U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
|X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended June 30, 1999
|_|Transition Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the Transition Period from ________________ to _________________
Commission file number: 0-19503
BENTLEY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MEGACARDS, INC.
(Former name of registrant)
Missouri 43-1325291
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
9719 Conway Road 63124
St. Louis, Missouri (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (314) 569-1659
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes |X| No |_|.
On July 26, 1999 the registrant had 3,083,285 outstanding shares of Common
Stock, $.18 par value.
Transitional Small Business Disclosure Format (Mark one): Yes |_| No|X|.
<PAGE>
BENTLEY INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page
PART I -- CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements....................................1
Consolidated Balance Sheets -- June 30, 1999 and December 31, 1998......2
Consolidated Statements of Operations -- Three Months Ended June 30,
1999 and 1998 and Six Months Ended June 30, 1999 and 1998 ..............3
Consolidated Statements of Cash Flows -- Three Months Ended June 30,
1999 and 1998 and Six Months Ended June 30, 1999 and 1998...............4
Notes to Consolidated Financial Statements..............................5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation................................................7
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................11
ITEM 2. Changes in Securities and Use of Proceeds............................13
ITEM 4. Submission of Matters to a Vote of Security Holders..................13
ITEM 6. Exhibits and Reports on Form 8-K.....................................13
SIGNATURE....................................................................16
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 ("PSLR Act of 1995"). The results of management's plans are
beyond the ability of the Company to control. Economic conditions, availability
of attractive merger and acquisition parties, the results of exercise of
dissenters' rights and other factors could cause materially different results
from those planned by management. Additional discussions of certain forward
looking statements can be found at the end of Item 2 of Part I and Item 1 of
Part II.
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
BENTLEY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
Assets
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 5,248,194 $ 6,579,516
Miscellaneous receivables 6,392 18,000
Tax refund due (Note 3) 662,932 --
Prepaid taxes 45,801 38,817
Net assets from discontinued segment (Note 4) 422,466 628,324
Total Current Assets 6,385,785 7,264,657
Other Assets 69,800 69,800
$ 6,455,585 $ 7,334,457
Liabilities And Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 208,303 $ 647,076
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, 3,083,285 shares issued and outstanding
at June 30, 1999 and December 31, 1998 554,991 554,991
Additional paid-in capital 2,656,578 2,656,578
Retained earnings 3,043,615 3,475,812
Treasury stock, at cost (7,902) --
Total Shareholders' Equity 6,247,282 6,687,381
$ 6,455,585 $ 7,334,457
See the accompanying notes to condensed financial statements.
</TABLE>
1
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<TABLE>
BENTLEY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<CAPTION>
For The Three Months For The Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ --
Cost Of Sales -- -- -- --
Gross Margin -- -- -- --
Selling, General And Administrative
Expenses 84,377 85,468 210,857 149,297
Operating Loss (84,377) (85,468) (210,857) (149,297)
Interest Income (Expense) 61,920 (567) 130,488 (8,456)
Other Income 47,978 131,391 108,947 131,391
Income (Loss) From Continuing
Operations 25,521 45,356 28,578 (26,362)
Income (Loss) From Discontinued
Operations (Note 4)
Income (loss) from operations
to be disposed of (95,735) 481,106 (123,170) 886,473
Estimated loss on disposal (337,605) -- (337,605) --
(433,340) 481,106 (460,775) 886,473
Net Income (Loss) $ (407,819) $526,462 $(432,197) $ 860,111
Earnings (Loss) Per Common Share -
Basic
Continuing operations $ 0.01 $ 0.02 $ 0.01 $ (0.01)
Discontinued operations (0.14) 0.17 (0.15) 0.31
(0.13) $ 0.19 (0.14) $ 0.31
Earnings (Loss) Per Common Share -
Assuming Dilution
Continuing operations $ 0.01 $ 0.02 $ 0.01 $ (0.01)
Discontinued operations (0.14) 0.16 (0.15) 0.30
(0.13) $ 0.18 (0.14) $ 0.29
See the accompanying notes to condensed financial statements.
</TABLE>
2
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<TABLE>
BENTLEY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
For The Six Months
Ended June 30,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ (432,197) $ 860,111
Adjustments to reconcile net income to net cash
provided by (used in) operating activities of
continuing operations:
Loss (income) from discontinued operations 460,775 (886,473)
Depreciation and amortization -- 1,346
Net change in assets and liabilities:
(Increase) decrease in receivables 11,608 (4,482)
Tax refund due and prepaid taxes (708,733) --
(Increase) decrease in other assets 38,817 (48,227)
Decrease in accounts payable and
other liabilities (438,773) (197,787)
Net Cash Used In Operating Activities Of Continuing
Operations (1,068,503) (275,512)
Net cash provided by (used in) discontinued operations (188,127) 396,256
Net Cash Provided By (Used In) Operating Activities (1,256,630) 120,744
Cash Flows From Investing Activities
Net cash used in investing activities of discontinued
operations (66,790) (22,130)
Acquisition of subsidiary -- (80,772)
Net Cash Used In Investing Activities (66,790) (102,902)
Cash Flows From Financing Activities
Net proceeds from line of credit -
discontinued operations -- 304,292
Payments on notes payable -- (320,005)
Purchase of treasury stock (7,902) --
Net Cash Used In Financing Activities (7,902) (15,713)
Net Increase (Decrease) In Cash (1,331,322) 2,129
Cash and Cash Equivalents - Beginning Of Period 6,579,516 9,332
Cash and Cash Equivalents - End Of Period $ 5,248,194 $ 11,461
See the accompanying notes to condensed financial statements.
