SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
SCHEDULE 14C
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive Information Statement
BENTLEY INTERNATIONAL, INC.
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies: Class A
Common Stock, $.001 par value of Interiors, Inc. ("Interiors Stock").
2) Aggregate number of securities to which transaction applies: 1,500,000 shares
of Interiors Stock.
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): Average of bid and asked price
of Interiors Stock on May 28, 1998 was $1.922.
4) Proposed maximum aggregate value of transaction: $3,000,000 of Interiors
Stock; a $2,000,000 8% secured, subordinated promissory note; and $2,000,000 in
cash for a total of $7,000,000.
5) Total fee paid: $ 1,400.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
<PAGE>
1) Amount Previously Paid: $0.00
2) Form, Schedule or Registration Statement No.: Schedule 14C
3) Filing Party: Bentley International, Inc.
4) Date Filed: June 1, 1998.
<PAGE>
BENTLEY INTERNATIONAL, INC.
9719 Conway Road
St. Louis, Missouri 63124
June 11, 1998
-------------------------------------------
Notice of Annual Meeting of
Shareholders to be Held July 2, 1998
-------------------------------------------
The Annual Meeting of Shareholders of Bentley International, Inc. (the
"Company") will be held on Thursday, July 2, 1998 at 10:00 A.M., local time, at
the offices of Riezman & Blitz, P.C., 7700 Bonhomme, 7th Floor, St. Louis,
Missouri 63105. The items of business are:
1. To elect three (3) Directors to serve until the 1999
Annual Meeting and until their successors are elected and
qualified.
2. To ratify the appointment of Rubin, Brown, Gornstein & Co.
LLP as the Company's independent public accountants.
3. To approve the sale of the Company's wholly owned
subsidiary, Windsor Art, Inc., which represents
substantially all of the assets of the Company, to
Interiors, Inc. or another party on the terms described in
the Information Statement attached hereto, or on such
terms as the Board of Directors shall determine.
4. To amend the Articles of Incorporation of the Company to
provide that warrants may be issued for any authorized
stock of the Company, on such terms and conditions as the
Board of Directors shall determine.
5. To issue common stock and warrants of the Company to
Interiors, Inc. on the terms described in the Information
Statement attached hereto, or on such terms and conditions
as the Board of Directors shall determine.
6. To transact such other matters as may properly come before
the meeting.
These items are more fully described in the following Information
Statement, which is hereby made a part of this Notice. Only Shareholders of
record at the close of business on May 14, 1998 are entitled to notice of and to
vote at the meeting.
<PAGE>
We are not asking you for a proxy and you are not requested to send us a proxy.
By order of the Board of Directors,
LLOYD R. ABRAMS
President and Chief Executive Officer
<PAGE>
Note: This Information Statement 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.
INFORMATION STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 2, 1998
We are not asking you for a proxy and you are not requested to send us a
proxy.
--------------------------
GENERAL INFORMATION
This Information Statement is furnished to the Shareholders of Bentley
International, Inc., (the "Company" or the "Registrant") in connection with the
1998 Annual Meeting of Shareholders (the "Annual Meeting") to be held on July
2, 1998 for the purposes set forth in the accompanying Notice of Annual
Meeting. Votes will be counted by inspectors appointed by the Company, who may
be employees of the Company. No proxies have been sent. Shareholders may prepare
their own proxies or attend the meeting to vote.
The complete mailing address of the Company's principal executive
offices is 9719 Conway Road, St. Louis, Missouri 63124. The approximate date on
which this Information Statement for the Annual Meeting is first being sent or
given to Shareholders is June 11, 1998.
Only Shareholders of record at the close of business on May 14, 1998 are
entitled to notice of and to vote at the Annual Meeting. As of May 14, 1998
there were 2,813,285 shares of Common Stock, $.18 par value ("Common Stock"), of
the Company outstanding, and each share is entitled to one vote on each matter
submitted to the Shareholders. Shares subject to abstentions will be treated as
shares that are present at the Annual Meeting for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the base number
of shares voting on a particular proposal. If a broker or other nominee holder
indicates on a proxy that it does not have discretionary authority to vote the
shares it holds of record on a proposal, those shares will not be considered
voted for purposes of determining the approval of the Shareholders on a
particular proposal.
If you hold Common Stock of the Registrant through a bank, broker or
investment plan (in "street name"), please request a letter from your bank,
broker or plan administrator identifying
1
<PAGE>
you as a holder of Common Stock of the Registrant and indicating the number of
shares you held as of May 14, 1998. This letter, or a recent brokerage statement
indicating this information will identify you at the Annual Meeting.
If you would like to attend the Annual Meeting of Shareholders, please
contact the Company at its principal executive office, 9719 Conway Road, St.
