U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1996
Commission file number 0-17774
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
New York 11-1996121
(State of Incorporation) (IRS Employer Identification Number)
2001-A Australian Avenue, Riviera Beach, Florida 33404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(561) 844-2442
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act 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: .
As of September 30, 1996, 17,391,700 shares of the registrant's common stock
were outstanding.
BERNSTEIN /LEIBSTONE ASSOCIATES, INC.
CONSOLIDA TED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
CURRENT ASSETS:
Cash $ 4,343
Trading Securities, at fair value 272,238
Accounts Receivable, less allowance for
doubtful accounts of $90,000 696,623
Inventories 794,353
Deferred Tax Asset, net of valuation allowance -
Other Current Assets 76,485
1,844,042
PROPERTY & EQUIPMENT, at cost:
Manufacturing Equipment 875,705
Leasehold Improvements 152,395
Furniture, Fixtures & Office Equipment 94,833
Vehicles 29,989
1,152,922
Less accumulated depreciation and amortization (276,965)
875,957
OTHER ASSETS:
License Fee, net of accumulated amortization 322,292
Notes Receivable 81,663
Investments 45,000
Deferred Tax Asset, net of valuation allowance -
Due from Officer 271,201
Other 35,933
756,089
Total Assets $ 3,476,088
See accompanying notes to condensed consolidated financial statements.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
(Continued)
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 1,450,718
Deposits Payable 60,627
Note Payable 250,000
Accrued Expenses 256,340
2,017,685
MINORITY INTEREST 865,978
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value; 20,000,000
shares authorized, 17,391,700 share
issued and outstanding 173,917
Additional Paid-in Capital 1,335,016
Accumulated (Deficit) (916,508)
592,425
Total Liabilities & Shareholders Equity $ 3,476,088
See accompanying notes to condensed consolidated financial statements.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
September 30, September 30,
1996 1995 1996 1995
Net Sales $ 2,877,503 $ 1,059,890 $ 5,006,505 $ 1,296,271
Cost of Sales 2,112,104 809,364 3,893,707 1,018,472
765,399 250,526 1,112,798 277,799
Selling, General
and Administrative
Expenses 757,173 511,856 1,320,929 696,175
(Income) Loss from
Operations (8,226) 261,330 208,131 418,376
Other Expense (Income):
Interest Income (4,716) (17,982) (28,057) (19,968)
Interest Expense 4,764 - 8,512 -
Net Realized (Gain)
Loss on Trading
Securities 3,915 - (48,066) -
Net Holding Loss
on Trading
Securities 116,180 - 158,569 -
Other, net (202) (4,695) (6,097) (4,712)
119,941 (22,677) 84,861 (24,680)
Net Loss Before
Income Taxes and
Minority Interest 111,715 238,653 292,992 393,696
Benefit for
Income Taxes - - - -
Minority Interest (27,256) 105,488 72,719 152,181
Net Loss $ 138,971 $ 133,165 $ 220,273 $ 241,515
Net Loss per Share $ .01 $ .01 $ .01 $ .02
Weighted Average
Common Shares
Outstanding 17,391,700 16,812,352 17,391,700 15,061,645
See accompanying notes to condensed consolidated financial statements.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
September 30
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (220,273) $ (241,515)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Minority Interest (72,719) (152,181)
Depreciation and Amortization 100,208 65,097
(Increase) in Trading Securities (272,238) -
(Increase) in Accounts Receivable (296,831) (132,195)
(Increase) in Inventories (133,986) (46,482)
(Increase) Decrease in Other Assets (54,070) 19,898
Increase in Accounts and Deposits Payable 464,260 37,826
(Decrease) Increase in Accrued Expenses (44,480) 126,114
Common stock of majority owned subsidiary
issued in exchange for services - 22,953
Net cash (used in) operating activities (530,129) (300,485)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (366,562) (126,328)
(Increase) in Notes Receivable (72,315) -
Repayments on Notes Receivable and Investments 979,000 -
(Increase) in Due from Officer (130,803) (13,872)
Net cash (used in) investing activities 409,320 (140,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Notes Payable 100,000 -
Proceeds from issuance of common stock by
majority owned subsidiary 10,695 576,438
Cash acquired in acquisition of Clearshield - 6,484
Net cash provided by financing activities 110,695 582,922
NET INCREASE (DECREASE) IN CASH (10,114) 142,237
CASH, AT BEGINNING OF PERIOD 14,457 5,488
CASH, AT END OF PERIOD $ 4,343 $ 147,725
See accompanying notes to condensed consolidated financial statements.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and,
therefore, do not include all disclosures necessary for fair presentation
of financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. The accompanying condensed
consolidated financial statements are not audited, but include all
adjustments which management considers necessary for fair presentation of
financial position, results of operations and cash flows for the interim
periods presented. The results for the interim periods are not
necessarily indicative of the results that may be expected for the entire
fiscal year.