</TABLE>
3
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BENTLEY INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
The accompanying interim financial statements are unaudited, but, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
accruals) necessary for this presentation. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Reference is hereby made to the consolidated financial statements, including the
notes thereto, contained in the Company's annual Report on Form 10-KSB/A for the
year ended December 31, 1998. The results of operations for the three- and
six-month period ended June 30, 1999 are not necessarily indicative of the
results to be expected for the year ending December 31, 1999.
1. 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") and Residential Mortgage Credit Reporting, Inc. ("RMCR"),
(see Note 4). All significant intercompany transactions have been eliminated
from the consolidated financial statements.
2. Operations
Nature Of Operations: Bentley International, Inc. ("Bentley"), formerly
Megacards, Inc., designed, repackaged and marketed sports picture cards produced
by major sports picture card manufacturers and 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 business of the Company.
Windsor manufactured and distributed decorative mirrors and framed prints
to furniture stores, mass merchants, hotels and designers throughout the United
States. During 1996, Bentley discontinued its Janco product line of framed
prints and mirrors and sold its sports picture card business segment in order to
reduce costs and to improve its liquidity position. On July 30, 1998, the
Company sold all of the outstanding shares of stock of Windsor Art, Inc. (see
Note 4).
During 1998, the Company acquired subsidiaries operated under the name of
RMCR which operated a credit reporting service providing mortgage lenders with
consolidated credit reports drawn from reports generated by several
single-source credit reporting bureaus. As of June 30, 1999, the company adopted
a formal plan to dispose of this segment of the business, (see Note 4).
Business Combinations: Pursuant to an agreement dated May 28, 1998, the
Company purchased certain assets of a credit reporting company for $75,000 and
formed Bentley Information Services, Inc. ("BIS"). The acquisition was accounted
for as a purchase.
Pursuant to an agreement date November 12, 1998, the Company acquired all
the outstanding shares of Residential Mortgage Credit Reporting, Inc., a credit
reporting company, for $300,000 in cash plus 120,000 shares of Bentley's common
stock. The acquisition was accounted for as a purchase. In 1999, BIS and RMCR
merged. BIS became the surviving corporation and changed its name to RMCR.
Pursuant to an agreement dated February 23, 1999, RMCR acquired
substantially all of the assets of Mortgage Credit Service ("M.C.S.") a credit
reporting company for approximately $40,000.
4
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BENTLEY INTERNATIONAL, INC.
Notes To Condensed Consolidated Financial Statements (Continued)
3. Tax Refund Due
<TABLE>
Tax refund due as of June 30, 1999 consists of:
<S> <C>
Federal 629,970
State 32,962
- ------------------------------------
Total 662,932
====================================
The federal refund was received subsequent to June 30, 1999.
</TABLE>
4. Discontinued Operations
In July 30, 1998, the Company sold its Windsor subsidiary to Interiors,
Inc. ("Interiors"). Accordingly, Windsor's decorative mirror and framed
art business segment are accounted for as discontinued operations in the
accompanying consolidated financial statements.
Windsor revenues were $3,257,599 for the three months ended June 30, 1998,
and $6,941,246 for the six months ended June 30, 1998, respectively.
Originally, the consideration for the stock of Windsor was: a) $1,700,000
in cash, b) a $2,000,000 secured promissory note payable over four years
with interest at 8% per annum, and a discount of $500,000 if paid by
September 30, 1998, and c) a $3,300,000 secured, short-term promissory
note, due September 30, 1998 with interest at 8% per annum. The short-term
note required a $300,000 payment on July 30, 1998. The short-term note was
repaid as scheduled on September 30, 1998.
In connection with the purchase of Windsor, Interiors also purchased
150,000 shares of common stock of the Company for 750,000 shares of its
common stock and purchased a warrant to purchase 300,000 shares of common
stock of the Company for an additional 750,000 shares of its common stock.
If certain events occurred prior to December 31, 1998, Interiors had the
option, but not the obligation, to reacquire its shares from the Company
for $1,625,000 by December 31, 1998. In addition, if prior to December 31,
1998, Interiors consummated an underwritten public offering of Interiors
stock pursuant to a registration statement declared effective under the
Securities Act of 1933, as amended, in which the aggregate gross proceeds
(before underwriting fees, commissions and discounts) are at least
$15,000,000, then Interiors has the obligation, and not the option, to
repurchase the shares of Interiors for $1,625,000.
On December 1, 1998, the Company, Interiors, Windsor, Lloyd R. Abrams,
President of Bentley ('Mr. Abrams") and Max Munn, President of Interiors
("Mr. Munn") entered into a Repurchase Agreement and Mutual General
Release (the "Repurchase Agreement") with respect to (i) certain rights
and obligations arising under the Stock Purchase Agreement dated July 7,
1998 between Bentley and Interiors, (the "Stock Purchase Agreement") and
all related documents executed in connection with the sale of Windsor by
Bentley to Interiors and (ii) rights and obligations pertaining to stock
of Bentley and of Interiors pursuant to a Securities Purchase and
Registration Rights Agreement dated July 30, 1998 (the "Securities
Purchase Agreement"). Pursuant to the Repurchase Agreement, Interiors,
Windsor and Munn released Bentley and Abrams and Bentley and Abrams
released Interiors, Windsor and Mr. Munn from any claims other than with
respect to the rights and obligations arising under the Repurchase
Agreement.
5
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BENTLEY INTERNATIONAL, INC.
