U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended June 30, 1996
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)
577 Deltona Boulevard, 2nd Floor
Deltona, FL 32725
407-860-3000
(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:
|_| Yes |X| No (1)
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 August 6, 1996
- --------------------------- -----------------------------
Common Stock: no par value 4,105,000
Transitional Small Business Disclosure Format (check one): |_| Yes |X| No
(1) The Company has filed all required reports but has not been subject to such
filing requirements for the past 90 days since the Company's registration
statement for its initial public offering became effective on May 17, 1996.
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of June 30, 1996 (unaudited)
and December 31, 1995 2
Statements of Income for the three and six months
ended June 30, 1996 and 1995 (unaudited) 3
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 (unaudited) 4- 5
Notes to unaudited interim financial statements 6- 7
ITEM 2. Management's Discussion and Analysis of Interim Financial
Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Statement re computation of per share earnings
Exhibit 27 - Financial Data Schedule
<PAGE>
The Publishing Company of North America, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------------- ------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $286,023 $1,044,987
Investments in U.S. Treasury securities --- 4,027,244
Accounts receivable, less allowance for doubtful
accounts of $37,755 at December 31, 1995,
and $47,755 at June 30, 1996 317,012 694,477
Securites available-for-sale 16,500 14,500
Directories in progress 87,618 26,133
Other current assets 16,747 22,260
------------------- ------------------
Total current assets 723,900 5,829,601
Property and equipment, net 169,200 249,772
Other assets --- 23,544
------------------- ------------------
Total assets $893,100 $6,102,917
=================== ==================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $73,085 $157,547
Accrued expenses --- 55,529
Deferred revenue 270,257 83,110
Income taxes payable --- 30,215
Deferred income taxes --- 157,670
------------------- ------------------
Total current liabilities 343,342 484,071
Promissory notes to shareholders,
including accrued interest --- 274,599
Deferred income taxes --- 19,000
Shareholders' equity:
Common shares, no par value: 15,000,000 shares
authorized; 2,925,000 issued and outstanding at
December 31, 1995; 4,105,000 issued and outstanding
at June 30, 1996 100 4,529,137
Unrealized loss on available-for-sale securities (17,520) (19,520)
Retained earnings 567,178 815,630
------------------- ------------------
Total shareholders' equity 549,758 5,325,247
------------------- ------------------
Total liabilities and shareholders' equity $893,100 $6,102,917
=================== ==================
</TABLE>
See accompanying notes.
2
<PAGE>
The Publishing Company of North America, Inc.
Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------------------------ ----------------------------------
1995 1996 1995 1996
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $502,714 $934,243 $591,948 $1,912,920
Cost and expenses:
Salaries and commissions 182,866 371,961 264,944 684,576
Materials and printing 66,278 109,366 77,169 236,450
Depreciation 8,415 18,473 12,964 35,409
Other operating costs 63,336 234,115 107,899 429,299
---------------- ---------------- -------------- ---------------
320,895 733,915 462,976 1,385,734
---------------- ---------------- -------------- ---------------
Income from operations 181,819 200,328 128,972 527,186
Other income (expense)
Interest expense --- (37,763) --- (57,338)
Other 806 (89) 1,886 6,488
---------------- ---------------- -------------- ---------------
Income before provision
for income taxes 182,625 162,476 130,858 476,336
Provision for income taxes --- 61,775 --- 227,884
---------------- ---------------- -------------- ---------------
Net income $182,625 $100,701 $130,858 $248,452
================ ================ ============== ===============
Net income per share --- $0.03 --- $0.08
================ ================ ============== ===============
Shares used in computation of
net income per share --- 3,526,022 --- 3,242,055
================ ================ ============== ===============
Pro forma data:
Net income before provision
for income taxes $182,625 $162,476 $130,858 $476,336
Pro forma provision for
income taxes 68,833 61,775 49,353 179,774
---------------- ---------------- -------------- ---------------
Pro forma net income $113,792 $100,701 $81,505 $296,562
================ ================ ============== ===============
Pro forma net income per share $0.04 $0.03 $0.03 $0.09
================ ================ ============== ===============
Shares used in computation of
pro forma net income per share 2,955,000 3,526,022 2,955,000 3,242,055
================ ================ ============== ===============
</TABLE>
See accompanying notes.