The accounting policies followed by the Company are set forth in Note 1 of
the Company's consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended March 31, 1996 which is
incorporated herein by reference.
2. TRADING SECURITIES
Trading securities are accounted for in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". This accounting standard requires trading
securities to be recorded at fair value with any holding gains or losses
included in earnings.
3. NOTES RECEIVABLE
On May 22, 1996, the Company, William Leibstone Associates, Inc.("WLAI"),
William Leibstone and TTSB, Ltd., an Ohio limited liability company
("TTSB") entered into an agreement whereby TTSB purchased the WLAI note
payable to the Company dated July 14, 1995 in the amount of $941,348, in
exchange for a note from TTSB in the amount of $1,013,663. The TTSB note
bears interest at the rate of 9% per annum, payable semi-annually, is due
on May 22, 1998 and is secured by a pledge of 506,000 shares of stock in
the Company assigned to TTSB by William Leibstone, which shares are being
held by a financial intermediary on behalf of the Company. Under the
terms of the Stock Pledge Agreement of the same date between the Company
and TTSB, the Company can request partial prepayments of the note, which
prepayments will be made with the proceeds of sales of the pledged shares.
TTSB shall not be obligated to sell the pledged shares or make the
prepayment unless it receives at least $2.28 per share for the first
200,000 shares and $2.50 for the remaining shares. The Company receives
the first $2.00 per share as prepayment on the note. As of September 30,
1996, TTSB has sold 469,000 of the pledged shares, making prepayments on
the note totalling $938,000.
3. NOTES PAYABLE
Notes payable consists of the following:
(1) Note payable to Clearshield, Inc. amounting to $150,000
representing a portion of the cost of the License Agreement with the
Company's Clearshield subsidiary. The terms of the note provide for
payment in twelve monthly installments commencing in October 1995 with
interest at eight percent. No payments have been made on this note.
(2) Note payable to a shareholder dated May 22, 1996 totalling
$100,000. The note, plus accrued interest at the rate of 7% per
annum, is payable on May 22, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
On July 7, 1995, Bernstein/Leibstone Associates, Inc.(the "Company"),
Archway Capital, Inc. ("Archway") and William Leibstone Associates, Inc.
("WLAI"), an entity owned by the former majority stockholder of the Company,
entered into an agreement to exchange shares of the Company's common stock for
shares of Archway's common stock on a one-for-one basis. Effective April 1,
1995, Archway acquired a majority interest in Clearshield Manufacturing Corp.,
a Florida corporation in the business of manufacturing clear polycarbonate
hurricane protection panels, utilizing a three-for-one share exchange. The
Company currently owns approximately 57% of Clearshield.
The acquisitions of the Company and Clearshield by Archway have been
accounted for using the purchase method in accordance with APB Opinion No. 16.
Accordingly, the accompanying Condensed Consolidated Financial Statements are
those of Archway, including the results of operations for the Company and
Clearshield from their respective acquisition dates.
Liquidity and Capital Resources
On May 22, 1996, the Company, WLAI, William Leibstone and TTSB, Ltd., an
Ohio limited liability company ("TTSB") entered into an agreement whereby TTSB
purchased the WLAI note payable to the Company dated July 14, 1995 in the
amount of $941,348, in exchange for a note from TTSB in the amount of
$1,013,663. The TTSB note is secured by a pledge of 506,000 shares of stock
in the Company assigned to TTSB by William Leibstone, which shares are being
held by a financial intermediary on behalf of the Company. In connection with
this agreement, William Leibstone made a loan to the Company in the amount of
$100,000.
