016) ($754) ($236) ($2,006)
=========== ============ =========== ========= =========== ============ =========== ===========
Earnings (loss) per common
share - basic
Income (loss) before
extraordinary item.... $0.45 ($0.71)
Extraordinary Gain 0.42 --
--------- -----------
$0.87 ($0.71)
========= ===========
Earnings (loss) per common
share - assuming dilution
Income (loss) before
extraordinary item.... $0.44 ($0.71)
Extraordinary Gain 0.41 --
--------- -----------
$0.85 ($0.71)
========= ===========
</TABLE>
Windsor's and Janco's combined net sales decreased by $3,939,063 or 23%,
from the year ended December 31, 1996. This decrease resulted from the
termination of Janco's operations. Windsor's sales increased $1,083,291 or 9.3%,
during 1997 verses 1996 due to improved marketing and availability of products.
Cost of sales for the combined Windsor/Janco operations decreased
$4,798,843, or 36%. This decrease was a result of the termination of Janco's
operations. Windsor's costs of sales increased $303,798, or 3.7%. The increase
in cost of sales at Windsor was attributable to the increase in Windsor's sales.
However, Windsor's cost of sales as a percentage of sales decreased from 71% to
67%. The decrease at Windsor was primarily attributable to lower material and
overhead costs.
8
<PAGE>
Selling, general and administrative expenses for Windsor and Janco
decreased $1,089,294 from the year ended December 31, 1996 to 1997. The decrease
was due to the termination of Janco's operations. Windsor's selling, general and
administrative expenses remained relatively flat in 1997 as compared to 1996 at
approximately $2,800,000.
Interest expense for Windsor and Janco decreased during 1997 compared to
1996 due to decreased borrowings at Windsor and the payoff of Janco's bank debt
in the first quarter of 1997.
Megacards had no sales revenue in 1997 as compared to $3,482,730 in 1996.
Other income of $44,000 is primarily the recovery of previously written off
accounts receivable.
The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128 Earnings Per
Share. For further discussion of earnings per share and the impact of Statement
No. 128, see Note 15 to the consolidated financial statements.
Liquidity and Capital Resources.
During 1997, the Company's operating, investing and financing activities
used approximately $250,000 of cash in the business. Cash generated by Windsor's
profitable operation was approximately $1,100,000 and used to pay off notes
totaling 1,390,000 approximately.
Capital expenditures of approximately $55,000 were made in 1997, primarily
for new equipment, furniture and fixtures at Windsor. Windsor is planning to buy
or lease a new computer system, the purchase of which would be funded by the
line of credit from Norwest or by a lease.
The primary secured debt of Megacards and Janco was repaid in full in 1997
from collection of the accounts receivable. The secured debt of Windsor was
refinanced with Norwest Business Credit in 1997. As of February 28, 1998,
Windsor has available borrowing capacity sufficient to operate its business for
a reasonable period of time.
In March 1998 the Company retired the Janco debts which Bentley and Windsor
guaranteed using funds from Windsor. The Company is not currently in discussions
to sell any significant capital assets of the Company, except in the ordinary
course of business.
Year 2000 Issue - Company
The Company has reviewed its current computer system to identify the
systems that could be affected by the Year 2000 Issue. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
to define the applicable year.
Regardless of the Year 2000 Issue, the Company is planning to upgrade its
current computer system to a Windows based program. This change will also
address the Year 2000 Issue and the
9
<PAGE>
new system will be Year 2000 compliant. The Company presently believes that,
with the planned modifications to the existing software and conversion to new
software, the Year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted. However, if
such modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operations of the Company.
Year 2000 - Suppliers
The Company is in the process of contacting its major suppliers to discuss
the Year 2000 Issue. There is no assurance that the suppliers will be able to
respond adequately to the Year 2000 Issue, or that supplies or orders to the
Company will not be affected.
Derivatives
The Company does not invest in any derivatives. Its loans from outside
sources are tied to market rates. The Company's investment portfolio does not
include any derivatives.
[The remainder of this page is intentionally left blank].
10
<PAGE>
Item 7. Financial Statements and Supplementary Data
Independent Auditors' Report
Board of Directors
Bentley International, Inc.
St. Louis, Missouri
We have audited the accompanying consolidated balance sheet of Bentley
International, Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the two years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bentley
International, Inc. and subsidiaries as of December 31, 1997 and the results of
their operations and their cash flows for the two years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
RUBIN, BROWN, GORSTEIN & CO., LLP
St. Louis, Missouri
February 27, 1998
11
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
Assets
<S> <C>
Current Assets
Cash and cash equivalents $ 100,529
Accounts receivable (net of allowance for returns and
doubtful accounts of $151,000 - Note 7) 1,886,527
Inventories (Notes 4 and 7) 1,824,908
Other current assets 83,621
---------------------------
Total Current Assets 3,895,585
Equipment And Leasehold Improvements (Notes 5 and 7) 190,381
Other Assets 69,800
---------------------------
$ 4,155,766
===========================
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable (Note 7) $ 1,059,540
Accounts payable and accrued expenses 1,199,995
---------------------------
Total Current Liabilities 2,259,535
---------------------------
Excess Of Acquired Assets Over Cost (Note 8) 298,127
---------------------------
Stockholders' Equity
Preferred stock, $0.01 par value; 1,000,000 shares authorized,
none issued or outstanding --
Common stock, $0.18 par value; 10,000,000 shares authorized;
2,813,285 shares issued and outstanding 506,391
Additional paid-in capital 1,500,178
Retained earnings (accumulated deficit) (408,465)
---------------------------
Total Stockholders' Equity 1,598,104
---------------------------
$ 4,155,766
===========================
</TABLE>
See the accompanying notes to consolidated financial statements.
12
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1997 And 1996
<TABLE>
Retained
Additional Earnings Total
Common Stock Paid-In (Accum. Stockholders'
-------------------------------------
Shares Amount Capital (Deficit) Equity
------------------ ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1996 562,624 $ 101,272 $ 1,905,297 $ (828,771) $ 1,177,798
Net Loss -- -- -- (2,006,840) (2,006,840)
- --------------------------------- ------------------ ---------------------------------------------------------------
Balance - December 31, 1996 562,624 101,272 1,905,297 (2,835,611) (829,042)
Common Stock Dividend 2,250,661 405,119 (405,119) -- --
Net Income -- -- -- 2,427,146 2,427,146
- --------------------------------- ------------------ ---------------------------------------------------------------
Balance - December 31, 1997 2,813,285 $ 506,391 $ 1,500,178 $ (408,465) $ 1,598,104
================================= ================== ===============================================================
</TABLE>
See the accompanying notes to consolidated financial statements.
13
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
For The Years
Ended December 31,
------------------------------------------------
1997 1996
------------------------------------------------
<S> <C> <C>
Net Sales $ 12,713,313 $ 20,135,106
Cost Of Sales 8,523,636 15,346,429
- ------------------------------------------------------------------ ------------------------------------------------
Gross Margin 4,189,677 4,788,677
Selling, General And Administrative Expenses 3,125,874 6,173,897
- ------------------------------------------------------------------ ------------------------------------------------
Income (Loss) From Operations 1,063,803 (1,385,220)
Interest Expense (178,911) (463,456)
Other Income (Expense) 368,205 (158,164)
- ------------------------------------------------------------------ ------------------------------------------------
Income (Loss) Before Extraordinary Item 1,253,097 (2,006,840)
Extraordinary Item
Gain on extinguishment of debt (Note 3) 1,174,049 --
- ------------------------------------------------------------------ ------------------------------------------------
Net Income (Loss) $ 2,427,146 $ (2,006,840)
================================================================== ================================================
Earnings (Loss) Per Common Share-Basic
Income (loss) before extraordinary item $ 0.45 $ (0.71)
Extraordinary gain 0.42 --
- ------------------------------------------------------------------ ------------------------------------------------
Net Income (Loss) Per Common Share-basic $ 0.87 $ (0.71)
================================================================== ================================================
Earnings (Loss) Per Common Share - Assuming Dilution
Income (loss) before extraordinary item $ 0.44 $ (0.71)
Extraordinary gain 0.41 --
- ------------------------------------------------------------------ ------------------------------------------------
Net Income (Loss) Per Common Share - Assuming dilution $ 0.85 $ (0.71)
================================================================== ================================================
</TABLE>
See the accompanying notes to consolidated financial statements.
14
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
For The Years
Ended December 31,
-------------------------------------------
1997 1996
-------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 2,427,146 $ (2,006,840)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 61,362 113,908
Extraordinary gain on extinguishment of debt (1,174,049) --
Amortization of excess of acquired assets over cost (325,230) (325,230)
Loss on sale of equipment -- 699,568
Loss on investment in partnership -- 236,936
Net changes in assets and liabilities:
Decrease in accounts receivable 613,043 1,478,670
(Increase) decrease in inventories (417,764) 3,050,291
Decrease in other current assets 46,547 23,236
Decrease in accounts payable and accrued
expenses (145,610) (443,440)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 1,085,445 2,827,099
- ------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Capital expenditures (55,352) (121,214)
Proceeds from notes receivable 110,000 --
Proceeds from sale of property and equipment -- 1,573,321
Payments for acquisition of subsidiary -- (85,000)
Proceeds from long-term investments -- 109,038
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Investing Activities 54,648 1,476,145
- ------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net payments under lines of credit (1,237,471) (2,809,107)
Repayments of long-term debt (66,867) (1,354,249)
Payments on notes payable to stockholders (85,025) (36,000)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (1,389,363) (4,199,356)
- ------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash And Cash Equivalents (249,270) 103,888
Cash And Cash Equivalents - Beginning Of Year 349,799 245,911
- ------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents - End Of Year $ 100,529 $ 349,799
==================================================================================================================
Supplemental Disclosure Of Cash Flow Information
Interest paid $ 170,039 $ 473,508
- ------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities (Note 13)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 And 1996
1. Summary Of Significant Accounting Policies
Basis Of Consolidation
The consolidated financial statements include the accounts of Bentley
International, Inc. (the "Company") and its wholly-owned subsidiaries,
Windsor Art, Inc. ("Windsor"), Janco Designs, Inc. ("Janco") and Alnick
Realty Company, Inc. ("Alnick"). All significant intercompany transactions
have been eliminated from the consolidated financial statements.
