U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark one)
|X|Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the Quarterly Period Ended March 31, 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 May 10, 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|.
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BENTLEY INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page
PART I -- CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements.................................. 1
Consolidated Balance Sheets -- March 31, 1999 and December 31, 1998...... 1
Consolidated Statements of Operations -- Three Months Ended March 31,
1999 and 1998 ........................................................... 2
Consolidated Statements of Cash Flows -- Three Months Ended
March 31, 1999 and 1998.................................................. 3
Notes to Consolidated Financial Statements............................... 4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation................................................. 6
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings................................................... 9
ITEM 2. Changes in Securities and Use of Proceeds...........................11
ITEM 4. Submission of Matters to a Vote of Security Holders.................11
ITEM 6. Exhibits and Reports on Form 8-K....................................12
SIGNATURE...................................................................14
This Form 10-QSB/A includes all of the text of the Form 10-QSB filed on May 17,
1999, which consisted of Part II, which is amended in part by this Form
10-QSB/A, and all of Part I, which was not included in the Form 10- QSB filed on
May 17, 1999.
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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, service demand, competitive pricing 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.
PART I
Item 1. Financial Statements
<TABLE>
BENTLEY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
Assets
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,397,042 $ 6,350,884
Tax Refund Due 708,733 --
Accounts receivable 200,502 136,644
Other current assets 11,318 46,978
Total Current Assets 6,317,595 6,534,506
Equipment And Leasehold Improvements 156,753 127,014
Goodwill 538,218 479,050
Investments -- 300,028
Other Assets 74,611 74,900
$ 7,087,177 $ 7,515,498
Liabilities And Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 392,877 $ 828,117
Note payable 36,000 --
Total Current Liabilities 428,877 828,117
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 March 31, 1999 and December 31, 1998 554,991 554,991
Additional paid-in capital 2,656,578 2,656,578
Retained earnings 3,451,429 3,475,812
6,662,998 6,687,381
Less: Treasury stock - at cost 4,698 --
Total Shareholders' Equity 6,658,300 6,687,381
$ 7,087,177 $ 7,515,498
See the accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
BENTLEY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
For The Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Net Sales $ 331,368 $ --
Cost Of Sales 144,818 --
Gross Margin 186,550 --
Selling, General And Administrative
Expenses 283,033 63,829
Operating Loss (96,483) (63,829)
Interest Income (Expense) 68,568 (7,889)
Other Income 3,537 --
Loss From Continuing Operations (24,378) (71,718)
Discontinued Operations (Note 3)
Income from discontinued operations -- 405,367
Net Income (Loss) $ (24,378) $ 333,649
Earnings (Loss) Per Common Share -
Basic:
Continuing operations $ (0.01) $ (0.03)
Discontinued operations -- 0.15
$ (0.01) $ 0.12
Earnings (Loss) Per Common Share -
Assuming Dilution:
Continuing operations $ (0.01) $ (0.03)
Discontinued operations -- 0.14
$ (0.01) $ 0.11
See the accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
BENTLEY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For The Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (24,378) $ 333,649
Adjustments to reconcile net income to net cash
provided by operating activities of continuing
operations:
Income from discontinued operations -- (405,367)
Depreciation and amortization 20,875 --
Net change in assets and liabilities:
Increase in accounts receivable (63,858) --
Tax refund due (708,733) --
(Increase) decrease in other assets 35,660 (26,316)
Decrease in accounts payable and other liabilities (435,240) (47,209)
Net Cash Used In Operating Activities
Of Continuing Operations (1,175,674) (145,243)
Net Cash provided by discontinued operations -- 909,226
Net Cash Provided By (Used In) Operating Activities (1,175,674) 763,983
Cash Flows From Investing Activities:
Net cash used in investing activities
of discontinued operations -- (124,868)
Capital expenditures (38,151) --
Purchase of treasury stock (4,698) --
Acquisition of subsidiary (35,347) --
Disposition of investment 300,028 --
Net Cash Used In Investing Activities 221,832 (124,868)
Cash Flows From Financing Activities:
Net proceeds from (payments on) line of credit -
discontinued operations -- (315,223)
Payments on notes payable -- (320,005)
Net Cash Used In Financing Activities -- (635,228)
Net Increase (Decrease) In Cash (953,842) 3,887
Cash And Cash Equivalents - Beginning Of Period 6,350,884 9,332
Cash - End Of Period $ 5,397,042 $ 13,219
See the accompanying notes to condensed consolidated financial statements.
</TABLE>
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BENTLEY INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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-month
period ended March 31, 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") (see Note 3) and Residential Mortgage Credit
Reporting, Inc. ("RMCR"). 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 businesses 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, 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. On July 30, 1998, the Company
sold all of the outstanding shares of stock of Windsor (see Note 3).
The Company, through its operating subsidiaries acquired in 1998, operates
a credit reporting service which provides mortgage lenders with
consolidated credit reports drawn from reports generated by several
single-source credit reporting bureaus.
