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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
/x/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1998.
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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 32744-0280
904-228-1000
------------
(Address and telephone number
of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common stock, no par value
Check 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 | |
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by referenced in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
The registrant's revenues for its most recent fiscal year, ended December 31,
1998 were $6,371,014.
The aggregate market value of the registrant's voting stock held by
non-affiliates, computed by reference to the last sale price per share as of
December 9, 1999 was $3,927,000.
There were 3,290,720 shares of the registrant's Common Stock outstanding as of
December 9, 1999.
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<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant for the
registrant's Annual Meeting of the Shareholders for the fiscal year ended
December 31, 1998, which definitive proxy statement was filed with the
Securities and Exchange Commission not later than 120 days after the
registrant's fiscal year end of December 31, 1998 are incorporated by reference
into Part III.
Transitional Small Business Disclosure Format (check one): Yes | | No |X|
INDEX
Page
----
PART I
Item 1. Business............................................................3
Item 2. Properties..........................................................8
Item 3. Legal Proceedings...................................................8
Item 4. Submission of Matters to a Vote of Security Holders.................8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............9
Item 6. Management's Discussion and Analysis or Plan of Operations.........11
Item 7. Financial Statements...............................................16
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................33
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act..............33
Item 10. Executive Compensation..............................................33
Item 11. Security Ownership of Certain Beneficial Owners and Management......33
Item 12. Certain Relationships and Related Transactions......................33
Item 13. Exhibits and Reports on Form 8-K, Index.............................34
2
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
PART I
ITEM 1. BUSINESS
GENERAL
Throughout this document, "the Company" shall refer to The Publishing
Company of North America, Inc. and its wholly-owned subsidiary, College
Directory Publishing, Inc. (CDP) which was acquired by the Company on July 3,
1997 and sold by the Company on June 10, 1998. PCNA refers to the Company's bar
and medical association publishing activities. While the Company had established
two new wholly owned subsidiaries at the time of this report (See Exhibit 21.0,
Subsidiaries of the Registrant), these new companies played no role in the
Company's business in 1998 or 1997. These subsidiaries are PCNA Communications
Corporation and Attorneys.com, Inc. (previously known as Attorneys Online,
Inc.). PCNA Communications Corporation was organized in October 1998; effective
January 1, 1999, the Company shifted its operations and transferred its assets
and liabilities excepting its real estate and fixed assets to PCNA
Communications Corporation. Attorneys.com, Inc. was organized in February 1999.
Historically, PCNA has specialized in publishing free membership
directories for bar associations nationwide; a small amount (6% in 1998) of
PCNA's revenues are derived from the publication of directories for medical
associations. PCNA relies upon the sale of advertising within the directories to
generate its principal revenues. In February 1998, PCNA introduced its new
Directory Participation Program (DPP). The DPP is designed to allow attorneys,
law firms, courts or bar associations to purchase directories directly from
PCNA. Associations that purchase directories from PCNA can then sell the
directories to their members at a profit or distribute the directories free of
charge. While PCNA continues its free directory programs for larger
associations, the new DPP programs account for approximately 49% of the
Company's contracts.
PCNA's principal product is the publication of city, county and state
bar association print directories throughout the continental United States. Most
bar association directories contain a complete listing of member attorneys along
with their firm names, addresses, telephone numbers and fax numbers. They often
also contain court information and specialized local information which attorneys
may require during their course of business.
PCNA publishes the majority of its directories "in-house", contracting
the printing and binding to outside firms. In most cases, PCNA assumes all costs
of publication, including design, layout, printing and binding of its
directories.
The Company is a Florida corporation which was organized in September
1993. The Company's management has approximately 90 years of combined experience
in publishing print specialty directories. The high quality of the print
directories published by PCNA and PCNA's commitment to client service have
contributed to PCNA's penetration in the legal publishing marketplace.
In December 1995, PCNA became the publisher of the directory for the
National Association of Bar Executives ("NABE") which is affiliated with the
American Bar Association. NABE consists of executives from many leading bar
associations at the state, county and local levels. As the publisher of the NABE
directory and the only publisher of bar association directories allowed to be
present at NABE functions, PCNA believes that it has an important competitive
advantage in the marketing of bar directories to NABE members. In April 1997,
PCNA became a sponsor for the National Conference of Bar Presidents (NCBP) and
the National Conference of Bar Foundations (NCBF). The Company believes that
these additional sponsorships will help increase the Company's exposure to
important contacts within the legal publishing industry.
