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 December 31, 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 December 31, 1996, 17,391,700 shares of the registrant's common stock
were outstanding.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash $ 2,305
Trading Securities, at fair value 87,869
Accounts Receivable, less allowance for
doubtful accounts of $65,000 152,712
Inventories 809,606
Deferred Tax Asset, net of valuation allowance -
Other Current Assets 60,500
1,112,992
PROPERTY & EQUIPMENT, at cost:
Manufacturing Equipment 917,772
Leasehold Improvements 182,066
Furniture, Fixtures & Office Equipment 95,633
Vehicles 29,989
1,225,460
Less accumulated depreciation and amortization (328,298)
897,162
OTHER ASSETS:
License Fee, net of accumulated amortization 317,917
Notes Receivable 81,663
Investments 45,000
Deferred Tax Asset, net of valuation allowance -
Due from Officer 334,011
Other 35,933
814,524
Total Assets $ 2,824,678
See accompanying notes to condensed consolidated financial statements.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996
(Continued)
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 1,599,104
Deposits Payable 34,194
Note Payable 250,000
Accrued Expenses 178,387
2,061,685
MINORITY INTEREST 683,886
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) (1,429,826)
79,107
Total Liabilities & Shareholders Equity $ 2,824,678
See accompanying notes to condensed consolidated financial statements.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
Net Sales $ 251,632 $ 822,479 $ 5,258,137 $ 2,118,750
Cost of Sales 357,357 767,291 4,251,064 1,785,763
(105,725) 55,188 1,007,073 332,987
Selling, General
and Administrative
Expenses 471,503 409,206 1,792,432 1,105,381
Loss from Operations 577,228 354,018 785,359 772,394
Other Expense (Income):
Interest Income (3,875) (21,927) (31,932) (41,895)
Interest Expense 4,764 7,577 13,276 7,577
Net Realized (Gain)
Loss on Trading
Securities 44,914 - (3,152) -
Net Holding Loss
on Trading
Securities 72,379 - 230,948 -
Other, net - (9,388) (6,097) (14,100)
118,182 (23,738) 203,043 (48,418)
Net Loss Before
Income Taxes and
Minority Interest 695,410 330,280 988,402 723,976
Benefit for
Income Taxes - - - -
Minority Interest 182,092 136,339 254,811 288,520
Net Loss $ 513,318 $ 193,941 $ 733,591 $ 435,456
Net Loss per Share $ .03 $ .01 $ .04 $ .03
Weighted Average
Common Shares
Outstanding 17,391,700 17,391,700 17,391,700 15,841,154
See accompanying notes to condensed consolidated financial statements.
BERNSTEIN/LEIBSTONE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
December 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (733,591) $ (435,456)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Minority Interest (254,811) (288,520)
Depreciation and Amortization 155,917 102,578
(Increase) in Trading Securities (87,869) -
Decrease (Increase) in Accounts
Receivable 247,080 (216,054)
(Increase) in Inventories (149,239) (836,594)
(Increase) Decrease in Other Assets (38,085) 18,150
Increase in Accounts and Deposits Payable 586,213 669,164
(Decrease) Increase in Accrued Expenses (122,433) 153,347
Common stock of majority owned subsidiary
issued in exchange for services - 26,333
Net cash (used in) operating activities (396,818) (807,052)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (439,101) (273,099)
(Increase) in Notes Receivable (72,315) -
Repayments on Notes Receivable
and Investments 979,000 -
(Increase) in Due from Officer (193,613) (11,500)
Net cash (used in) investing activities 273,971 (284,599)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Notes Payable 100,000 -
Proceeds from issuance of common stock by
majority owned subsidiary 10,695 1,099,417
Cash acquired in acquisition of Clearshield - 6,484
Net cash provided by financing
activities 110,695 1,105,901
NET INCREASE (DECREASE) IN CASH (12,152) 14,250
CASH, AT BEGINNING OF PERIOD 14,457 5,488
CASH, AT END OF PERIOD $ 2,305 $ 19,738
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 December 31,
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 December 31, 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 realized gains, declining values
resulted in unrealized holding losses for the quarter and year to date.
Demand for the Company's Clearshield products during the past two
hurricane seasons 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, bringing one of these lines on stream during the second quarter and
completing installation of a second line in the third quarter. The Company
had only two production lines in operation entering this past hurricane
season, currently has four lines on stream, and plans to have six plastic
extrusion lines available for next season.