3
<PAGE>
The Publishing Company of North America, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30
-----------------------------------------
1995 1996
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 130,858 $ 248,452
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12,964 35,409
Bad debt expense 23,726 16,462
Provision for deferred income taxes --- 176,670
Exchange of advertising for machinery & equipment (3,990) (11,938)
Accretion of bridge notes --- 77,778
Interest accrued on promissory notes to shareholders --- 6,292
Interest accrued on U.S. Treasury securities --- (15,381)
Increase in accounts receivable (34,811) (377,465)
(Increase) decrease in directories in progress (41,034) 61,485
(Increase) decrease in other assets 10,525 (29,057)
Increase in accounts payable 12,335 84,462
Increase in accrued expenses --- 55,529
Increase (decrease) in deferred revenue 122,489 (187,147)
Increase in income taxes payable --- 30,215
---------------- -----------------
Net cash provided by operating activities 233,062 171,766
Cash flows from investing activities
Purchases of securities available-for-sale (67,860) ---
Purchases of U.S. Treasury securities --- (4,011,863)
Purchases of property and equipment (28,006) (120,505)
---------------- -----------------
Net cash used in investing activities (95,866) (4,132,368)
Cash flows from financing activities
Repayment of shareholder advances (13,610) ---
Distributions to shareholders (48,004) (178,871)
Net proceeds from initial public offering of common shares --- 4,898,437
---------------- -----------------
Net cash (used in) provided by financing activities (61,614) 4,719,566
Net increase (decrease) in cash and cash equivalents 75,582 758,964
Cash and cash equivalents at beginning of period 15,524 286,023
---------------- -----------------
Cash and cash equivalents at end of period $ 91,106 $ 1,044,987
================ =================
</TABLE>
See accompanying notes.
4
<PAGE>
The Publishing Company of North America, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30
-----------------------------------------
1995 1996
---------------- -----------------
<S> <C> <C>
Supplemental cash flow information
Exchange of advertising for supplies $ 8,032 $ ---
================ =================
Interest paid $ --- $ 4,932
================ =================
Income taxes paid $ --- $ 21,000
================ =================
Distribution to shareholders in exchange for promissory notes $ --- $ 268,307
================ =================
</TABLE>
See accompanying notes.
5
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of The Publishing Company
of North America, Inc. (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 financial statements. The results of operations of any
interim period are not necessarily indicative of the results of operations for
the fiscal year. For further information, refer to the financial statements and
footnotes thereto included in the Company's registration statement on Form SB-2
relating to the Company's initial public offering of its common stock which was
made effective on May 17, 1996.
2. 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.
3. ACCOUNTS RECEIVABLE
Accounts receivable are comprised primarily of amounts due from advertisers
in the bar association directories.
4. 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.
5. INCOME TAXES
Until January 1, 1996 the Company elected by consent of its shareholders to
be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Under those provisions, the Company did not pay federal corporate income taxes
on its taxable income; instead, the shareholders were liable for individual
federal income taxes on the Company's taxable income. In March, 1996 the Company
terminated its S Corporation status effective January 1, 1996 and thereafter
will be taxed as a C Corporation. Accordingly, a deferred tax liability of
$48,110 was recognized and charged to income as of January 1, 1996; this charge
relates directly to the conversion and is in addition to the taxes otherwise due
for 1996 income. In March, 1996 the Company made a distribution of $178,871 to
existing shareholders for estimated federal income taxes due on 1995 S
Corporation income and the Company issued $268,307 of notes payable to existing
shareholders for S Corporation earnings not previously declared as dividends
during 1995. Pro forma income tax adjustments had the Company been a C
corporation for all periods
6
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
presented are provided in the accompanying financial statements.
6. NET INCOME PER SHARE
Net income per share and pro forma net income per share are computed based
on the weighted average number of common shares and common stock options using
the treasury stock method. In accordance with the Securities and Exchange
Commission requirements, common and common equivalent shares issued by the
Company at prices below the public offering price during the 12-month period
prior to the date of the initial public offering on May 17, 1996 have been
included in the calculation as if they were outstanding for all periods prior to
the offering using the treasury stock method and the initial public offering
price.
Historical net income per share is not considered meaningful for the
periods ended prior to January 1, 1996 due to the Company's S Corporation
status; accordingly, such per share information is not presented for such
periods. Pro forma net income per share is provided to show the effect on the
historical financial information had the Company operated as a C Corporation
since inception and excludes the $48,110 charge to income in connection with the
termination of its S Corporation status on January 1, 1996.
7. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require 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.
8. INITIAL PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK
Pursuant to a registration statement on Form SB-2 with the Securities and
Exchange Commission, on May 17, 1996 the Company's common stock commenced
trading on the NASDAQ National Market System under the symbol PCNA. Gross
proceeds of $6,325,000 were raised from the sale of 1,150,000 shares at $5.50
per share. Net proceeds to the Company after paying all related costs of the
offering were approximately $4,900,000.
