-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bf2xSzOH4YUXyZnAQUCjElSfOSSG8HCkZoU5uig0zrREm5GIYrgfZR6iyK8mZwFN E2FLBz1mv7cibNQPS9hPAg== 0001005477-99-001551.txt : 19990402 0001005477-99-001551.hdr.sgml : 19990402 ACCESSION NUMBER: 0001005477-99-001551 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLISHING CO OF NORTH AMERICA INC CENTRAL INDEX KEY: 0001010615 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 593203301 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 001-14384 FILM NUMBER: 99581082 BUSINESS ADDRESS: STREET 1: P O BOX 280 STREET 2: 186 P C N A PARKWAY CITY: LAKE HELEN STATE: FL ZIP: 32744 BUSINESS PHONE: 9042281000 MAIL ADDRESS: STREET 1: P O BOX 280 STREET 2: 186 P C N A PARKWAY CITY: LAKE HELEN STATE: FL ZIP: 32744 10QSB/A 1 FORM 10-QSB/A U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A |X| Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 1998 Commission File No. 0-27994 The Publishing Company of North America, Inc. (Exact name of small business issuer as specified in its charter) Florida 59-3203301 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 186 P.C.N.A. Parkway Lake Helen, FL 32744 904-228-1000 (Address and telephone number of principal executive offices) Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the 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: |X| Yes |_| No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class Outstanding at March 15, 1999 - --------------------------- --------------------------------- Common Stock: no par value 3,263,000 Transitional Small Business Disclosure Format (check one): |_| Yes |X| No The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 INDEX Page PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997 3 Consolidated Statements of Operations for the three and nine months ended September 30, 1998 and 1997 (unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited) 5 - 6 Notes to unaudited interim financial statements 7 - 9 ITEM 2. Management's Discussion and Analysis of Interim Financial Condition and Results of Operations 10 - 15 PART II - OTHER INFORMATION ITEM 5. Other Information 16 ITEM 6. Exhibits and Reports on Form 8-K 16 Exhibit 27 - Financial data schedule 2 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Consolidated Balance Sheets
September 30, December 31, 1998 1997 --------------------------- Assets (Unaudited) Current assets: Cash and cash equivalents $ 2,532,946 $ 1,710,304 Available-for-sale securities 876 1,007,050 Accounts receivable, less allowance for doubtful accounts of $200,415 at September 30, 1998 and $414,693 at December 31, 1997 237,700 1,308,884 Directories in progress 360,472 463,414 Other current assets 137,969 65,010 --------------------------- Total current assets 3,269,963 4,554,662 Property and equipment, net 1,352,032 1,481,549 Goodwill, net -- 1,898,680 Investment in College Directory Publishing Corporation 200,000 -- Other assets 299,562 116,786 --------------------------- Total assets $ 5,121,557 $ 8,051,677 =========================== Liabilities and shareholders' equity Current liabilities: Accounts payable $ 187,229 $ 1,013,787 Accrued expenses 205,620 552,529 Income taxes payable 70,296 50,000 Deferred revenue 930,299 894,109 Capitalized leases -- 5,358 Mortgage payable 53,333 53,333 --------------------------- Total current liabilities 1,446,777 2,569,116 Capitalized leases payable after one year -- 10,717 Mortgage payable after one year 653,333 693,333 --------------------------- Total liabilities 2,100,110 3,273,166 Shareholders' equity: Common shares, no par value: 15,000,000 shares authorized; 4,868,900 shares issued at September 30, 1998; 4,869,900 shares issued and outstanding at December 31, 1997 5,828,448 5,834,698 Unearned compensation, net (4,167) (15,417) Unrealized loss on available-for-sale securities -- (3,033) Accumulated deficit (1,943,338) (1,037,737) Treasury stock; 1,339,800 shares at cost (859,496) -- --------------------------- Total shareholders' equity 3,021,447 4,778,511 --------------------------- Total liabilities and shareholders' equity $ 5,121,557 $ 8,051,677 ===========================
See accompanying notes. 3 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Consolidated Statements of Operations (unaudited)
Three months ended Nine months ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1998 1997 1998 1997 ------------------------- ------------------------- Net sales $ 1,223,752 $ 2,286,564 $ 4,919,664 $ 5,344,657 Costs and expenses: Production 302,941 709,170 1,156,902 1,497,153 Marketing and selling 668,940 1,162,574 2,735,881 2,335,417 Depreciation 36,831 43,325 126,616 111,045 Amortization 5,637 30,848 61,611 44,831 General and administrative 400,675 825,450 1,469,916 1,872,085 ------------------------- ------------------------- 1,415,024 2,771,367 5,550,926 5,860,531 ------------------------- ------------------------- Loss from operations (191,272) (484,803) (631,262) (515,874) Interest income, net of expense 11,515 49,625 16,701 110,465 Sale of subsidiary -- -- (220,744) -- ------------------------- ------------------------- Loss before income tax expense (179,757) (435,178) (835,305) (405,409) Income tax expense -- -- 70,296 -- ------------------------- ------------------------- Net loss ($179,757) ($435,178) ($905,601) ($405,409) ========================= ========================= Net loss per common share - basic ($0.05) ($0.09) ($0.21) ($0.09) ========================= ========================= Shares used in computing net loss per share - basic 3,936,592 4,614,900 4,354,518 4,282,690 ========================= =========================