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 dated 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.
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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 $76,000. RMCR signed a promissory note for
$36,000, to be paid at the rate of 10% per month of the collected monthly
billings from existing customers of M.C.S. The remainder of the purchase
price was paid in cash.
3. Discontinued Operations
On 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 $3,683,647 for the three months ended March 31,
1998.
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) were at least
$15,000,000, then Interiors had 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.
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 $100.00 in
connection with the purchase by Bentley from Windsor of certain
furnishings and furniture and transferred to Windsor 1,500,000 shares 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 100,000 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.
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Pursuant to the Repurchase Agreement Mr. Abrams also agreed to cancel his
future rights 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.
Item 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
Bentley has 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, and is continuing to explore other
acquisition possibilities in the information services and specialty marketing
businesses and certain other businesses. The Company continues to be in a strong
liquidity position, with no debt other than trade credit and no preferred stock
outstanding. Bentley plans to use most of the proceeds of its sale of Windsor
Art, Inc., its previous framed art and mirror business, to expand the credit
reporting business and to make acquisitions in the specialty marketing,
information services and certain other businesses.
Bentley plans 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 a
consolidated credit reporting business located in Arizona. Currently, RMCR has
sales representatives in Arizona, California, Illinois, Missouri and Florida.
Management plans to expand the business nationwide. In January, 1999 RMCR hired
an experienced sales representative to build RMCR's business of selling
background reports to businesses. The initial sales effort is focused on
northern California. If successful, RMCR intends to expand its marketing efforts
throughout the country.
The Company is currently investigating other acquisition opportunities in
specialty marketing, information services and certain other industries. No other
opportunities currently under consideration have developed to the stage where
any acquisition appears likely. Management is researching acquisitions of
speciality marketing and information services 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.
Management expects these acquisitions and the expansion of the current
businesses to produce a trend toward increased net sales, revenue and income and
that there will be a high return on the Company's capital.
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 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 $1.00 per share as of March 11, 1999. The book
value of such stock as of March 31, 1999, was $2.16 per share.
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
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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 plans to
expand the credit reporting business or 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.
On July 30, 1998 the Company sold its main operating subsidiary, Windsor
Art, Inc., which represented substantially all of the operations of the Company.
Aggregate cash ultimately generated from the sale of Windsor was $6,481,000. All
of Windsor's operations have been presented as discontinued operations for all
applicable periods presented in the accompanying consolidated financial
statements.
Continuing Operations
Continuing operations consists of the activities of the credit-reporting
business segment.
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. Revenues for the
three months ended March 31, 1999 were $331,368. The corporation was not part of
the Company during the first quarter of 1998.
Operating expenses increased from $63,829 to $283,033 for the three months
ended March 31, 1999 as compared to the same period in 1998. This increase was
due to the acquisitions in 1998 of the credit reporting businesses which did not
exist in the first quarter of 1998 and increases in professional fees and costs
associated with the potential acquisitions of other business.
Investment income increased for the three months ended March 31, 1999 as
compared to the same period in 1998 due to investment earnings from the proceeds
of the sale of Windsor.
Discontinued Operations
Income from discontinued operations for the three months ended March 31,
1998 was $405,367. There is no discontinued operations for the same period in
1999. This was caused since 1998 activity ended on July 30, 1998, the date of
the sale of Windsor.
Liquidity and Capital Resources
As a result of the sale of Windsor, the Company's cash and cash
equivalents at March 31, 1999 was $5,397,042. Aggregate cash ultimately
generated from the sale of Windsor was $6,481,000. In addition, cash generated
from all operations decreased from $763,983 to ($1,175,674) for the three months
ended March 31, 1999 as compared to the same period in 1998. This decrease was
caused by a significant increase in prepaid income taxes and the payment of
accrued bonuses related to the sale of Windsor. The Company's discontinued
operations for the three months ended March 31, 1998 generated cash of $909,226
as compared to none in the same period in 1999.
Derivatives
The Company does not invest in any derivative securities.
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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, 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 expansion nationwide of the credit reporting business is planned and that
acquisitions of other information services, specialty marketing and possibly
certain other businesses are planned. 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.
General economic conditions, demand for credit reporting services, ability to
acquire businesses on acceptable terms and industry specific competitive
conditions, which include the small amount of capital needed to enter the
consolidated credit reporting industry and the availability of needed software
and one source credit reports, 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
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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.
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.
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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.
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
10
<PAGE>
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 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
11
<PAGE>
There were no matters submitted during the first 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.
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 to Registrant's Form 10-QSB dated March 31, 1998 is
incorporated herein by this reference.
3.3 Amendment to Restated Articles of Incorporation filed as Exhibit 3.3 to
Registrant's Form 10-K for the year ended December 31, 1995 is incorporated
herein by this reference.
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.
12
<PAGE>
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 U.S. Bank Trust, Bentley
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.
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.
13
<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
May 24, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1998, 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
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