03319810Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1998
or
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-12362
Berger Holdings, Ltd.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2160077
(State or Other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
805 Pennsylvania Boulevard, Feasterville, PA 19053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 355-1200
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 ninety days.
YES X NO _____
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO _____
As of May 15, 1998, the Registrant had outstanding 5,362,013 shares of Common
Stock, par value $0.01 per share.
<PAGE>
BERGER HOLDINGS, LTD.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated
Balance Sheets at March 31, 1998
and December 31, 1997 3
Condensed Consolidated Statement of
Operations for the three month periods
ended March 31, 1998 and 1997 5
Condensed Consolidated Statements
of Cash Flows for the three month periods
ended March 31, 1998 and 1997 6
Notes to Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a
Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Current Assets
Cash $ 96,478 $ 4,411,347
Trade accounts receivable, net of
allowance for doubtful accounts
of $30,000 in 1998 &
$43,000 in 1997 2,997,337 1,655,327
Inventories (Note 2) 4,717,082 2,652,466
Prepaid and other assets 434,768 372,721
Deferred income taxes 800,000 800,000
----------- -----------
Total current assets 9,045,665 9,891,861
----------- -----------
Other Assets
Property and equipment, net (Note 3) 7,724,146 6,110,128
Deferred income taxes 700,000 700,000
Construction in progress, equipment
deposits and other assets 1,272,982 918,304
Other assets 3,291,763 608,271
Goodwill, net of accumulated
amortization 6,515,546 1,522,649
----------- -----------
Total other assets 19,504,437 9,859,352
----------- -----------
$28,550,102 $19,751,213
=========== ===========
</TABLE>
-3-
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
----------- ------------
<S> <C> <C>
Current Liabilities
Current maturities of long term debt
and demand notes payable (Note 4) $ 914,019 $ 522,679
Accounts payable 1,292,680 251,093
Accrued expenses 957,136 462,023
------------ ------------
Total current liabilities 3,163,835 1,235,795
Long term debt, net of current
maturities 11,091,257 6,022,147
------------ ------------
Total liabilities 14,255,092 7,257,942
------------ ------------
Shareholders' Equity
Series A convertible
Preferred stock, $.01 par value
$4,000,000 liquidation value in 1998
$2,500,000 liquidation value in 1997
Authorized 5,000,000 shares
Issued and outstanding 40,000 shares in 1998
25,000 shares in 1997 400 250
Common stock $.01 par value
Authorized 20,000,000 shares
Issued and outstanding 5,362,013 shares in 1998
5,228,973 shares in 1997 53,620 52,289
Additional paid-in-capital 21,516,231 19,562,462
Deficit (6,767,325) (6,613,814)
------------ ------------
14,802,926 13,001,187
Less common stock subscribed (507,916) (507,916)
------------ ------------
Total shareholders' equity 14,295,010 12,493,271
------------ ------------
$ 28,550,102 $ 19,751,213
============ ============
</TABLE>
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<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Net Sales $ 7,014,455 $ 4,499,323
Cost of sales 5,789,081 3,542,523
----------- -----------
Gross profit 1,225,374 956,800
Operating expenses
Selling, administrative and general
expenses 1,090,081 660,720
----------- -----------
Income from operations 135,293 296,080
----------- -----------
Other (expenses) income
Interest expense (308,094) (138,775)
Interest income 589 7,119
Proceeds from insurance recovery 118,701 -0-
----------- -----------
(188,804) (131,656)
----------- -----------
Net income (loss) (53,511) 164,424
Dividends on preferred stock 100,000 -0-
----------- -----------
Net income (loss) Attributable to Common Shares ($ 153,511) $ 164,424
=========== ===========
Basic (loss) earnings per share ($ .03) $ .03
=========== ===========
Weighted average common shares outstanding 5,356,561 4,942,533
=========== ===========
Fully diluted (loss) earnings per share ($ .03) $ .03
=========== ===========
Weighted average common shares outstanding 5,356,561 4,942,533
Add: effect of vested and non-vested
dilutive securities 1,390,240 -0-
Add: effect of convertible preferred shares 941,177 -0-
----------- -----------
Diluted weighted average common shares outstanding 7,687,978 4,942,533
=========== ===========
</TABLE>
-5-
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($ 53,511) $ 164,424
------------ ------------
Adjustments to reconcile net income (loss)
to net cash used in operating
activities
Depreciation and amortization 380,105 173,292
Decrease in accounts receivable allowance (13,000) -0-
(Increase) decrease in assets, net of the effects
of an acquisition
Accounts receivable (1,329,010) (404,399)
Inventories 327,533 (316,882)
Other current and long-term assets (888,183) (9,747)
Increase in liabilities
Accounts payable and accrued expenses 1,536,700 137,943
------------ ------------
Total adjustments 14,145 (419,793)
------------ ------------
Net cash used in operating activities (39,366) (255,369)
------------ ------------
Cash flows from investing activities
Acquisition of property and equipment (212,203) (254,325)
Payment for acquisitions (10,000,000) (900,618)
------------ ------------
Net cash used in investing activities (10,212,203) (1,154,943)
------------ ------------
</TABLE>
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<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from financing activities
Dividends paid ($ 100,000) $ -0-
Proceeds from working capital line 3,612,390 610,225
Proceeds from equipment term loan 648,668 -0-
Proceeds from long term debt net of issuance costs 339,527 -0-
Loan and mortgage repayments (19,135) (19,399)
Net proceeds from issuance of stock 1,455,250 32,031
----------- -----------
Net cash provided by financing activities 5,936,700 622,857
----------- -----------
Net decrease in cash (4,314,869) (787,455)
Cash, beginning of period 4,411,347 1,236,709
----------- -----------
Cash, end of period $ 96,478 $ 449,254
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for
Interest $308,094 $138,775
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company purchased Benjamin Obdyke, Inc.'s roof drainage division for a
combination of cash, common stock, and subordinated debt totaling $11,379,000.
