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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended March 31, 2000
Commission File No. 000-28523
BEVERLY HILLS LTD., INC.
-------------------------------------
(Exact name of Registrant as specified in its Charter)
Utah 87-0281305
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16 N. Fort Harrison, Clearwater, Florida 33755
- ----------------------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (727) 298-8771
- --------------------------------------------------- --------------
Former name, former address and former fiscal year,
if changed since last report: None
----------------------------------------------------
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 a 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 [ ]
As of August 2, 2000, there were 18,379,327 shares of Common Stock, $.001 par
value outstanding.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
BEVERLY HILLS LTD., INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
------------------- ---------------------
(Unaudited)
CURRENT ASSETS
Cash $ 46,922 $ 34,692
Accounts receivable 290,046 126,608
Due from affiliated companies 75,000 75,000
Inventories 391,299 448,027
Prepaid advertising 3,236,122 1,832,025
------------------- ---------------------
TOTAL CURRENT ASSETS 4,039,389 2,516,352
PROPERTY & EQUIPMENT
Furniture, fixtures and equipment 148,310 136,724
Computer equipment and software 803,927 777,655
Leasehold improvements 23,282 23,282
Less: allowance for depreciation (556,962) (493,686)
------------------- ---------------------
418,557 443,975
------------------- ---------------------
OTHER ASSETS
Investment 55,000 55,000
Goodwill, net 3,405,185 3,044,567
Deposits 9,468 10,594
------------------- ---------------------
3,469,653 3,110,161
------------------- ---------------------
$ 7,927,599 $ 6,070,488
=================== =====================
The Notes to Consolidated Financial Statements are an integral part of these Statements.
2
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
2000 1999
------------------- ------------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,429,562 $ 2,243,176
Accrued interest 176,614 101,790
Due to affiliate companies -0- 141,192
Loans payable to affiliates 737,872 537,968
Line of credit 423,520 423,520
Current maturities of long-term debt 22,153 21,863
------------------
-------------------
TOTAL CURRENT LIABILITIES 3,789,721 3,469,509
------------------- ------------------
LONG TERM LIABILITIES
Notes payable to stockholders 1,009,495 863,871
Notes payable, net of current maturities 1,917,441 1,529,198
------------------- ------------------
2,926,936 2,393,069
------------------- ------------------
STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Preferred stock, par value $0.001 per share:
Authorized - 25,000,000 shares -0- -0-
Issued and outstanding shares -0- -0-
Convertible Preferred Stock, Series A,
par value $.001 per share:
Authorized - 1,500,000 shares -0- -0-
Issued and outstanding shares -0- -0-
Cumulative Convertible Preferred Stock, Series B
par value $.001 per share:
Authorized - 1,500,000 shares -0- -0-
Issued and outstanding shares -0- -0-
Common stock, par value $0.001 per share:
Authorized - 50,000,000 shares -0- -0-
Issued 15,475,957 & 15,123,042 and
outstanding 16,095,957 & 15,245,957 15,477 15,124
Additional paid-in capital 8,696,206 7,698,283
Additional paid-in capital - stock options 3,092,575 1,838,900
Additional paid-in capital - warrants 11,250 -0-
Additional paid-in capital - stock payable 1,610,000 263,275
Accumulated other comprehensive income 36,189 11,567
Accumulated deficit (12,250,755) (9,619,239)
------------------- ------------------
1,210,942 207,910
------------------- ------------------
$ 7,927,599 $ 6,070,488
=================== ==================
The Notes to Consolidated Financial Statements are an integral part of these Statements.
3
Consolidated Statements of Operations
Beverly Hills Ltd., Inc.
For Three Months Ended
March 31,
-------------------------------------------------
2000 1999
------------------- ------------------
Unaudited Unaudited
SALES $ 529,675 $ 276,518
COST OF SALES 344,745 147,417
------------------- ------------------
GROSS PROFIT 184,930 129,101
OPERATING EXPENSES
Advertising 384,944 107,167
Amortization and depreciation 270,458 40,364
Insurance 12,985 14,151
Licenses and permits 105 308
Office expenses 16,102 9,551
Professional fees 1,113,344 241,976
Rental expense 28,744 18,734
Compensation expense 669,636 581,648
Bad debt expense 99,872 0
Foreign currency 44,153 0
Interest expense 80,643 19,519
Service charges 8,416 3,827
Travel and entertainment 23,386 1,405
Utilities 19,890 9,907
Miscellaneous 43,768 20,246
------------------- ------------------
Total operating expense 2,816,446 1,068,803
------------------- ------------------
NET LOSS $ (2,631,516) $ (939,702)
=================== ==================
NET LOSS PER SHARE $ (.17) $ (.08)
=================== ==================
DILUTED LOSS PER SHARE $ (.16) $ (.07)
=================== ==================
WEIGHTED AVERAGE COMMON SHARES 15,586,031 12,038,466
=================== ==================
WEIGHTED AVERAGE DILUTED SHARES 16,211,476 12,360,125
=================== ==================
The Notes to Consolidated Financial Statements are an integral part of these Statements.
