SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-QSB
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001 or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-25561
BEDFORD HOLDINGS, INC.
(Name of Small Business Issuer in Its Charter)
NEW JERSEY 13-3901466
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Blaisedell Road
Orangeburg, New York 10962
(Address of Principal Executive Offices) (Zip Code)
(845) 398-1844
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
|X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 21,263,500 shares of the
Company's Common Stock, no par value, were outstanding as of May 10, 2001.
ITEM I - FINANCIAL STATEMENTS
Bedford Holdings Inc.
Consolidated Balance Sheet
As of March 31, 2001
3/31/01
ASSETS
Current assets:
Cash $51,909
Deposits with clearing broker 1,332
Prepaid expenses 2,614
-----------
Total Current Assets 55,855
Other assets:
Fixed assets (net of accumulated depreciation) 19,796
Security deposit 10,000
-----------
Total Assets $85,651
===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Short term loans payable 888,197
Interest payable 232,022
Deferred income 1,572
Accrued expenses & accounts payable 3,210
-----------
Total Current Liabilities 1,125,001
Long term note payable 100,000
Shareholders' Equity:
Common stock, $001 par value; authorized
40,000,000 shares, issued, and outstanding
21,263,500 at December 31, 2000 and March 31, 2001 21,263
Additional paid in capital 1,094,468
Treasury stock, 6,500 shares at cost (6,500)
Retained deficit (2,248,581)
-----------
Total shareholders deficit (1,139,350)
-----------
Total Liabilities & Shareholders' Equity $85,651
===========
Please see the accompanying notes to the financial statements.
Bedford Holdings Inc.
Consolidated Statement of Operations
For the Quarters Ended March 31, 2001 and March 31, 2000
3/31/01 3/31/00
Commissions and franchise revenue $30,822 $30,822
Net credit card sales 68 0
------------ ------------
Total revenues 30,890 30,822
Less administrative expenses (52,528) (57,860)
Less depreciation expense (843) (746)
------------ ------------
Loss from operations (22,481) (27,784)
Other Income (expenses):
Interest expense (38,180) (26,357)
------------ ------------
Net loss before income tax provision (60,661) (54,141)
Provision for income tax 0 0
------------ ------------
Net Loss ($60,661) ($54,141)
============ ============
Loss per common share:
Basic ($0.00) ($0.00)
Weighted average of common shares:
Basic 21,263,500 21,263,500
Please see the accompanying notes to the financial statements.
Bedford Holdings Inc.
Consolidated Statement of Cash Flows
For the Quarters Ended March 31, 2001 and March 31, 2000
3/31/01 3/31/00
Operating Activities:
Net loss ($60,661) ($54,141)
Adjustments to reconcile net income items
not requiring the use of cash:
Depreciation 843 746
Amortization 2,588 0
Changes in other operating assets and liabilities:
Deposits with clearing broker (1,139) (50,434)
Deferred income (30,441) 219,178
Short term loans payable (0) 40,000
Interest payable 37,731 25,876
Accrued expenses & accounts payable (2,178) (3,656)
--------- ---------
Net cash provided by (used by) operations (53,257) 177,569
Investing activities
Purchase of office construction 0 (11,580)
Purchase of office equipment & furniture 0 (12,382)
--------- ---------
Net cash provided by (used by) investing activities 0 (23,962)
Financing Activities:
Capital contributed by shareholder 50,000 0
--------- ---------
Net cash provided by financing activities 50,000 0
--------- ---------
Net increase (decrease) in cash during period (3,257) 153,607
Cash balance at beginning of period 55,166 63,062
--------- ---------
Cash balance at end of period $51,909 $216,669
========= =========
Supplemental disclosures of cash flow information:
Interest paid during the fiscal year $0 $406
Income taxes paid during the fiscal year $0 $0
Please see the accompanying notes to the financial statements.
Notes to the Financial Statements
Note 1: Organization of the Company
Bedford Holdings, Inc. (the Company) is a New Jersey State Corporation formed in
July 1996. The consolidated financial statements include the accounts of the
Company's wholly owned subsidiaries, Allen & Pierce Securities Inc. and BHC,
Inc.
Allen & Pierce Securities, Inc. is a New York State Corporation formed in
January 1989 for the purpose of conducting business as a broker dealer in
securities and as an introducing broker in futures and options. Allen & Pierce
Securities Inc. is registered with the National Association of Securities Dealer
as a broker dealer and with the Commodity Futures Trading Commission as an
introducing broker. The subsidiary operates under the provisions of paragraph
(k)(2)(ii) of Rule 15c3-3 of the Securities and Exchange Commission and
accordingly, is exempt from the remaining provision of the rule. Essentially,
the requirements of paragraph (k)(2)(ii) provide that the subsidiary clear all
transactions on behalf of customers on a fully disclosed basis with a clearing
broker dealer. The clearing broker dealer carries the accounts of the Company's
customers and maintains all related books and records required. Likewise, as an
introducing broker in futures and options, the Company is required to carry all
customer accounts on a fully disclosed basis with a clearing futures commission
merchant. The clearing futures commission merchant is required to maintain the
books and records that are required to service these customers.