Use Of Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management 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. The reported amounts of revenues and expenses
during the reporting period may also be affected by the estimates and
assumptions management is required to make. Actual results may differ from
those estimates.
Cash And Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Inventory costs
have been determined by the last-in, first-out (LIFO) method.
Equipment And Leasehold Improvements
Equipment and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed on the straight-line
method. The assets are depreciated and amortized over periods ranging from
five to seven years.
Investment In Partnership
The Company has a 30% interest in Legends, L.P., a New York limited
partnership. The investment is accounted for using the equity method and
carried at cost adjusted for a permanent impairment and the Company's share
of undistributed earnings or losses.
16
<PAGE>
Excess Of Acquired Assets Over Cost
Excess of acquired assets over cost in connection with the acquisition
of Windsor Art, Inc. is treated as negative goodwill and is amortized on
the straight-line basis over five years.
Income Taxes
Deferred tax assets and liabilities are recorded for the expected
future tax consequences of events that have been included in either the
financial statements or tax returns of the Company. Under this asset and
liability approach, deferred tax assets and liabilities are determined
based on temporary differences between the financial statement and tax
bases of assets and liabilities by applying enacted statutory tax rates
applicable to future years in which the differences are expected to
reverse. As more fully discussed in Note 11, the Company has established a
full valuation allowance for its net deferred tax assets.
Earnings (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share and includes the dilutive effects of options,
warrants and convertible securities by making the assumption that all of
these optional warrants and convertible securities had been exercised. All
earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to the Statement 128 requirements.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123), in 1996. Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value based method or continue measuring
compensation expense for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25) and related Interpretations. The Company
elected to continue using the intrinsic value method to account for the
stock-based compensation plan. SFAS 123 requires companies electing to
continue to use the intrinsic value method to make certain pro forma
disclosures (see Note 16).
2. Operations
Nature Of Operation
Bentley International, Inc., ("Bentley"), formerly Megacards, Inc.,
designed, repackaged and marketed sports picture cards produced by major
sports picture card manufacturers and
17
<PAGE>
marketed sports picture card accessories. Megacards, Inc. became Bentley in
June 1996 as the Board of Directors believed that the change of the
Corporate name would better reflect the broadening of the scope of the
businesses of the Company. Windsor and Janco manufacture and distribute
decorative mirrors and framed prints to furniture stores, mass merchants,
hotels and designers throughout the United States. During 1996, the Company
discontinued its Janco product line and sold its sports picture card
business segment in order to reduce costs and to improve its liquidity
position (see Note 3).
Business Combinations
Pursuant to an agreement dated April 29, 1996, the Company acquired all
the outstanding shares of Alnick for $85,000. Alnick was an affiliated
company prior to the acquisition. The acquisition was accounted for as a
purchase.
Stock Dividend And Reverse Stock Split
On July 8, 1996, the Company's Board of Directors authorized a
one-for-six reverse stock split of the Company's common shares, and an
increase in the par value, from $0.03 to $0.18.
On September 3, 1997, the Company's Board of Directors authorized a
four-for-one stock dividend, to be distributed October 22, 1997, to
shareholders of record September 24, 1997, which had the effect of a
five-for-one stock split, except that the par value remained $0.18 per
share. All share and per share amounts have been adjusted retroactively to
reflect the stock dividend and reverse stock split.
3. Sale Of Business Segment And Discontinued Line Of Business
Sale Of Business Segment
In August 1996, the Board of Directors of the Company adopted a plan to
restructure the sports picture cards business segment (Megacards). In
September 1996, certain assets and liabilities, consisting primarily of
inventory and equipment, were transferred to Legends, L.P., a New York
limited partnership, for a 30% limited partnership interest and a note in
the principal amount of $110,000. Such transfer was partly a sale and
partly a contribution to capital. There was no gain or loss on disposal, as
net assets were either sold or transferred to Legends at their net book
value, which approximated fair value. Legends, L.P. is in the sports
picture card business and since the Company has a 30% equity interest in
the limited partnership, the activity of the sports picture card business
segment is part of continuing operations of the Company. The note in the
amount of $110,000 was paid in full in 1997.
Discontinued Line Of Business
On December 27, 1996, Janco discontinued its operations due to
historical losses in an effort to reduce costs and improve overall
liquidity of the Company. Janco's operations represented a line of business
within the decorative mirrors and framed pictures segment, and
18
<PAGE>
as such, the termination of operations is not considered discontinued
operations of a business segment. Certain assets of Janco consisting of
inventory and equipment were sold to a third party prior to December 31,
1996. In 1996, the loss on disposition of Janco's assets was $427,062. The
net loss prior to the disposal date was $1,356,883. Basic and diluted net
loss per share related to Janco's operating losses and loss on disposal
were $(0.48) and $(0.15), respectively.
On January 24, 1997, an involuntary bankruptcy case was filed against
Janco, and on February 18, 1997, Janco consented to the involuntary filing
as a Chapter 7 debtor. As reported on Form 8-K, filed by the Company
January 26, 1998, the Bankruptcy trustee, Bentley, certain shareholders who
hold promissory notes of which Janco was the maker and Bentley and Windsor
are the guarantors ("noteholders"), and other parties related to such
shareholders entered into a stipulation for settlement agreement, pursuant
to which Bentley agreed to pay, subject to court approval of the
stipulation agreement to the bankruptcy estate, $85,000 in exchange for a
full release of Bentley, Windsor, certain of Bentley's shareholders and
certain present and past officers and directors from all claims of the
trustee. In addition, the bankruptcy estate agreed to pay to the
noteholders one-half of the proceeds from the liquidation of certain assets
of Janco, approximately $45,000. The court approved the stipulation
agreement on February 27, 1998. The release of liability of the Company by
the Trustee resulted in a $1,258,838 reduction of the Company's general
liabilities. As a result of the reduction in liabilities and the
elimination of the reserves established to cover potential liability
resulting from the termination of Janco, an extraordinary gain is
recognized in 1997 as reflected on the Consolidated Statement of
Operations.
The following is a summary of the results of operations of Janco for the
years ended December 31, 1997 and 1996:
<TABLE>
1997 1996
---------------------------------------
<S> <C> <C>
Net sales $ -- $ 5,022,354
Costs and expenses -- 6,806,299
- ------------------------------------------------------------------------------------------------
Loss Before Extraordinary Item -- (1,783,945)
Extraordinary gain on extinguishment
of debt 1,174,049 --
- ------------------------------------------------------------------------------------------------
Net Income (Loss) $ 1,174,049 $ (1,783,945)
================================================================================================
Basic Net Income (Loss) Per Share $ 0.42 $ (0.63)
================================================================================================
</TABLE>
19
<PAGE>
4. Inventories
Inventories consist of:
<TABLE>
<S> <C>
Raw materials $ 1,096,627
Finished goods 909,477
-------------------
2,006,104
Less: Adjustment from FIFO to LIFO 181,196
-------------------
$ 1,824,908
===================
</TABLE>
If the FIFO basis had been used, net income for the year ended December
31, 1997 would have increased by $56,056 and net loss for the year ended
December 31, 1996 would have increased by $32,419.
5. Equipment And Leasehold Improvements
Equipment and leasehold improvements consist of:
<TABLE>
<S> <C>
Furniture and fixtures $ 185,799
Machinery and equipment 72,938
Leasehold improvements 112,789
-------------------
371,526
Less: Accumulated depreciation and amortization 181,145
-------------------
$190,381
===================
</TABLE>
Depreciation and amortization charged against income amounted to
$61,362 in 1997 and $113,908 in 1996.
6. Investment In Partnership
As discussed in Note 3, in September 1996, as part of the Company's
plan to restructure its sports picture card business, Bentley transferred
certain net assets of Megacards to Legends, L.P., a newly-organized New
York limited partnership ("Legends"). Such transfer was partly a sale and
partly a contribution to capital. As partial consideration for the
transfer, Bentley received a 30% limited partnership interest. This
investment is accounted for on the equity method of accounting.
The investment was originally recorded at $286,936. At December 31,
1996, the asset was considered to be permanently impaired due to the
financial position of Legends. The impairment was estimated to be $236,936
based on an estimate of net realizable value less disposition costs.