Louis, Missouri 63124, facsimile number (314) 569-1512. Prior notice to the
Company will speed your registration at the Annual Meeting. Attendance at the
Annual Meeting will be based on the availability of seating.
ELECTION OF DIRECTORS
One of the purposes of the meeting is to elect three individuals as
Directors of the Company to serve until the 1999 Annual Meeting and until their
successors are elected and qualified. The Company's Board of Directors has
nominated Lloyd R. Abrams, Janet L. Salk and Ramakant Agarwal to be elected as
Directors, all of whom are currently serving as Directors.
The three nominees for election as Director receiving the largest number
of votes of the shares entitled to vote and represented in person or by proxy
prepared by the Shareholder at the Annual Meeting will be elected. Cumulative
voting does not apply in the election of Directors. The Board of Directors
recommends a vote "FOR" the election of Lloyd R. Abrams, Janet L. Salk and
Ramakant Agarwal as Directors.
INFORMATION ABOUT NOMINATED DIRECTORS
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. The following three people are currently Directors and have been
nominated for election to an additional term.
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 Art, Inc. ("Windsor"), and since August 1997 as sole Director, Chairman,
Chief Executive Officer and Assistant Secretary of Windsor. 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.
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,
2
<PAGE>
and Secretary since September 1997. He has served as Chief Financial Officer
and Vice President of 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
is a Certified Public Accountant.
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
---------------------------------------------------------------------------------------------------
Restricted Securities
Other Annual Stock Underlying All Other
Salary Bonus Compensation Awards Options/SARs Compensation
Name and 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 -- --
Vice President & 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.
Option/SAR Grants in Last Fiscal Year
Individual Grants
<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. $0.30 2/28/07
- -------------------- ---------------- -------------- ---------------- ---------------- ------------
</TABLE>
3
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Value Table
<TABLE>
# of Securities Underlying Value of Unexercised In-
Shares Acquired on Unexercised the-Money Options/SARs
Name Exercise ($) Value Realized ($) Options/SARs at FY-End at FY-End
<S> <C> <C> <C> <C>
Ramakant Agarwal 0 N/A 28,000 (options) $47,600 (all exercisable)
- -------------------- ------------------ ------------------- ---------------------- -------------------------
</TABLE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of May 14, 1998, 2,813,285 shares of the Company's Common Stock were
outstanding. Each share is entitled to one vote. The following table sets forth
the beneficial ownership of shares of the Company's Common Stock as of the
record date, May 14, 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 or nominee for Director; and
(iii) all of the Company's Directors and offices 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) 45.53
Richard B. Rothman
7700 Bonhomme, 7th Floor
St. Louis, Missouri 63105........... 423,500(4) 15.05
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....... 25,000(6) 0.9
All Directors and Executive Officers as a group (2
persons)............................ 2,153,000 76.53%
</TABLE>
4
<PAGE>
- -----------------------
(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 May
14, 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 May 14, 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 therein.
(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 a reverse merger 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) Mr. Agarwal also has rights to 28,000 shares of the Company's Common
Stock issuable upon exercise of stock options that are exercisable
within sixty (60) days of May 14, 1998. These options for 28,000 shares
represent an additional 1.0% of the outstanding shares.
5
<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
During 1997, there were two meetings of the Board of Directors and five
actions by Consent of the Directors. No Director attended fewer than 75% of the
aggregate of the total number of 1997 board meetings.
The Board of Directors has a standing Stock Option Committee comprised
of Janet L. Salk. The Company expects that an Audit Committee will be
constituted at an appropriate time in the future.
DIRECTORS' FEES
No Directors receive compensation in the capacity of Director, including
Directors who also are Officers or consultants of the Company.
COMPENSATION
The Company's executive compensation program is administered under the
direction of the Board of Directors. Mr. Abrams and Mr. Agarwal are members of
the Board of Directors and serve as Executive Officers of the Company.
INSIDER PARTICIPATION
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. Robert Wolfson, a
former Director of the Company who resigned in October 1997, 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.
Subsequently 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.
6
<PAGE>
Janco Designs, Inc., a subsidiary of the Company, borrowed money from
certain principal shareholders, which borrowings were guaranteed by the Company
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.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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.
APPOINTMENT OF AUDITORS
Rubin, Brown, Gornstein & Co. LLP served as the Company's independent
public accountants for 1997 and have been selected by the Board of Directors to
continue in such capacity during 1998. The Board of Directors anticipates that
representatives of Rubin, Brown, Gornstein & Co. LLP will be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so.
Representatives of such firm also will be available to respond to appropriate
questions from Shareholders.
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 by reference, 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 1994 and 1995 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.
7
<PAGE>
On October 9, 1996, the Registrant engaged the accounting firm of Rubin,
Brown, Gornstein & Co., LLP as its principal independent accountant.