8. SUBSEQUENT EVENTS
In July, 1996 the Company entered into a contract to purchase land and a
21,500 square foot building in Lake Helen, Florida, for approximately $885,000;
closing on the purchase currently is scheduled for early September, 1996.
Effective July 1, 1996 the Company entered into a lease for rental of
approximately 7,250 square feet of office space in Orlando, Florida. The lease
is for 36 months and calls for estimated rent payments over the life of the
lease of approximately $282,000 before sales tax.
In July, 1996 the Company elected to retire the $268,307 of notes payable
plus accrued interest to existing shareholders representing 1995 S Corporation
earnings not previously paid as dividends. This amount included payments which
aggregated to $178,795 to the President and Executive Vice President of the
Company. The Company pre-paid these notes because their interest expense was
greater than the investment income the Company could have reasonably earned on
the funds used to retire the notes.
7
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Total revenues for the three and six month periods ended June 30, 1996 were
$934,243 and $1,912,920, respectively, compared to $502,714 and $591,948,
respectively, for the same periods in 1995. This represents an 86% and 223%
increase in revenues from 1995 to 1996 for the three and six month periods. This
increase in revenues is a result of several factors. In the three and six month
periods ended June 30, 1996 the Company published 13 and 27 directories,
respectively, compared to 9 and 12 for the same periods in 1995. An increase in
the average revenues per directory was a second factor. A third factor was the
1996 revenues from the publication of a bar association newsletter and the
Company's Internet operations, neither of which had revenues in 1995.
The Company's costs to print directories, which includes primarily
materials, printing, and binding, remained at approximately 13% from 1995 to
1996; however, the revenues from Internet operations, which do not have these
production costs, caused materials and printing costs to average only 12% of
total net revenues in 1996. The Company expects that materials and printing
costs will remain approximately 13% of directory revenues for the balance of
1996.
Operating costs other than materials and printing and depreciation
increased to $1,113,875 for the six months ended June 30, 1996 from $372,843 for
the same period in 1995. This represents a 199% increase in these costs while
revenues increased 223%; most of the increase in these costs were related to
staff required to provide the additional revenues. For the three months ended
June 30 these costs increased to $606,076 (65% of revenues) in 1996 from
$246,202 (49% of revenues) in 1995. Of the $359,874 increase in the most recent
three months of 1996 from that of 1995, over half was in salaries and
commissions and largely attributable to the commissions on the increase in
revenues and a greater number of staff; $170,779 of the $359,874 increase was in
other operating costs, most of which related to the increase in staff. Since the
Company's initial public offering in May of this year, the Company has embarked
on an aggressive growth plan. Employment has increased to approximately 90
people at August 9 from approximately 60 at May 31, 1996; over half of the
Company's employees are in sales of advertising for the Company's publications.
In early July of this year the Company opened a new sales office in Orlando,
Florida. Also in July the Company entered into a contract to purchase land and a
21,500 square foot building in Lake Helen, Florida; the building is being sold
as a result of a bankruptcy and is approximately three times the square footage
of the Company's current facilities in Deltona, Florida. The Company plans to
move its operations in Deltona to the Lake Helen facility in October and thereby
provide room for planned growth.
Many of the costs which the Company is incurring and will incur later this
year will not result in an immediately proportionate growth in revenue. This is
due to the time between the expenditure and the recognition of revenues from
publications advertising which results from that expenditure. There is a minimum
of several months, for example, between the time a salesperson is hired and any
sales of advertising by that person will be recognized as revenue upon the
shipment of a directory containing that advertising. Therefore, expenses as a
percentage of revenues may be higher in the last half of 1996 as the Company
continues its expansion.
8
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS
Deferred revenue, which represents amounts received from advertisers prior
to shipment of the related directories, decreased $187,147 from $270,257 at
December 31, 1995 to $83,110 at June 30, 1996. This was the result of the
Company's increased contract base which required sales of advertising to
continue later into the period and closer to the actual publication date.
Directories in progress, which represents costs accumulated for directories
unpublished at the end of the period, decreased $61,485 from $87,618 at
December 31, 1995 to $26,133 at June 30, 1996 for the same reason.
In March, 1996 the Company borrowed $300,000 through the private placement
of units consisting of an aggregate $300,000 principal amount of Bridge Notes
and an aggregate of 30,000 shares of common stock. The amount of the Bridge
Notes was reduced and shareholders' equity increased by $77,778, representing
the original issue discount based on an estimated fair value of $3.50 per share
of common stock. This resulted in a charge as interest expense of $57,778 and
$77,778 for the three and six months ended June 30, 1996. In addition, the
Company retired the Bridge Notes in late May of this year and paid $4,932 in
accrued interest.