Unaudited condensed financial information of Legends, L.P. is as follows:
20
<PAGE>
CONDENSED BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
Current Assets $1,420,687
Fixed Assets (net of accumulated depreciation) 209,446
Other Long-Term Assets 14,782
-----------------------
$1,644,915
-----------------------
Current Liabilities $487,297
Long-Term Debt 655,440
Partners' Capital 502,178
-----------------------
$1,644,915
</TABLE>
CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1997
<TABLE>
<S> <C>
Net Sales $3,374,730
Cost of Sales 1,803,487
-----------------------
Gross Profit 1,571,243
General and Administrative Expenses 1,507,296
-----------------------
Income from Operations 63,947
Other Expenses 29,847
-----------------------
Net Income $34,100
-----------------------
</TABLE>
The investment in Legends, amounting to $50,000 at December 31, 1997
and 1996 is included in other assets on the consolidated balance sheet.
7. Notes Payable
Notes payable consist of:
<TABLE>
<S> <C>
Borrowings under a $2,000,000 line of credit secured
by all business assets of Windsor, bearing interest at
the prime rate plus 1.5%, due December 1, 1998 $ 730,565
Notes payable - stockholders, secured by collateral
agreement, subordinate to third party debt, bearing
interest at the prime rate plus 2%, due March 1998
and guaranteed by the Company and Windsor 328,975
------------------
$ 1,059,540
===================
</TABLE>
21
<PAGE>
The line-of-credit agreement contains covenants imposing certain
restrictions and requirements as follows:
1. Windsor's minimum debt service coverage ratio shall not be less
than 3 to 1.
2. Windsor's net income shall not be less than a negative $25,000 per
month.
3. Windsor's minimum book net worth shall not be less than $765,000,
excluding excess of acquired assets.
4. Key person life insurance at $2,000,000 must be maintained on the
Chairman of the Company.
5. Capital expenditures by Windsor cannot exceed $150,000 in the
aggregate for the year, $80,000 of which shall be used only for
the purchase of upgraded computer equipment. In addition, no more
than $25,000 can be spent in any one transaction.
6. Salaries cannot increase by more than 10% in any one year for any
director, officer, or consultant or their families.
Windsor was not in compliance with requirement number 6 at December 31,
1997. However, the covenant was subsequently waived by the bank.
Interest expense on notes payable to stockholders amounted to $49,628
and $138,880 in 1997 and 1996, respectively.
The Company's weighted average interest rate on borrowings under lines
of credit was 9.94% and 8.37% in 1997 and 1996, respectively.
8. Excess Of Acquired Assets Over Cost
In November 1993, Windsor purchased certain operating assets of a
company operating under the protection of the bankruptcy laws. The
acquisition was accounted for as a purchase and the Company's equity in the
assets acquired exceeded the purchase price by approximately $1,627,000.
This excess of acquired assets over cost ("negative goodwill") is being
amortized over a five-year period.
9. Fair Value Of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
22
<PAGE>
Investment In Partnership
The Company owns a 30% interest in a limited partnership. There is no
market for the partnership interest. Because of the financial position of
the partnership, the investment is carried at original cost less a
permanent impairment to reflect its fair value. The fair value was based
upon an estimate of the investment's net realizable value.
Notes Payable
The carrying values approximate fair values because the stated interest
rates primarily fluctuate with market interest rates and also due to the
short-term nature of the notes.
10. Deferred Compensation Plan
On December 31, 1997, the Company froze a qualified, defined
contribution profit sharing plan covering eligible full-time and part-time
employees. The plan was qualified under Section 401(k) of the Internal
Revenue Code, and allows employees to contribute on a tax deferred basis.
The plan also provided for discretionary contributions by the Company in
such amounts as the Board of Directors may annually determine. There were
no Company contributions to the 401(k) plan in 1997 or 1996.
Effective January 1, 1998, the Company adopted a qualified SIMPLE-IRA
plan. All employees who are reasonably expected to earn at least $5,000 per
year are eligible to participate. Under this plan, the employee can
contribute through payroll deductions up to $6,000 to the IRA. The Company
will match up to 3% of each employee's salary into the plan.
11. Income Taxes
As discussed more fully below, the Company is in a net operating loss
position and has established a full valuation allowance for any net
operating loss carryforward benefits, as well as any other net deferred tax
assets. Consequently, there is no provision for income taxes for 1997 or
1996.
Deferred income taxes represent the effect of temporary differences
between the tax basis of assets and liabilities and the amounts of those
assets and liabilities for financial reporting purposes. Deferred income
taxes also include the value of net operating loss carryforwards.
Management has determined that based on the Company's history of prior
operations and its expectations for the future, the net deferred tax assets
of the Company may not be realizable, and consequently, a valuation
allowance has been recognized to offset the otherwise recognizable net
deferred tax assets. Temporary differences which give rise to a significant
portion of deferred tax assets and liabilities and the corresponding
valuation allowance as of December 31, 1997 are as follows:
23
<PAGE>
<TABLE>
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts $ 51,000
Investment in limited partnership 175,000
Net operating loss carryforwards 1,496,000
-------------------
Gross Deferred Tax Assets 1,722,000
Deferred Tax Liability - LIFO Inventory (344,000)
-------------------
Net Deferred Tax Asset 1,378,000
Valuation Allowance (1,378,000)
-------------------
$ --
===================
</TABLE>
At December 31, 1997, the Company had available net operating loss
carryforwards to reduce future taxable income of approximately $4,395,000
which expire in varying amounts through 2011. Certain of the available net
operating loss carryforwards relate to operations prior to the Business
Combination and are limited as to their use by the separate return
limitation regulations. As of December 31, 1997, approximately $1,100,000
of the net operating loss carryforwards are limited by such regulations. As
a result of the ownership change in connection with the Business
Combination, these net operating loss carryforwards are also limited in
their use on an annual basis pursuant to section 382 of the Internal
Revenue Code of 1986, as amended.
12. Related Party Transactions
Capital Lease
The Company had a capital lease agreement with an affiliated company
for its sports picture card warehouse and processing facility in Erie,
Pennsylvania until April 29, 1996, when the Company acquired all of the
outstanding shares of the affiliated company. Upon purchase of the
affiliated entity, the capital lease obligation was terminated. The Company
subsequently sold the building.
Sublease Retail Space
The Company leases retail space (see Note 14) under an operating lease
which expires on February 28, 2001. In October 1995, the Company sold its
inventory related to this retail store operation and entered into a
sublease for the space with a corporation whose stockholders include a
family member of a former Director of the Company. The sublease runs from
January 1, 1996 through June 30, 1998 and all rents are paid directly to
the lessor by the sublessee. In consideration for the sale, the Company
received a note for $90,000 which was paid as of December 31, 1996.
24
<PAGE>
Other
The Company is paying a trust, of which a stockholder/officer is a
trustee, $2,000 per month, beginning December 1996, for use of a
condominium located in Newport Beach, California, within a short drive from
Windsor's production facility, by certain company employees, customers and
sales representatives. The arrangement can be terminated by either party.
13. Supplemental Statement Of Cash Flow Information
The Company had no significant noncash investing or financing
activities for the year ended December 31, 1997.
In September 1996, the Company transferred certain net assets of its
sports picture card segment for a 30% limited partnership interest in
Legends, L.P., a newly formed limited partnership, and a note for $110,000.
The net amounts transferred are as follows:
<TABLE>
<S> <C>
Inventory $ 556,069
Equipment 283,198
Accounts payable (396,826)
-------------------
442,441
Less: Note receivable (110,000)
Advances receivable (45,505)
-------------------
Net Assets Transferred $ 286,936
===================
</TABLE>
In April 1996, the Company terminated a capital lease agreement for its
sports picture card warehouse and processing facility when the Company
acquired the lessor. The Company wrote off property under the capital lease
of $1,380,299 and the capital lease obligation of $1,889,007.
14. Commitments
Lease Commitment
The Company leases office, production facility, showroom facility and
retail space under operating leases which expire over the next four years.
Certain of these leases provide for standard annual increases in base rent.
Total rent expense under all operating leases was $419,311 in 1997 and
$447,909 in 1996.
25
<PAGE>
The future minimum annual rentals under the lease are as follows:
<TABLE>
Total Net
Lease Sublease Lease
Commitments Income Commitments
------------------- --------------------------------------
<S> <C> <C> <C>
1998 $ 395,790 $ 34,200 $ 361,590
1999 136,449 -- 136,449
2000 65,631 -- 65,631
2001 34,200 -- 34,200
- -------------------------------------------------------- --------------------------------------
$ 632,070 $ 34,200 $ 597,870
======================================================== ======================================
</TABLE>
15. Earnings (Loss) Per Common Share
For 1997 and 1996, the computation of basic and diluted earnings (loss)
per common share is as follows:
<TABLE>
1997 1996
---------------------------------------
<S> <C> <C>
Numerator:
Net income (loss) before extraordinary gain $ 1,253,097 $ (2,006,840)
Extraordinary gain 1,174,049 --
- -----------------------------------------------------------------------------------------------
Numerator for basic and diluted earnings
(loss) per share - income (loss) available
to common shareholders $2,427,146 $(2,006,840)
===============================================================================================
Denominator:
Weighted average number of common
shares used in basic EPS 2,813,285 2,814,285
Effect of dilutive securities:
Common stock options 41,169 --
- -----------------------------------------------------------------------------------------------
Weighted number of common shares and
dilutive potential common stock used
in diluted EPS 2,854,454 2,814,285
===============================================================================================
</TABLE>
For 1996 options on shares of common stock were not included in
computing diluted EPS because their effect is antidilutive.
For additional disclosures regarding stock options, see Note 16.