SALE OF ASSETS TO INTERIORS --
INFORMATION ABOUT THE TRANSACTION
General
The Company has reached an initial oral understanding with Interiors,
Inc., a Delaware corporation ("Interiors"), regarding the sale of all of the
stock of Windsor Art, Inc. ("Windsor"), the Company's wholly owned operating
subsidiary, which represents substantially all of the assets of the Company, on
the terms described below. This is an oral understanding, not a contract, and,
pursuant to RSMo. Section 351.400, which provides that in a sale of
substantially all of the assets of a corporation, the shareholders may vote to
"authorize the board of directors to fix any or all of the terms and conditions
thereof and the consideration to be received by the corporation therefor," the
Board of Directors recommends that the Shareholders vote to approve the sale of
all of the stock of Windsor, the Company's wholly owned operating subsidiary,
which represents substantially all of the assets of the Company, to Interiors on
the terms described herein or as set by the Board of Directors. Approval of the
asset sale requires the affirmative vote of at least two-thirds of the
outstanding shares eligible to vote at the Annual Meeting. The Company also
recommends that the Shareholders vote to approve the issuance of securities of
the Company on the terms described herein or as set by the Board of Directors.
Because the Company has no contract with Interiors, there can be no assurance
that a favorable vote to approve the sale of substantially all of the assets of
the Company to Interiors will result in consummation of such sale.
Addresses
The name, complete mailing address of the principal executive offices,
and telephone numbers of the parties are: (a) for Bentley and Windsor -- Bentley
International, Inc., 9719 Conway Road, St. Louis, Missouri 63124, telephone
number (314)569-1659; and (b) for Interiors -- 320 Washington Street, Mt.
Vernon, New York 10533, telephone number (914) 665-5400.
Business of Interiors
Interiors' long term plan for growth includes in part either the
acquisition of or entering into strategic alliances with unrelated companies in
the decorative accessories industry to maximize market potential.
On March 10, 1998, Interiors entered into and consummated an agreement
and plan of merger among Interiors, Vanguard Acquisition Corp., a wholly owned
subsidiary of Interiors, Henlor, Inc. ("Henlor") and the shareholders of Henlor.
Henlor is now a wholly-owned subsidiary of Interiors. Henlor in turn has a
wholly-owned subsidiary, Vanguard Studios, Inc. ("Vanguard") which designs
manufactures and wholesales decorative accessories furnishings for
8
<PAGE>
the home including framed hand-painted oil paintings, framed prints under glass,
wall mirrors, lamps, sculptures and decorative table top accessories.
On March 23, 1998, Interiors entered into and consummated an agreement
and plan of merger among the company Art Master Studios, Inc. ("Art Master"), a
wholly-owned subsidiary of Interiors, Merchandise Sales, Inc. ("MSI") and
certain shareholders of MSI. As a result of the merger, MSI has been merged with
and into Art Master. Art Master designs, manufactures and wholesales wall decor
and lighting products for the home.
The acquisition of Henlor and MSI provides Interiors with an expanded
breath of product offerings.
On April 21, 1998, Interiors and Decor Group, Inc. entered into an
agreement and plan of merger approved by their respective boards of directors.
The business conducted by Decor consists of manufacturing, marketing and
distributing metal wall, table and freestanding sculptures.
Interiors markets its products through a network of independent
commission sales representatives in both domestic and international markets and
operates strategically located showrooms serving the home furnishing and
decorative accessory industries in High Point, North Carolina and San Francisco,
California.
Material Features of the Proposed Transaction
Interiors will acquire all of the outstanding shares of stock of
Windsor. The purchase price shall be payable as follows: (i) $2,000,000 in cash,
(ii) a $2,000,000 eight percent, secured, subordinated promissory note (the
"Note"), and (iii) 1,500,000 shares of Class A Common Stock, par value $.001, of
Interiors ("Interiors Stock"). The terms of the Note provide that 1/12 of the
outstanding principal amount and accrued interest shall be due and payable
quarterly commencing on the 12th month after the closing. The Note will be
secured by a pledge of the stock of Windsor, a security interest in Windsor's
assets subordinate to any operating loan, and pledges of the Bentley securities
described below, which securities will be purchased by Interiors. Within one
year from closing, Interiors will have the option to repurchase the 1,500,000
shares of Interiors Stock for $4,000,000.
Upon closing Interiors will also acquire the following equity interests
in Bentley for the consideration recited: (i) 150,000 shares of common stock of
Bentley for $1,500,000 and (ii) warrants for $1,500,000 to purchase an
additional 300,000 shares of common stock of Bentley for $10 per share. The
warrants will expire at the earlier of the 10 year anniversary after closing or
three months after the price of Bentley's stock is $15 per share. The stock and
warrants in Bentley purchased by Interiors will be subject to a voting trust.
The Board of Directors of Bentley will name the trustee of the voting trust.
