SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1999 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.)
90 WEST STREET
NEW YORK, NEW YORK 10005
(Address of Principal Executive Offices) (Zip Code)
(212) 385-3600
(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 |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 27,243,500 shares of the
Company's Common Stock, no par value, were outstanding as of August 9, 1999.
ITEM 1 FINANCIAL STATEMENTS
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
Six
Months
Year Ended December Ended
31 June 30,
1998 1997 1999
ASSETS
Cash $1,760,372 $40,982 $67,721
Receivables from Brokers 66,796 195,295 12,937
Fixed Assets (net of accumulated depreciation) 38,010 52,144 32,091
Other Assets 14,051 7,747 14,051
----------- ----------- -----------
Total Assets $1,879,229 $296,168 $126,800
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $8,405 $12,518 $750
Short term loans payable 2,191,531 -- 841,277
Common Stock, nonpar value, 40,000,000 shares authorized:
27,250,000 shares issued and 27,243,500 outstanding at
stated value $.001 per share, including 6,500 shares of 27,243 27,243 27,243
treasury stock
Treasury Stock (6,500) (6,000) (6,500)
Contributed Capital in excess of stated value 963,445 963,445 963,445
Retained Deficit (1,304,895) (701,038) (1,699,414)
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Total Liabilities and Stockholders' Equity $1,879,229 $296,168 $126,800
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31 Six Months Ended June 30
---------------------- ------------------------
1998 1997 1999 1998
---- ---- ---- ----
Revenues:
Commissions $ -- $ 348,480 $ 314 $ --
Interest 1,205 26,681 167 603
Trading Gain (Loss) (220,216) (254,581) (154,401) (110,108)
--------- --------- --------- ---------
Total Income (Loss) (219,011) 120,580 (153,920) (109,506)
Expenses:
Salaries 32,300 22,100 11,050 16,150
General administrative 329,843 327,377 161,394 164,922
Interest expense 9,273 -- 62,236 4,637
Depreciation 13,430 13,430 5,919 6,715
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Total expenses 384,846 362,907 240,599 192,423
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Net Income (Loss) ($603,857) ($242,327) ($394,519) ($301,929)
========= ========= ========= =========
Earnings per common share:
Basic: $ 0.02 $ 0.01 ($0.01) ($0.01)
Diluted $ 0.02 $ 0.01 ($0.01) ($0.01)
Weighted average of common shares:
Basic: 27,243,500 27,244,000 27,243,500 27,243,500
Diluted 27,243,500 27,244,000 27,243,500 27,243,500
BEDFORD HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 Six Months Ended June 30
1998 1997 1999 1998
---- ---- ---- ----
Cash flows from Operating Activities:
Net Income (Loss) $ (603,857) $ (242,328) $ (394,519) $ (301,929)
Adjustments to reconcile net income to
cash provided by operating activities;
add back depreciation expense $ 13,341 13,341 5,919 6,715
----------- ----------- ----------- -----------
Net cash used by operating activities (590,516) (228,987) (388,600) (295,214)
Cash flows from operating activites:
(Increase) decrease in broker receivable 128,499 82,631 53,859 64,250
(Decrease) increase in accounts payable (4,113) 621 (7,655) (2,057)
Increase in other assets (6,304) 3,421
(Decrease) increase in short term notes payable 2,191,531 92 (1,350,254) 1,093,010
Write off of residual fixed asset 793
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Net cash provided by operating activities 2,310,406 86,765 (1,304,051) 1,155,203
Cash flows from financing activites:
Issuance of paid in capital $ (500) (6,000) -- (500)
----------- ----------- ----------- -----------
Net cash (used) provided by financing activities (500) (6,000) -- (500)
----------- ----------- ----------- -----------
Net change in cash during period 1,719,390 (148,222) (1,692,650) 859,489
Cash Balance at begininning period 40,982.00 189,204 1,760,372 40,982
----------- ----------- ----------- -----------
Cash Balance at end of period $ 1,760,372 $ 40,982 $ 67,722 $ 900,471
=========== =========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ -- $ -- $ 40,896 $ 15,100
Taxes $ -- $ -- $ -- $ 250
BEDFORD HOLDINGS, INC. AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Consolidated)
Common Contributed Treasury Retained Total
Stock Capital Stock Earnings Capital
------- -------- ------- ----------- ---------
Balance at December 31, 1998 $27,243 $963,445 ($6,500) ($1,304,895) ($320,707)
Net Loss ($394,519)
------- -------- ------- ----------- ---------
Balance at June 30, 1999 $27,243 $963,445 ($6,500) ($1,699,414) ($715,226)
======= ======== ======= =========== =========
BEDFORD HOLDINGS INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1: ORGANIZATION
Bedford Holdings, Inc. (the Company) is a New Jersey state corporation formed in
July, 1996 for the purpose of purchasing and holding the common stock of various
companies for investment.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the
accounts of Bedford Holdings, Inc. and its wholly-owned subsidiary, Allen &
Pierce Securities Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Furniture and Fixtures. Firm assets are stated at costs and depreciation is
computed on a straight line basis over the estimated useful life of the
underlying assets, which range from 3 to 10 years. All major additions are
capitalized. Maintenance, repairs, and minor improvements are expensed as
incurred.