See accompanying notes. 4 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Consolidated Statements of Cash Flows (unaudited)
Nine months ended Sept. 30, Sept. 30, Cash flows from operating activities 1998 1997 ------------------------- Net loss ($ 905,601) ($ 405,409) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 188,227 155,876 Accretion of unearned compensation 5,000 17,917 Bad debt expense 110,243 551,526 Exchange of advertising for machinery & equipment (6,480) (9,025) Gain on sale of securities (14,847) (21,554) Interest accrued on U.S. Treasury securities -- (36,702) Loss from sale of CDP 220,744 -- Changes in assets and liabilities, net of sale (acquisition in 1997) of CDP: (Increase) decrease in accounts receivable 694,989 (832,654) Increase in directories in progress (665,381) (386,043) Increase in other assets (179,039) (133,087) Increase (decrease) in accounts payable (752,861) 121,301 Increase (decrease) in accrued expenses (126,275) 372,939 Increase in income taxes payable 70,296 372,939 Increase in deferred revenue 729,276 654,685 ------------------------- Net cash provided by (used in) operating activities (631,709) 49,770 Cash flows from investing activities Sale (acquisition in 1997) of CDP, net of cash balance 1,072,152 (363,938) Sale of securities available-for-sale 1,024,000 1,899,781 Purchases of U.S. Treasury securities -- (1,375,790) Purchases of property, plant and equipment (69,612) (223,249) ------------------------- Net cash provided by (used in) investing activities 2,026,540 (63,196) Cash flows from financing activities Compensation issued as shares of common stock -- 9,633 Repayment of mortgage principal (40,000) (40,000) Repayment of capitalized leases (2,187) (493) Contingent consideration paid relating to acquisition of CDP (14,256) -- Purchases of treasury stock (515,746) -- ------------------------- Net cash used in financing activities (572,189) (30,860) Net increase (decrease) in cash and cash equivalents 822,642 (44,286) Cash and cash equivalents at beginning of period 1,710,304 1,760,831 ------------------------- Cash and cash equivalents at end of period $2,532,946 $1,716,545 =========================
5 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Consolidated Statements of Cash Flows (continued) (unaudited)
Nine months ended Sept. 30, Sept. 30, Supplemental cash flow information 1998 1997 ------------------------- Interest paid $ 45,104 $ 59,811 ========================= Exchange of advertising for supplies $ 20,515 $ 24,775 ========================= Acquisition of CDP by issuance of common stock -- $687,500 ========================= Non-cash items received from sale of CDP $643,750 -- =========================
See accompanying notes. 6 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of The Publishing Company of North America, Inc. and subsidiary (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements. The results of operations of any interim period are not necessarily indicative of the results of operations for the fiscal year. 2. CONSOLIDATION The consolidated financial statements include the accounts of the Company's bar and medical association directory publishing division ("PCNA") and its wholly-owned subsidiary, College Directory Publishing, Inc. ("CDP") since the acquisition of CDP on July 3, 1997 and until its sale on June 10, 1998 (see Note 12). Intercompany transactions have been eliminated in consolidation. 3. CASH AND CASH EQUIVALENTS The Company considers all highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents. 4. AVAILABLE-FOR-SALE SECURITIES Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported as a separate component of shareholders' equity. Fair value is determined by readily available market quotations. Realized gains and losses and declines in value judged to be other-than-temporary are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends are included in investment income. 5. ACCOUNTS RECEIVABLE Accounts receivable are comprised primarily of amounts due from advertisers in the bar association and campus directories. The Company's allowance for doubtful accounts is estimated by management as a percentage of sales. Prior to December 31, 1997, amounts outstanding more than six months but less than one year were included as accounts receivable but fully provided for in the allowance for doubtful accounts. At December 31, 1997 and thereafter all amounts outstanding in excess of six months are written off. 7 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6. REVENUE RECOGNITION Revenues and related costs are recorded by the Company upon shipment of directories. Costs accumulated under directories in progress are stated at estimated costs, not in excess of estimated realizable value. Deferred revenue represents amounts received from advertisers prior to shipment of the related directories. 