The Company made significant changes to its senior management team
during 1998. Bill Wrigley became the Company's new National Sales Manager
effective January 1998. In August 1998 he assumed the responsibilities of Chief
Operating Officer. Mr. Wrigley joined the Company with a distinguished record
from R. H. Donnelley Corpora-
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
tion, the largest independent publisher of directories in the nation, and as
former founder, President and CEO of DataNational Corporation, which was then
one of the fastest growing independent directory companies in America.
ACQUISITION AND SALE OF CDP
On July 3, 1997 PCNA, through a 100% owned subsidiary, acquired 100% of
the outstanding capital stock of CDP in a tax-free merger. CDP is a
Conshohocken, Pennsylvania-based publisher of college and university campus
directories. As described elsewhere, the Company sold CDP in 1998 for the return
of the same consideration paid in its acquisition, repayment of operating loans
made to CDP, a $100,000 promissory note, and $200,000 of convertible preferred
stock of the acquiror of CDP which is convertible into $1,000,000 of common
stock upon certain events. See Item 6. Management's Discussion and Analysis or
Plan of Operation - Sale of CDP.
PRINT DIRECTORIES
INDUSTRY OVERVIEW
The specialty publishing market is diverse, consisting of trade
journals, newsletters, directories and magazines aimed at specific target
markets such as computer users, sports fans, women or men, gun collectors, etc.
Print directories, including association directories and yellow page
directories, are just one part of the specialty publishing market. Advertisers
are increasingly seeking ways to channel their advertising dollars toward
specific target markets. Specialty publications, including PCNA's bar
association directories, offer advertisers the opportunity to advertise their
products and services to these select markets.
LEGAL SPECIALTY MARKET
Bar directories have long been an important segment of the legal
publishing industry. Legal directories are often used by attorneys and their
staffs. Nationwide legal directories, such as the Martindale-Hubbell Law
Directory ("Martindale-Hubbell"), can assist in searching for attorneys
nationwide with specific credentials and expertise.
While the Martindale-Hubbell directory is an important tool for many
attorneys, because of its size it lacks the convenience of a smaller desktop
directory. The Company believes that many attorneys may rely on the information
contained in their bar association directories. In the course of their
profession, lawyers are required to frequently communicate with other lawyers.
Therefore, bar directories meet a need of attorneys. From a lawyer's
perspective, a bar directory contains a convenient listing of names, addresses
and telephone numbers and often, facsimile numbers of co-counsel, opposing
counsel, local courts and judges. Since a bar association directory is often
used, the advertising contained in those directories is intended to reach its
targeted audience on a regular basis.
PCNA'S BAR DIRECTORIES
PCNA provides directories to individual bar associations and attorneys
nationwide. PCNA derives revenues from the sale of directories as well as the
sale of yellow page advertising located after the listing of association
members. Advertisers are usually local merchants marketing their goods and
services to lawyers in the communities served by the bar association.
Participating advertisers include title companies, court reporters, accountants,
and office supply companies. Additionally, PCNA markets to many attorneys the
option of having their own specialty listings in their local directory. These
listings, which do not represent a material portion of the Company's revenues,
are contained in bar directories published by PCNA and provide a convenient
source of referrals for attorneys who need assistance in a given area of the law
for their clients.
PCNA targets bar associations with enough members within a localized
area so that the potential advertising revenue is expected to exceed direct and
indirect publishing costs. While PCNA's target market has previously consisted
of all bar associations with approximately 300 or more members, the Company has
recently focused on publishing for state and larger bar associations nationwide.
In targeting these bar associations, PCNA uses area
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
demographics including the local yellow pages and other local publications to
determine if the number of potential advertisers which meet its criteria exist
in the community.
Once it targets a bar association for publication of its directory,
PCNA uses referrals from other clients to assist in obtaining an agreement to
publish that directory. As PCNA has expanded its operations, management has
developed business relationships with bar association executives throughout the
country. In addition, PCNA uses its published bar directories and letters from
satisfied bar associations as marketing tools to show prospective new clients.
PCNA's strategy had been to secure market share. However, in 1998 PCNA
began to focus more on obtaining publishing agreements that will result in
acceptable gross profit margins. In doing so, PCNA voluntarily declined to
publish a small number of directories for bar associations it had served in the
past. PCNA believes that its revised strategy has contributed to its improved
operating results. See Item 6. Management's Discussion and Analysis or Plan of
Operation - Results of Operations.
PUBLICATION OF DIRECTORIES
PCNA has two primary directory programs that it offers to its
customers. The new Directory Participation Program under which directories are
purchased either by the associations or the attorneys themselves, and PCNA's
traditional free directory program. In 1999, the Company expects to achieve
approximately half of its directory revenues from each program. PCNA's no-cost
approach means that it will publish a directory, assuming all production costs
including design, advertising layout, printing and binding. In this fashion, the
financial risk is transferred from the association to PCNA.