Notes To Condensed Consolidated Financial Statements (Continued)
Pursuant to the Repurchase Agreement, Bentley released from a voting trust
and pledge agreement all of the capital stock of Windsor to Interiors,
canceled and delivered to Interiors the $2,000,000 note made by Interiors
in favor of Bentley on July 30, 1998 (the 'Note"), paid Windsor $100 in
connection with the purchase by Bentley from Windsor of certain
furnishings and furniture and transferred to Windsor 1,500,000 share of
Interiors Class A Common Stock (the "Interiors Shares") previously
acquired from Interiors pursuant to the Securities Purchase Agreement,
which shares had been subject to an escrow agreement among Interiors,
Bentley and U.S. Bank Trust dated July 30, 1998 (the "Escrow Agreement")
to secure certain warranties and representations Bentley had made to
Interiors in connection with the sale of Windsor. In exchange, Interiors
paid to Bentley $2,440,000 in cash plus interest from November 29, 1998 at
13% per annum, agreed to transfer 110,000 shares of Bentley Common Stock
to the President of Windsor and unconditionally assumed the obligation of
Bentley to convey 100,00 shares of Interiors Class A Common Stock to the
President of Windsor in satisfaction of certain obligations Bentley had
incurred to the President of Windsor pursuant to a bonus agreement.
Pursuant to the Repurchase Agreement, Mr. Abrams also agreed to cancel his
future fights and was released from his obligations under the Consulting
Agreement. In exchange for the cancellation and release, Mr. Abrams
received from Interiors $125,000 in cash plus interest from November 29,
1998 at 13% per annum, 40,000 shares of Bentley Common Stock and the
warrant for up to 300,000 shares of Bentley Common Stock, which warrant
Interiors had purchased from Bentley pursuant to the Securities Purchase
Agreement.
On June 30, 1999, the Company adopted a formal plan to dispose of its RMCR
subsidiary. Accordingly, RMCR is accounted for as discontinued operations
in the accompanying consolidated financial statements.
RMCR revenues were $254,561 for the three months ended June 30, 1999, and
$585,929 for the six months ended June 30, 1999, respectively.
Item 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
Bentley aggressively pursued a transition from the framed art and mirror
business to the marketing and information services businesses, of which the
credit reporting business is one. The Company continues to be in a strong
liquidity position, with no debt, other than trade credit, and no preferred
stock outstanding.
Bentley planned to expand nationwide the consolidated, residential
mortgage credit reporting business of its operating subsidiary, RMCR. In
December 1998 RMCR replaced its old computer hardware and software with new
hardware and software. In March 1999, RMCR acquired substantially all of the
assets of another credit reporting business located in Arizona. RMCR had three
sales representatives covering Arizona, California, Illinois, Missouri and
Florida, and one individual directing RMCR's direct marketing program. The
direct marketing program has proven to be more cost effective, so the three
field sales representatives were dismissed.
Due to rapid changes in the mortgage industry and a significant decline in
the number of mortgage refinancings resulting from increased interest rates, the
Company has decided to divest itself of the mortgage credit reporting
subsidiary. The Company is actively negotiating the sale of the subsidiary to a
much larger competitor in the industry. Due to the investment in new computer
hardware and software, as well as extensive marketing expenses, the Company has
taken a charge to create a reserve to cover any losses and expenses that the
Company's management believes may be incurred in the disposition or shut down of
the mortgage credit reporting subsidiary.
On July 30, 1998, the Company sold its framed art and mirror business,
Windsor Art, Inc. ("Windsor"), which represented substantially all of its
assets, to Interiors, Inc. ("Interiors"). On December 1, 1998, Bentley entered
into a
6
<PAGE>
Repurchase Agreement and Mutual General Release with Interiors, Inc., Windsor
Art, Inc., Lloyd R. Abrams and Max Munn, which is attached as Exhibit 2 to
Bentley's Form 8-K dated December 1, 1998. The transactions between Interiors
and Bentley are more fully described in the following prior securities filings
of Bentley and the portions of the following documents that pertain to the
transactions with Interiors, Inc. are hereby incorporated by reference: Form 8-K
dated December 1, 1998, Form 10-QSB dated September 30, 1998, Form 8-K dated
July 30, 1998 and Form 10-QSB dated June 30, 1998.
The Board of Directors of Bentley has also approved a repurchase program
with respect to the Company's common stock, which currently trades on the OTC
Bulletin Board. The company will repurchase no more than 100,000 shares in the
open market over a period of no more than twelve months, subject to the further
limitation that the number of shareholders will not be decreased below 300. The
price for the common stock was $1.25 per share as of July 15, 1999. The book
value of such stock as of June 30, 1999, was $2.03 per share.
Over the past nine months, the Company's management has been investigating
the acquisition of specialty marketing and information companies. None of the
opportunities presented to the Company were deemed to be attractive to the
management, considering price, risk, growth potential and management personnel.
Management has concluded that companies Bentley could afford to purchase without
borrowing substantial additional funds do not have the depth of management
personnel that would be desirable, and Bentley's management is not comfortable
pursuing larger acquisitions that would require substantial leverage, and the
accompanying risk.
Considering the factors mentioned above, the Company's board of directors
has decided to attempt to create shareholder value in excess of the Company's
tangible book value by investigating opportunities to effect a reverse merger
with a larger established company interested in going public through the
"reverse merger" process. Such a company may be one that possesses rapid growth
potential, and needs the financial resources of Bentley, or a stable business
that desires a public vehicle to enhance shareholder value, create liquidity for
its multiple owners, or acquire other similar businesses within its industry by
using Bentley's stock as currency.