4
Consolidated Statements of Stockholder's Equity (Deficit) - Unaudited
For the three Months Ended March 31, 1999 and 2000
BEVERLY HILLS LTD., INC.
Paid in Capital Accumu-
---------------------------------------- lated
Common Stock Other
------------------- (Discount Compre- Acumu-
No. of on Common (Stock (Stock hensive lated
Shares Amount Stock) Options) (Warrants) Payable) Income (Deficit) Total
---------- ------- ---------- -------- --------- --------- ------- ------------ ---------
Balance at January 1, 1999 11,568,134 $11,568 $ 685,944 $ -0- $ -0- $ -0- $11,567 $(1,481,346) $ (783,834)
January 1999, stock issued
for services 344,212 345 346,767 -0- -0- -0- -0- -0- 347,112
March 1999, stock issued
for cash 962,000 962 1,176,038 -0- -0- -0- -0- -0- 1,177,000
March 1999, stock issued
for acquisition 80,606 81 664,919 -0- -0- -0- -0- -0- 665,000
Options issued in the period
ended March 31, 1999 -0- -0- -0- 114,000 -0- -0- -0- -0- 114,000
Stock outstanding for acquisition
and services at March 31, 1999 -0- -0- -0- -0- -0- 2,551,664 -0- -0- 2,551,664
Net loss for the quarter ended
March 31, 1999 -0- -0- -0- -0- -0- -0- -0- (939,702) (939,702)
---------- ------- ---------- -------- ------- ---------- ------- ----------- ------------
Balance at March 31, 1999 12,954,952 $12,956 $2,873,668 $114,000 $ 0 $2,551,664 $11,567 $(2,421,048) $ 3,131,240
========== ======= ========== ======== ======= ========== ======= =========== ============
The Notes to Consolidated Financial Statements are an integral part of these Statements.
5
Paid in Capital Accumu-
---------------------------------------- lated
Common Stock Other
------------------- (Discount Compre- Acumu-
No. of on Common (Stock (Stock hensive lated
Shares Amount Stock) Options) (Warrants) Payable) Income (Deficit) Total
---------- ------- ---------- -------- --------- --------- ------- ------------ ---------
Balance at January 1, 2000 15,123,042 $15,124 $7,698,283 $1,838,900 $ -0- $ 263,276 $11,567 $(9,619,239) $ 207,911
January 2000, stock issued
for services 60,000 60 59,940 -0- -0- (60,000) -0- -0- 0
January 2000, stock issued
for services 6,575 7 6,569 -0- -0- (6,576) -0- -0- 0
January 2000, stock issued
to retire debt 36,340 36 181,664 -0- -0- (181,700) -0- -0- 0
February 2000, stock issued
for acquisition 250,000 250 749,750 -0- -0- -0- -0- -0- 750,000
February 2000, warrants issued
attached to notes payable -0- -0- -0- -0- 11,250 -0- -0- -0- 11,250
Options issued in the period
ended March 31, 2000 -0- -0- -0- 1,253,675 -0- -0- -0- -0- 1,253,675
Stock outstanding in exchange
for services at March 31, 2000 -0- -0- -0- -0- -0- 1,595,000 -0- -0- 1,595,000
Foreign currency translation
adjustment -0- -0- -0- -0- -0- -0- 24,622 -0- 24,622
Net loss for the quarter ended
March 31, 2000 -0- -0- -0- -0- -0- -0- -0- (2,631,516) (2,631,516)
---------- ------- ---------- ---------- -------- ---------- ------- ------------ -----------
Balance at March 31, 2000 15,475,957 $15,477 $8,696,206 $3,092,575 $ 11,250 $1,610,000 $36,189 $(12,250,755) $ 1,210,942
========== ======= ========== ========== ======== ========== ======= ============ ===========
The Notes to Consolidated Financial Statements are an integral part of these Statements.
6
Statements of Cash Flows
BEVERLY HILLS LTD., INC.