The publication of bar directories by PCNA involves a number of stages.
First, PCNA must obtain a contract to publish a directory from a bar association
as described above. Once an agreement to publish is obtained, PCNA's sales staff
solicits advertisements from local businesses that provide goods and services to
attorneys in the bar association's community. A proof of all advertising is sent
to the customer as well as the bar association to insure that the advertisement
placed is both correct and "in good taste."
As part of the publication process, the association provides PCNA with
a complete database of membership and other general information, such as court
listings, which the association wants to include in the directory. Many of the
directories published by PCNA are pictorial. In these instances, PCNA assists
the association in arranging for photographs of its members using unaffiliated
photographers. Most graphics for the directory are prepared by PCNA's staff of
graphic artists. Once all of the graphics including advertising are completed,
PCNA produces a draft of the directory, obtains proof approval from the bar
association, and then arranges for printing and binding of the directory by an
independent commercial printer. After printing and binding, the directories are
distributed to member attorneys in accordance with the terms of the contract to
publish.
CLIENTS
PCNA currently publishes city, county and state directories nationwide.
While city and county bar associations represent the majority of the Company's
clients, PCNA has made a strategic decision to obtain publishing contracts for
more state bar associations. PCNA has published directories for the membership
of the State Bar of California, New Hampshire Bar Association, Missouri Bar,
Nebraska State Bar Association, North Carolina Bar Association, and the West
Virginia State Bar. Additionally, PCNA expects to publish a directory for the
Ohio State Bar Association by March 31, 1999 and for the Rhode Island Bar
Association in the second quarter of 1999. As PCNA has grown, it believes that
its emerging national presence has given it the credibility to permit it to
market its products and services to other state bar associations.
PCNA entered into a non-exclusive licensing agreement with
Skinder-Strauss Associates in March, 1998, whereby PCNA published THE LEGAL
PAGES(R) for the state of New York. The agreement is long-term; however,
Skinder-Strauss may cancel at any time at least six months before any
publication date, and PCNA may cancel at
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
any time. This publication contained advertising of attorney support services in
September 1998; it also will include attorney biographies when next scheduled
for publication in September 1999. It will again be distributed to law firms
throughout the state of New York who have subscribed to Skinder-Strauss' New
York LAWYERS DIARY AND MANUAL(R). Additionally, in accordance with the terms of
the agreement with Skinder-Strauss, PCNA shall have the right to sell
advertising in Skinder-Strauss' publication of THE LEGAL PAGES for Massachusetts
and New Jersey. (THE LEGAL PAGES and LAWYERS DIARY AND MANUAL are registered
trademarks of Skinder-Strauss Associates.)
SALES AND ADVERTISING
PCNA uses account executives who specialize in selling advertisements
by telephone to businesses which supply support services and products to the
legal profession as well as to the general public. PCNA believes that through
its in-house sales team, it is better able to maintain quality control and
establish a reputation for professionalism. PCNA's management supervises the
sales staff in order to ensure that it is acting in an ethical and professional
manner and clearly communicates that PCNA is independent of the bar
associations. Advertising is contained in a section entitled "Attorney Support
Services" and follows a "yellow page" format in print directories. PCNA is
always evaluating methods to improve its sales efficiencies.
Advertising sales are assisted by a letter of introduction from the bar
association stating that PCNA is publishing the official bar association
directory. Like other forms of print advertising including newspaper and yellow
pages, PCNA offers a variety of possible advertisements including inside cover
pages, full and partial pages, business card listings, and simple classified
line listings. PCNA requires a 50% deposit upon approval by the advertiser of a
proof and the balance is payable upon publication. A 5% discount is offered in
exchange for full payment upon approval of a proof.
PRINTING
PCNA is not engaged in the printing of its bar directories and
subcontracts this work to independent printing companies. PCNA believes that
there is an ample supply of independent printers willing to perform quality
printing services for PCNA and that it will not be materially adversely affected
by subcontracting its printing services. In doing so, PCNA believes that it
avoids the need to invest substantial sums of capital in printing and binding
equipment and has more flexibility to meet its clients' specialized needs.
However, delays by independent contractors over which PCNA has limited or no
control could result in a loss of contracts by PCNA from either bar associations
or advertisers or both.
BACKLOG
The Company's backlog consists primarily of advertising agreements for
directories that have not been published. As of March 1, 1999, PCNA's backlog
was approximately $2,100,000 as compared to approximately $2,500,000 a year
earlier. Since PCNA recognizes revenues when it ships its print directories, it
anticipates that all of the March 1, 1999 backlog will be recognized as revenues
during the current fiscal year.