Because of the highly seasonal nature of hurricane protection products,
the Company is researching additional products to reduce it's reliance on a
seasonal product. During the third quarter, the Company's Clearshield
subsidiary began research and development of a new plastic lumber line. The
production process utilizes Clearshield's existing extrusion capabilities and
will provide the Company with a product line with year-round sales capability
and a broad market potential. The Company plans to market this product on a
national basis through its present distribution system. Introduction of the
plastic lumber line is planned for the fourth quarter.
During the third quarter, the Company formed ST Telecom Corp., a wholly
owned subsidiary to explore opportunities in the telecommunications industry.
The initial opportunities are prepaid long distance cards and prepaid cellular
service cards. This subsidiary had limited activity during the quarter.
Additionally, at the end of the quarter the Company announced that it will
begin selling hurricane products on a factory direct basis through a new
subsidiary, Storm Depot of Florida, Inc. The first Storm Depot location will
open in February 1997.
All of these factors have contributed to a tight liquidity position during
the off season. The Company anticipates an improvement in its liquidity in the
fourth quarter as the major retailers begin to order product for the upcoming
hurricane season.
Results of Operations
In July 1996, Dade County rescinded the Company's product approval under
Dade County Building Codes. The product approval was reinstated in December
1996. The negative publicity and customer confusion this generated, along
with a quicker ending to the selling season resulted in limited sales for the
third quarter. The 1996 hurricane season, which ended in November, was less
active than the 1995 season. There were 13 named storms in the 1996 season
versus 19 the prior season. A more active season creates greater customer
awareness of the need for hurricane protection. Net sales for the quarter
ended December 31, 1996 decreased 69% compared to the quarter ended December
31, 1995. The Company ceased production in October to reduce variable costs
and prevent an unnecessary buildup of inventories. Because of unfavorable
manufacturing variances as a result of fixed manufacturing costs, the Company
experienced a negative gross profit for the third quarter.
Net sales for the nine months ended December 31, 1996 increased by
$3,139,387 or 148% compared to the nine months ended December 31, 1995. The
growth in sales is a result of expanding customer awareness at the retail
level, purchased by the do-it-yourselfer through a national home improvement
chain, or purchased by the homeowner from our growing dealer network. The
improvement in sales enabled the Company to better leverage its manufacturing
costs and fixed overhead resulting in an increase in gross margins on a year
to date basis. Gross profit margins were 19.1% for the nine months ended
December 31, 1996 compared to 15.7% for the nine months ended December 31,
1995. Further improvement in margins is anticipated during the next fiscal
year as additional production capacity is brought on line for next season.
Looking to next season, the Company currently has approvals to sell its'
products in Dade, Broward and Palm Beach Counties and has applied for approval
with the Southern Building Code Congress. These are the only counties that
currently have a product approval program. Additionally, the Company is
expanding it's product line to offer all forms of hurricane shutters,
including steel and aluminum panels, and accordion shutters. All of these
products will meet the product approval requirements of the above mentioned
counties. These additional products compliment the existing line and will
enable the Company to better service the consumer and our dealer network.
During the past two quarters, the Company found it necessary to expand
it's administrative ranks to better manage the business and expand it's
product offerings for next season. With these additional costs, selling,
general and administrative expenses increased by $62,297 or 15.2% for the
quarter ended December 31, 1996 versus the quarter ended December 31, 1995.
On a year-to-date basis, selling general and administrative expenses have
declined as a percentage of sales to 34.1% for the nine months ended December
31, 1996 versus 52.2% for the nine months ended December 31, 1995.
The Company continues to experience growing pains due to the highly
seasonal nature of it's products and the need to invest in additional capacity
and products to meet it's needs.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported on Form 10-K for the year ended March 31, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on December 18, 1996. The
following matters were submitted to a vote of the shareholders and
approved by a majority of the shareholders:
1. Current directors of the Company were elected to continue in their
respective positions for the coming year.
2. Changing the name of the Company to SafeTech Industries Inc.
3. Approval of Michaelson & Co. P.A. as the Company's auditors for the
year ending March 31, 1997.
4. Reservation of 500,000 shares of the Company's stock for a stock
option plan for management and key employees of the Company.
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: February 13, 1997
Darrell Peterson, Chief Executive Officer
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