A "reverse merger" is the acquisition by Bentley of another company
whereby the shareholders of the acquired business receive shares in Bentley
constituting a controlling interest in Bentley, and thus assume management
responsibility of Bentley.
Management intends to contact investment bankers in search for potential
"reverse merger" candidates, and may engage an investment banker to advise the
Company in such pursuit.
In the event that Bentley's management is unable to find a suitable
reverse merger candidate, Bentley's board of directors may elect to liquidate
the Company. The foregoing statement is not intended to constitute a binding
obligation of management to liquidate the Company. The statement is intended
only to disclose to existing shareholders and potential purchasers of shares of
the Company the current intentions of the Company's board of directors, and the
Company's desire to create value for its shareholders at least equal to the book
value of the Company.
On September 29, 1998, Bentley was sued by three shareholders. One of the
shareholders was an officer of Janco Designs, Inc., the subsidiary of the
Company which was the subject of an involuntary bankruptcy proceeding and has
now been dissolved. The other two shareholders are former officers and directors
of the Company who acted as such when the Company's sole business consisted of
the sports picture card business known as Megacards. That business segment was
discontinued in 1996. The litigation is described in more detail in Part II,
Item 1 regarding litigation and the financial statements hereto. It is currently
not possible to give a reasonable estimate of the Company's exposure in these
lawsuits. The Company anticipates that any judgment against it regarding the
shareholder litigation will be satisfied out of a non-material portion of the
proceeds of the sale of Windsor. Management does not believe that the litigation
will significantly interfere with its liquidity, net sales, revenue or income.
Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods covered by the accompanying condensed consolidated
financial statements.
7
<PAGE>
On July 30, 1998 the Company sold its main operating subsidiary, Windsor
Art, Inc., which represented substantially all of the operations of the Company,
for $6,481,000 in cash. All of Windsor's operations have been presented as
discontinued operations for all applicable periods presented in the accompanying
consolidated financial statements.
Two subsidiaries of the Company merged during the first quarter 1999. These
subsidiaries were RMCR under its former name, Bentley Information Services,
Inc., a Missouri corporation, and an Arizona corporation named Residential
Mortgage Credit Reporting, Inc. which merged into RMCR. RMCR ( Missouri) was
acquired May 27, 1998. Residential Mortgage Credit Reporting, Inc., an Arizona
corporation, was acquired October 31, 1998. The subsidiaries did not have any
significant activity in the first six months of 1998.
On June 30, 1999, the Company implemented a plan to dispose of its
operating subsidiary, RMCR which represented the company's remaining revenue
producing operations. All of RMCR's activities have been presented as
discontinued operations for all applicable periods presented in the accompanying
consolidated financial statements.
Continuing Operations
Continuing operations consists only of the investment income and
administrative expenses of the parent company.
Investment income increased for the three months and six months ended June
30, 1999 as compared to the same period in 1998 due to investment earnings from
the proceeds of the sale of Windsor.
Discontinued Operations
Discontinued operations in 1998 consisted of the activities of Windsor,
the decorative mirror segment which was sold on July 30 1998. Income from
discontinued operations was $481,106 for the three months ended June 30, 1998
was $886,473 for the six months ended June 30, 1998. The discontinued operations
in the comparable periods in 1999 consists only of the activities of RMCR, the
credit reporting segment which experienced a loss from operations of $95,735 and
$123,190 for the three and six months ended June 30, 1999, respectively. In
addition the Company estimated a loss on the disposal of RMCR of $337,650.
Liquidity and Capital Resources
As a result of the sale of Windsor, the Company's cash and cash
equivalents at June 30, 1999 was $5,248,194. Aggregate cash ultimately generated
from the sale of Windsor was $6,481,000. In addition, cash used in operating
activities of continuing operations increased from $275,512 to $1,068,503 for
the six months ended June 30, 1999 as compared to the same period in 1998. This
increase was caused by a significant increase in prepaid and refundable income
taxes and the payment of accrued bonuses related to the sale of Windsor. The
Company's discontinued operations for the six months ended June 30, 1999 used
$188,127 compared to generating cash of $396,256 in the same period in 1998.
Derivatives
The Company does not invest in any derivative securities.
Year 2000
Bentley has taken steps to investigate whether it has a "Year 2000
Problem," that is, whether any of the computer software and hardware that affect
its business can use only the last two digits to refer to a year, which
limitation causes inability to recognize properly a year that begins with "20"
instead of "19," which in turn could result in applications failures or
erroneous results. In order to determine whether the Company has no Year 2000
Problem (is "Year 2000 Compliant;" is in "Year 2000 Compliance"), Bentley is (i)
in the process of investigating whether its hardware and software are Year 2000
Compliant; (ii) contacting suppliers and customers regarding any possible Year
2000 Problems at their facilities that might affect the Company; (iii) analyzing
the costs of Year 2000 Compliance; and (iv) exploring the possible worst case
scenarios and contingency plans if there were to be a Year 2000 Problem that
affected the Company's business. In evaluating the Company's business, it is
important to recognize that the credit reporting business of its subsidiary,
RMCR,
8
<PAGE>
is a computer based business that could be seriously adversely affected by a
Year 2000 Problem, either at RMCR's facility or at its suppliers' or major
customers' facilities. The Company has no control over whether its suppliers and
customers remedy a Year 2000 Problem or whether its vendors of hardware,
software and Year 2000 Compliance testing software accurately represent the Year
2000 Compliance status of their products.
The Company has taken the following steps with respect to its own computer
hardware and software to determine whether such hardware and software is Year
2000 compliant: (i) purchased new computer hardware and software late in 1998
and early in 1999 which the Company believes to be Year 2000 Compliant; (ii) is
in the process of testing this hardware with Year 2000 Compliance software to
verify that it is Year 2000 Compliant; and (iii) is in the process of verifying
with vendors of its software for processing credit reports, accounting, record
keeping and word processing and of its phone system that these systems are Year
2000 Compliant.
Bentley has contacted its suppliers of single source credit reports to
determine whether they might have Year 2000 Problems that could affect the
Company, has had some preliminary responses and is in the process of keeping in
touch with all credit report suppliers on an ongoing basis to evaluate the Year
2000 Compliance of such suppliers. The Company has sent out letters to its
customers to query whether they are Year 2000 Compliant.