For Three Months Ended
March 31,
---------------------------------------------
2000 1999
----------------- -----------------
Unaudited Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,631,516) $ (939,702)
Adjustments to reconcile net loss
to net cash used by operating activities:
Common stock issued for services 66,576 347,112
Common stock rights issued for services 2,611,650 190,644
Amortization & depreciation 270,458 40,364
Foreign currency translation adjustment 24,622 0
Decrease (increase) in:
Accounts receivable (163,438) (225,302)
Due from affiliates 0 (295,260)
Inventory 56,728 67,818
Other assets, current (1,403,597) 5,007
Other assets, noncurrent 182,826 21,989
Increase in:
Accounts payable and accruals 186,386 219,383
Accrued interest 74,824 (61,428)
Other liabilities 240,412 (522,438)
----------------- -----------------
Total adjustments 2,147,447 (212,111)
----------------- -----------------
Net cash used by operating
activities (484,069) (1,151,813)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (37,858) (70,558)
Acquisition of subsidiaries 0 (250,000)
----------------- -----------------
Net cash used by investing
activities (37,858) (320,558)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 0 (31,850)
Proceeds from loans 534,157 501,354
Proceeds from issuance of common stock 0 1,177,000
----------------- -----------------
Net cash provided by
financing activities 534,157 1,646,504
----------------- -----------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 12,230 174,133
CASH AND CASH EQUIVALENTS ( OVERDRAFT)
AT THE BEGINNING OF PERIOD 34,692 (41,310)
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 46,922 $ 132,823
================ =================
The Notes to Consolidated Financial Statements are an integral part of these Statements.
7
Statements of Cash Flows - Continued
BEVERLY HILLS LTD., INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
For Three Months Ended
March 31,
---------------------------------------------
2000 1999
----------------- -----------------
Unaudited Unaudited
INTEREST PAID $ 5,819 $ 80,947
================ =================
ACQUISITION OF SUBSIDIARIES
During the period ended March 31, 1999
Pro's Edge Golf Shoes Focused Total
--------------- --------------- ---------------- -----------------
Goodwill $ 176,007 $ 786,995 $ 2,490,512 $ 3,453,514
Assets acquired 160,782 457,438 546,147 1,164,367
Liabilities acquired (136,789) (344,433) (379,959) (861,181)
Stock to be issued -0- (665,000) (2,656,700) (3,321,700)
Notes payable issued -0- (185,000) -0- (185,000)
--------------- --------------- ---------------- -----------------
Net cash $ 200,000 $ 50,000 $ 0 $ 250,000
=============== =============== ================ =================
During the period ended March 31, 2000
Keynote
----------------
Goodwill $ 749,500
Assets acquired 500
Liabilities acquired -0-
Stock issued (750,000)
Notes payable issued -0-
----------------
Net cash $ -0-
================
The Notes to Consolidated Financial Statements are an integral part of these Statements.
8
Notes to Consolidated Financial Statements
BEVERLY HILLS LTD., INC.
March 31, 2000
Note A - Summary of Significant Accounting Policies
Organization
Beverly Hills Ltd., Inc. (the Company) was first incorporated in Utah on April
29, 1939 as Ophir Queen Mines Company. On June 15, 1974, Ophir Queen Mines
Company changed its name to Hawk International. The Company had substantial
operations until March 15, 1996 when the Company discontinued operations and
entered the Development Stage. Hawk International changed its name to Beverly
Hills Country Club on February 28, 1998. Beverly Hills Country Club then changed
its name to Beverly Hills Ltd., Inc. on August 13, 1998.
The Company was a developmental stage company from March 15, 1996 to December
31, 1998 as defined in Financial Accounting Standards Board Statement No. 7. The
Company elected not to be a developmental stage company in 1999 due to the
acquisitions of the subsidiaries.
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, HMW Golf d/b/a The Hanlon Group, a shell, Golf Shoes
Plus, Inc., a retail and internet golf company, Pro's Edge Wholesale, Inc., a
wholesale golf company, Focus Media Limited, involved in digitalization of
information for dissemination, distribution and promotion through digital media
and Keynote Acquisition Corporation. All intercompany transactions have been
eliminated.
Accounting Method
The Company recognizes income and expense on the accrual basis of accounting.
Cash and Equivalents
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Property and Equipment
All property and equipment is recorded at cost and depreciated over their
estimated useful lives, which is three years for computers and website
development costs, five to ten years for furniture and equipment and ten years
for leasehold improvements, using the straight-line method. Depreciation expense
for the three months ended March 31, 2000 and 1999 totaled $63,854 and $239
respectively.
9
Investment
The Company has a less than twenty percent investment in the equity of an
investee. The Company accounts for the investment using the cost method.
Inventory
Inventory is stated at the lower of cost or market using the first-in, first-out
method.
Goodwill
Goodwill is amortized on the straight-line basis over four years. Amortization
expense of goodwill for the three months ended March 31, 2000 and 1999 was
$206,604 and $40,125 respectively.
Income Taxes
The Company accounts for income taxes under the liability method. Under this
method, deferred income taxes are recorded to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income taxes.