Under the terms of the Stock Pledge Agreement of the same date between the
Company and TTSB, the Company can request partial prepayments of the note,
which prepayments will be made with the proceeds of sales of the pledged
shares. TTSB shall not be obligated to sell the pledged shares or make the
prepayment unless it receives at least $2.28 per share for the first 200,000
shares and $2.50 for the remaining shares. The Company receives the first
$2.00 per share as prepayment on the note. As of September 30, 1996, TTSB has
sold 469,000 of the pledged shares, making prepayments on the note totalling
$938,000.
The Company used a portion of its available cash to invest in trading
securities. While this activity generated a positive return in the first
quarter, declining values resulted in unrealized holding losses for the second
quarter.
Demand for the Company's Clearshield products have exceeded supply
necessitating the purchase of additional manufacturing equipment to increase
the Company's production capacity. The Company has acquired equipment for
four additional production lines and brought one of these lines on stream
during the second quarter. The Company had only two production lines in
operation entering this hurricane season, currently has three production lines
in operation, and plans to have six plastic extrusion lines available for
next season.
In July 1996, Dade County rescinded the Company's product approval under
Dade County Building Codes. While this caused a drop in sales in Dade County,
product was distributed to other areas where the Dade County approval is not
required. The negative publicity and customer confusion this generated,
along with a softer than expected hurricane season, caused a slowness in
collections and a higher end of season inventory level than anticipated.
All of these factors have contributed to a tight liquidity position as the
Company enters its off season.
Results of Operations
The second quarter saw continued sales growth when compared to the prior
year. Net sales for the quarter ended September 30, 1996 increased by
$1,817,613 or 170% compared to the quarter ended September 30, 1995. Improved
sales were directly related to an increase of production capacity compared to
the prior year. Additionally, the Company has developed an export market for
its product with export sales accounting for approximately 17% of sales for
the quarter. In spite of the confusion surrounding our Dade County product
approval, the product is well accepted and regarded by the marketplace. Since
the end of the quarter, the Company has received product approval from Broward
and Palm Beach Counties, has applied for approval with the Southern Building
Code Congress and anticipates receiving a reinstatement of it's Dade County
approval during the third quarter.
Net sales for the six months ended September 30, 1996 increased by
$3,710,234 or 286% compared to the six months ended September 30, 1995. The
continued growth in sales is a result of expanding customer awareness at the
retail level, purchased by the do-it-yourselfer through the national home
improvement chain, or purchased by the homeowner from our growing dealer
network, and the increased production capacity necessary to support these
sales.
The improvement in sales and production capacity enabled the Company to
better leverage its manufacturing costs and fixed overhead resulting in an
increase in margins for the quarter and year to date. For the three months
ended September 30, 1996, gross profit margins were 26.6% compared to 23.6%
for the three months ended September 30, 1995. Gross profit margins were
22.2% and 21.4% for the six months ended September 30, 1996 and 1995,
respectively. Improved margins in the installation business during the
quarter contributed to the improvement. While some softness in margins is
expected in the off season, further improvement in margins is anticipated as
additional production capacity is brought on line for next season.
During the past quarter, the Company found it necessary to expand it's
administrative ranks to better manage the business and position it for future
growth. With these additional costs, selling, general and administrative
expenses have declined as a percentage of sales from 48.3% to 26.3% for the
three months ended September 30, 1996 and 1995, respectively. For the six
months ended September 30, 1996, selling general and administrative costs were
26.4% of sales compared to 53.7% for the six months ended September 30, 1995.
As a result of the above discussed operating improvements, the Company
reported it's first quarterly operating profit. The Company continues to
experience growing pains as seasonal demand outpaces supply and its resources
are stretched. The Company is evaluating additional products to expand it's
existing lines and reduce its reliance on a seasonal product.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported on Form 10-K for the year ended March 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
By: /s/ Darrell Peterson Date: November 14, 1996
Darrell Peterson, Chief Executive Officer
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