7. GOODWILL Goodwill resulting from the acquisition of CDP was amortized using the straight-line method over twenty years until the sale of CDP on June 10, 1998. (See Note 12.) 8. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share. SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for 1997 have been restated to conform to the Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per share:
Three months ended Sept. 30, Nine months ended Sept. 30, 1998 1997 1998 1997 ------------------------- ------------------------- Numerator: Net loss from continuing operations ($179,757) ($435,178) ($905,601) ($405,409) ------------------------- ------------------------- Numerator for basic loss per share - loss available to common shareholders ($179,757) ($435,178) ($905,601) ($405,409) Effect of dilutive securities -- -- -- -- ------------------------- ------------------------- Numerator for diluted loss per share - loss available to common shareholders after assumed conversions ($179,757) ($435,178) ($905,601) ($405,409) Denominator: Denominator for basic loss per share - weighted-average shares 3,936,592 4,614,900 4,354,518 4,282,690 Effect of dilutive securities - stock options -- -- -- -- ------------------------- ------------------------- Denominator for diluted loss per share - Adjusted weighted-average shares and assumed conversions 3,936,592 4,614,900 4,354,518 4,282,690 Basic loss per share ($0.05) ($0.09) ($0.21) ($0.09) ========================= ========================= Diluted loss per share ($0.05) ($0.09) ($0.21) ($0.09) ========================= =========================
In computing diluted EPS for 1998, options for 197,600 (151,600 in 1997) shares were excluded from the diluted earnings per share computation because their effects would have been antidilutive. 8 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES The provision for income taxes is comprised primarily of current state income taxes payable related to the sale of CDP. 10. STOCK-BASED COMPENSATION The Company follows Statement of Financial Accounting Standards (SFAS) No. 123, Accounting and Disclosure of Stock-Based Compensation. SFAS No. 123 allows companies to continue to measure compensation cost for stock-based employee compensation plans using the intrinsic value method of accounting as prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. The Company has elected to continue its APB Opinion No. 25 accounting treatment for stock-based compensation, and has adopted the provisions of SFAS No. 123 requiring disclosure of the proforma effect on net earnings and earnings per share as if compensation cost had been recognized based upon the estimated fair value at the date of grant for options awarded. Such proforma disclosures are not required in interim financial statements. 11. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 12. ACQUISITION AND SALE OF COLLEGE DIRECTORY PUBLISHING, INC. On July 3, 1997, the Company, through a wholly-owned subsidiary, acquired 100% of the outstanding capital stock of CDP. The acquisition was accounted for under the purchase method of accounting, and accordingly, the results of operations have been included in the Company's consolidated statements of operations since the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on fair market value at the date of acquisition. This resulted in an excess of purchase price over net assets acquired of $1,947,282 which was amortized on a straight line basis over 20 years until the sale of CDP on June 10, 1998, at which time $91,935 of goodwill had been amortized. On June 10, 1998, the Company sold 100% of CDP to a group headed by the executive management of CDP in exchange for (i) $1,400,000 (including $1,100,000 in operating loans made to CDP by the Company; (ii) a $100,000 note from the corporation acquiring CDP (the "Acquiror" or "College Directory Publishing Corporation") due upon the earlier of December 15, 1999 or completion of the Acquiror's initial public offering ("IPO"); $200,000 in preferred stock of the Acquiror convertible into $1,000,000 of common stock upon completion of an IPO by the Acquiror; and (iv) 750,000 shares of the Company's common stock that it issued when it acquired CDP in July 1997. The Company posted a loss of $220,744 as a result of the sale transaction; this loss was primarily attributable to the decline in value of the Company shares issued in the acquisition and returned in the sale. The value attributed to the shares at the time of the acquisition (excluding those considered contingent consideration) was $687,500; these same shares were valued at $343,750 when returned to the Company upon the sale. 9 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following tables set forth the Company's results of operations for the three and nine months ended September 30, 1998 and 1997, showing the results of PCNA and CDP separately and on a consolidated basis. CDP was acquired on July 3, 1997 and sold on June 10, 1998; therefore, it is included in the Company's consolidated results for the periods beginning July 1, 1997 through June 30, 1998:
Three months ended Sept. 30, 1998 Three months ended Sept. 30, 1997 PCNA PCNA CDP Consolidated ------------ --------------------------------------- Net sales $1,223,752 $1,916,589 $369,975 $2,286,564 Costs and expenses: Production 302,941 610,702 98,468 709,170 Marketing and selling 668,940 935,082 227,492 1,162,574 Depreciation 36,831 40,528 2,797 43,325 Amortization 5,637 30,848 -- 30,848 General and administrative 400,675 600,476 224,974 825,450 ------------ --------------------------------------- 1,415,024 2,217,636 553,731 2,771,367 ------------ --------------------------------------- Loss from operations (191,272) (301,047) (183,756) (484,803) Interest income (expense), net 11,515 60,499 (10,874) 49,625 ------------ --------------------------------------- Net loss ($179,757) ($240,548) ($194,630) ($435,178)
Nine months ended Nine months ended Sept. 30, 1998 Sept. 30, 1997 PCNA CDP* Consolidated Consolidated --------------------------------------- -------------- Net sales $4,919,664 -- $4,919,664 $5,344,657 Costs and expenses: Production 1,156,902 -- 1,156,902 1,497,153 Marketing and selling 2,577,654 $158,227 2,735,881 2,335,417 Depreciation 115,717 10,899 126,616 111,045 Amortization 61,611 -- 61,611 44,831 General and administrative 1,234,349 235,567 1,469,916 1,872,085 --------------------------------------- -------------- 5,146,233 404,693 5,550,926 5,860,531 --------------------------------------- -------------- Loss from operations (226,569) (404,693) (631,262) (515,874) Interest income (expense), net 49,384 (32,683) 16,701 110,465 Sale of subsidiary (220,744) -- (220,744) -- --------------------------------------- -------------- Loss before taxes (397,929) (437,376) (835,305) (405,409) Provision for income taxes (70,296) -- (70,296) -- --------------------------------------- -------------- Net loss ($468,225) ($437,376) ($905,601) ($405,409)
* CDP's results are through its sale on June 10, 1998 10 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Results of Operations (continued) As is evident in the tables above, CDP's results of operations and its sale on June 10, 1998 (see Note 12 to the Unaudited Interim Financial Statements) had a significant negative impact on the Company's consolidated operations in the third quarter of 1997 and year-to-date in 1998. CDP posted no revenues in 1998 and a loss of $437,000 before it was sold on June 10, 1998. CDP's losses in 1998 and in the third quarter of 1997 were expected due to the seasonality of its business, with the great majority of its revenues occuring in the fourth quarter of each year. The loss of $221,000 resulting from the sale of CDP was primarily attributable to the decrease of $344,000 in the value of the stock that was issued in the acquisition and then returned to the Company in the sale. In March 1999 as a result of the preparation of the tax provision for the Company's annual financial statements, the Company learned that that an estimated $70,296 of income tax expense had been incurred in connection with the sale of CDP, primarily related to state taxes. Upon learning this, the Company determined that this interim report should be amended. PCNA's revenues (which excludes CDP) decreased $693,000 or 36% for the quarter ended September 30, 1998 from the same period a year earlier; for the nine months then-ended its revenues decreased $55,000 or 1% from the same period a year earlier. In the third quarter of 1998, it published 15 directories, compared to 20 in the same period in 1997. PCNA has discontinued the publication of certain directories that had higher production costs relative to revenues. This action has contributed to lower production costs relative to revenues in 1998. Even given the reduced publication schedule, revenues in the most recent quarter were lower than expected due to lower-than-anticipated sales as described below. In the third quarter of 1997 PCNA published a directory for the Bar Association of the City of New York; due to difficulties with that publication, PCNA cancelled the agreement. In its place, PCNA contracted to publish a directory of advertising to accompany an unofficial directory of New York state attorneys, known to lawyers as the "Red Book," that is sold and published by another company to more than 30,000 attorneys in that state. This first-time publication of PCNA contained approximately $250,000 less in advertising sales than was in the directory published a year earlier for the New York City bar association. Another factor contributing to the decline in the most recent quarter's revenues is the reduction of the selling capacity of PCNA's sales force with the closing of the Orlando sales office at the end of May 1998. Management believes that this and other actions will contribute to lower selling costs as a percentage of revenues. The following table sets forth PCNA's results of operations (excluding CDP) in percentages of revenues for the three and nine months ended September 30, 1998 and 1997:
Three months ended Sept. 30 Nine months ended Sept. 30 1998 1997 1998 1997 PCNA PCNA PCNA PCNA ---------------------------------------------- Net sales 100.0% 100.0% 100.0% 100.0% Costs and expenses: Production 24.8% 31.9% 23.5% 28.1% Marketing and selling 54.6% 48.8% 52.4% 42.4% Depreciation 3.0% 2.1% 2.3% 2.2% Amortization 0.5% 1.6% 1.3% 0.9% General and administrative 32.7% 31.3% 25.1% 33.1% ---------------------------------------------- 115.6% 115.7% 104.6% 106.7% ---------------------------------------------- Loss from operations (15.6%) (15.7%) (4.6%) (6.7%)
11 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Results of Operations (continued) PCNA's production costs for the periods shown in 1998 have decreased from those in the same periods in 1997 due to the discontinuation of directories having higher third-party production costs as a percentage of revenues and also due to improved production methods resulting in lower in-house labor costs. PCNA's general and administrative expenses decreased $200,000 for the quarter ended September 30, 1998 from the same period a year earlier; for the nine months then ended these expenses decreased $413,000 from the same period a year earlier. They were higher as a percentage of revenues in the most recent quarter solely because of the lower revenues. The largest reductions were made in bad debt expense, in administrative payroll expense, and in certain outside professional services expense. The majority of the amortization expense related to Goodwill from the acquisition of CDP. Management has taken steps to reduce marketing and selling costs, the great majority of which are the costs of selling print advertising rather than the securing of publishing contracts; however, management's efforts have not resulted in reductions of these expenses to date. In fact, these expenses increased for the periods in 1998 shown above, primarily due to increases in related payroll costs. Management is continuing to focus on the reduction of these expenses as having a primary influence upon PCNA's results of operations. These costs were reduced to 45.2% of revenues in the fourth quarter of 1998. There can be no assurances that this lower level of expenses will continue into 1999. In conjunction with its action to discontinue publication of certain directories that had higher production costs relative to revenue, PCNA has endeavored to revise or replace most of its other publishing agreements. PCNA generally has published under a "free directory program" by which directories are provided to all members of a professional association at no charge to either the individual members or the association. In mid-1998 efforts began to transition agreements to a "directory participation program" by which directories may be purchased by either individual members or the association, often for a charge which can be billed as shipping and handling. In some cases, associations may choose a directory price from which PCNA and the association share in the revenues. This revised program may provide at least two benefits to PCNA. First, it may provide an additional source of revenue that could substantially offset the production and distribution costs. Secondly, it may substantially reduce PCNA's cost by reducing the number of directories that must be printed and distributed. Through September 30, 1998, PCNA has not published any directories under the new program; it expects most of its agreements to be under the new program by the third quarter of 1999. There can be no assurances that the Company will be able to transition most of its agreements to the new program, nor that the Company will realize the benefits to revenues and costs described above. 12 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Liquidity and Capital Resources At September 30, 1998 the Company had approximately $2,533,000 in cash and cash equivalents. In June 1998 the Company received net cash proceeds of approximately $1,072,000 from the sale of CDP. In conjunction with the sale of CDP and the receipt of this cash, the Company's Board of Directors resolved that $1,400,000 of the cash balance may not be used without specific approval of the Board. The Company also received a promissory note from the Acquiror for $100,000 plus interest bearing at 5% and due no later than December 15, 1999, and $200,000 of preferred stock of the Acquiror, convertible into $1,000,000 of common stock upon certain conditions generally involving the Acquiror's contemplated initial public