Prepaid Advertising
Prepaid advertising consists of advertising, valued by the advertising agency at
$2,011,250, that was purchased by the Company in exchange for 250,000 shares of
common stock. The market value at July 30, 1999 was $7.56 per share. The
contract was valued and recorded at the stock price which gave a total value of
$1,890,625. Advertising is expensed when the advertisement is first run. During
the three months ended March 31, 2000 and 1999, the Company expensed $72,257 and
zero, respectively, of advertising expense associated with the prepaid
advertising. The advertising can be used by the Company at any time.
On November 15, 1999 Beverly Hills Ltd., Inc. entered into an advertising
agreement whereby the Company was to issue 600,000 shares of stock in exchange
for advertising valued by the advertising agency at $2,400,000. The Company
recorded the transaction as prepaid advertising worth $1,590,000, which was
equal to the market price of the stock at the date of the contract. The market
price of the stock on November 15, 1999 was $2.65 per share. During the three
months ended March 31, 2000 and 1999, the Company expensed $113,646 and zero,
respectively, of the prepaid advertising cost. The advertising can be used by
the Company at any time. The stock was not issued as of March 31, 2000 but was
outstanding. The stock to be issued, valued at $1,590,000, is included in
additional paid-in capital -- stock payable. The remaining $20,000 in stock
payable is payable to affiliates.
10
Reclassifications
Reclassification of certain amounts in the 1999 consolidated financial
statements have been made to conform to 2000 presentation. The reclassifications
did not have a material impact on the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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 could differ from those estimates.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted EPS is
computed in the same manner, except the number of weighted average shares
outstanding is adjusted for the number of additional common shares that would
have been outstanding if the potential common shares had been issued. The
following table represents the earnings per share calculations for the three
months ended March 31, 2000 and 1999.
Per
Net Share
Loss Shares Amount
---- ------ ------
March 31, 2000
Basic earnings per share $(2,631,516) 15,583,031 $ (.17)
Dilutive securities -0- 628,445 .01
----------- ---------- -------
Diluted earnings per share $(2,631,516) 16,211,476 $ (.16)
=========== ========== =======
March 31, 1999
Basic earnings per share $ (939,702) 12,029,299 $ (.08)
Dilutive securities -0- 330,826 .01
----------- ---------- -------
Diluted earnings per share $(1,095,032) 12,360,125 $ (.07)
=========== ========== =======
Note B - Acquisition of Subsidiary
On January 27, 2000, the Company acquired Keynote Acquisition Corporation
(Keynote) by exchanging 250,000 shares of the Company's stock for 5,000,000
shares of Keynote's stock. The Company is required to provide enough shares that
are equal to $500,000 within one year of the acquisition date. The acquisition
was accounted for under the purchase method.
11
Keynote has no operations or equity but is currently reporting to the Securities
and Exchange Commission.
Note C - Advances and Loans Payable to Stockholders and Others
Stockholders of the Company, officers and affiliates of the Company made
multiple loans to the Company to fund working capital. Loans in the amount of
$637,872 and $537,968 at March 31, 2000 and December 31, 1999, respectively,
have no stated interest rate and are due on demand.
On March 1, 2000 a director of the company loaned the Company $100,000 on a
short term note due on May 1, 2000 with ten percent interest. Currently the
Company has not repaid the note and since May 1, 2000 the note has been accruing
interest at the rate of fifteen percent. The note is secured by the assets of
the Company. The director has not called the note as of the present date.
Accrued interest on this note at March 31, 2000 was $820.
A stockholder of the Company loaned the Company $498,871 at March 31, 2000 and
December 31, 1999. These loans are secured by the assets of the Company. The
notes accrue interest at ten percent per annum. Interest is due monthly. The
balance of accrued interest at March 31, 2000 and December 31, 1999 was $42,155
and $31,638. The note plus accrued interest is due on April 30, 2001 or upon an
event of default, as defined, or a private placement or public offering.
Another stockholder of the Company loaned the Company $55,000 and $25,000 as of
March 31, 2000 and December 31, 1999, respectively. The note accrues interest at
ten percent per annum. The balance of accrued interest at March 31, 2000 was
$2,375. The note plus accrued interest is due on April 19, 2001.
The Company had loans from two stockholders in the amounts of $200,000 and
$255,625 as of March 31, 2000, of which $200,000 and $140,000 respectively, was
outstanding at December 31, 1999. Both accrue interest at ten percent per annum.
At March 31, 2000, the balance of accrued interest was $19,658 and $14,179,
respectively. At December 31, 1999 the balance of accrued interest was $14,685
and $8,888, respectively. The loans are due on October 5, 2001 and July 14,
2001.