In connection with the acquisition, the following assets were acquired and
liabilities incurred:
Inventory $ 2,392,149
Equipment and dies 1,401,815
Goodwill and other intangible assets 7,585,036
Cash paid for assets (10,000,000)
Value assigned to common stock (500,000)
------------
Liabilities incurred $ 879,000
===========
-7-
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation have been included.
Note 2. Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method ("FIFO").
Components of inventories at March 31, 1998 and December 31, 1997
consist of the following:
March 31, 1998 December 31, 1997
Raw materials $ 2,430,830 $ 1,422,501
Finished goods 2,219,644 1,215,959
Packaging materials
and supplies 112,608 60,006
Less provision for
Obsolescence (46,000) (46,000)
----------- -----------
$ 4,717,082 $ 2,652,466
=========== ===========
All inventory is currently used in the business of the Company's
subsidiary, Berger Bros Company.
Note 3. Property, Plant and Equipment:
Property, plant and equipment is recorded at cost. Costs of major
additions and betterments are capitalized; maintenance and repair costs, which
do not improve or extend the life of the respective assets, are charged to
operations as incurred. Leasehold improvements are amortized over the shorter of
the lease term or useful life.
-8-
<PAGE>
When an asset is sold, retired, or otherwise disposed of, the cost of
the property and the related accumulated depreciation is removed from the
respective accounts, and any resulting gains or losses are included in income.
For financial reporting purposes, depreciation is computed on the
straight-line method over the estimated useful lives of the assets. For income
tax purposes, depreciation is computed on accelerated methods.
Note 4. Refinancing
On January 2, 1998 the term of the Working Capital Loan (as defined
below) was extended for an additional three years to December 31, 2000.
Concurrently, the Working Capital Loan was increased to $7,000,000 to help fund
an acquisition, more fully described below, which occurred in January 1998. The
Term Loan was also increased to $1,960,000 at such time.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Results of Operations
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, Berger Financial Corporation ("Financial") and
Financial's wholly-owned subsidiary, Berger Bros Company. All intercompany
transactions and balances have been eliminated.
Sales for the three month period ended March 31, 1998 (the "Current
Quarter"), were $7,014,455, an increase of 55.9% , or $2,515,132, as compared to
$4,499,323 for the three month period ended March 31, 1997 (the "Comparable
Quarter"). Such increase was primarily due to the acquisition of Obdyke's roof
drainage division.
During the Current Quarter, the Company reported a net loss of $53,511 on
net sales of $7,014,455. This compares to net income of $164,424 on net sales of
$4,499,323 for the Comparable Quarter. Lower sales margins, along with increased
amortization, interest expense and costs associated with an acquisition in the
Current Quarter offset revenue gains resulting in the current period loss.
Income from continuing operations in the Current Quarter was $135,293
versus $296,080 in the Comparable Quarter, a decrease of 54.3%, which primarily
can be attributed to lower sales margins, interest expense, amortization and
costs associated with an acquisition in the Current Quarter.
Cost of Sales were $5,789,081 in the Current Quarter compared to $3,542,523
in the Comparable Quarter. As a percentage of net sales, Cost of Sales increased
to 82.5% in the Current Quarter from 78.7% in the Comparable Quarter. The
percentage increase in Cost of Sales is attributable to the change in product
mix due to the Obdyke Acquisition.
-9-
<PAGE>
Selling, general and administrative expenses were $1,090,081 in the
Current Quarter as compared to $660,720 in the Comparable Quarter. This increase
in expenses is primarily due to additional salaries, sales commissions and
advertising expenses to support the Obdyke Acquisition (as defined below). As a
percentage of net sales, selling, general and administrative expenses increased
to 15.5% in the Current Quarter, compared to 14.7% in the Comparable Quarter
Liquidity and Capital Resources
On January 2, 1998, the Company consummated the acquisition (the "Obdyke
Acquisition") of the Roof Drainage Division (the "Acquired Division") of its
major competitor, Benjamin Obdyke, Inc. ("Obdyke"). Sales for the Acquired
Division totaled $19,700,000 in 1997. The total cost of the Obdyke Acquisition
was $11,379,000, of which $10,000,000 was paid in cash at closing. The balance
was satisfied by issuing 125,000 shares of the Common Stock and an $879,000 note
which is repayable over a two-year period. In addition, the Company issued to
the seller a warrant to purchase 50,000 shares of the Common Stock. These
warrants can be exercised over a one-year period at a price of $4.25 per share.