The Company has not incurred any material costs in addressing the Year
2000 Problem. The new hardware and software referenced above was purchased for
business reasons separate from Year 2000 Compliance issues. The Company does not
anticipate that it will incur any material costs in testing software and
hardware and communicating with suppliers and customers.
The worst case scenario of a Year 2000 Problem would be a failure of
RMCR's credit reporting software or its hardware, which could shut down the
business, resulting in lost revenues and possibly lost customers. The
contingency plan that the Company has developed to address the possible worst
case scenario is to obtain a "patch" for the Year 2000 Problem from the vendor
of the affected hardware or software or to obtain hardware or software from
another vendor. Going to another vendor of credit reporting software would
require converting the customers' systems to be compatible with such new
software. The possible lost revenue, if such a worst case scenario were to
occur, has not been estimated. The Company would draw on its strong liquidity
position to enable it to withstand such a worst case scenario.
Forward Looking Statements
Certain of the foregoing statements in this Part I, Item 2 make references
to plans, beliefs and expectations of management, including, without limitation,
that a merger partner may be found, that the credit reporting business will be
sold and that the Company may be liquidated if no merger partner is found. These
statements are forward looking statements of the type governed by the PSLR Act
of 1995. There can be no assurance that results will be what management plans,
believes or expects. The ability to merge with another business and to sell the
credit reporting subsidiary on acceptable terms depends on economic conditions,
ability to identify potential merger partners and purchasers of the credit
reporting subsidiary that will enter into transactions with the Company on terms
acceptable to the Company, competitive conditions generally in the markets for
acquisitions and mergers in the credit reporting and other industries and other
factors could produce results materially different from those expected by
management.
With regard to the shareholder litigation, management beliefs and
expectations are also forward looking statements of the type described in the
PSLR Act of 1995. The ultimate resolutions of the lawsuits, however, are not
within the Company's control. The court's decision with regard to the validity
of the claims made by the three shareholders and the valuation of their claims
could cause materially different results from those believed likely by
management.
Certain of the foregoing statements in the discussion of the Year 2000
Problem make references to plans, beliefs and expectations of management,
including, without limitation, that the RMCR hardware will be Year 2000
Compliant. These statements are forward looking statements of the type governed
by the PSLR Act of 1995. There can be no assurance that results will be what
management plans, believes or expects. The steps taken by such vendors,
suppliers and customers as well as by the Company could produce results
materially different from those expected by management.
9
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PART II
Item 1. Legal Proceedings
On June 29, 1998, Leo M. Rodgers, III, a shareholder of the Company,
delivered notice to the Company of his intent to preserve his "dissenter's
rights," as provided by Mo.Rev.Stat. 351.405, in connection with the sale of
Windsor Art, Inc. ("Windsor"), a wholly owned subsidiary of the Company. Section
351.405 requires the Company to purchase the shares of any shareholder who, at
or prior to the meeting at which the sale of substantially all of the assets of
the Company was approved, filed with the Company written objection to the sale,
did not vote in favor of the sale, and subsequently made a timely demand for
purchase of such shares by the Company. In the absence of an agreement between
the shareholder and the Company, Section 351.405 provides that the price that
the Company must pay for the shares shall be the "fair value" of the shares on
the day before the shareholder vote, as determined by the court. The day before
the shareholder vote was July 1, 1998, upon which day the Company's shares
traded for approximately $1.50 per share. Mr. Rodgers allegedly owns 30,420
shares of the Company individually and is the beneficial owner of 423,500 shares
under a voting trust agreement, dated July 17, 1995 (the "Voting Trust"), of
which Lloyd Abrams is the trustee.
Mr. Rodgers filed an action in the Circuit Court of St. Louis County,
Missouri on September 29, 1998, alleging that the Company is obligated to
purchase both blocks of shares for their "fair value" as of July 1, 1998. The
Company's management believes that the Company has no obligation to purchase the
block of shares owned by the Voting Trust, since the Voting Trust expressly
authorized the trustee to vote such shares in favor of the sale of Windsor, and
the shares were, in fact, voted in favor of the sale of Windsor, had to be voted
in favor of the sale to receive the approval of the two-thirds of the
outstanding shares of the Company necessary to authorize the sale, and were
required by the terms of the Voting Trust to be voted in the same fashion as all
shares owned by the Voting Trust.
Andrew Wolfson, a former director of the Company, and Stephen Juskewycz, a
former officer and director of the Company, also filed an action on September
29, 1998 in the Circuit Court of St. Louis County, Missouri to require the
Company to repurchase their shares, allegedly 98,115 and 86,335 shares,
respectively, for the "fair value" of the shares, pursuant to Mo.Rev.Stat.
351.405. The Company's management believes that the Wolfson and Juskewycz action
was motivated, in part, by prior events.