16. Stock Option Plans
The Company's 1991 Stock Option Plan (the "1991 Plan") provides for
granting to eligible employees, officers and consultants of the Company,
options to purchase a maximum of 291,667 shares of the Company's common
stock. The Plan provides for the granting of options which qualify as
incentive stock options, within the meaning of Section 422 of the
26
<PAGE>
Internal Revenue Code, as well as the granting of nonqualified stock
options. All options granted under the Plan must have an exercise price of
not less than 100% of the fair market value of the common stock on the date
of grant and a maximum term of ten years.
The Board of Directors of the Company may, in its sole discretion,
amend or terminate the Plan at any time, provided, however, that it may
not, without stockholder approval, change (a) the maximum number of shares
for which options may be granted under the Plan; (b) the minimum option
price; (c) the maximum period during which an option may be granted or
exercised; or (d) the eligibility provisions regarding employees to whom
options may be granted.
The Company also has a non-qualified stock option plan (the "1995
Plan") which provides for granting to eligible employees of the Company or
its subsidiaries options to purchase a maximum of 300,000 shares of he
Company's stock. The purchase price of the stock subject to each option
granted shall not be less than the par value of such stock subject to the
option. The term of each option granted pursuant to the 1995 Plan shall not
be more than ten years from the date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Option Plan. Accordingly, no compensation cost has been
recognized. Had compensation cost been determined based on the fair value
at the grant dates for awards under the Plan, consistent with the
alternative method set forth under SFAS 123, the Company's net income
(loss) and net income (loss) per common and common equivalent share would
have been reduced. The pro forma amounts are indicated below:
<TABLE>
1997 1996
---------------------------------------
<S> <C> <C>
Net Income (Loss) From Operations
As reported $ 2,427,146 $ (2,006,840)
Pro forma $ 2,348,690 $ (2,032,564)
Net Income (Loss) Per Common Share
As reported $ 0.87 $ (0.71)
Pro forma $ 0.84 $ (0.72)
Net Income (Loss) Per Common Share -
Assuming Dilution
As reported $ 0.85 $ (0.71)
Proforma $ 0.82 $ (0.72)
</TABLE>
The weighted-average fair value of options granted was $0.39 and $0.16
for the years ended December 31, 1997 and 1996, respectively. The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
27
<PAGE>
<TABLE>
1997 1996
---------------------------------------
<S> <C> <C>
Expected life 3 3
Interest rate 8.5% 8.5%
Volatility 194.38% 63.95%
Dividend yield 0 0
</TABLE>
A summary of stock option activity for 1997 and 1996 is as follows:
<TABLE>
Weighted
Average
Number Price Exercise
Of Shares Per Share Price
-----------------------------------------------------
<S> <C> <C> <C>
Balance - December 31, 1995 113,805 $2.40 $2.40
Granted 149,995 $0.25 - $1.20 $0.50
Exercised -- -- --
Forfeited/expired (101,860) $2.40 $2.40
- -------------------------------------------- -----------------------------------------------------
Balance - December 31, 1996 161,940 $0.25 - $2.40 $0.64
Granted 68,000 $0.25 - $0.30 $0.30
Exercised -- -- --
Forfeited/expired (28,607) $0.60 - $2.40 $1.35
- -------------------------------------------- -----------------------------------------------------
Balance - December 31, 1997 201,333 $0.25 - $1.20 $0.42
============================================ =====================================================
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
Number of Options Weighted Average
Range of Exercise Outstanding and Remaining Years of Weighted Average
Prices Exercisable Contractual Life Exercise Price
<S> <C> <C> <C>
$0.25 - $1.20 201,333 8.66 $0.42
</TABLE>
17. Business Segments
The Company currently classifies its manufactured products into two
core business segments: (a) sports picture cards and (b) decorative mirrors
and pictures. Information concerning the Company's business segments
including general corporate activities is as follows:
28
<PAGE>
<TABLE>
Decorative Mirrors And General
Sports Picture Cards Framed Pictures Corporate
--------------------------- ----------------------------- ----------------------
1997 1996 1997 1996 1997 1996
----------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Identifiable assets $ 69,800 $278,480 $ 4,076,634 $ 4,391,491 $ 9,332 $92,902
Net sales -- 3,482,730 12,713,313 16,652,376 -- --
Operating (loss) income -- (672,145) 1,330,663 (618,411) (266,860) (94,664)
Capital expenditures -- 4,824 55,352 116,390 -- --
Depreciation and amortization -- 28,315 (263,868) (239,637) -- --
</TABLE>
Included in the depreciation and amortization of the decorative mirrors
and framed pictures segment is $325,230 related to the amortization of
negative goodwill in 1997 and 1996 (see Note 8).
18. Significant Customers And Suppliers
During 1997 and 1996, sales to one customer approximated 21% and 14% of
total consolidated net sales, respectively. Accounts receivable from the
customer amounted to approximately $251,000 and $373,000 at December 31,
1997 and 1996, respectively. As a percent of sales of Windsor only, sales
to this customer approximated 21% and 24% of Windsor's total net sales in
1997 and 1996, respectively. Purchases from two suppliers represented 26%
and 25% of total purchases for 1997. Accounts payable from the two
suppliers amounted to $42,397 for 1997. There were no significant suppliers
for 1996.
[The remainder of this page intentionally left blank.]
29
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
As reported on a Form 8-K dated October 9, 1996 and a Form 8-K/A dated
October 9, 1996, which are incorporated herein as Exhibit (b) on October 9,
1996, the Company dismissed the accounting firm of Deloitte & Touche, LLP as its
principal independent accountant. The former principal accounting firm's report
on the financial statements for each of the past two years contained a
qualification with respect to the Company's ability to operate as a going
concern. The Company's Board of Directors approved the decision to change
accounting firms. There were no disagreements with the former accounting firm on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On October 9, 1996, the Registrant engaged the accounting firm of Rubin,
Brown, Gornstein & Co., LLP as its principal independent accountant.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The name, age, principal occupation or position and other directorships
with respect to the directors and executive officers of the Company is set forth
below.
Lloyd R. Abrams, 44, has served as President, Chief Executive Officer and
director of the Company since July 1995 and as Assistant Secretary since
September 1997. From November 1993 until August, 1997, he served as President of
Windsor, and since August 1997 as sole Director and Assistant Secretary. For
more than three years prior to joining Windsor, he was President of Abrams,
Rothman & Company, a real estate development firm. Mr. Abrams has a Bachelors of
Science in Civil Engineering, a Masters of Business Administration and a Juris
Doctorate.
Janet L. Salk, 40, has served as a director of the Company since July 1995.
Ms. Salk principally has engaged in family, civic and charitable activities for
more than the past five years. Ms.Salk is the spouse of Lloyd R. Abrams. Ms.
Salk has Bachelor of Arts, Masters in Social Work and Masters in Counseling
degrees.
Robert L. Wolfson, 80, served as Chairman of the Board of the Company from
October 1991 until October 1997 and prior to such time he served as an unpaid
consultant to the Company. Mr. Wolfson has been President of Wolfson Capital
Ventures, Ltd., a private investment firm, for more than the past five years.
Mr. Wolfson resigned as a Director in October, 1997.
Ramakant Agarwal, 42, was appointed to the Board of the Company on January
1, 1998, and has served as Chief Financial Officer and Vice President of the
Company since January 1997, and Secretary since September 1997. He has served as
Chief Financial Officer and Vice President of
30
<PAGE>
Windsor since January 1997, and Secretary since August 1997. From April 1996 to
July 1996, Mr. Agarwal served as a consultant to Retix, Inc., an Internet
hardware, software and telecommunications company. From January 1993 to February
1996, Mr. Agarwal served as Vice President of Finance and Corporate Planning for
Sun West Mortgage Company, Inc., a non-supervised mortgage company. From January
1992 to December 1992, Mr. Agarwal served as Chief Financial Officer of DXL USA,
Inc., a developer of specialized mass flow controllers for semi-conductor
manufacturing equipment. Mr. Agarwal has a CPA.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of the
Company's outstanding stock ("Reporting Persons") to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. During
1997, to the best of the Company's knowledge, all Section 16(a) filing
requirements applicable to Reporting Persons were complied with, except that
Ramakant Agarwal failed to file timely a Form 3 upon becoming an executive
officer of the Company.
Item 10. Executive Compensation.
The following table sets forth the compensation of the named executive of
the Company for each of the last three years:
Summary Compensation Table
<TABLE>
Annual Compensation Long-Term Compensation
---------------------------------- --------------------------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ All Other
Salary Bonus Compensation Awards SARs (#) Compensation
Name & Principal Position Year ($) ($) ($) ($) (#) ($)
- --------------------------- ---------- ------------ ----------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lloyd R. Abrams (1) 1997 284,423 10,000
President and Chief 1996 265,000 -- -- -- -- --
Executive Officer 1995 85,095 -- -- -- -- --
Ramakant Agarwal (2) 1997 101,923 20,000 28,000
Chief Financial Officer, 1996 -- --
Vice President and Secretary
</TABLE>
- --------------------
(1) Mr. Abrams became an executive officer of the Company in July 1995.
(2) Mr. Agarwal became an executive officer of the Company in January 1997.