offering of its common stock or its acquisition by a publicly-owned company. The Company used $632,000 of cash in operating activities during the first nine months of 1998, compared to $50,000 cash provided by operations during the same period in 1997. The net loss of $906,000 in 1998 included the non-cash loss of $221,000 from the sale of CDP and an increase of $70,296 in income taxes payable related to that sale. Other significant factors relating to changes in the Company's cash in 1998 included a decrease of $695,000 in accounts receivable, an increase of $665,000 in directories in progress, a decrease of $753,000 in accounts payable, and an increase of $729,000 in deferred revenue. All of these changes were primarily attributable to CDP's highly seasonal business cycle. In the first half of 1998, CDP paid down the high accounts payable balance it had at the end of 1997 which resulted from the high volume of publications it had printed and shipped in the last quarter of that year. Also in the first half of 1998, CDP began to accumulate costs (which are reported as directories in progress) and it began to collect deferred revenues on directories that would not be published until late 1998. These changes were all expected and normal for CDP's business cycle. The Company has no plans at this time to acquire a material amount of capital assets. The Company's Board of Directors has authorized the Company to repurchase up to $1,000,000 of its outstanding shares of common stock. From January 1 through September 30, 1998, the Company purchased 589,800 shares of its common stock at an average cost of $0.87 per share, including 250,000 shares purchased from its former Executive Vice President and a then-current director at an average price of $0.66 per share. From October 1, 1998 through March 15, 1999 the Company purchased 294,500 shares of its common stock at an average cost of $0.98 per share. In addition to the Company's repurchases, treasury stock includes 750,000 shares returned to the Company in conjunction with the sale of CDP. These shares were issued as part of the purchase consideration when CDP was acquired in 1997. Of these, 250,000 shares were contingent consideration to be based upon achievement of specified earnings in future periods; no cost was recorded for these either at the time of issuance or at the time of return to the Company. Based on current cash and investment balances and the Company's anticipated results of future operations, the Company believes that it has sufficient cash resources to fund its operations for the next twelve months or more. 13 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Year 2000 Considerations Many companies will face potentially serious issues associated with the inability of existing data processing hardware and software to appropriately recognize calendar dates beginning in the year 2000. The Company believes it has identified its software applications and hardware devices that might be impacted by the Year 2000 issue. The Company does not expect that the cost of addressing any Year 2000 issue that is within its control will be a material event or uncertainty that would have a material adverse effect on future operating results or financial condition. All computer software used by the Company is run upon personal computers. The Company's general ledger system was recently upgraded and is now Year 2000 compliant. The Company believes that all of its desktop publishing software is Year 2000 compliant. Whereas the Company earlier understood that its primary database application for sales order management and billing was Year 2000 compliant, it subsequently was advised otherwise. A Year 2000 compliant version of this system is now being tested among a small number of other users with good initial results; at this time, it is expected that a Year 2000 compliant version of this system will be provided to the Company within the next several months. In the unexpected event that this system is not able to be made Year 2000 compliant, the Company believes that a replacement system could be obtained; however, at this time management has not identified specific alternative replacement systems and can not specify the approximate cost of a replacement system. The system currently in use was procured for approximately $84,000. Generally, the goods and services that the Company purchases from its vendors and suppliers are not considered to be directly vulnerable to Year 2000 issues; additionally, these goods and services are not unique and are available to the Company from numerous alternative vendors and suppliers. Reliable telephone service is critical particularly to the Company's sale of advertising in its publications; disruption of telephone service could have a material effect upon the Company's results of operations and, depending on the duration, financial condition. The Company does not believe that Year 2000 issues will cause the printing companies with which it contracts to be unable to produce its directories; however, the Company has not received assurances or warranties to that effect from these vendors. The Company does not know and believes it could, at best, only speculate the impact which any Year 2000 issues might have upon its advertising customers and how that impact would affect their decisions to purchase advertising from the Company. At this time, the Company does not have in place a contingency plan in the event of the most reasonably likely worst case scenario; it is uncertain at this time the timing and extent to which such a contingency plan will be developed. 