In July, 1995, when Lloyd Abrams assumed voting control of the Company as
trustee of the Voting Trust and the position of President and Chief Executive
Officer, the Company was in violation of loan covenants, delinquent in the
payment of rent at its primary, 125,000 square foot manufacturing facility, and
had been losing substantial sums of money from operations. As a condition of the
transaction in which Windsor was acquired by the Company and Mr. Abrams assumed
control of the Company, Mr. Wolfson was required to resign as a director of the
Company, and the partnership, in which Messrs. Wolfson and Juskewycz were
partners, which leased to the Company its primary manufacturing facility, was
required to forgive $250,000 in back rent due the partnership and to reduce the
annual rental on the property by approximately $175,000 per year. Ultimately,
the Company compelled Mr. Wolfson's and Mr. Juskewycz's partnership to release
the Company from all obligations under such lease, and the partnership property
was sold for only slightly more than the outstanding debt against the property.
Additionally, after the acquisition of Windsor, the Company terminated the
employment of Mr. Juskewycz. Also, Mr. Juskewycz resigned from the board of
directors in exchange for the Company entering into a settlement agreement with
Mr. Juskewycz.
In addition, on approximately August 31, 1998, the Company terminated a
sublease with Jeanandy, Inc. ("Jeanandy"), a company in which Mr. Wolfson was
involved, for a retail store located in a shopping center in St. Louis County,
Missouri. The Company was the subleasor of the store and was able to terminate
the sublease as a result of Jeanandy's failure to exercise its option to extend
its sublease in a timely fashion. In addition, the Company was able to negotiate
a release from its contingent liability, exceeding $200,000, under the primary
lease at no cost to the Company. This event resulted in Jeanandy being required
to vacate the subleased premises on 30 days notice.
The Company's management believes that Mr. Juskewycz complied with the
conditions of Section 351.405, and thus is entitled to receive the "fair value"
of his shares as of July 1, 1998. Mr. Wolfson's notice of objection to the sale
of Windsor, however, was not received by the Company until after the meeting at
which the sale of Windsor was approved; and, therefore, such notice was not
delivered in a timely fashion, as required by Section 351.405. It is the opinion
of the Company's management that the Company is not legally obligated to
purchase Mr. Wolfson's shares as a result of the delinquent delivery of his
notice, and that it is not in the best interest of the Company, or its
shareholders, to purchase Mr. Wolfson's shares, except on terms deemed desirable
by the Company's board of directors.
10
<PAGE>
As part of the same action, Messrs. Wolfson and Juskewycz also brought a
shareholders' derivative action against the three directors of the Company, Mr.
Abrams, Ramakant Agarwal, and Janet Salk. They claim the Directors breached
their fiduciary obligations to the shareholders, including the plaintiffs, by
causing the Company to repay notes of Janco Designs, Inc. ("Janco"), a
subsidiary of the Company, in the amount of $450,000 to certain trusts of which
Mr. Abrams, Richard B. Rothman and Patricia Rothman are trustees. The plaintiffs
also claim that the trusts were unjustly enriched by the repayment of the notes
and that it would be inequitable for the trusts to retain the $450,000 repaid to
them. The derivative action demands that the $450,000 be returned to the
Company. The monies subject to the claim were lent to Janco by the trusts
controlled by Mr. Abrams, Mr. Rothman, and Mrs. Rothman to provide working
capital to continue its operations. The Company's management believes that the
notes were properly repaid because they were guaranteed by the Company and
Windsor, secured by the assets of Windsor, such acts were approved by the
Company's board of directors, including its outside director and Chairman of the
Board, Mr. Robert L. Wolfson, the father of complainant Andrew Wolfson, as well
as approved by the United States Bankruptcy Court in connection with the
bankruptcy of Janco. In the event that the complainants were to prevail in their
action against the trusts, the amount of any judgment would be awarded to the
Company and not to Messrs. Wolfson and Juskewycz.
Messrs. Wolfson and Juskewycz's action also alleges a derivative claim
that Mr. Abrams breached a fiduciary duty to the shareholders in connection with
the sale of the Company's wholly owned subsidiary, Windsor, to Interiors, Inc.
("Interiors") by entering into a consulting agreement with Windsor and
Interiors. The derivative action demands that payments made under the consulting
agreement be paid over to the Company. The consulting agreement is described in
detail in the Company's Form 8-K, dated July 30, 1998, which is hereby
incorporated by reference. As of the date of the consulting agreement with
Windsor and Interiors, the amount of Mr. Abrams' salary paid by the Company was
reduced by the equivalent amount paid to Mr. Abrams by Windsor and Interiors.
Consequently, Mr. Abrams was not enriched by the existence of the employment
agreement, and the Company's financial commitment was diminished. In the event
that the complainants were to prevail in their action against Mr. Abrams, the
amount of any judgment would be awarded to the Company and not to Messrs.
Wolfson and Juskewycz.
Messrs. Wolfson and Juskewycz amended their action on January 21, 1999,
and alleged that salary and benefits paid to Mr. Abrams from the Company totaled
$265,000 in 1996, and $284,423 in 1997, that in addition to these amounts Mr.
Abrams received over $50,000 per year in additional benefits from the Company,
and that this compensation was excessive. The action demands that such salary
and benefits be repaid to the Company. The Company's management believes that
the consideration Mr. Abrams received in 1996 and 1997 was a reasonable payment
in exchange for the services which Mr. Abrams provided to the Company as
President and Chief Executive Officer. In the event Messrs. Wolfson and
Juskewycz were to prevail in their action, the amount of any judgment would be
awarded to the Company and not to Messrs.
Wolfson and Juskewycz.