Liquidity and Capital Resources
On May 17, 1996 the Company's common stock commenced trading on the NASDAQ
National Market System under the symbol PCNA. This initial public offering
raised $6,325,000 in gross proceeds from the sale of 1,150,000 shares at $5.50
per share. Net proceeds to the Company after paying all related costs of the
offering were approximately $4,900,000.
From the net proceeds the Company paid approximately $305,000 to retire the
Bridge Notes and accrued interest from its private placement made in March,
1996. At June 30, 1996 the Company had investments of approximately $4,000,000
in U.S. Treasury securities and approximately $1,045,000 in cash and cash
equivalents.
Net cash provided by operations was $171,766 for the six months ended June
30, 1996 compared to $233,062 for the same period a year earlier. The most
significant reasons for the decrease in 1996 from 1995 was the increase in
accounts receivable and decrease in deferred revenue in 1996 compared to 1995.
Accounts receivable increased in 1996 due to a higher level of revenues and due
to a greater portion of the related shipments occurring late in the period. The
decrease in deferred revenue was explained above under Results of Operations.
At June 30, 1996 the Company had no debt other than $268,307 of notes
payable to existing shareholders for S Corporation earnings not previously
declared as dividends during 1995. These notes and accrued interest of $6,763
were paid in July of this year.
The Company has no borrowing relationships established with banks; however,
the Company plans to finance a portion of the approximate $885,000 purchase cost
of the land and building which it now has under contract through a conventional
mortgage and it believes that bank financing will be made available to it. The
Company has no commitments at this time to acquire a material amount of capital
assets other than the land and building.
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.
9
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward-Looking Statements
The statements made above relating to the anticipated materials and
printing costs for the balance of 1996, acquisition of real estate for the
Company's corporate offices, the availability of conventional mortgage financing
and the increase in anticipated expenses as a percentage of revenues 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: (1) unanticipated increases in
third-party printing costs as a result of increases in labor or paper costs; (2)
the Company's ability to continue to sell sufficient advertising per directory
published in order to maintain the same percentages of materials and printing
costs to directory revenues; (3) contract issues or environmental concerns that
may cause the Company not to acquire the real estate; (4) unanticipated changes
in the financial markets that affect mortgage financing; and (5) unanticipated
cancellation by bar associations of existing contracts to publish directories.
10
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
PART II - OTHER INFORMATION
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11 - Statement re computation of per share earnings
Exhibit 27 - Financial Data Schedule
b. No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
11
<PAGE>
The Publishing Company of North America, Inc.
Form 10-QSB - June 30, 1996
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf on August 13, 1996 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 (Principal
Financial and Accounting Officer)
Exhibit 11
Statement Re Computation of Per Share Earnings
Three months Six months
ended ended
Primary June 30,1996 June 30,1996
------------- -------------
Average shares outstanding 3,513,945 3,236,017
Net effect of dilutive stock options
based on the treasury stock method
using the average market price 12,077 6,038
------------- -------------
Total 3,526,022 3,242,055
============= =============
Net income $100,701 $248,452
============= =============
Per share amount $0.03 $0.08
============= =============
Fully-diluted
Average shares outstanding 3,513,945 3,236,017
Net effect of dilutive stock options
based on the treasury stock method
using the market price at end of period 12,564 6,282
------------- -------------
Total 3,526,509 3,242,299
============= =============
Net income $100,701 $248,452
============= =============
Per share amount $0.03 $0.08
============= =============
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,044,987
<SECURITIES> 4,041,744
<RECEIVABLES> 742,232
<ALLOWANCES> (47,755)
<INVENTORY> 0
<CURRENT-ASSETS> 5,829,601
<PP&E> 285,181
<DEPRECIATION> 35,409
<TOTAL-ASSETS> 6,102,917
<CURRENT-LIABILITIES> 484,071
<BONDS> 0
0
0
<COMMON> 4,529,137
<OTHER-SE> 796,110
<TOTAL-LIABILITY-AND-EQUITY> 6,102,917
<SALES> 1,840,223
<TOTAL-REVENUES> 1,912,920
<CGS> 236,450
<TOTAL-COSTS> 1,149,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,338
<INCOME-PRETAX> 476,336
<INCOME-TAX> 227,884
<INCOME-CONTINUING> 248,452
<DISCONTINUED> 0
<EXTRAORDINARY> 6,488
<CHANGES> 0
<NET-INCOME> 248,452
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