SIGNIFICANT CLIENTS
The Company relies primarily upon the sale of advertising to derive its
revenues; directory sales provide a small portion of overall revenues. In 1998
and 1997 no single directory contained advertising sales comprising 10% or more
of the Company's revenues. The Company does not expect that it would be
materially adversely affected should any single association decide not to renew
its publication in future years. See also Item 1. Business - PCNA's Bar
Directories - Clients.
6
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
COMPETITION
The Company encounters competition in the acquisition of publishing
contracts as well as in advertising sales. The Company's sales force competes
with all forms of media that sell advertising--yellow pages, alternative yellow
pages, specialty magazines, newspapers and television, among others.
Other companies, as well as the associations themselves, can publish
directories. We compete with a number of other publishers of bar association
directories, including Legal Directories Publishing Company, a publisher of
state bar directories and Martindale Hubbell which publishes what is considered
to be the premier legal directory, although it has no official status. We
believe that, for many bar associations, competition is based upon the perceived
ability of the publisher to deliver a quality product on schedule and sometimes
upon the percentage of advertising revenues paid to them as a royalty. The
Company believes that it has been successful in the acquisition of bar
association contracts due to its directory programs, strong relationships with
bar association executives, commitment to customer service, and quality of the
directories published. The Company believes that its commitment and support to
the National Association of Bar Executives has helped make the Company the
largest publisher of official bar association directories nationwide.
PRINT DIRECTORIES
The print bar directory market is highly segmented and localized. There
are no significant barriers to entry by competitors since these potential
competitors can enter the Company's business without substantial capital
investment or industry experience. On a national scale, Martindale-Hubbell is
the pre-eminent name in the print bar directory business. Martindale-Hubbell's
publication is a national directory consisting of a set of 25 hardcover volumes.
The publication provides detailed information including a rating system for
attorneys and law firms and is often used for attorney-to-attorney referrals.
For print directories covering a limited geographical area, PCNA's
principal competitor is believed to be Legal Directories Publishing Company
(LDP), a privately held company located in Dallas, Texas. LDP is believed to
have significantly larger revenues than PCNA. LDP publishes state bar
directories that it sells directly to attorneys and others who have a need for a
state bar directory.
The Company competes in two distinct ways. First, it competes for the
award of the contract for an official association directory. Secondly, where
competitors such as LDP publish an unofficial directory and the Company
publishes the official directory, there is competition to sell advertising and
to attract lawyers to acquire the directories. In a limited number of instances
where the Company publishes unofficial directories, similar competition exists.
BUSINESS STRATEGY: PAST, PRESENT AND FUTURE
During 1998, PCNA was successful in reducing overhead, implementing new
directory programs, eliminating unprofitable directories from its publication
schedule, and strengthening its management team primarily by the hiring of Bill
Wrigley (see page 3) who became Chief Operating Officer in August 1998 and who
led efforts that resulted in a significant improvement of the Company's
operating results beginning in the fourth quarter of 1998.
The Company's plans for 1999 include the creation of an Internet
portal, online vendor directory, online legal store, and online attorney to
attorney and public to attorney referral services. (A portal refers to a site or
location on the Internet that is designed with the intent of attracting usage as
an initial entrance or gateway for browsing the Internet.) The Company announced
in January 1999 that it had entered into a strategic alliance with Photobooks,
Inc. of Atlanta, Georgia, to produce its new portal and vendor directory. This
arrangement has allowed the Company to enter the online publishing arena with
minimal overhead and risk because the Company does not have to hire and maintain
staff, dedicate facilities, purchase certain hardware, and contract third-party
data communication services (e.g, T1 phone lines), all of which is provided by
Photobooks. Additionally, remuneration payable to Photobooks is contingent upon
revenues realized by the Company. The Company shall continue to partner with
other companies and associations that will enable it to become a successful
Internet publishing
7
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
company targeted towards the legal profession. No assurances can be given that
the Company's Internet venture will be successful.
EMPLOYEES
At December 31, 1998 PCNA had 96 full-time employees, including its
executive officers. PCNA's staff is divided into 12 people in administration, 54
in sales, 12 in sales management and administration, and 18 in production and
customer service. None of the Company's employees are covered by a collective
bargaining agreement. Management believes that the Company's relationship with
its employees and contractors is excellent.
ITEM 2. PROPERTIES
The Company's corporate headquarters occupy approximately 21,500 square
feet in a nine-year-old two-story concrete building located at 186 P.C.N.A.