Interiors will have the right to sell the stock in the trust at any time to one
or more third parties so long as any such sale does not result in a third party
owning more than 2.5 % of the outstanding voting stock of Bentley. The voting
trust will terminate with respect to the shares sold to third parties.
9
<PAGE>
Windsor will also enter into a 4 year employment agreement with the
current Chief Executive Officer of Windsor, Mr. Abrams (the "Windsor CEO"). The
employment agreement will provide that Windsor will employ the Windsor CEO for a
period of three years upon the same terms as those currently in effect. Those
terms include a salary of $200,000 per year. In the fourth year of the
employment agreement, the Windsor CEO's salary will be reduced to $50,000. For
all four years the employment agreement will provide for the continuance of
current additional benefits for the Windsor CEO, including the following: family
health insurance; St. Louis Auto expenses not to exceed $2,000 per year;
California auto with an allowance of $450 per month plus gasoline; the
California condominium allowance of $2,000 per month; St. Louis office expenses
not to exceed $2,400 per year; and travel in behalf of any business for Windsor,
Interiors and any of Interiors' subsidiaries to be paid by Windsor. Interiors
will guarantee the employment contract and also grant the Windsor CEO warrants
for 50,000 shares of Interiors Stock and the right to grant warrants to
designated employees of Windsor for another 40,000 shares of Interiors Stock.
So long as the $2,000,000 note to Bentley is outstanding and the
employment contract not satisfied in full, Windsor's board of directors shall
consist of two members, one appointed by Interiors and one appointed by Bentley.
The parties intend to close this transaction on July 15, 1998.
Windsor will not renegotiate its factory lease at this time. The lease
expires on November 30, 1998.
The values assigned to the assets received by Bentley in return for the
stock of Windsor are assigned values in this Information Statement. The Note is
assigned a value of its face value. The Note may have a lower value because
there is no market for the Note and there would be significant costs to enforce
the Note in the event of a default. The Interiors Stock is assigned a value of
the product of the number of shares times the approximate market price per
share. The Interiors Stock, however, will be restricted stock not immediately
tradeable by Bentley, which lowers its value. The value of the assets depends on
the earnings of Windsor and Interiors and market factors. There is thus no
assurance that the value of the Note and the Interiors Stock that Bentley
obtains will be equivalent to the amounts indicated in this Information
Statement.
Reasons for Engaging in the Transaction
The Company believes that profitability in Windsor's area of business
will result from consolidations of existing competitors and complimentary
furniture accessory manufacturers. Such consolidations may result in the
streamlining of management, sales, distribution and manufacturing functions
thereby reducing costs and increasing profitability. To effect such
consolidation requires a commitment and the ability to raise significant
capital. The Company believes that Interiors has demonstrated both, that
Interior's offer is reasonable in light of the history and profit potential of
Windsor, that the transaction offers the Company the opportunity to participate
to some extent, through ownership of Interiors stock, in the increased
profitability that should occur as a result of consolidation, and that the
transaction provides the Company, without
10
<PAGE>
significant dilution of existing stockholder interests, with the capital
necessary to pursue the Company's previously announced intent to acquire and
develop information services businesses.
On May 27, 1998, the Company took an initial step in the direction of
acquiring and developing information services businesses by acquiring all of the
assets of Best Credit Bureau, Inc., a company based in Miami, Florida, which
provides credit reporting information to consumers and financial institutions. A
new subsidiary of the Company, Bentley Information Services, Inc., was formed to
effect this acquisition. The transactions will provide the Company with a
significant amount of capital to use in making further acquisitions of companies
involved in providing information services and to develop those companies to
their full potential.
Rights of Security Holders
There will be no material differences in the rights of security holders
of Bentley as a result of this transaction other than the following effects of
the transaction on ownership of the Company. At present Company management
controls the vote with respect to 76.53% of the common stock of Bentley.
Assuming Interiors exercises its warrants and does not elect to sell the stock
Interiors owns which, as described above, is subject to a voting trust
controlled by Bentley's Board, Company management will control the vote of
79.77% of the common stock of Bentley through direct or indirect ownership and
two voting trusts. These voting percentages are subject to change in the event
the Company issues additional stock, for example, in connection with an offering
or acquisition or in the event a beneficial owner of stock held in a voting
trust determines to sell any portion of such stock to a third party.
Dissenter's Right of Appraisal
Any shareholder who does not vote in favor of Question 3 regarding
approval of the sale of substantially all of the assets of Bentley and who at or
prior to the meeting at which the sale is submitted to a vote files with Bentley
written objection thereto may, within 20 days after the vote is taken, make
written demand on Bentley for the payment to him or her of the fair value of his
or her shares as of the day prior to the date on which the vote was taken
authorizing the sale. Failure to vote against the proposal will not constitute a
waiver of appraisal rights. A vote against the proposal will not be deemed to
satisfy any notice requirement under Missouri law with respect to appraisal
rights. The demand to be made by a dissenting shareholder within 20 days after
the vote shall state the number and class of the shares owned by such dissenting
shareholder. Any shareholder failing to file a written objection at or prior to
the meeting or having filed such objection to make demand within the 20-day
period after the vote is taken shall be conclusively presumed to have consented
to the sale and shall be bound by the terms thereof. Shareholders will not be
notified again of the time limit for filing an objection.