Note D - Lines of Credit
The Company has a line of credit with an investment company. The line is for a
maximum of $2,500,000 and accrues interest at twelve percent. At March 31, 2000,
the Company had $353,476 outstanding under the line and accrued interest of
$34,928. The line of credit expired on April 1, 2000. The Company extended the
repayment of the note by issuing a $400,000 note payable and accrued interest to
the investment company which is due by July 31, 2000. The balance on the line of
credit has not changed as of the present.
Golf Shoes Plus has a line of credit with a bank that provides a credit
commitment of $75,000 available for working capital in the ordinary course of
business. The outstanding balance bears interest at eight and three-quarters
percent and is personally guaranteed by an officer of the
12
Company. The Company's borrowings against this commitment was $70,044 at March
31, 2000 and December 31, 1999.
Note E - Notes Payable
The Company had the following notes payable:
March 31, December 31,
2000 1999
---------- ----------
Installment note payable for working capital. The
note is secured by assets of the Company and
accrues interest at 10% with balance due May 31,
2001. The commitment is through an institution
that is wholly-owned by the majority stockholder. $1,868,276 $1,481,158
At March 31, 2000 the Company had an unsecured
commercial loan from a bank. Monthly payments of
$1,250 plus interest at 1% plus the bank's prime
rate plus 1% with final payment due August 13,
2002. 35,002 38,752
At March 31, 2000 the Company had a note payable to
a financial institution. The note is secured by
equipment and a personal guarantee of an officer
of the Company. The note is payable in monthly
principal and interest installments with final
payment due March, 2003. The interest rate is 9%. 36,316 31,151
---------- ----------
1,931,594 1,551,061
Current portion 22,153 21,863
---------- ----------
Long-term portion $1,917,441 $1,529,198
========== ==========
13
Future maturities of long-term debt are as follows:
Year Ending
March 31, Amount
2000 $ 22,153
2001 1,887,667
2002 14,524
2003 15,250
-------------
$ 1,931,594
Note F - Stock Restrictions
Certain shares of common stock have been issued to officers or employees of the
Company. These shares are considered restricted and cannot be sold for two
years. Restricted shares totaled 10,792,618 at March 31, 2000 and 11,014,033 at
December 31, 1999.
Note G - Related Party Transactions
The Company had receivables from affiliated companies that are owned by officers
of the subsidiaries at March 31, 2000 in the amount of $5,345 and December 31,
1999 in the amount of $7,564 which are included in accounts receivable.
On January 20, 2000 the Company issued 36,340 shares of its stock valued at $5
per share to various creditors, some of whom are affiliates, of Global Golf,
Ltd. The transaction was recorded as an intercompany loan of $181,700 from
Beverly Hills Ltd., Inc. to its subsidiary, Focused Media Ltd., which owns
Global Golf Ltd.
Note H - Stock Options
On January 11, 2000, the Company issued stock options to a member of the board
of directors. The Company granted 250,000 stock options with a strike price of
$1.50 per share. The shares may be exercised at any time through January 11,
2005.
On February 1, 2000, the Company issued stock options to an attorney in payment
of fees. The Company granted 75,000 stock options with a strike price of $1.50
per share. The shares may be exercised at any time through February 1, 2005.
On February 1, 2000, the Company issued stock options to an attorney in payment
of fees. The Company granted 75,000 stock options with a strike price of $1.50
per share. The shares may be exercised at any time through February 1, 2005.
On February 28, 2000, the Company issued stock options to a company in
conjunction with the issuance of stock to the Company. The Company granted
25,000 options with a strike price of $2.00 per share. The shares may be
exercised at any time through February 28, 2005.
14
On March 1, 2000, the Company issued stock options to a company in conjunction
with the lending of funds to the Company. The Company granted 50,000 options
with a strike price of $1.50 per share. The shares may be exercised at any time
through March 1, 2005.
A summary of the Company's outstanding stock options at March 31, 2000 and
December 31,1999 and the changes during the respective periods then ended is as
follows:
March 31, 2000 December 31, 1999
------------------------ -------------------
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning
of period 3,370,900 $.05-7.00 -0- $ -0-
Granted 475,000 .05-2.00 3,370,900 .05-7.00
Vested 50,000 5.00
Exercised -0- -0-
--------- ----------
At end of period 3,895,900 .05-7.00 3,370,900 .05-7.00
--------- --------- ----------
Exercisable at March 31, 2000 3,823,400 $.05-7.00
========= =========
In accordance with the provision of SFAS No. 123, Accounting for Stock-Based
Compensation, the Company has elected to continue to record compensation cost
under Accounting Principles Board Opinion (APB) No. 25 and, accordingly, does
not recognize compensation cost for options granted at or above market value of
the related stock. The Company had outstanding stock options payable of
$3,092,575 and $1,838,900 at March 31, 2000 and December 31, 1999, respectively,
which represent the value of options issued below fair market value.