Treasury Stock. The Company uses the cost method in the recording of the
purchase of treasury stock. During 1997 and 1998, the Company purchased 6,500
shares of its common stock for $6,500.
NOTE 3: NET CAPITAL REQUIREMENTS
The following note applies to the Company's wholly-owned subsidiary, Allen &
Pierce Securities, Inc.
(A) 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 lesser of $100,000 or 6 2/3% of aggregate
indebtedness. As of June 30, 1999, the Company was deficient of net capital
requirements by $46,477 and had an aggregate indebtedness to capital excess net
capital ratio of negative 383%. The Company infused capital of $100,000 in July
1999 and as of the date of this report is in compliance with net capital
requirements as defined above.
(B) As in 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 lesser of $30,000 or $3,000 per
associated person, as defined. As of June 30, 1999, the Company was in excess of
these net capital requirements by $23,522.
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. For its initial two years, Allen &
Pierce carried out a general securities and commodities brokerage business. With
the disintegration of the former USSR and the opening of the Russian economy in
the early 1990s the Company saw an opportunity to take advantage of its
President's language and knowledge of the former USSR to develop a new source of
brokerage business. Mr. Zapoll, the President, traveled extensively in Russia
and Uzbekistan in the early 1990s and was successful in developing a significant
number of new trading accounts which, over the next several years yielded
substantial commission revenues. With the turmoil in the Russian economy of the
mid to late 1990s Russian government prohibited Russian citizens from
maintaining securities and commodities trading accounts abroad. This
restriction, coupled with substantial losses suffered by certain of the
Company's customers, resulted in a precipitous drop in the Company's commission
revenues. In 1997, seeking to replace the lost commission revenues, the Company
turned to commodities trading for its own account. However, in part because of
its limited capital, its trading activities generated losses rather than gains.
In late 1997 the Company began to develop a two pronged business strategy. The
first prong of this strategy was to use the Company's "window to Wall Street" as
a broker-dealer to open access to the U.S. capital markets for the many private
business enterprises with a serious and immediate need for capital. This portion
of the strategy is "on hold" because of current unsettled conditions in the
region. The second prong of the strategy is to install and 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.
RESULTS OF OPERATIONS
The major factor affecting the Company's results of operations for the six
months ended June 30, 1999 was a charge taken for a trading loss of $154,401
which the Company discovered after the close of the second quarter it had
incurred some time earlier.
The Company had ceased proprietary trading for its own account in early
1999 and does not intend to engage in such trading in the future. However, in
May of 1997 Allen & Pierce had
transferred $150,000 to an account maintained by Annesley Co., Ltd., an
investment fund, with INCOMBANK Cyprus. The purpose of the transfer was to
purchase Russian government treasury bills. In August, 1998 when the price of
Russian government securities declined precipitously the Company had made
inquiries about its potential loss and was informed that the $150,000 had not
been used to purchase Russian treasury bills but was instead held in cash in
U.S. dollars. Thereafter the Company received letters every six months from
Annesley confirming that the $150,000 originally transferred remained in its
account awaiting instructions. Based on these confirmations, the Company
continued to carry the $150,000 account as an asset on its balance sheet and
Allen & Pierce continued to the carry the account as an asset in computing its
compliance with net capital requirements.
On July 29, 1999 the Company was informed in the course of an NASD
inspection that INCOMBANK Cyprus was in liquidation. The Company requested a
return of the balance in its account and was informed for the first time that
the $150,000 had in fact been applied to buy Russian government treasury bills,
and that the investment was substantially worthless.