The Wolfson and Juskewycz amended action further alleges that bonuses in
the amount of $1,000,000 were paid or will be paid improperly to officers and
employees of Windsor in connection with the sale of Windsor and demands that
these monies be repaid to the Company. The Company's management notes that the
sole director of Windsor, Lloyd R. Abrams, was not paid any bonus as a result of
the sale of Windsor. The Company's management believes that any and all bonuses
paid in connection with the sale of Windsor were paid properly for past services
and for the future benefit of the Company. The agreements to pay bonuses to
officers of Windsor primarily represented participations in the notes and shares
of stock of Interiors the Company anticipated receiving in connection with the
sale of Windsor and were conditioned upon those officers remaining employed by
Windsor. The Company's management believed that it was in the Company's best
interest to create such an incentive to induce the officers of Windsor to remain
in the employment of Windsor, to exert the necessary effort to assure that
Interiors would be able to pay its notes to the Company, and to protect the
value of Windsor, the stock of which was security for payment of the notes. The
Windsor officers only received their participations in the value of the notes
and Interiors stock after the Company negotiated an early repayment of the
Interiors notes and the repurchase of the Interiors stock. As part of the
negotiated early repayment, Interiors also satisfied the Company's obligation to
pay the President of Windsor 100,000 shares of Interiors Class A common stock
and 110,000 shares of the Company's common stock, which the Company had
previously agreed to pay to the President of Windsor as part of the President's
bonus. The total cost to the Company after taxes of these bonuses was
approximately $360,000. In the event Messrs. Wolfson and Juskewycz were to
prevail in their action, the amount of any judgment would be awarded to the
Company and not to Messrs.
Wolfson and Juskewycz.
Finally, the amended action of Messrs. Wolfson and Juskewycz alleges that
the conduct of the directors and control persons of Bentley in managing the
Company supports a claim for judicial dissolution of the Company pursuant to Mo.
Rev. Stat. Section 351.494, which provides in paragraph (b) that a company may
be dissolved if its directors have acted, are
11
<PAGE>
acting, or will act in a manner that is illegal, oppressive, or fraudulent.
Messrs. Wolfson and Juskewycz allege that the conduct of the directors and
control persons of the Company satisfies this test, due to the actions alleged
in the previously described counts of the action, and a claim that professional
fees, alleged to be $150,000, paid by Bentley in connection with the sale of
Windsor were excessive, and demand that the Company be judicially liquidated and
dissolved, with Bentley's assets converted to cash and distributed to the
shareholders on a pro rata basis after adjustment for the claims previously
alleged, and that a receiver be appointed for the Company. The Company's
management believes that this claim is totally unsupported by the facts for the
reasons recited in the preceding paragraphs in relation to the other claims in
the action and believes that any professional service payments made in
connection with the sale of Windsor were reasonable given the services provided.
The Company will defend vigorously the Company's position in court.
The Company's management believes that the Wolfson and Juskewycz
derivative action was filed with the intent of coercing the Company to
repurchase the shares in a negotiated settlement for a higher price than "fair
value," prior to the Circuit Court's determination of the "fair value" of their
shares and prior to the Court's determination of whether Mr. Wolfson properly
exercised his right to compel the Company to purchase his shares. The Company
intends to defend vigorously its positions in court, unless, in the opinion of
the Board of Directors, the shares can be repurchased at a price advantageous to
the Company and its shareholders.
Currently, the Company is not a party to any other legal proceedings,
other than routine proceedings in the ordinary course of business. The ordinary
course proceedings are not anticipated to have a material adverse effect on the
Company's results of operation or financial condition.
Forward Looking Statements
The beliefs and expectations of management described in this Item 1 with
regard to the shareholder litigation are forward looking statements of the type
described in the PSLR Act of 1995. The ultimate resolutions of the actions are
not within Bentley's control. The court's decision with regard to the validity
of the claims made by the three shareholders and the valuation of their claims
could cause materially different results from those believed likely by
management.
Item 2. Changes in Securities and Use of Proceeds
Part II Item 2 of the Company's Form 10-QSB for the quarter ended
September 30, 1998 is hereby incorporated by reference. This Item addresses
issuances of exempted securities, including the issuances of securities in
connection with the acquisition of RMCR. There have been no further issuances of
exempted securities.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the second quarter of 1999 to a
vote of the Company's shareholders, through the solicitation of proxies or
otherwise.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Ex. No. Description
2.1 Stock Purchase Agreement between Bentley International, Inc. and Interiors,
Inc. dated July 7, 1998, incorporated herein by this reference from Exhibit
10.1 to Form 8-K of the Registrant dated effective July 30, 1998.
2.2 Securities Purchase and Registration Rights Agreement between Bentley
International, Inc. and Interiors, Inc. dated July 30, 1998, incorporated
herein by this reference from Exhibit 10.2 to Form 8-K of the Registrant
dated effective July 30, 1998.
2.3 Repurchase Agreement and Mutual General Release between the Registrant,
Interiors, Inc., Windsor Art, Inc., Lloyd R. Abrams and Max Munn dated
December 1, 1998 is incorporated herein by this reference from Exhibit 2 to
Form 8-K of the Registrant dated effective December 1, 1998.
12
<PAGE>
3.1 Restated Articles of Incorporation of Registrant filed as Exhibit No. 3.1
to Registrant's Registration Statement on Form S-18 (Reg. No. 33-42393C)
are incorporated herein by this reference.
3.2 Amended and Restated By-laws of Registrant as currently in effect filed as
Exhibit No. 3.2 hereto.
3.3 Amendment to Restated Articles of Incorporation filed as Exhibit 3.3 to
Registrant's Form 10-K for the year ended December 31, 1995 is incorporated
herein by this reference.