Accounting Treatment of Transaction
The Company believes the transaction should be accounted for under the
purchase method of accounting by the purchaser of Windsor Art, Inc. The Company
will account for this transaction as a gain on sale of a discontinued business
segment.
11
<PAGE>
Income Tax Section
As a result of the sale of stock of Windsor Art, Inc., the Company will
recognize a total gain of approximately $5,000,0000. Approximately $3,600,000 of
the gain will be recognized in the year of sale but offset by the available net
operating loss carry forward totaling approximately $2,100,000. This leaves a
taxable gain to be recognized in the year of sale of $1,520,000 with a
corresponding tax liability of approximately $609,000. In addition,
approximately $1,500,000 of the total gain qualifies as an installment sale and
the corresponding tax of $580,000 will be paid as the Note is paid down.
Dividends and Payments
Bentley is not in arrears in any dividends or in default on any
principal or interest in respect of any securities of Bentley. Other than with
respect to voting interests, described above, there will be no effect on the
rights of holders of common stock of Bentley as a result of the transaction.
To the best of the Company's knowledge and belief, Interiors is not in
arrears in any dividends or in default on any principal or interest in respect
of any securities of Interiors.
12
<PAGE>
Board of Directors
Bentley International, Inc.
St. Louis, Missouri
We have compiled the accompanying pro forma consolidated balance sheet as of
March 31, 1998 and the consolidated statements of operations of Bentley
International, Inc. for the three months then ended and for the year ended
December 31, 1997.
The accompanying presentation and this report were prepared for inclusion in the
information statement pursuant to Section 14(c) of the Securities Exchange Act
of 1934 to be filed with the Securities and Exchange Commission in connection
with the 1998 annual meeting of shareholders and should not be used for any
other purpose.
A compilation is limited to presenting in the form of pro forma data information
that is the representation of management and does not include evaluation of the
support for the assumptions underlying the pro forma transactions. We have not
examined the accompanying pro forma information and, accordingly, do not express
an opinion or any other form of assurance on it.
/s/ RUBIN, BROWN, GORNSTEIN & CO. LLP
May 27, 1998
St. Louis, Missouri
13
<PAGE>
BENTLEY INTERNATIONAL, INC.
PRO FORMA INFORMATION (UNAUDITED)
The following pro forma consolidated balance sheet of the Company at March 31,
1998 gives effect to the subsequent sale of stock of Windsor Art, Inc (a
wholly-owned subsidiary), as if it was effective at March 31, 1998. The
statement gives the effect to the sale under the assumptions in the accompanying
notes to the pro forma financial statements.
The following pro forma consolidated statement of operations of the Company for
the three months ended March 31, 1998 and the year ended December 31, 1997 gives
effect to the sale as if the effective date of the sale was January 1, 1998 and
January 1, 1997, respectively. The statement gives effect to the sale under the
assumptions in the accompanying notes to the pro forma financial statements.
The pro forma adjustments relate to the sale of Windsor Art, Inc. and the
issuance of common stock and warrants of the Company to the acquirer of Windsor.
The consideration for the stock of Windsor Art, Inc. is: a) $2,000,000 in cash,
b) a $2,000,000 promissory note payable over four years with interest at 8% per
annum, and c) 1,500,000 shares of Class A common stock of the purchaser with a
current value of $3,000,000. The value of the promissory note and the Class A
common stock of the purchaser for purposes of the pro forma adjustments are at
face value and approximate current market value, respectively. The actual
valuation of these assets may differ from these assumptions.
Separate from the sale of stock, the purchaser is buying 150,000 shares of
common stock of the Company for $1,500,000 and purchasing warrants to purchase
300,000 shares of common stock of the Company for an additional $1,500,000.
The pro forma financial statements may not be indicative of the results that
would have actually occurred if the sale had been effective on the dates
indicated or the results that may be obtained in the future. The pro forma
financial statements should be read in conjunction with the Schedule 14C
Information Statement, the consolidated financial statements of the Company for
the year ended December 31, 1997 under Form 10-KSB and for the three months
ended March 31, 1998 under Form 10-QSB.