Parkway, Lake Helen, Florida, 32744. The Company purchased the building and
approximately three acres of land for approximately $900,000 in September 1996;
modifications to enhance the property's usefulness to the Company increased the
investment to approximately $1,015,000 at December 31, 1998. In December 1996
PCNA obtained mortgage financing of $800,000 on the property. Payments of
principal and interest are approximately $9,000 monthly. See Note 6 to "Notes to
Financial Statements."
PCNA also maintains a sales office location that it opened in July 1997
in downtown Lakeland, Florida. PCNA leases 4,050 square feet under a
noncancellable operating lease which expires in September 2000 and which may be
renewed by PCNA for an additional two-year term. Monthly lease payments for the
Lakeland office are approximately $3,777 plus state sales tax.
In May 1998 PCNA closed its 7,245 square-foot sales office location in
Orlando, Florida, which it had opened in July 1996. In January 1999, the Company
was able to negotiate early termination of the noncancellable operating lease
which otherwise would have expired at the end of June 1999.
The Company believes that its facilities are adequate for its
anticipated business volume throughout 1999 and into 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICES OF SECURITIES
The Company's common stock began trading on the Nasdaq National Market
System on May 17, 1996 under the symbol PCNA. Effective March 23, 1997, the
Company's common stock was transferred from the Nasdaq National Market System to
the SmallCap Market as a result of Nasdaq's change in the requirements for
continued listing on the National Market System. The following table sets forth
the prices as reported to the Company by Nasdaq for the periods indicated. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
High Low
---- ---
1997 First Quarter 6 1/8 1 15/16
Second Quarter 3 1/2 2 3/8
Third Quarter 5 1/4 2 5/8
Fourth Quarter 4 1 5/8
1998 First Quarter 2 1/4 31/32
Second Quarter 1 1/2 11/16
Third Quarter 1 1/16 5/8
Fourth Quarter 1 1/16 7/8
As of March 15, 1999, there were approximately 500 beneficial holders
of the Company's common stock.
The Company did not pay dividends on its common stock in 1998 or 1997
and it does not anticipate paying any dividends thereon in the foreseeable
future.
SALES OF UNREGISTERED SECURITIES WITHIN THE LAST THREE YEARS
During the past three years, the following persons and entities
acquired shares of Common Stock and other securities from the Company as set
forth in the table below:
<TABLE>
<CAPTION>
Class of Amount of
Date Securities Securities Sold Consideration
--------- ------------------ --------------- -------------
<S> <C> <C> <C> <C>
James M. Koller 1/29/97 Common Stock 5,000 $11,233
Compensation
as an employee
Christopher J. Maikisch 1/29/97 Common Stock 1,900 $4,305
compensation
as an employee
Yellow Magic, Inc. 1/29/97 Common Stock 10,400 $33,950
purchase of
software
Michael S. Paul 7/3/97 Common Stock 375,000 Consideration
in acquisition
of CDP
John S. Rafanello 7/3/97 Common Stock 375,000 Consideration
in acquisition
of CDP
</TABLE>
9
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONTINUED)
SALES OF UNREGISTERED SECURITIES WITHIN THE LAST THREE YEARS (CONTINUED)
The 1997 sales of Common Stock were exempt from registration pursuant
to Section 4 (2) of the Securities Act of 1933 and Rule 506 thereunder.
INITIAL PUBLIC OFFERING AND SUBSEQUENT USE OF PROCEEDS
Pursuant to a registration statement on Form SB-2 with the Securities
and Exchange Commission (File No. 0-27994), on May 17, 1996 the Company sold
1,150,000 shares of its common stock in its initial public offering. Gross
proceeds were $6,325,000; net proceeds to the Company after paying all related
costs of the offering were approximately $4,900,000. At December 31, 1997 the
Company had used approximately $2,885,000 of the proceeds as detailed in the
Company's annual report on Form 10-KSB for the year then ended.
During 1998 the Company used approximately $550,000 of the proceeds in
operating activities and approximately $786,000 for purchases of the Company's
common stock for its treasury. The remaining approximately $679,000 in net
proceeds at December 31, 1998 were invested in bank certificates of deposit and
money market funds.