The assets purchased from Obdyke included $1,401,815 of equipment and dies and
$2,392,149 of inventory. The remaining $7,585,036 of the purchase price has been
assigned to intangible assets, which include non-compete agreements, customer
lists and goodwill. The Obdyke Acquisition was funded in part through the
issuance of 40,000 shares of the Company's Series A Convertible Preferred Stock
at $100 per share, $2,500,000 of 12.25% 5 year debentures due quarterly and an
increase in the credit facility with Summit Bank (the "Working Capital Loan") by
$4,160,000. A portion of the proceeds from these financings was also used for
other corporate purposes.
At March 31, 1998, working capital was $5,881,830, resulting in a ratio
of current assets to current liabilities of 2.86 to 1, as compared to working
capital of $8,656,066 and a ratio of 8.00 to 1 at December 31, 1997. This
decline in working capital can be attributed to the $4.3 million in cash
received on December 31, 1997 from Tandem Capital, which was used in large part
in the Obdyke Acquisition.
Current liabilities at March 31, 1998 totaled $3,163,835, consisting
primarily of $2,249,816 in accounts payable and accrued expenses and $914,019 in
current maturities of long-term debt. At December 31, 1997, total current
liabilities were $1,235,795 consisting primarily of $713,116 in accounts payable
and accrued expenses and $522,679 in current maturities of long-term debt.
On March 31 1998, the Company had shareholders' equity of $14,295,010 as
compared to $12,493,271 on December 31, 1997. The increase is attributable to
the following:
Issuance of preferred stock $ 1,500,000
Issuance of common stock 500,000
Less cost of raising capital (44,750)
Less dividends paid on preferred stock (100,000)
Less net loss for current period (53,511)
-----------
$ 1,801,739
===========
-10-
<PAGE>
Cash used in operating activities for the Current Quarter was ($39,366)
as compared to ($255,369) used in the Comparable Quarter. This slight change in
cash used in the Current Period was a result of the acquisition in the Current
Quarter.
Net cash used in investing activities totaled ($10,212,203) in the
Current Quarter as compared to ($1,154,943) used in the Comparable Quarter due
to the Obdyke Acquisition.
Net cash provided by financing activities was $5,936,700 in the Current
Quarter, due to the Obdyke Acquisition, compared to $622,857 provided in the
Comparable Quarter. The availability under the Working Capital Loan as of March
31, 1998 was approximately $1,940,000.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities.
On January 2, 1998 the Company consummated the sale of 15,000 shares of
its Series A Convertible Preferred Stock to Argosy Investment Partners. The
consideration for such shares was $1,500,000. Such shares are convertible into
Common Stock in accordance with the conversion ratio set forth in the Statement
with Respect to Shares of the Company attached as Exhibit 3(f) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission. The sale of such shares was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof.
Item 3 - Defaults Upon Senior Securities.
None.
Item 4 - Submission of Matters to a Vote of Securities Holders.
None.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
The Company filed a Form 8-K with the Securities and Exchange Commission
on January 20, 1998, reporting items 2 and 7 of Form 8-K. The Form 8-K was
amended by a Form 8-K/A filed with the Commission on March 18, 1998, containing
financial statements of the Acquired Division for the years ended December 31,
1997, 1996 and 1995 and as of December 31, 1997 and 1996, as well as certain pro
forma information regarding the Company.
-12-
<PAGE>
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.
BERGER HOLDINGS, LTD.
By:/s/ JOSEPH F. WEIDERMAN
Joseph F. Weiderman
President and
Chief Operating Officer
By:/s/ FRANCIS E. WELLOCK, JR.
Francis E. Wellock, Jr.
Chief Financial Officer
Date: May 15, 1998
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 96,478
<SECURITIES> 0
<RECEIVABLES> 3,027,337
<ALLOWANCES> 30,000
<INVENTORY> 4,717,082
<CURRENT-ASSETS> 9,045,665
<PP&E> 14,033,111
<DEPRECIATION> 6,308,965
<TOTAL-ASSETS> 28,550,102
<CURRENT-LIABILITIES> 914,019
<BONDS> 0
0
400
<COMMON> 53,620
<OTHER-SE> 14,240,990
<TOTAL-LIABILITY-AND-EQUITY> 28,550,102
<SALES> 7,014,455
<TOTAL-REVENUES> 7,014,455
<CGS> 5,789,081
<TOTAL-COSTS> 5,789,081
<OTHER-EXPENSES> 1,090,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 308,094
<INCOME-PRETAX> (53,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,511)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>