14
<PAGE>
BENTLEY INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
Assets
As Reported Pro Forma Pro Forma
March 31, Adjustments March 31,
1998 ----------------------------------- 1998
(1)
-----------------------------------------------------------------------------
Current Assets
<S> <C> <C> <C> <C>
Cash $ 221,788 $ (208,569) $ 5,000,000(2) $ 5,013,219
Accounts receivable 1,999,880 (1,999,880) -- --
Inventories 1,177,030 (1,177,030) -- --
Other current assets 106,950 (80,633) -- 26,317
- -------------------------------------------------------------------------------------------------------------
Total Current Assets 3,505,648 (3,466,112) 5,000,000 5,039,536
Equipment And Leasehold
Improvements 181,151 (181,151) -- --
Note Receivable -- -- 2,000,000(3) 2,000,000
Marketable Securities -- -- 3,000,000(3) 3,000,000
Other Assets 69,800 -- -- 69,800
- -------------------------------------------------------------------------------------------------------------
Total Assets $ 3,756,599 $ (3,647,263) $ 10,000,000 $10,109,336
=============================================================================================================
Liabilities And Stockholders' Equity
Current Liabilities
Notes payable $ 424,312 $ (424,312) $ -- $ --
Accounts payable and
accrued expenses 1,183,710 (887,526) -- 296,184
Income taxes payable -- -- 609,000(5) 609,000
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,608,022 (1,311,838) 609,000 905,184
- -------------------------------------------------------------------------------------------------------------
Excess Of Acquired Assets
Over Cost 216,820 (216,820) -- --
- -------------------------------------------------------------------------------------------------------------
Income Taxes Payable -- -- 580,000(5) 580,000
- -------------------------------------------------------------------------------------------------------------
Shareholders' 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 -- 27,000(4) 533,391
Additional paid-in capital 1,500,178 -- 2,973,000(4) 4,473,178
Retained earnings (deficit) (74,812) (2,118,605) 5,811,000(3)(5) 3,617,583
- -------------------------------------------------------------------------------------------------------------
Total Shareholders' 1,931,757 (2,118,605) 8,811,000 8,624,152
Equity
- -------------------------------------------------------------------------------------------------------------
Total Liabilities And
Shareholders's Equity $ 3,756,599 $ (3,647,263) $10,000,000 $10,109,336
=============================================================================================================
</TABLE>
NOTE: The Pro Forma Consolidated Balance Sheet gives effect to the following
pro forma adjustments:
(1) Represents the elimination of net assets in connection with the sale of
Windsor Art, Inc.
(2) Represents cash proceeds of $2 million from the sale and $3 million from
the issuance of common stock and common stock warrants.
(3) Represents a promissory note at face value and stock of the purchaser
received at approximate current market value, as consideration for the sale
of Windsor Art, Inc. The actual value of these assets may differ from
these assumptions.
(4) Represents the issuance of common stock and common stock warrants of
Bentley.
(5) Represents the current income tax liability and deferred income tax
liability (installment sale portion) in connection with the gain on sale.
See the accompanying compilation report dated May 27, 1998.
15
<PAGE>
BENTLEY INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
As Reported Pro Forma Pro Forma
March 31, Adjustments March 31,
1998 ----------------------------------- 1998
(1)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 3,683,647 $ (3,683,647) $ -- $ --
Cost Of Sales 2,564,387 (2,564,387) -- --
- --------------------------------------------------------------------------------------------------------------------
Gross Margin 1,119,260 (1,119,260) -- --
Selling, General And Administrative
Expenses 832,936 (769,107) -- 63,829
Interest Expense (Income) 33,982 (26,093) (90,000)(2) (82,111)
Other Expense (Income) (81,307) 81,307 -- --
- ---------------------------------------------------------------------------------------------------------------------
Income From Continuing Operations 333,649 (405,367) 90,000 18,282
Gain On Sale Of Discontinued Segment
(net of income taxes of $1,189,000) -- -- 2,768,540(3) 2,768,540
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 333,649 $ (405,367) $ 2,858,540 $ 2,786,822
=====================================================================================================================
Earnings Per Common Share - Basic
And Diluted (4)
Continuing operations $ 0.12 $ 0.01
Discontinued operations -- 0.93
- ---------------------------------------------------------------------------------------------------------------------
$ 0.12 $ 0.94
=====================================================================================================================
Weighted Average Number Of Common
Shares Outstanding 2,813,285 2,963,285
=====================================================================================================================
</TABLE>
NOTE: The Pro Forma Consolidated Statement of Operations for the three-month
period ended March 31, 1998 gives effect to the following pro forma
adjustment:
1. Represents the adjustments necessary to reflect the sale of Windsor Art as of
January 1, 1998 by eliminating Windsor's results of operations.
2. Represents interest earned on cash proceeds and note received in
consideration for the sale of Windsor.
3. Represents the gain on sale, net of tax, of the discontinued segment.
4. For the three months ended March 31, 1998, options and warrants were not
included in computing diluted EPS because their effect was antidilutive.
See the accompanying compilation report dated May 27, 1998.