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
- ---------------------
In considering the Company's results of operations for the years ended
December 31, 1998 and 1997, it is very important to understand the separate
results of PCNA and CDP. The following table provides those results:
<TABLE><CAPTION>
One year ended One year ended
December 31, 1998 December 31, 1997
PCNA CDP* Consolidated PCNA CDP* Consolidated
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $6,371,014 - $6,371,014 $5,925,201 $3,693,757 $9,618,958
Costs and expenses:
Production 1,541,078 - 1,541,078 1,725,441 1,062,613 2,788,054
Marketing and selling 3,234,349 $158,227 3,392,576 2,860,221 933,653 3,793,874
Royalties - - - - 513,211 513,211
Depreciation 150,684 10,899 161,583 150,451 9,536 159,987
Amortization 66,835 - 66,835 76,020 - 76,020
General and administrative 1,600,509 235,567 1,836,076 1,965,326 728,297 2,693,623
----------------------------------------------------------------------------------
6,593,455 404,693 6,998,148 6,777,459 3,247,310 10,024,769
----------------------------------------------------------------------------------
Income (loss) from operations (222,441) (404,693) (627,134) (852,258) 446,447 (405,811)
Other income (expense) 65,520 (32,683) 32,837 123,711 (14,142) 109,569
Loss on sale of CDP - (220,744) (220,744) - - -
----------------------------------------------------------------------------------
Income (loss) before taxes (156,921) (658,120) (815,041) (728,547) 432,305 (296,242)
Provision for income taxes - 70,296 70,296 - 50,000 50,000
----------------------------------------------------------------------------------
Net income (loss) $(156,921) $(728,416) $(885,337) $(728,547) $382,305 $(346,242)
==================================================================================
</TABLE>
* Amounts shown for CDP are since its acquisition on July 3, 1997 and until its
sale on June 10, 1998. The loss on the sale of CDP and the provisions for income
taxes are shown under CDP because they relate directly to CDP, and in order to
show PCNA's results without the effect of items relating to CDP.
The Company's revenues for the year ended December 31, 1998 decreased
$3,247,944 or 34% from the same period a year earlier due solely to the
contribution of CDP's revenues of $3,693,757 in 1997. CDP's business is highly
seasonal and it recognizes nearly all of its revenues in the fourth quarter. The
Company recognized no revenues for CDP in 1998 before its sale on June 10.
PCNA's revenues in 1998 increased 8% over those in 1997. In 1998 PCNA
published 77 directories with average net revenues of approximately $83,000 per
directory, compared to 79 directories with average net revenues of approximately
$75,000 per directory in 1997. During 1998, PCNA was more selective regarding
the probable contribution margins of the publications for which it contracted.
The following table sets forth the Company's results of operations for
the quarters ended December 31, 1998 and 1997, showing the results of PCNA and
CDP separately:
<TABLE><CAPTION>
Three months ended Three months ended
Dec. 31, 1998 Dec. 31, 1997 December 31, 1997
PCNA Consolidated PCNA CDP
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,451,350 $4,274,301 $950,519 $3,323,783
Income (loss) from operations $4,129 $110,063 $(610,140) $720,203
Net income (loss) $20,264 $59,167 $(607,768) $666,935
</TABLE>
11
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
As is apparent in the tables above, the results for both fiscal years
and for the fourth quarter of 1997 were significantly affected by the results of
CDP. The results for 1997 do not include a $540,278 loss that CDP incurred in
the first half of 1997, prior to the Company's acquisition of CDP. Conversely,
in 1998 the Company recognized no revenues and $728,416 of expenses relating to
the operations and the sale of CDP. The 1997 results for PCNA and CDP include a
$30,000 per month management fee and overhead allocation by PCNA to CDP; the
management fee was forgiven when the Company sold CDP.
During 1998 PCNA endeavored to reduce overhead and improve efficiencies
in all areas of operations. The following table shows PCNA's costs and expenses
(excluding CDP) for 1998 and 1997 expressed as a percentage of sales:
Year ended December 31,
1998 1997
-------------------------
Net sales 100.0% 100.0%
Costs and expenses:
Production 24.2% 29.1%
Marketing and selling 50.8% 48.3%
Depreciation 2.4% 2.5%
Amortization 1.0% 1.3%
General and administrative 25.1% 33.2%
Loss from operations (3.5)% (14.4)%
PCNA's production operations were overhauled during late 1997 and in
1998. As a result, production expenses were reduced in 1998 from 1997 by
$184,000, or 4.9% as a percentage of the respective revenues. Most of the
savings, approximately $120,000, was in payroll and related taxes. Most of the
balance was third-party costs. The Company believes that it should realize more
savings in third-party costs in 1999 as a result of its Directory Participation
Program (DPP) (See Item 1. Business - General) which usually reduces the
quantity of directories which must be printed.
Marketing and selling expenses, which are primarily payroll and other
costs relating to the selling of print advertising, rose 2.5% as a percentage of
revenues in 1998 from 1997. Management recognizes that these expenses have a
primary influence upon PCNA's results of operations and it is continuing efforts
to reduce them. A great majority of the increase of these expenses in 1998 was
due to sales payroll expense. In May 1998 the Company closed its Orlando sales
office in order to reduce overhead and sales management expenses. Marketing and
selling expenses 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.