Note I - Commitments and Contingencies
Litigation
The Company, Marc Barhonovich, Steven Velte and Michael Hanlon, an officer of
Global Golf, are defendants in an action pending in the United States District
Court for the Northern District of Georgia brought by NBC Sports International
Limited. The parties have settled this matter and it will be dismissed upon the
Company fully performing its obligations under the terms of the settlement
agreement. The Company is required to pay a remaining $400,000 for advertising
they had used in connection with an earlier agreement with CNBC Sports
International Limited. Through March 31, 2000 the Company had paid $100,000 to
CNBC leaving a balance accrued of $300,000 still owing at that time. Subsequent
to March 31, 2000 the remaining balance of $300,000 has been paid.
The Company and one of its stockholders, Lehigh Enterprise, Ltd. (Lehigh) are
plaintiffs in a lawsuit against Friss Asset Management Company (Friss), an
associated individual, Irvin
15
Freedman, The Grand Master Company, Chautauqua Asset Management Company, and New
Generation Polymers, LLC which is pending in the U.S. District Court for the
Middle District of Florida, Tampa Division, Civil Case No. 99-2286-CIV-26C. This
lawsuit arises from (a) certain abortive acquisition transactions, pursuant to
which the Company would have acquired various companies, including The Grand
Master Company, Chautauqua Asset Management Company and New Generation Polymers,
LLC, in exchange for stock and capital funding to be provided by the Company to
each of the companies to be acquired; and (b) an aborted financing transaction
pursuant to a separate agreement between Lehigh and Friss, in which Lehigh
agreed to furnish 1,600,000 of its shares in the Company to Friss as
consideration for $8,000,000 of capital funding to be provided by Friss to the
Company.
The Company declined to conclude the acquisition transactions because
information and documentation necessary and material to the transactions, and
which were to have been provided pursuant to the acquisition agreements, were
never forthcoming, and because the companies to be acquired were found by the
Company not to be as represented. Lehigh declined to transfer any of its shares
in the Company to Friss because of the foregoing, and because Friss did not
provide $8,000,000 in capital funding to the Company as agreed.
In the lawsuit, the Company seeks to rescind the relevant acquisition agreements
and the agreement between the Company and Friss, based upon fraud in the
inducement, and also seeks damages for breach of each of those agreements. The
defendants have filed counterclaims in which they allege breach of the subject
agreements by The Company and seek monumental damages totaling $128,000,000. The
Company believes the counterclaims to be wholly without merit or subject to
valid defenses based upon, among other things, fraud in the inducement and
material breaches by the opposing parties. The lawsuit is now in the discovery
phase.
On January 26, 1999, the Company concluded its acquisitions of two of its
present subsidiaries, Golf Shoes Plus, Inc. and Pro's Edge Wholesale, Inc.
(respectively, GSP and PEW) from their former stockholder, Randall J. (Hap)
Personett. The Company has certain outstanding obligations, in cash and also,
possibly, additional (restricted) shares of the Company's common stock,
representing the balance of the consideration which it agreed to pay for GSP.
The Company believes the cash portion of its remaining obligation to Mr.
Personett for the acquisition of GSP to be in the approximate amount of
$185,000. The Company and Mr. Personett agree that the number of additional
shares of the Company's common stock to which Mr. Personett is entitled totals
232,335 shares.
Mr. Personett has also asserted that he is entitled to (a) payment by the
Company of unpaid salaries pursuant to Beverly Hills' guarantee of his
Employment Agreements with GSP and PEW; (b) payment by GSP and PEW of unpaid
rents on business premises of which he is the lessor and GSP and PEW are the
lessees; and (c) payment or reimbursement of other sums which he claims to have
advanced to GSP and/or PEW or paid on their behalf since January 26, 1999.
In the first of these lawsuits referenced above, GSP, PEW and the Company have
sued Mr. Personett for breach of his Employment Agreements with GSP and PEW and
for breach of his fiduciary obligations to GSP, PEW and Beverly Hills, and seek
both damages and injunctive
16
relief. In the second (Mr. Personett's Circuit Court suit), Mr. Personett seeks
damages against the Company for alleged breaches of the Stock Purchase Agreement
relating to the Company's acquisition of GSP, including principally the
Company's failure to pay the balance of the cash and stock representing the
agreed consideration for that company. He also seeks to recover his alleged
unpaid salaries from GSP, PEW and the Company. Finally, in the third (Mr.