31
<PAGE>
<TABLE>
% of Total
# of Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price Expiration
Name Granted (#) Fiscal Year Price ($/Sh) at Date of Grant Date
<S> <C> <C> <C> <C> <C>
Ramakant Agarwal 28,000 41% $0.30 approx. $0.30 2/28/07
</TABLE>
<TABLE>
# of Securities Value of
Underlying Unexercised In-the-
Unexercised Money
Shares Acquired Options/SARs at Options/SARs at
Name on Exercise ($) Value Realized ($) FY-End FY-End
<S> <C> <C> <C> <C>
Ramakant Agarwal 0 N/A 28,000 (options) $47,600 (all
exercisable)
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the beneficial ownership of shares of the
Company's Common Stock as of March 17, 1998 held by: (i) each person who is
known to the Company to beneficially own more than 5% of the outstanding shares
of the Company's Common Stock; (ii) each person who is a director; and (iii) all
the Company's directors and officers as a group. Unless otherwise indicated, all
shares are held with sole voting and investment power.
<TABLE>
Name and Address Shares Owned(1) Percent of Class(1)
<S> <C> <C>
Group comprised of Lloyd R. Abrams, Richard B.
Rothman and Leo M. Rogers (the "Voting
Trust Group")
9719 Conway Road
St. Louis, Missouri 63124....................... 2,117,500 (2) 75.27%
Lloyd R. Abrams as Voting Trustee of the Voting
Trust, dated July 17, 1995
9719 Conway Road
St. Louis, Missouri 63124....................... 2,117,500 (2)(3) 75.27
Lloyd R. Abrams
9719 Conway Road
St. Louis, Missouri 63124....................... 1,281,000 (2)(3) 45.54
Richard B. Rothman
7700 Bonhomme, 7th Floor
St. Louis, Missouri 63105....................... 423,500 (4) 15.05
32
<PAGE>
Leo M. Rodgers
7167 Westmoreland Drive
St. Louis, Missouri 63130....................... 448,915 (4)(5) 15.96
Janet L. Salk
9719 Conway Road
St. Louis, Missouri 63124....................... -- --
Ramakant Agarwal
9101 Perkins Street
Pico Rivera, California 90660................... 53,000 (6) 1.9
All directors and executive officers as a group (5
persons)........................................ 2,206,415 78.4%
</TABLE>
- -----------------------
(1) Each beneficial owner's percentage ownership is based upon 2,813,285 shares
of the Company's Common Stock issued and outstanding as of March 17, 1998
and is determined by assuming options or warrants that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of March 17, 1998 have been exercised.
(2) In a Statement on Schedule 13D (the "Schedule 13D") filed with the
Securities and Exchange Commission (the "SEC") by the Voting Trust Group
and its members, the Voting Trust Group has reported that 2,117,500 shares
of the Company's Common Stock were issued to the Voting Trustee under the
Voting Trust Agreement. Under the Voting Trust Agreement, Mr. Abrams
retains voting power over shares of the Company's Common Stock deposited
herein.
(3) In a Form 5 dated January 27, 1997, Mr. Abrams reported that certain shares
of the Company's Common Stock attributed to him are beneficially owned by
him as trustee of each of The Abrams Family Trust, The Stacey, Kevin and
Meredith Trust dated 12/1/91 and The Janet L. Salk Children's Trust in the
amounts of 847,000 shares, 222,250 shares and 211,750 shares, respectively.
Mr. Abrams has sole investment power over all such shares of the Company's
Common Stock.
(4) In the Schedule 13D, Mr. Rothman and Mr. Rodgers reported that, shares of
the Company's Common Stock issued pursuant to the Agreement that are
attributable to Mr. Rothman and Mr. Rodgers were issued in the name of the
Voting Trustee. Under the Voting Trust Agreement, the voting Trustee
retains voting power of shares of the Company's Common Stock deposited
therein. Mr. Rothman and Mr. Rodgers retain investment power with regard to
the number of shares of the Company's Common Stock attributed to each of
them.
(5) In a Form 5 dated February 14, 1997, Mr. Rodgers reported that he
beneficially owns 448,915 shares of the Company's Common Stock.
(6) Includes 28,000 shares of the Company's Common Stock issuable upon exercise
of stock options.
33
<PAGE>
Item 12. Certain Relationships and Related Transactions.
The Company's executive compensation program is administered under the
direction of the Board of Directors. Mr. Abrams is a member of the Board of
Directors and served as an executive officer of the Company.
Until April 1996, the Company had leased its Erie, Pennsylvania production
facility pursuant to a Project Sublease, dated as of February 4, 1991 (the
"Sublease"), with Alnick Realty Co. ("Alnick"). Mr. Wolfson was a shareholder of
Alnick. The Sublease was for a minimum term expiring January 2006. The Sublease
originally provided for a base rental of $375,000 per year, subject to increase
under certain circumstances based upon the minimum employment level requirements
specified in Alnick's industrial development loan. The Company was obligated
under the Sublease to pay Alnick additional rent equal to the amount of ad
valorem taxes which would be payable on the property if it were subject to such
taxes and to pay all real estate taxes and insurance on the property. Subsequent
to the Business Combination, Alnick agreed to reduce the rent payments payable
under the Sublease to an amount equal to the sum of: (i) the debt payments to be
made by Alnick on the underlying debt attributable to the property; and (ii) all
out-of-pocket tax liability incurred by the Alnick shareholders as a result of
rent payments by the Company in view of Alnick's status as an S-Corporation for
income tax purposes. Additionally, Alnick agreed to waive all accrued but unpaid
rents (aggregating $250,000) which accrued prior to July 17, 1995. On April 29,
1996, the Company purchased the outstanding shares of Alnick's capital stock for
$85,000, sold Alnick's and its interests in the Erie, Pennsylvania production
facility and terminated its obligations under the Sublease.
Janco borrowed money from certain principal shareholders, which borrowings
were guaranteed by Bentley and Windsor. As of March 13, 1998, the Company repaid
all such borrowings.
The Company subleases retail space to a corporation whose stockholders
include a family member of a former Director of the Company. The sublease runs
from January 1, 1996 to June 30, 1998. In October 1995, the Company sold its
retail inventory located in the space to this corporation and received payment
of $90,000 as of December 31, 1996.
Windsor pays Mr. Abrams, as Trustee, an allowance of $2,000 per month for
use of a condominium by certain Company employees, customers and sales
representatives which is located in Newport Beach, California, and which is
owned by The Janet L. Salk Children's Trust. This arrangement can be terminated
by either party.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
34
<PAGE>
Ex. No. Description
3.1 Restated Articles of Incorporation of Registrant filed as Exhibit
No. 3.1 to Registrant's Registration Statement on Form S-18 (Reg.
No. 33-42393C) are incorporated herein by this reference.
3.2 By-laws of Registrant as currently in effect filed as Exhibit No.
3.2 to Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) are incorporated herein by this reference.
3.3 Amendment to Restated Articles of Incorporation filed as Exhibit
3.3 to Registrant's Form 10-K for the year ended December 31, 1995
is incorporated herein by this reference.
4.1 Form of Certificate for Common Stock filed as Exhibit No. 4.1 to
Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) is incorporated herein by this reference.
4.2 Form of Warrant Agreement for Underwriter's Warrants filed as
Exhibit No. 4.2 to Registrant's Registration Statement on Form
S-18 (Reg.No. 33-42393C) is incorporated herein by this reference.
9.1 Voting Trust Agreement, dated July 17, 1995, by and among Lloyd
Abrams, as Voting Trustee, Richard B. Rothman, Lloyd R. Abrams as
Trustee of each of the Abrams Family Trust, The Stacey Kevin and
Meredith Trust dated 12/1/91 and The Janet L. Salk Children's
Trust filed as Exhibit 9.1 to Registrant's Form 10-K for the year
ended December 31, 1995 is incorporated herein by this reference.
10.1 Megacards Stock Option Plan filed as Exhibit No. 10 to
Registrant's Form 10-K for the year ended December 31, 1991 is
incorporated herein by this reference.
10.2 Project Sublease, dated February 4, 1991, between Registrant and
Alnick Realty Co., filed as Exhibit No. 10.4 to Registrant's
Registration Statement on Form S-18 (Reg. No. 33-42393C) is
incorporated herein by this reference.
10.3 Form of Demand Note, dated June 1991, made by Registrant in favor
of Alnick Realty Co. filed as Exhibit No. 10.8 to Registrant's
Registration Statement on Form S-18 (Reg. No. 33-42393C) is
incorporated herein by this reference.
10.4 Loan Agreement, dated September 5, 1990, by and among Registrant,
Alnick Realty Co. and Marine Bank filed as Exhibit No. 10.11 to
Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) is incorporated herein by this reference.
35
<PAGE>
10.5 Form of Option Agreements between Registrant and Andrew S. Wolfson
and M. Erwin Bry, III, filed as Exhibit No. 10.14 to Registrant's
Registration Statement on Form S-18 (Reg. No. 33-42393C) are
incorporated herein by this reference.
10.6 Credit Enhancement Agreement, dated August 7, 1991, between
Registrant and Alnick Realty Co. filed as Exhibit No. 10.15 to
Registrant's Registration Statement on Form S-18 (Reg. No.
33-42393C) is incorporated herein by this reference.
10.7 Leases between 123 Main Street Corporation and Registrant filed as
Exhibit No. 10.17 to Registrant's Registration Statement on Form
S-18 (Reg. No. 33-42393C) are incorporated herein by this
reference.
10.8 Lease Amendment, dated August 22, 1991, by and between Registrant
and Alnick Realty Co., filed as Exhibit No. 10.20 to Registrant's
Form 10-K for the year ended December 31, 1991, is incorporated
herein by this reference.
10.9 Lease, dated October 1, 1991, between Fitz-Randolph Labagh
Properties, Inc. and Registrant, filed as Exhibit No. 10.22 to
Registrant's Form 10-K for the year ended December 31, 1991 is
incorporated herein by this reference.