16
<PAGE>
BENTLEY INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
As Reported Pro Forma Pro Forma
March 31, Adjustments March 31,
1998 ----------------------------------- 1998
(1)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 12,713,313 $ (12,713,313) $ -- $ --
Cost Of Sales 8,523,636 (8,523,636) -- --
- ----------------------------------------------------------------------------------------------------------------------
Gross Margin 4,189,677 (4,189,677) -- --
Selling, General And
Administrative Expenses 3,125,874 (2,859,014) -- 266,860
Interest Expense (Income) 178,911 (129,283) (360,000)(2) (310,372)
Other Expense (Income) (368,205) 325,231 (42,974)
- ---------------------------------------------------------------------------------------------------------------------
Income From Continuing Operations 1,253,097 (1,526,611) 360,000 86,486
Extraordinary Gain On Extinguishment
Of Debt 1,174,049 -- -- 1,174,049
Gain On Sale Of Discontinued Segment
(net of income taxes of $1,189,000) -- -- 2,768,540(3) 2,768,540
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 2,427,146 $ (1,526,611) $ 3,128,540 $ 4,029,075
=====================================================================================================================
Earnings Per Common Share - Basic
And Diluted (4)
Continuing operations $ 0.45 $ 0.03
Extraordinary gain 0.41 0.40
Discontinued operations -- 0.93
- ---------------------------------------------------------------------------------------------------------------------
$ 0.86 $ 1.36
=====================================================================================================================
Weighted Average Number Of Common
Shares Outstanding 2,813,285 2,963,285
=====================================================================================================================
</TABLE>
NOTE: The Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997 gives effect to the following pro forma adjustments:
1. Represents the adjustments necessary to reflect the sale of Windsor Art as of
January 1, 1997 by eliminating Windsor's results of operations.
2. Represents interest earned on cash proceeds and note received as
consideration for the sale of Windsor.
3. Represents the gain on sale, net of tax, of the discontinued segment.
4. For 1997, options and warrants were not included in computing diluted EPS
because their effect was antidilutive.
17
<PAGE>
No Government Approvals Necessary
No federal or state regulatory requirements must be complied with and no
approval must be obtained in connection with the transaction by Bentley or
Interiors or of any of either of their subsidiaries.
No Reports
Bentley has received no report, opinion or appraisal materially related to
the transaction from an outside party. Interiors has not received any report,
opinion, or appraisal materially relating to the transaction from an outside
party.
Prior Material Contracts
None.
Stock Prices Prior to Announcement
As of May 28, 1998, the high and low sale prices of Bentley common stock were
$1.625 and $1.375 and the high and low sale prices of Interiors Stock were
$1.875 and $1.812.
Principal Accountants
Representatives of the principal accountants of Bentley for the current year
and for the most recently completed fiscal year (i) are expected to be present
at the annual meeting of security holders to be held July 2, 1998; (ii) will
have the opportunity to make a statement if they desire to do so; and (iii) are
expected to be available to respond to appropriate questions.
SALE OF ASSETS TO INTERIORS --
INFORMATION ABOUT BENTLEY
The following sections of the Annual Report to Shareholders of Bentley
delivered herewith are hereby incorporated by reference into this Information
Statement: Description of Business, Description of Property, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
Legal Proceedings
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.
18
<PAGE>
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.
<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
First Quarter 1998 2.19 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.
No dividends have been paid in the last two fiscal years or the subsequent
interim period. Although there are no restrictions on dividends in the Company's
corporate authority documents, prior to the sale to Interiors funds for a
dividend would have come from a dividend from Windsor to the Company.
SHAREHOLDER PROPOSALS FOR 1999
Shareholders who intend to submit any proposals for the 1999 Annual Meeting
and who wish to have their proposals included in the Company's Information
Statement for that meeting must submit such proposals to the Company by February
1, 1999. Proposals should be sent to the Company at 9719 Conway Road, St. Louis,
Missouri 63124.
19
<PAGE>
DISCRETIONARY AUTHORITY
The Board of Directors does not intend to present at the Annual Meeting any
business other than that referred to in the accompanying Notice of Annual
Meeting. The Board of Directors was not aware, a reasonable time before the
mailing of this Information Statement, of any matters which may be properly
presented for action at the meeting.
Although the Board of Directors does not contemplate that any nominee for
Director named above will be unavailable for election, in the event a vacancy in
the slate of nominees is occasioned by death or some other unexpected
occurrence, it is intended that a substitute nominee will be selected by the
Board of Directors.
LLOYD R. ABRAMS
President and Chief Executive Officer
June 11, 1998
20
ANNUAL REPORT FOR 1997
BENTLEY INTERNATIONAL, INC.
Financial Highlights
o Net Income Per Common Share was $0.45 from operations and $0.42 from an
extraordinary item, for a total of $0.87 per share.
o As of May 28, 1998, the stock price was $1.625 per share.
o Revenues for the 1997 fiscal year were $12,713,313.
o Return on Equity was 78% before extraordinary item.