Personett's County Court suit), Mr. Personett seeks judgment for possession of
the business premises of which he is the lessor and GSP and PEW are the lessees;
the imposition and foreclosure of a landlord's lien against GSP's and PEW's
assets for unpaid rents and other damages together with interest, costs and
attorney's fees.
Among its defenses to Mr. Personett's claims, the Company, GSP and PEW have
noted that Mr. Personett has continued to be in charge of the business
operations of those corporations notwithstanding their acquisition by the
Company and have asserted that any failure on the part of GSP and PEW to meet
their obligations for salaries and rents have been attributable to Mr.
Personett's mismanagement, neglect and/or malfeasance.
Notwithstanding that these lawsuits are being actively prosecuted and defended
by both sides, there is continuing communications between the parties in an
effort to achieve amicable resolutions.
In May 2000, the Company infused approximately $177,000 into GSP. The funds were
used to pay various vendors and to pay down the balances on a bank loan and
GSP's line of credit.
Note J - Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has minimal assets, has
lacked working capital for the past several years, and is dependent upon
financing to continue operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Management
is currently seeking adequate financing to continue operations of the Company
and its Subsidiaries.
Note K - Subsequent Events
On May 12, 2000, the Company assumed the lease of two golf stores at an airport
location. They also obtained the rights to open golf stores in other airports.
They also assumed the inventory line of credit not to exceed $150,000 in
exchange for the lease agreement and rights, Beverly Hills has agreed to
exchange one and one-half percent of the stock of Focus Media Limited. The
Company also agreed to issue 250,000 shares of restricted stock. The restriction
will be lifted at the rate of 62,500 shares for every three months the agreement
is in effect. The agreement may be terminated if the Company does not secure a
minimum of $2,500,000 in funding by July 31, 2000.
On May 12, 2000, the Company agreed to purchase logos to be used in connection
with merchandise sold at the golf stores discussed above. The Company has agreed
to exchange one and one-half percent ownership in Focus Media Limited. The
Company also agreed to issue 250,000 shares of restricted stock. The restriction
will be lifted at the rate of 62,500 shares for every three months the agreement
is in effect. The agreement may be terminated if the Company does not secure a
minimum of $2,500,000 in funding by July 31, 2000.
17
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements, including,
among others:
o Our ability to execute our business strategies and generate
revenues from our Internet-based operations; and
o Our ability to finance future growth and possible acquisitions
through the issuance of shares of our common stock.
These forward-looking statements are based upon a number of assumptions
and estimates that, while considered reasonable by us when taken as a whole, are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond our control, and are
based upon specific assumptions with respect to future business decisions, many
of which will change. It can be anticipated that some or all of the assumptions
underlying the projections and forward-looking statements included herein will
not materialize or will vary significantly from actual results. Accordingly, it
can be expected that actual results will vary from the projections and that such
variations, in all likelihood, will be material and are likely to increase over
time.
In addition to the other risks described elsewhere in this Risk Factors
discussion, important factors to consider and evaluate in such forward-looking
statements include:
o changes in the external competitive market factors or in our
internal budgeting process which might impact our results of
operations;
o unanticipated working capital or other cash requirements; and
o changes in our business strategy or an inability to execute
our strategy due to unanticipated changes in our targeted
market.
In light of these risks and uncertainties, many of which are described
in greater detail elsewhere in this "Risk Factors" discussion, we cannot give
assurance that the forward-looking statements contained in this report will in
fact transpire.
OVERVIEW
Revenues for the first quarter of 2000 were approximately $530,000 compared to
$277,000 for the same period in 1999. The increase in revenues was is due to the
acquisition, in the first quarter of 1999, of three golf related entities: Golf
Shoes Plus, Pro's Edge Wholesale and Global Golf.Com. Revenues for the first
quarter 2000 reflect three full months of operating results versus two months in
1999 for Golf Shoes Plus and Pro's Edge Wholesale and no operating results
reported for Global Golf as it wasn't acquired until the end of March, 1999.
With these acquisitions Beverly Hills Ltd., Inc. is moving from a developmental
company to an internet
18
holding company whereby the bulk of products sold by Golf Shoes Plus and Pro's
Edge will be sold through Global Golf. Com which is designed to become a
comprehensive internet golf portal.
Cost of sales for the first quarter of 2000 was approximately $345,000 compared
to $147,000 for the same period of 1999. Cost of sales consists of cost of hard
goods sold through Golf Shoes Plus's retail outlets and the internet and through
Pro's Edge Wholesale's outlet. The results reflect three months of operations
for Golf Shoes Plus and Pro's Edge Wholesale in 2000 versus two months in 1999.