As a result of the newly discovered loss, and unbeknownst to the Company,
Allen & Pierce had not been in compliance with its net capital requirements
during the period from December, 1998 through June 30, 1999. On July 28, 1999,
the day before learning of the deficiency, Bedford Holdings, Inc., had made a
$95,000 a capital contribution to Allen & Pierce. On learning of the deficiency,
Bedford Holdings, Inc. deposited an additional $5,000, so that at the present
time Allen & Pierce is in compliance with its capital requirements.
The $314 in revenue recorded by the Company during the six months ended
June 30, 1999 represented commissions on orders which the Company received on an
unsolicited basis from a single customer. It had had no revenue during the
corresponding six months of 1998.
Interest expense of $62,236 during the six months ended June 30, 1999 as
against $4,637 during the corresponding six months of 1998 reflected an increase
in the short-term borrowings referred to below. The Company had not done any
such borrowing in the first quarter of 1998.
The Company is not presently soliciting new brokerage accounts pending
completion of the installation of its online trading system. Its only source of
revenue is limited amounts of brokerage commissions generated through
unsolicited orders of one substantial customer. This situation is expected to
continue until installation of the proposed online trading system has been
completed. The Company expects that this will occur by the end of calendar 1999.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in total assets to $126,800 from $1,879,229 as of December
31, 1998 reflects the write-off of $154,401 in trading losses described above
(which had been carried as a receivable from broker) and repayment of borrowed
funds during the first quarter of 1999.
The elimination of commission revenues commencing in mid-1997 severely
impacted the Company's liquidity. In order to sustain its operations while the
Company began implementing its new business strategy, the Company found it
necessary to resort to short-term borrowing.
During the period from April, 1998 through January 31, 1999, the Company had
issued unsecured promissory notes in an aggregate principal amount of
approximately $2.2 million to 6 accredited investors, including one corporation
and 5 individuals. The terms of these notes ranged from 1 month through 1 year
and the notes bore interest at prime except for $25,000 in principal amount
which bore interest at 20%. As of December 31, 1998 the aggregate amount of such
notes outstanding was $2,191,531. During the quarter ended March 31, 1999 the
Company repaid a substantial amount of the short term borrowing it had done
during the year ended December 31, 1998. The bulk of these funds had been
retained in the Company's bank account, and repayment of the loans was made from
this source. The Company determined that in view of its having ceased trading
for its own account the proceeds of these additional borrowings were not
required for liquidity purposes. During the second quarter of 1999 it increased
these borrowings slightly so that the balance as of June 30, 1999 was $841,277.
As of June 30, 1999 the Company's liquidity position was precarious. 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 they will continue to roll this debt over for at least the next 12 months
while the Company completes installation of its online trading system. However,
they are not legally obligated to do so and there can be no assurance that these
lenders will continue to renew their loans. If all of such lenders were to
require payment in full of such loans at maturity rather than rolling them over,
the Company would be able to maintain the minimum capital requirements of Allen
& Pierce for only about six months, after which Allen & Pierce Securities, Inc.
would be forced to terminate its operations as a broker-dealer or to become a
$5,000 broker-dealer as described below. Any such termination would severely
impact the Company's ability to carry out its plan of operations and to continue
as a going concern.
The Company is at the present time a $100,000 broker-dealer under SEC and
NASD regulations. However its recent operations and expected operations during
the near future do not require it to remain a $100,000 broker-dealer. Should it
become necessary, the Company could reduce its net capital requirements to
$5,000 by becoming a $5,000 broker-dealer through an agreement with the NASD
limiting by contract the activities in which it can engage. If the Company were
to make this change it would be able to maintain Allen & Pierce's capital
requirements for at least the next 12 months without any additional infusion of
capital. The Company has no present intention to make this change.
PART II -- OTHER INFORMATION
Item 5. Other Information
Change in Control.
In July, 1999 Mr. Leon Zapoll, the Company's President, transferred all of the
common stock in the Company held by him (94.1 percent of the outstanding capital
stock) to his wife, Olga Filippova, by gift.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
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27 Financial Data Schedule.
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: August 9, 1999
/s/ Leon Zapoll
-----------------------------------
Leon Zapoll
President
Date: August 9, 1999
/s/ Robert Samila
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Robert Samila
Chief Financial Officer
(Principal Financial and Accounting
Officer)