BHC, Inc. is a New York State corporation formed in August 2000 to provide its
members various services at a discount for an annual membership fee.
Note 2: Summary of Significant Accounting Principles
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principals requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
Revenue Recognition: Commission revenues for securities and futures and options
are recorded at the closing of the underlying transaction. Membership fee
revenues are amortized over the life of the membership, which is generally one
year.
Short term loans payable: Short-term loans payable include unsecured promissory
notes due to individuals. The notes mature in 2001 with interest rates ranging
from 8.5% to 25% payable at maturity. Interest payable
includes the amount of accrued interest payable on the short-term notes as of
March 31, 2001 and December 31, 2001.
Note 3: Net Capital Requirements
The following note applies to the Company's wholly owned subsidiary, Allen &
Pierce Securities, Inc.
As a broker dealer, the Company is subject to the Securities and Exchange
Commission's Uniform Net Capital Rule 15c3-1, which requires that the ratio of
aggregate indebtedness to the excess net capital, as defined, shall not exceed
15 to 1. In addition, the Company is required to maintain net capital, as
defined, in excess of the greater of $5,000 or 6 2/3% of aggregate indebtedness.
As of March 31, 2001, the Company in excess of net capital requirements by
$42,608.
As an introducing broker, the Company is subject to the Commodities Futures
Trading Commission's Net Capital Rule 1.17 which requires the Company to
maintain net capital, as defined, of the greater of $30,000 or $3,000 per
associated person, as defined. As of March 31, 2001, the Company was in excess
of these net capital requirements by $17,608.
Note 4: Deferred Fees
In February 2000, the Company entered into an agreement to open several branch
offices in the subsidiary's name for the purpose developing brokerage commission
revenues for the Company. The fees received upon the execution of the agreement
are being amortized to other revenue over the life of the agreement. The
agreement expired in February 2001.
Note 5: Earnings per Share
The Company applies SFAS No. 128, Earnings per Share. In accordance with SFAS
No. 128, basic net income per share has been computed based upon the weighted
average of common shares outstanding during the year. All net losses reported in
the financial statements are available to common stockholders. The Company has
no other financial instruments outstanding that are convertible into common
shares.
Note 6: Litigation
The Company has no legal proceedings against it nor is aware of any pending.
With the exception of the default on short-term notes payable discussed more
fully in financial statement note 9, the Company is unaware of legal proceedings
threatened or contemplated. The Company is unaware of any unsatisfied judgements
against it.
Note 7: Fixed Assets
A summary of fixed assets at March 31, 2001 consist of the following:
Furniture and equipment $1,650
Lease improvements 22,312
Accumulated depreciation (4,166)
--------
Net fixed Assets $19,796
========
Furniture is being depreciated over the estimated life of seven years. Lease
improvements are being depreciated over the estimated useful life of the
improvement or remaining term of the lease, whichever is less.
Note 8: Long Term Debt
Long term debt consist of an unsecured note payable to a shareholder that
matures in fiscal year 2005 and is non interest bearing.
Note 9: Default on Short Term Notes Payable
The Company defaulted on short-term notes payable and accrued interest of
$82,602. The notes became due in fiscal year 2000 and carried an interest rate
of 20%. The notes payable and interest payable are unsecured and are included in
short-term noted payable and interest payable in the consolidated balance sheet
at March 31, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission,
including the Company's Registration Statement on Form 10SB, Registration No.
000-25561.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
OVERVIEW
The Company is a holding company for Allen & Pierce, a securities and
commodities broker established in 1989. Allen & Pierce recently completed
installation of an online trading system directed toward a certain niche markets
in the securities and commodities brokerage field where the Company believes it
has a competitive advantage. The online trading system became fully operational
during the third quarter of 2000. The Company has also begun a cautious
extension of its brokerage activities. During the quarter ended March 31, 2000,
the Company entered into an agreement under which an individual agreed to open
several branch offices in the name of the Company's Allen & Pierce brokerage
subsidiary for the purpose of developing brokerage commission revenues. This
agreement has not yet been reduced to writing. It required that the Company
provide various support services, including a hiring the necessary supervisors
with appropriate securities licenses to permit operations of the branches in
accordance with the requirements of the National Association of Securities
Dealers, Inc. Also during 2000, the Company established a new subsidiary BHC,
Inc., which is to provide club members with discounts on the purchase of goods
and services on presentation of a club membership card. Club membership is
available for a fee through a web site created for BHC. Plans are currently
underway to convert the membership card into a credit card through a major
credit card Company. The Company is also actively pursuing the possibility of a
merger with one or more other business entities.