<PAGE>
President's Message:
The year 1997 was a turning point for Bentley International, Inc. After
closing an unprofitable division and subsidiaries in 1996, management devoted
its attention to Bentley's future and concluded that the Company should redirect
its efforts to the acquisition of specialty marketing and information services
businesses. Management believes that such businesses produce a very high return
on equity, require little debt, generate substantial cash flow and possess
significant growth potential.
On May 27, 1998, a new subsidiary of the Company, Bentley Information
Services, Inc., closed a purchase of substantially all of the assets of an
information management company that specializes in credit reporting, Best Credit
Bureau, Inc. Management views this acquisition as an initial step in its plan to
acquire businesses in the specialty marketing and information management
industries. Management is currently investigating other similar acquisition
opportunities.
To make these acquisitions and expand the business of the companies
acquired requires additional capital. While the Company's operating subsidiary,
Windsor Art, Inc., had an excellent year in 1997, the Board of Directors has
determined to sell Windsor to raise that capital. The Board believes that
increased profitability in Windsor's area of business will result from
consolidations of existing competitors and complimentary furniture accessory
manufacturers. Accordingly, the Company has come to an oral agreement to sell
Windsor to Interiors, Inc., a company that is pursuing consolidations of
businesses such as Windsor's, subject to shareholder approval. The terms of the
agreement are recited in the accompanying Information Statement.
In addition, Interiors, Inc. has agreed to purchase Common Stock of the
Company and warrants to purchase additional Common Stock of the Company, as more
fully described in the Information Statement. The combined consideration for
Windsor, the Common Stock and the warrants consists of $5,000,000 in cash, a
$2,000,000 secured promissory note from Interiors and 1,500,000 shares of
Interiors Class A Common Stock. The Board of Directors believes the transactions
will provide the Company with the capital necessary to pursue the Company's
strategy of acquiring and developing marketing and information services
businesses. The Board has recommended a vote in favor of the sale of Windsor and
the securities.
Very truly yours,
Lloyd R. Abrams
President and Chief Executive Officer
<PAGE>
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. On May 27, 1998, the Company
closed a purchase of substantially all of the assets of an information
management company that specializes in credit reporting. Management views this
acquisition as an initial step in its plan to acquire businesses in the
specialty marketing and information management industries. 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 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.
1
<PAGE>
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 using overtime when necessary.
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
2
<PAGE>
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.
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.
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.
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 acquisition by the
Company of all of the capital stock of Windsor and Janco. 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 court order on
February 27, 1998. The settlement
3
<PAGE>
agreement with the Bankruptcy Trustee required 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, and released the Company and Windsor
from all claims in connection with Janco's bankruptcy. The order results in the
release of Bentley and Windsor by the Trustee from all liability in connection
with such bankruptcy 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 for December 31,
1997, by approximately $1,259,000. In addition, Bentley recognized approximately
$1,174,000 of extraordinary income, or $0.42 per share in 1997, 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.
Information about Nominated Directors
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. The following three people are currently Directors and have been
nominated for election to an additional term.
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 Art, Inc. ("Windsor"), and since August 1997 as sole Director and
Assistant Secretary of Windsor. 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.
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 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-
4
<PAGE>
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
is a Certified Public Accountant.
Former Director
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.
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.
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.
<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
First Quarter 1998 2.19 0.81 N/A N/A
</TABLE>
5
<PAGE>
- ------------------
(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 Exhibit 10.36 to the Company's Form
10-KSB for 12/31/97.
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 Realty Company, Inc. ("Alnick"), and Janco. Windsor, Alnick and
Janco are wholly owned subsidiaries of the Company. 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 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, 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.
6
<PAGE>
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 required 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
and released the Company and Windsor from all claims in connection with Janco's
bankruptcy.
The Company is currently investigating acquisition opportunities. The
Company is considering moving into a new line of business, speciality marketing
and information management. On May 27, 1998, the Company closed a purchase of
substantially all of the assets of an information management company that
specializes in credit reporting. Management views this acquisition as an initial
step in its plan to acquire businesses in the specialty marketing and
information management industries. 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 expense 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 approximately $1,390,000.
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.
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 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
9
<PAGE>
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.
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.
[The remainder of this page is intentionally left blank].
10
<PAGE>
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, GORNSTEIN & 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
---------------------------------
Numerator:
<S> <C> <C>
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>
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.
The Company will provide without charge to any shareholder upon written request
a copy of the Company's annual report on Form 10-KSB. Requests should be
addressed to Bentley International, Inc., 9719 Conway Road, St. Louis, MO 63124.
June 11, 1998 BENTLEY INTERNATIONAL, INC.
By: Lloyd R. Abrams, President
and Chief Executive Officer
30