Advertising costs were approximately $385,000 for the first quarter 2000
compared to $107,000 for the same period of 1999. The increase is primarily
attributable to the launch of a radio and magazine advertising campaign intended
to build name recognition for the Beverly Hills and Global Golf names.
The increase in amortization and depreciation is primarily due to the
amortization of goodwill (approximately $206,600) generated by the acquisitions
completed during the first quarter of 1999. We expect amortization of goodwill
to increase as additional acquisitions are closed. Our policy is to amortize
goodwill over four years. The remaining increase (approximately $64,000)
represents the amortization of website development costs and the depreciation of
office equipment and store fixtures at the various locations.
Professional fees were approximately $1,113,000 (approximately $897,000 paid
with stock) for the first quarter of 2000 compared to $242,000 in first quarter
1999. The increase is attributable to legal and accounting fees incurred in
connection with the 1999 audit and related SEC filings and the Keynote
acquisition; and costs associated with raising additional working capital.
Approximately $100,000 of bad debt expense in the first quarter 2000 is due to
the establishment of a reserve against an amount due from "The Golfer" magazine.
Compensation expense for the first quarter of 2000 was approximately $670,000
(approximately $334,000 was through issuance of stock) compared to approximately
$582,000 (approximately $417,000 was through issuance of stock) for the first
quarter of 1999. The increase is attributable to three full months of operations
at Golf Shoes Plus, Pro's Edge Wholesale and Global Golf in the first quarter of
2000 versus two months of operations at Golf Shoes Plus and Pro's Edge Wholesale
in 1999 and no reported operations for Global Golf as it was acquired at the end
of March, 1999.
Interest expense increased approximately $61,000 as our notes payable issued
primarily for working capital increased significantly.
The remaining operating costs were approximately $198,000 in the first quarter
of 2000 compared to $78,000 for the first quarter of 1999. Costs included
herewith are: insurance, rent, travel & entertainment, utilities, and
miscellaneous other. The increase is mostly attributable to the operating
subsidiaries.
19
Liquidity and Capital Resources
Our auditors have raised the issue that there is substantial doubt that we will
be able to continue as a going concern as a result of significant losses and
negative working capital. A significant amount of capital has been expended
towards building corporate infrastructure and operating and capital expenditures
in connection with certain acquisitions and the establishment of our programs.
These expenditures have been incurred in advance of the realization of revenue
that may occur as a result of such programs. As a result our Liquidity and
capital resources have diminished significantly. Liquidity and capital resources
could improve within the short term by a combination of any one or more of the
following factors: (i) an increase in revenues and gross profit from operations;
and (ii) financing activities. An inability to generate cash from either of
these factors within the short term could adversely affect our operations and
plans for future growth. If these issues are not addressed, we may have to
materially reduce the size and scope of our planned operations.
Beverly Hills had a negative cash flow from operations of approximately
$484,000, and $1,152,000 for the periods ended March 31, 2000 and 1999,
respectively. The change is primarily due to the increase in accounts payable
and accrued expenses in the first quarter of 2000. The change in cash flow from
investing activities from approximately $321,000 in the first quarter of 1999 to
$38,000 in 2000 is due to the acquisition of subsidiaries for cash in 1999. Cash
flow generated by financing activities decreased from approximately $1,647,000
in 1999 to 534,000 in 2000. This was primarily because there were no issuances
of common stock in the first quarter of 2000. Substantial additional cash will
be required to implement our business plan.
Operations and working capital requirements have been met primarily through
issuance of the Company's equity securities and short and long term debt
instruments as well as vendor financing.
The Company has adopted a three-pronged financing plan:
Seek mergers, joint ventures or financing arrangements with larger
private or public entities in related industries.
Seek short and long term financing through private placements of debt
and equity securities in the capital markets.
Mount an aggressive campaign to acquire companies for cash, if
available, and otherwise for registered Beverly Hills common stock.
This will require substantial working capital to fund operating and
merger and acquisition expenses and to pay the significant cost of
compliance with applicable securities laws.
There can be no assurance that financing will be available in amounts or on
terms acceptable to Beverly Hills, if at all. Should the Company be unsuccessful
in its efforts to raise capital, it may be required to curtail operations.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No change from prior filing, except that the Company has fully
performed its obligation in the settlement of the action brought by CNBC Sports
International Limited in the U.S. District Court for the Northern District of
Georgia and the action was withdrawn.
Item 2: Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) None
(d) Not Applicable
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
21
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
27 Financial Data Schedule
(b) Reports on Form 8-K
1. Form 8-K Report dated March 10, 2000
2. Form 8-K Report dated April 28, 2000
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 3, 2000 BEVERLY HILLS LTD, INC.
By: /s/ Marc Barhonovich
--------------------------------
Marc Barhonovich, President
23