10.10 Lease, dated December 1, 1991, between Fitz-Randolph Labagh
Properties, Inc. and Registrant, filed as Exhibit No. 10.23 to
Registrant's Form 10-K for the year ended December 31, 1991, is
incorporated herein by this reference.
10.12 Lease, dated July 15, 1993, between Fitz-Randolph Labagh
Properties, Inc. and Registrant filed as Exhibit 10.30 to the
Registrant's Form 10-K for the year ended December 31, 1993 is
incorporated herein by this reference.
10.13 First Amendment to Lease, dated September 15, 1993, by and between
John Hancock Mutual Life Insurance Company and Registrant filed as
Exhibit 10.31 to the Registrant's form 10-K for the year ended
December 31, 1993 is incorporated herein by this reference.
10.14 Agreement, dated as of July 17, 1995, by and among Registrant, Leo
M. Rodgers, Richard B. Rothman, The Abrams Family Trust, The
Stacey Kevin and Meredith Trust dated 12/1/91 and The Janet L.
Salk Children's Trust and Lloyd R. Abrams as Voting Trustee under
that certain Voting Trust Agreement dated July 17, 1995 by and
among Richard B. Rothman, Lloyd R. Abrams as Trustee of each of
the Abrams Family Trust, The Stacey Kevin and Meredith Trust dated
12/1/91 and The Janet L. Salk Children's Trust filed as Exhibit
2.1 to the Registrant's Form 8-K dated July 24, 1995 is
incorporated herein by this reference.
10.15 Second Lease Amendment, dated July 17, 1995, by and between
Registrant and Alnick Realty, Co. filed as Exhibit 10.26 to
Registrant's Form 10-K for the year ended December 31, 1996 is
incorporated herein by this reference.
36
<PAGE>
10.16 Third Lease Amendment, dated September 5, 1995, by and between
Registrant and Alnick Realty, Co. filed as Exhibit 10.37 to
Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.17 Seventh Amendment to Revolving Credit Loan Agreement, dated as of
July 17, 1995, by and between Registrant and Mark Twain Bank filed
as Exhibit 10.38 to Registrant's Form 10-K for the year ended
December 31, 1995 is incorporated herein by this reference.
10.18 Promissory Note, dated July 17, 1995, in the principal amount of
$500,000 payable by Windsor to Lloyd R. Abrams, Trustee of the
Janet L. Salk Children's Trust filed as Exhibit 10.18 to
Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.19 Promissory Note, dated July 17, 1995, in the principal amount of
$400,000 payable by Windsor to Lloyd R. Abrams, Trustee of the
Janet L. Salk Children's Trust filed as Exhibit 10.19 to
Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.20 Promissory Note, dated July 17, 1995, in the principal amount of
$90,000 payable by Janco to Richard B. Rothman, Trustee U/A of
Richard B. Rothman Trust dated 2/27/87 filed as Exhibit 10.20 of
the Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.21 Promissory Note, dated July 17, 1995, in the principal amount of
$37,500 payable by Janco to The Richard B. Rothman QTIP Trust,
Patricia B. Rothman, Trustee filed as Exhibit 10.21 of the
Registrant's Form 10-K for the year ended December 31, 1995 is
incorporated herein by this reference.
10.22 Promissory Note, dated July 17, 1995, in the principal amount of
$37,500 payable by Janco to Richard B. Rothman, Trustee of the
Winter Trust filed as Exhibit 10.44 to Registrant's Form 10-K for
the year ended December 31, 1995 is incorporated herein by this
reference.
10.23 Promissory Note, dated July 17, 1995, in the principal amount of
$37,500 payable by Janco to Richard B. Rothman, Trustee of the
Winter Trust filed as Exhibit 10.44 to Registrant's Form 10-K for
the year ended December 31, 1995 is incorporated herein by this
reference.
10.24 Promissory Note, dated July 17, 1995, in the principal amount of
$70,000 payable by Janco to Lloyd Abrams, Trustee of The Abrams
Family Trust filed as Exhibit 10.24 to the Registrant's Form 10-K
for the year ended December 31, 1995 is incorporated herein by
this reference.
37
<PAGE>
10.25 Promissory Note, dated July 17, 1995, in the principal amount of
$140,000 payable by Janco to Lloyd Abrams, Trustee of The Abrams
Family Trust filed as Exhibit 10.24 to the Registrant's Form 10-K
for the year ended December 31, 1995 is incorporated herein by
this reference.
10.26 Revolving Credit Loan Agreement, dated February 29, 1996, in the
principal amount of $500,000 payable by Janco to Lloyd Abrams,
Trustee, the Janet L. Salk Children's Trust filed as Exhibit No.
10.26 to Registrant's Annual Report on Form 10-K (Reg. No.
33-42393C) is incorporated herein by this reference.
10.27 Sublease Agreement, dated October 9, 1995, by and between Bentley
International, Inc. and Jeanandy, Inc., filed as Exhibit 10.27 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 is incorporated herein by this reference.
10.28 Asset Purchase Agreement, dated October 9, 1995, by and between
the Registrant and Jeanandy, filed as Exhibit No. 10.28 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 is incorporated herein by this reference.
10.29 Agreement of Sale, dated March 20, 1996, by and between the
Registrant, Alnick Realty Co. and Transportation Investment Group,
filed as Exhibit No. 10.29 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995 is incorporated
herein by this reference.
10.30 Letter Agreement, dated March 20, 1996, by and between the
Registrant and Alnick Realty Co. filed as Exhibit No. 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 is incorporated herein by this reference.
10.31 Industrial Modified Gross Lease, dated September 15, 1995, by and
between Janco Designs, Inc. and Tele-Systems Investments, L.L.C.
filed as Exhibit No. 10.31 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995 is incorporated
herein by this reference.
10.32 Agreement to Form Joint Venture Dated September 13, 1996, by and
among Excell Recycling, Inc.; Quality Baseball Cards, Inc. and
Bentley International, Inc. filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated September 27, 1996
is incorporated by this reference.
10.33 Limited Partnership Agreement Legends, LP dated September 12,
1996, by and among Excell Recycling, Inc.; Quality Baseball Cards,
Inc. and Bentley International, Inc. filed as Exhibit 2.2 to the
Registrant's Current Report on 8-K dated September 27, 1996 is
incorporated by this reference.
10.34 Eighth Amendment to Revolving Credit Loan Agreement, dated as of
April 1, 1997, by and between Registrant and Mark Twain Bank filed
as Exhibit 10.34 to the
38
<PAGE>
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1996 is incorporated by this reference.
10.35 Tenth Amendment to Revolving Credit Loan Agreement, dated as of
September 13, 1997, by and between Registrant and Mark Twain Bank
filed as Exhibit 10.35 to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1996 is incorporated by
this reference.
10.36 Credit and Security Facility by and between Windsor Art, Inc. and
Norwest Business Credit, Inc. dated January 14, 1997 filed as
Exhibit 10.36 to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1996 is incorporated by this
reference.
10.37 Megacards, Inc. 1995 Stock Option Plan is filed herewith.
23.1 Consent of Rubin, Brown, Gornstein & Co. LLP is filed herewith.
(b) Reports on Form 8-K.
On October 15, 1996, the Registrant filed a Current Report on Form 8-K
dated October 9, 1996 which was amended on a Form 8-K/A filed on October 23,
1996, reporting a change in the Registrant's certifying accountant as required
by Item 4 of Form 8-K. The required consent of the previous auditors, Deloitte &
Touche, LLP was attached to the Form 8-K/A. On January 26, 1998 and March 9,
1998 the Company reported the settlement and approval of settlement,
respectively, of all the Company's liabilities with respect to the Janco
bankruptcy on Forms 8-K.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ Lloyd R. Abrams
Lloyd R. Abrams, President and
Chief Executive Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Lloyd R. Abrams Director and Chief March 26, 1998
- --------------------------------
Lloyd R. Abrams Executive Officer
/s/ Ramakant Agarwal Director and Chief March 26, 1998
- --------------------------------
Ramakant Agarwal Financial Officer
40
Exhibit 23.1
Consent of Independent Certified Public Accountants
Bentley International, Inc.
St. Louis, Missouri
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Number 33-47456) of our report dated February 27,
1998, relating to the consolidated financial statements of Bentley
International, Inc. appearing in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
/s/ Rubin, Brown, Gornstien & Co. LLP
--------------------------------------
RUBIN, BROWN, GORNSTEIN & CO., LLP
St. Louis, Missouri
February 27, 1998
41
MEGACARDS, INC.
1995 STOCK OPTION PLAN
<PAGE>
MEGACARDS, INC.
1995 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN..................................................1
2. DEFINITIONS..........................................................1
3. STOCK SUBJECT TO THE PLAN............................................2
4. ADMINISTRATION OF THE PLAN...........................................3
5. TYPE OF OPTION GRANTED BY THE PLAN...................................4
6. ELIGIBILITY TO RECEIVE OPTIONS UNDER THE PLAN........................4
7. OPTION PRICE.........................................................4
8. TERMS OF OPTIONS.....................................................5
9. DATE OF GRANT OF OPTION..............................................5
10. EXERCISE OF OPTION...................................................5
11. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP......................6
12. DEATH OF OPTIONEE....................................................7
13. EFFECT OF MERGER, CHANGE IN CAPITALIZATION, ETC......................7
14. SUCCESSIVE OPTION GRANTS.............................................8
15. TERMINATION AND AMENDMENT OF THE PLAN................................8
16. TAX WITHHOLDING......................................................8
17. MISCELLANEOUS........................................................9
i
<PAGE>
MEGACARDS, INC.