14 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 Forward-Looking Statements The statements made above relating to: (1) the reduction of selling costs as a percentage of revenues, (2) the anticipated benefits the Company may derive from its new directory participation program, (3) the timing for the Company to convert associations to the new directory participation program, (4) the anticipated costs to the Company of complying with the Year 2000 conversion, and (5) the anticipated future impact as a result of third parties not being Year 2000 compliant on a timely basis are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The results anticipated by any or all of these forward-looking statements may not occur. Important factors that may cause actual results to differ materially from the forward-looking statements include the following: (i) the inability of the Company to improve selling efficiencies, (ii) the inability of the Company to sell advertising for large directories such as those for the state of California and the state of New York, (iii) the inability of the Company to convert a large number of associations from the Company's "free directory program" to the new directory participation program, (iv) the inability of the Company to market its bar and medical association directories under the directory participation program, (v) the inability of the Company to obtain a new sales order management and billing information technology system which is Year 2000 compliant, (vi) the failure of third parties which supply services to the Company to be Year 2000 compliant on a timely basis, and (vii) the impact of the Year 2000 problem on the Company's advertising customers. 15 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 PART II - OTHER INFORMATION ITEM 5. Other Information On November 2, 1998, Peter S. Balise, Chairman of the Board of Directors and President of the Company, in a private transaction purchased 333,000 shares or substantially all of the Company's common stock owned by D. Scott Plakon, a former officer and then-current director of the Company. On November 3, 1998, Mr. Plakon resigned from the Company's Board of Directors to pursue other interests. Mr. Plakon resigned as an employee on April 17, 1998; he had served the Company as Executive Vice President since September, 1994. Pursuant to a prior agreement, Mr. Plakon will continue to perform consulting services for the Company on an "as needed" basis in exchange for the Company paying health insurance costs for him and his dependents through May, 1999. On November 9, 1998, the Company announced the appointment of Andrew J. Cahill and J. William Wrigley to its Board of Directors. Mr. Cahill is a Managing Director with Stone Pine Investment Banking LLC. From 1987 to 1997, he was a Managing Director - Investment Banking for Laidlaw Equities, Inc. Mr. Cahill brings previous experience with the Company from his active role in Laidlaw Equities' underwriting of the Company's initial public offering in 1996. He also has been appointed to serve on the Audit Committee of the Board; his term will expire at the Company's annual meeting in 2001. Mr. Wrigley joined the Company in January, 1998 as National Sales Manager and became its Chief Operating Officer in August. He has over 30 years of experience in the publishing industry, including 18 years with R. H. Donnelley Corporation. Mr. Wrigley's term on the Board will expire at the Company's annual meeting in 2000. ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits 1. Exhibit 27 - Financial Data Schedule b. No reports on Form 8-K were filed during the quarter ended September 30, 1998. 16 The Publishing Company of North America, Inc. Form 10-QSB/A - September 30, 1998 In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf on March 30, 1999 by the undersigned, thereunto duly authorized. The Publishing Company of North America, Inc. /s/ Peter S. Balise --------------------------------------------- President (Chief Executive Officer) /s/ James M. Koller --------------------------------------------- Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1998 SEP-30-1998 2,532,946 876 438,115 200,415 0 3,269,963 1,741,574 389,542 5,121,557 1,446,777 706,666 0 0 5,828,448 (2,807,001) 5,121,557 4,919,664 4,919,664 1,156,902 5,550,926 220,744 0 16,701 (835,305) 70,296 (905,601) 0 0 0 (905,601) (0.21) (0.21)
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