9.1 Voting Trust Agreement, dated July 17, 1995, by and among Lloyd Abrams, as
Voting Trustee, Richard B. Rothman, Lloyd R. Abrams as Trustee of each of
the Abrams Family Trust, The Stacey Kevin and Meredith Trust dated 12/1/91
and The Janet L. Salk Children's Trust filed as Exhibit 9.1 to Registrant's
Form 10-K for the year ended December 31, 1995 is incorporated herein by
this reference.
10.1 Megacards Stock Option Plan filed as Exhibit No. 10 to Registrant's Form
10-K for the year ended December 31, 1991 is incorporated herein by this
reference.
10.2 Agreement to Form Joint Venture Dated September 13, 1996, by and among
Excell Recycling, Inc.; Quality Baseball Cards, Inc. and Bentley
International, Inc. filed as Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated September 27, 1996 is incorporated by this reference.
10.3 Limited Partnership Agreement Legends, LP dated September 12, 1996, by and
among Excell Recycling, Inc.; Quality Baseball Cards, Inc. and Bentley
International, Inc. filed as Exhibit 2.2 to the Registrant's Current Report
on Form 8-K dated September 27, 1996 is incorporated by this reference.
10.4 Eighth Amendment to Revolving Credit Loan Agreement, dated as of April 1,
1997, by and between Registrant and Mark Twain Bank filed as Exhibit 10.34
to the Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1996 is incorporated by this reference.
10.5 Tenth Amendment to Revolving Credit Loan Agreement, dated as of September
13, 1997, by and between Registrant and Mark Twain Bank filed as Exhibit
10.35 to the Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1996 is incorporated by this reference.
10.6 Megacards, Inc. 1995 Stock Option Plan filed as Exhibit 10.37 to the
Registrant's Form 10-KSB for 1997 is incorporated herein by this reference.
10.7 Annexes A-1 through P below are contracts or addenda to contracts dated
July 30, 1998, to the Stock Purchase Agreement between Bentley
International, Inc. and Interiors, Inc., which were listed on the Form 8-K
of Bentley dated effective July 30, 1998, and are incorporated by reference
from Exhibits 10.1 through 10.11 of the Form 10- QSB of Bentley
International, Inc. dated June 30, 1998. Certificates of Authority from
officers of Bentley and Interiors which were also addenda to the Stock
Purchase Agreement are omitted. Annexes A-1 through P listed below are
contracts between Bentley International, Inc. and Interiors, Inc. except
where noted:
Annex A-1 $2,000,000 Promissory Note
Annex A-2 $3,300,000 Promissory Note
Annex B -- Escrow Agreement between International, Inc.and Interiors,Inc.
Annex F -- Non-Competition Agreement between Windsor Art,Inc.and Lloyd R.
Abrams
Annex I -- Consulting Agreement between Windsor Art, Inc., Interiors,
Inc. and Lloyd R. Abrams
Annex J -- Pledge Agreement
Annex K -- Continuing Guaranty between Max and Laurie Munn and Bentley
International, Inc.
Annex M -- Subordination Language
Annex N -- Windsor Voting Trust Agreement between Lloyd R. Abrams and
Max Munn as Voting Trustees,Interiors, Inc. and Bentley
International, Inc.
Annex O -- Bentley Voting Trust Agreement between Lloyd R. Abrams as
Voting Trustee, Interiors, Inc.and Bentley International,Inc.
Annex P -- Interiors Voting Trust Agreement between Max Munn as Voting
Trustee, Interiors, Inc. and Bentley International, Inc.
13
<PAGE>
10.8 Bonus Agreement between the Registrant and Pauline Raschella dated October
26, 1998 attached to Form 10-QSB of the Registrant dated September 30, 1998
as Exhibit 10.12 is incorporated herein by this reference.
10.9 Stock Purchase Agreement between Sandra L. James and the Registrant dated
November 12, 1998 attached to Form 10-KSB of the Registrant dated December
31, 1998 as Exhibit 10.10 is incorporated by this reference.
10.10 Escrow Agreement between Sandra L.James and the Registrant dated November
12, 1998 attached to Form 10- KSB of the Registrant dated December 31, 1998
as Exhibit 10.11 is incorporated by this reference.
13.1 Portions of Form 10-QSB of the Registrant dated June 30, 1998 referenced in
the text are incorporated herein by this reference.
13.2 Portions of Form 10-QSB of the Registrant dated September 30, 1998
referenced in the text are incorporated herein by this reference.
27. Financial Data Schedule
(b)
Reports on Form 8-K.
On December 16, 1998, the Registrant filed a Current Report on Form 8-K
dated December 1, 1998 reporting entry into a repurchase agreement and mutual
general release with Windsor, Lloyd R. Abrams, Max Munn and Interiors which is
incorporated herein by this reference. In addition, on August 14, 1998, the
Registrant filed a Current Report on Form 8-K dated July 30, 1998 reporting the
sale of the Registrant's former Windsor Art, Inc. subsidiary to Interiors, Inc.
which is incorporated herein by this reference.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BENTLEY INTERNATIONAL, INC.
(Registrant)
By /s/ Lloyd R. Abrams
Lloyd R. Abrams, President and
Chief Executive Officer
By /s/ Ramakant Agarwal
Ramakant Agarwal, Chief
Financial Officer
August 16, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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<SECURITIES> 0
<RECEIVABLES> 6,392
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0
0
<COMMON> 554,991
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<TOTAL-LIABILITY-AND-EQUITY> 6,455,585
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