1995 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The Megacards, Inc. 1995 Stock Option Plan (the "Plan") of Megacards,
Inc. (the "Company") and its Subsidiaries is designed and intended (a) to
encourage ownership of the Company's Common Stock by personnel employed by the
Company and its Subsidiaries and to provide additional incentive for them to
promote the success of the business of the Company and its Subsidiaries, and (b)
to be helpful as a further incentive in attracting qualified personnel to enter
the employ of the Company and its Subsidiaries. It is expected that the added
interest of the Optionees under this Plan, and their proprietary attitude toward
the Company resulting from their investment in the Company's Common Stock, will
promote the future growth, development and continued success of the Company.
2. DEFINITIONS.
2.1 "Act" means the Securities Exchange Act of 1934, as amended from
time to time.
2.2 "Base Price" means a price fixed by the Committee, which shall not
be less than 100% of the par value of a share of Stock on the date of grant of
such Option.
2.3 "Board of Directors" means the Board of Directors of the Company.
2.4 "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
2.5 "Committee" means the Committee described in Section 4 hereof.
2.6 "Disability" means permanent and total disability as defined in
Section 22(e)(3) of the Code, as determined by the Committee in good faith, upon
receipt of and in reliance on sufficient competent medical advice.
2.7 "Employee" means an individual, other than a Reporting Person, who
has an "employment relationship" with the Company or one or more of its
Subsidiaries.
2.8 "Fair Market Value," for all purposes hereunder, shall mean the
last reported transaction price, or in the case that no such reported sale takes
place on such day, the most recent reported transaction price, in either case as
officially reported by the Composite Tape for the principal securities exchange
on which the Company's Common Stock is listed or admitted to trading or as
reported in the Nasdaq National Market System, or if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted on
the Nasdaq National Market System, the closing bid price as furnished by the
National Association of
1
<PAGE>
Securities Dealers ("NASD"), or if the Common Stock is not quoted by the NASD,
an amount as determined in good faith by the Company's Board of Directors on the
appropriate valuation date.
2.9 "Option" means an option to purchase Stock granted pursuant to the
Plan.
2.10 "Optionee" means the person to whom an Option is granted.
2.11 "Option Agreement" means a non-qualified stock option agreement
which includes the terms to which a particular Option is subject in addition to
those terms provided in this Plan which are applicable to all Options granted
hereunder.
2.12 "Reporting Person" means a person subject to Section 16 of the
Act.
2.13 "Retirement" means termination of employment of an Optionee
occurring after the Optionee has reached 65 years of age.
2.14 "Stock" means authorized and unissued shares of the $.03 par value
Common Stock of the Company, or reacquired shares of the Company's $.03 par
value Common Stock held in its treasury.
2.15 "Subsidiary" of the Company includes any "subsidiary corporation"
as defined in Section 424(f) of the Code.
2.16 "Withholding Election" means a written irrevocable election by an
Optionee for the withholding or delivery back of shares of Stock pursuant to
paragraph 17 hereof in consideration of the Company's payment of Withholding
Taxes.
2.17 "Withholding Taxes" means the total amount of Federal, state and
local income, employment and unemployment taxes which the Company is required to
withhold on account of the exercise by an Optionee of an Option.
2.18 "Withholding Valuation Date" means the date as of which the Stock
is valued for the purposes of determining the Withholding Taxes, which is the
exercise date of the relevant Option.
3. STOCK SUBJECT TO THE PLAN.
Three Hundred Sixty Thousand (360,000) shares of Stock shall be
reserved for issue upon the exercise of Options granted under the Plan. Such
shares may, as the Board of Directors in its sole discretion from time to time
determines, include whole or fractional shares. In the event an Option is
exercised, the Company may use authorized but unissued shares or shares held in
treasury in lieu thereof. Stock covered by an Option shall be charged against
the number of shares remaining available for issuance under the Plan. If any
Option granted under the Plan shall
2
<PAGE>
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such Options shall again be available for the
purposes of the Plan. If the Committee permits an Optionee to exercise an Option
by tendering shares as provided in paragraph 10.2, then for purposes of
determining the number of shares which remain available for the purposes of this
Plan the number of shares are so tendered shall not be added back to the Plan
maximum and shall not be available for issuance under the Plan. If and to the
extent the Committee grants a request pursuant to paragraph 10.3 and the payment
made by the Company is in cash, the shares of Stock subject to such Option shall
again be available for issuance under the Plan.
4. ADMINISTRATION OF THE PLAN
4.1 The Plan shall be administered by a Stock Option Committee
consisting of not less than one member of the Board of Directors who may be, but
shall not be required to be, an officer of the Company or a Subsidiary.
4.2 The Committee shall be appointed by the Board of Directors. If the
Board of Directors shall not at any time have appointed the Committee, then the
Board of Directors shall be deemed to constitute the Committee. The Board of
Directors may, within the limits herein provided, from time to time in its
discretion, fix and change the number of members of the Committee, remove
members of the Committee, appoint members of the Committee in substitution for
or in addition to members previously appointed, and fill vacancies in the
Committee.
4.3 If the Committee consists of more than one member, it shall select
one of its members as its chairman, and shall hold its meetings at such time and
places as it may determine. Meetings may be attended in person, conducted by
conference telephone call where each member is able to hear each other member,
or conducted using a combination of attendance and conference telephone call. A
majority of its members shall constitute a quorum, and all actions of a majority
of the Committee shall be the valid action by the Committee. Any action,
decision or determination reduced to writing and signed by all of the members of
the Committee shall be fully as effective as if it had been done or made by a
unanimous vote of the members at a meeting duly called and held. The Committee
may appoint a secretary, and shall keep minutes of its meetings and actions, and
shall make such rules and regulations for the conduct of the business of the
Committee as it deems advisable. The secretary may be, but need not be, an
Employee or member of the Committee. Serving as secretary of the Committee shall
not disqualify a person from receiving an Option under the Plan, provided that
such service shall not include the exercise of any discretion as to the timing,
pricing, amount, type or recipients of awards under the Plan.
4.4 Subject to the express provisions of the Plan, the Committee shall
have plenary authority, in its sole discretion, to determine the individuals to
whom Options shall be granted, the number of shares subject to each Option, and
the time or times at which such Options shall be granted. Subject to the express
provisions of the Plan, the Committee shall also have plenary authority, in its
discretion, to construe and interpret the Plan, to make determinations in
3
<PAGE>
administration of the Plan, to make, amend and rescind rules and regulations
regarding the Plan and its administration, to determine the terms and provisions
of each Option Agreement (which need not be identical to any other Option
Agreement), and to take whatever action is necessary to carry out the purposes
of the Plan. The Committee's actions and determinations on matters referred to
in this paragraph shall be conclusive on all persons whomsoever. No act or
failure to act on the part of the Committee, or on the part of any member
thereof, shall result in any liability whatsoever if taken in good faith.
5. TYPE OF OPTION GRANTED BY THE PLAN.
The Committee shall only have authority to grant Options which do not
qualify as an "incentive stock option" under Section 422 of the Code.
6. ELIGIBILITY TO RECEIVE OPTIONS UNDER THE PLAN.
6.1 Options may be granted under the Plan to all Employees of the
Company or its Subsidiaries; provided, however, that no Options may be granted
under the Plan to a Reporting Person. A person who has been granted an Option
under the plan may be granted an additional Option or Options hereunder at any
time, if otherwise eligible under the provisions of the Plan. An Option may be
granted to an individual upon the condition that such individual will become an
Employee, provided however, that such a conditional Option shall be deemed to be
granted only on the date such individual becomes an Employee.
6.2 In making a determination as to persons to whom Options shall be
granted under the Plan, and the number of shares to be covered by such Options,
the Committee shall take into consideration the nature of the service rendered
or to be rendered by the person, the person's present and potential
contributions to the success of the Company, and such other facts as the
Committee shall deem relevant in accomplishing the purposes of the Plan. Any and
all determinations made by the Committee pursuant to this paragraph shall be
binding upon all persons whomsoever, and no person eligible to receive an Option
under the Plan shall have any legal right to complain as to any determination
which shall be made by the Committee hereunder as to him.
6.3 Nothing contained in this Plan shall be construed to limit the
right of the Company to grant options otherwise than under the Plan in
connection with (a) the employment of any person, (b) the acquisition of any
corporation, firm or association, or the business or assets thereof, including
options granted to employees thereof who become employees of the Company or a
Subsidiary, or (c) any other proper corporate purpose.
7. OPTION PRICE.
The purchase price of the Stock subject to each Option granted
hereunder in no event shall be less than the par value of such Stock subject to
the Option.
4
<PAGE>
8. TERMS OF OPTIONS.
The term of each Option granted pursuant to the Plan shall be not more
than ten (10) years from the date of grant thereof. Within such ten-year limit,
Options will be exercisable only at such time or times, and subject to the
restrictions of paragraphs 10, 11 and 12, and any other restrictions and
conditions, as the Committee shall in each instance provide in the Option
Agreement, which need not be uniform for all individuals to whom Options are
granted.
9. DATE OF GRANT OF OPTION.
The grant of an Option under the Plan shall take place on or as of the
date the Committee grants an Employee a particular Option; provided, however,
that if the resolution or other written determination of the Committee specifies
that an Option is to be granted as of and at some future date, the date of grant
shall be such future date.