Approximately $43,000 of the $67,000 in amortization expense in 1998
related to the goodwill resulting from the acquisition of CDP. With the sale,
goodwill amortization relating to CDP will not be an expense in 1999.
PCNA's general and administrative (G&A) expenses decreased $365,000 to
25.1% of revenues in 1998 from 33.2% of revenues in 1997. PCNA's G&A expenses in
1997 were reduced by the allocation of $180,000 to CDP of a management fee and
overhead allocation; therefore, PCNA's actual decrease in G&A expenses in 1998
from 1997 was $545,000. Bad debt expense was reduced $240,000 to 5.6% of
revenues in 1998 from 10.1% in 1997. G&A payroll and related taxes were reduced
by approximately $110,000. Expense for certain professional services other than
legal and accounting was reduced by approximately $100,000 in 1998.
Other income of PCNA is generally investment income net of interest
expense on the Company's mortgage. PCNA's other income was approximately $58,000
lower in 1998 than in 1997 primarily due to the $1,100,000 loaned by the Company
to CDP for CDP's working capital needs during the first half of the year, and
the approximately $786,000 used by the Company to purchase treasury stock.
12
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
SALE OF CDP
- -----------
In response to PCNA's losses, which were expected to continue at least
through the third quarter of 1998, the Company elected to take action to improve
its liquidity. Continued consolidation with CDP put the Company at risk of not
meeting at September 30, 1998 the minimum listing requirement for net tangible
assets which Nasdaq adopted in August 1997. Accordingly, on April 2, 1998 the
Board of Directors of the Company approved a resolution to sell CDP to an
investment group (the Acquiror) headed by the two former shareholders (and
current management) of CDP. On April 14, 1998 a definitive agreement was signed
and the transaction was completed on June 10, 1998. The Company received
approximately $1,400,000 in cash, which included repayment of $1,100,000 of
operating loans to CDP. The Company also received back the 750,000 shares of its
common stock that it had issued as part of the merger consideration. In
addition, the Company received a $100,000 promissory note due upon the earlier
of the Acquiror's initial public offering (IPO) or December 15, 1999; and the
Company received $200,000 of preferred stock of the Acquiror which is
convertible into $1,000,000 of the Acquiror's common stock upon completion of an
IPO.
The Company recorded a loss of $220,744 on the sale of CDP, primarily
due to the decrease in the value of the stock consideration between the time it
was issued and returned to the Company. The Company also incurred $70,296 of
expense, primarily related to state taxes, in connection with the transaction.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1998 the Company had $2,331,633 in cash and
equivalents, compared to December 31, 1997 when the Company had $1,710,304 in
cash and equivalents and $1,007,050 in U.S. Treasury securities. The primary
reason for the reduction in liquidity was the Company's purchase of treasury
stock. The Company purchased 855,300 shares of its common stock in open market
and private transactions during 1998 for approximately $786,000 or $0.92 per
share.
The Company used approximately $550,000 of cash in operating activities
in 1998, compared to approximately $438,000 used in 1997. The largest use of
cash in operating activities in 1998 was the Company's operating loss of
$885,000. The largest use of cash in 1997 was the increase in accounts
receivable, which was primarily due to an increase in CDP's net accounts
receivable from the acquisition date of approximately $1,205,000. This increase
reflects CDP's seasonality with most of its revenues occurring in the fourth
quarter.
During 1998, the Company received $1,400,000 from the Acquiror in the
sale of CDP; the proceeds net of CDP's cash balance at the time of the sale were
$1,072,152. During 1997, the Company invested $394,950 in the acquisition of
CDP, net of the cash balance acquired.
The Company's principal debt is a mortgage relating to its land and
building purchased in September 1996 for use as its corporate headquarters. The
balance due on the mortgage as of December 31, 1998 was $693,333. The Company is
required pursuant to the mortgage to meet a certain financial ratio which
generally can not be met in the case of a net loss. The Company did not comply
with this ratio at December 31, 1998 and the mortgagor granted a waiver. The
Company believes that its financial condition, especially its cash position, at
December 31, 1998 was considered in granting the waiver. At December 31, 1998
the Company's investment in the land and building was approximately $1,015,000.
Additional information concerning the mortgage is included in Note 6 of the
Notes to Financial Statements.
Based on current cash balances and the Company's anticipated results of
future operations, the Company believes that it has sufficient cash resources to
fund its operations for at least the next twelve months.
13
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
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 in this
report conform to the Statement 128 requirements.
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.