RESULTS OF OPERATIONS
The Company's online brokerage service became fully operational during the
quarter ended September 30, 2000, and the Company began to accept trades through
that service. A small amount of revenue was generated from the source during the
last quarter of 2000, but there was no revenue from that source in the quarter
ended March 31, 2001. Total revenue for the three months ended March 31, 2001
was $30,890, substantially the same amount as that for the corresponding quarter
of the preceding year. Revenue for both quarters consisted virtually entirely of
amortization of the advance payment referred to below. The Company received
$250,000 during first quarter of 2000 as advance payment for the privilege of
opening several branch offices under the Company's name, and for certain support
services which the Company was to provide to those offices. Of the $250,000 the
Company recognized $30,822 in revenue during the quarter ended March 31, 2001,
all of which was related to this transaction. There were no significant related
expenses, since the services provided by the Company consisted
primarily of training furnished by regular Company employees at the Company's
offices on operation of its online trading system.
Following relocation to its new offices at the beginning of the year 2000, the
Company invested $11,580 in new office construction and purchased $12,382 in
office equipment and furniture, resulting depreciation expense of $843 for the
quarter ended March 31, 2001 and $746 for the quarter ended March 31, 2000. The
increase in interest expense from $26,357 in the 2000 quarter to $38,180 in the
2001 quarter reflects an increase in the amount of the Company's short-term
borrowings and a slightly higher average interest rate on those borrowings.
Administrative expenses remained essentially unchanged at $52,528 for the
quarter ended March 31, 2001 compared to $57,860 for the quarter ended March 31,
2000
LIQUIDITY AND CAPITAL RESOURCES
Total assets as of the close of the quarter were $85,651, compared to $91,200 as
of March 31, 2000. Of the total, only $55,855 represents current assets, whereas
total current liabilities were approximately $1.125 million.
To meet its cash requirements, the Company has found it necessary to resort to
short-term borrowing from a limited number of accredited investors. As of March
31, 2001, the amount outstanding on these borrowings aggregated $888,197, with
interest rates ranging from 8.5% to 25%, payable at maturity. The Company has
defaulted on short-term notes payable and accrued interest of $82,602. The
remaining notes became due in fiscal year 2001. In December 2000, a shareholder
lent the Company $100,000. The note payable is unsecured and matures in December
2005. It is non-interest bearing.
The Company's liquidity position remained precarious as of March 31, 2001. The
Company did realize a limited amount of revenue from its online trading
operations during the third quarter of 2000, but that revenue stream did not
continue into the first quarter of 2001. The expected expansion of its other
brokerage operations through the opening of new offices has not yet generated
any additional revenue beyond the amount initially paid for the privilege of
opening those offices. The Company began to generate revenue in the fourth
quarter of 2000 from subscriptions for its BHC card, but those revenues have
also not been material to date. If the Company is successful in adding a credit
card feature to this club card, the related fees will furnish an additional
source of revenue.
The Company continues to pursue acquisition possibilities. Changes have recently
been enacted in the law governing counter-parties in foreign exchange
transactions who are not affiliated with large financial institutions. In order
to remain exempt from regulation by the Commodities Futures Trading Corporation,
these businesses will be required to become affiliated with a bank or other
regulated entity, including a broker-dealer such as the Company's Allen & Pierce
subsidiary. The Company believes this change may present a favorable acquisition
opportunity, particularly since the Company is also registered as the futures
merchant. Discussions are being held with some of these counter-parties, but
have not led to an agreement thus far.
In the absence of substantial additional revenues, or the raising of additional
capital, the Company's ability to continue operations is dependent upon the
willingness of its short-term lenders to continue rolling over their loans to
the Company. Based on conversations with these lenders, the Company believes
that most of these lenders will continue to roll this debt over for at least the
next 12 months while the Company pursues opportunities for acquisitions.
However, they are not legally obligated to do so and there can be no assurance
that these lenders will continue to renew their loans. There is no assurance
that the holder of the Notes which are
presently in default will not commence legal action, which could make it
difficult for the Company to continue with its plans to seek an acquisition and
would most probably make it impossible for the Company to continue as a going
concern.
The Company's Allen & Pierce subsidiary is a $5,000 broker-dealer. Provided its
remaining short-term lenders remain willing to roll over their notes as they
mature, and anticipated revenues are received from the online brokerage service
and operations of BHC, the Company believes it will be able to maintain Allen &
Pierce's capital requirements for at least the next 12 months without any
additional infusion of capital.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits N/A
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEDFORD HOLDINGS, INC.
(Registrant)
Date: May 14, 2001
/s/ Leon Zapoll
------------------------------------------
Leon Zapoll
President
Date: May 14, 2001
/s/ Robert Samila
------------------------------------------
Robert Samila
Chief Financial Officer
(Principal Financial and Accounting Officer)