10. EXERCISE OF OPTION.
10.1 Except as provided in paragraphs 11 and 12 and unless otherwise
provided in the Option Agreement, each Option shall be exercisable in whole or
in part during the term of the Option at any time and from time to time.
10.2 To the extent that the right to purchase shares under an Option
granted under the Plan is exercisable, the right may be exercised from time to
time by written notice to the Company stating the number and identity of shares
with respect to which the Option is being exercised, accompanied by payment
either (a) in cash, (b) in the discretion of the Committee, by tender of
certificates for shares of the Company's Common Stock which (i) are owned by the
Optionee, (ii) are registered in the Optionee's name, and (iii) have a Fair
Market Value equal to the cash exercise price of the Option being exercised, or
(c) in the discretion of the Committee, by any combination of (a) and (b) above.
10.3 An Optionee may, instead of exercising an Option as provided in
paragraph 10.2, request that the Committee authorize the payment to the Optionee
of the difference between (a) the Fair Market Value of part or all of the Stock
which is the subject of the Option and (b) the exercise price of the Option,
such difference to be determined as of the date the Committee receives the
request from the Optionee. The Committee in its sole discretion may grant or
deny such a request from an Optionee with respect to part or all of the shares
of Stock as to which the Option is then exercisable and, to the extent granted,
shall direct the Company to make payment to the Optionee either in cash or in
Stock or in any combination thereof, provided, however, that any Stock shall be
distributed based upon its Fair Market Value as of the date the Committee
received the request from the Optionee, and provided further that any
distribution shall be subject to applicable federal, state and local laws
relating to the withholding of income taxes.
5
<PAGE>
10.4 The proceeds received by the Company upon exercise of an Option
shall be added (a) to the capital stock account of the Company to the extent of
the par value of the shares and (b) thereafter to the account reflecting capital
in excess of par. In the case of payments made in shares of Common Stock of the
Company, such shares evidencing payment shall be added to the Stock of the
Company held in its treasury and used for corporate purposes as the Board of
Directors shall determine, with appropriate adjustments to the capital stock
accounts of the Company.
10.5 After the exercise of an Option, as provided above, the Company
shall within a reasonable time deliver to the person exercising the Option a
certificate or certificates issued in the name of the person who exercised the
Option and such additional name or names, if any, as may be requested (subject
to the general policy of the Company as to registration of shares), for the
appropriate number of shares, without liability to the person exercising the
Option for any transfer or issue tax, state or federal, then payable. Each
Option granted under the Plan shall be subject to the requirement that, if at
any time the Board of Directors shall determine, in its discretion, that the
listing, registration or qualification of the shares subject to such Option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable, as a
condition of, or in connection with, the granting of such Option or the issue or
purchase of shares thereunder, no such Option may be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Board of Directors.
10.6 An Optionee under an Option granted under the Plan shall have no
rights as a shareholder with respect to any shares covered by an Option except
to the extent that one or more certificates for shares shall have been delivered
to him upon due exercise of an Option as above provided.
10.7 An Option granted under the Plan shall be non-transferable by the
Optionee other than by will or the laws of descent and distribution or pursuant
to a Qualified Domestic Relations Order (as defined in Section 206(d)(3) of the
Employee Retirement Income Security Act of 1974, as amended, and the rules
promulgated thereunder), and shall be exercisable during the Optionee's lifetime
only by the Optionee, unless the Optionee is under legal disability, in which
case it may be exercised by the Optionee's duly appointed legal representative.
11. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
11.1 If an Optionee under an Option granted under the Plan ceases to be
an Employee of the Company or a Subsidiary, as the case may be, then such Option
will terminate not later than three months after the termination of employment
for any reason other than death, Retirement or Disability. In the event of
termination of employment as a result of death, Retirement or Disability, such
an option will be exercisable (to the extent exercisable at the date employment
terminates) for 12 months after such termination. If the Optionee dies within 12
months after
6
<PAGE>
termination of employment by Retirement or Disability, then the period of
exercise following death shall be three months. However, in no event shall any
option be exercised more than ten years after its grant.
11.2 The transfer of an Employee from one corporation to another among
the Company and its Subsidiaries, or a leave of absence with the written consent
of the Company or a Subsidiary, shall not be a termination of employment for the
purposes of the Plan.
12. DEATH OF OPTIONEE.
If an Optionee dies before the expiration of an Option granted under
the Plan, then the shares which the Optionee was entitled to purchase on the
date of his death may (unless otherwise provided in the Option) be purchased
under the Option or Options by the person or persons to whom said right under
the Option or Options shall have passed by the Optionee's will or by the
applicable laws of descent and distribution at any time prior to the expiration
date specified in paragraph 11.1 or in the Option Agreement, whichever is
earlier.
13. EFFECT OF MERGER, CHANGE IN CAPITALIZATION, ETC.
13.1 In the event of any reclassification or increase or decrease in
the number of the issued shares of stock of the Company by reason of the payment
of a stock dividend, a split-up or consolidation of shares, a recapitalization,
a combination or exchange of shares or any like capital adjustment, then (a) the
aggregate number, and the class, of shares reserved under the Plan shall be as
though the shares reserved had been outstanding prior to any adjustment as
aforesaid, and (b) as to any outstanding unexercised Options theretofore granted
under the Plan, there shall be a corresponding adjustment as to the class and
number of shares covered by each Option, and as to the purchase price under each
Option, to the end that the Optionee's proportionate interest shall be
maintained as before the occurrence of such event without change in the total
purchase price applicable to said Option.
13.2 In the event the Company shall approve a plan of reorganization or
of merger with or into or consolidation with any other corporation, and
appropriate provision is made for the resulting corporation's assumption of the
Plan under terms whereby the unexercised portion of each Option then outstanding
under the Plan shall thereafter apply to such number and kind of securities as
would have been issuable by reason of such reorganization, merger or
consolidation to a holder of the number of shares which were subject to the
Option immediately prior to such reorganization, merger or consolidation,
without change in the total purchase price applicable to said Option, then such
Options shall continue under the Plan.
13.3 In the event the Company shall approve a plan or reorganization or
of merger with or into or consolidation with any other corporation, and
appropriate provision is not made for the assumption of the Plan by the
resulting corporation as provided above in paragraph 13.2, or in the event the
Company shall approve a plan of dissolution, liquidation or sale of
substantially all of its
7
<PAGE>
assets, then in any such event, the unexercised portion of each Option then
outstanding under the Plan shall terminate. The Committee shall fix a date for
the termination of the unexercised portion of any Option which is then
outstanding, subject to approval of such date by the Board of Directors, which
date shall be on or before then effective date of such reorganization, merger,
consolidation, dissolution, liquidation or sale and not less than thirty days
after written notice of such date is delivered to each Optionee, and any such
Option shall be accelerated and may be exercised in whole or in part before the
termination date so fixed without regard to any installment provisions in the
Option Agreement.
13.4 In the event the Company shall issue additional capital stock of
any class for cash or other consideration, there shall be no adjustment in the
number of shares covered by outstanding Options under the Plan, and no
adjustment in the purchase price under such Options.
14. SUCCESSIVE OPTION GRANTS.
Successive Option grants may be made to any holder of Options under the
Plan.
15. TERMINATION AND AMENDMENT OF THE PLAN.
15.1 This Plan shall terminate on December 31, 2005, and no Option
shall be granted hereunder after said date, but such termination shall not
affect any Option theretofore granted. The Board of Directors may suspend,
discontinue or terminate the Plan at any time, and may from time to time make
such changes in and additions to the Plan as the Board of Directors shall deem
advisable.
15.2 Subject to the other provisions of the Plan, no termination or
amendment of the Plan may, without the consent of the Optionee under an Option
then outstanding, terminate such Option or materially and adversely affect the
rights of the Optionee thereunder.
16. TAX WITHHOLDING
When an Option is exercised, the Optionee shall pay to the Company
promptly after the Withholding Valuation Date, in cash, the amount of any
Withholding Taxes which the Company is required to withhold, unless, subject to
the conditions set forth below, the Optionee files with the Company a
Withholding Election. Subject to the Committee's right of disapproval provided
below, if an Optionee files a Withholding Election, then in connection with the
exercise of an Option to which the Election relates the Company shall withhold
from the Optionee shares of Stock having a Fair Market Value on the Withholding
Valuation Date equal to the amount of Withholding Taxes due, and shall pay to
the appropriate taxing authorities cash equal to such Withholding Taxes. If
fractional shares are involved in connection with the withholding or delivery
back of shares, such fractional shares shall be settled in cash as the Committee
by rule or practice may require.
8
<PAGE>
17. MISCELLANEOUS.
17.1 Nothing in the Plan or in any Option grant shall confer upon an
Employee the right to continue in the employ of the Company or any Subsidiary of
the Company.
17.2 The adoption of the Plan shall not affect any other Option or
other compensation plan in effect for the Company or any Subsidiary.
Furthermore, the Plan shall not preclude the Company from establishing any other
form of incentive or other compensation arrangement for Employees.
17.3 The Plan shall be binding upon the successors and assigns of the
Company.
17.4 Whenever used herein, nouns in the singular shall include the
plural and the masculine pronouns shall include the feminine gender.
ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 31, 1995
/s/ Lloyd R. Abrams
------------------------------------
Lloyd R. Abrams, President and Chief
Executive Officer
9