All computer software used by the Company is run upon personal
computers. The Company's general ledger system has been upgraded and is Year
2000 compliant. The Company believes that all of its desktop publishing software
is Year 2000 compliant. A Year 2000 compliant version of the Company's primary
database application for sales order management and billing has been received
and successfully tested by the Company; its implementation is expected to occur
by March 31, 1999. The Company is on schedule with other system upgrades that
are either on hand or readily available and it expects all of its Information
Technology (IT) systems, including its internal telephone system, to be Year
2000 compliant on or before June 1, 1999. When completed, the Company estimates
that its total costs in obtaining Year 2000 compliance will have been less than
$25,000.
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 has not yet contacted the printing companies
and other large vendors in an effort to assess the compliance of their systems
with Year 2000; it intends to make these contacts and assessments in mid-1999,
well in time to switch to alternative suppliers if necessary. The Company does
not believe it is practicable to contact its many thousands of advertising
clients with regard to assessing their Year 2000 compliance. No single client
represents as much as 1% of the Company's overall revenues; therefore, the
Company believes that it would not be materially adversely affected by the
impact of Year 2000 upon any individual client.
At this time, the Company considers that the most reasonably likely
worst case scenario would include a loss of power and/or a loss of telephone
service for more than a very few days. In preparation for such an event, the
Company has procured and installed its own generator to power its telephone
system in the event of a failure by the utility company to maintain service. The
Company plans to procure a similar generator as an alternative power supply for
its critical computer systems by mid-1999. The Company does have alternative
means available if its primary source for long-distance telephone service fails;
however, given that such a failure would likely be widespread if it occurs at
all, the Company can not reliably predict how satisfactory these alternative
means would be. The Company can not replicate an alternative source for its
local telephone service, if it should fail.
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.
14
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements made above relating to the Company's belief that it
should realize more savings in third-party costs in 1999 as a result of its
Directory Participation Program (DPP), to the Company's future liquidity, and to
the Company's readiness the for Year 2000 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 statements that express the "belief",
"anticipation", "plans", "expectations" and similar expressions are intended to
identify forward-looking statements. The results anticipated by these
forward-looking statements may not occur. While the Company believes that these
statements are accurate, the Company's business is dependent upon general
economic conditions and various conditions specific to its industry and future
trend results cannot be predicted with certainty. Important factors that may
cause actual results to differ materially from the forward-looking statements
include the following: 1) the Company not realizing a reduction in the quantity
of directories it has to print pursuant to the DPP, 2) an unexpected downturn in
the Company's operating performance, 3) unexpected impacts of the Year 2000
event directly or indirectly upon the Company, and 4) impacts of the Year 2000
event over which the Company has no control and could not practicably prepare
for.
15
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
ITEM 7. FINANCIAL STATEMENTS
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONTENTS
Report of Independent Certified Public Accountants.........................17
Consolidated Financial Statements
Consolidated Balance Sheets................................................18
Consolidated Statements of Operations......................................19
Consolidated Statements of Shareholders' Equity............................20
Consolidated Statements of Cash Flows......................................21
Notes to Consolidated Financial Statements.................................23
16
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
Report of Independent Certified Public Accountants
The Board of Directors
The Publishing Company of North America, Inc.
We have audited the accompanying consolidated balance sheets of The Publishing
Company of North America, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Publishing
Company of North America, Inc. and subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Orlando, Florida
March 3, 1999
17
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
ASSETS 1998 1997
------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,331,633 $ 1,710,304
Available-for-sale securities -- 1,007,050
Accounts receivable, less allowance for doubtful accounts of $179,859
and $414,693 in 1998 and 1997, respectively 328,045 1,308,884
Directories in progress 344,805 463,414
Other current assets 109,779 65,010
----------- -----------
Total current assets 3,114,262 4,554,662
Property and equipment, net 1,318,089 1,481,549
Goodwill, net -- 1,898,680
Investment in College Directory Publishing Corporation 200,000 --
Other assets 248,663 116,786
----------- -----------
Total assets $ 4,881,014 $ 8,051,677
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 214,861 $ 1,013,787
Accrued expenses 181,629 552,529
Income taxes payable 70,296 50,000
Deferred revenue 948,353 894,109
Capitalized leases -- 5,358
Mortgage payable 53,333 53,333
----------- -----------
Total current liabilities 1,468,472 2,569,116
Capitalized leases payable after one year -- 10,717
Mortgage payable after one year 640,000 693,333
----------- -----------
Total liabilities 2,108,472 3,273,166
Commitments and contingencies
Shareholders' equity:
Common shares, no par value:
15,000,000 shares authorized; 4,871,900 shares issued in 1998; 4,869,900
shares issued and outstanding in 1997 5,831,448 5,834,698
Unrealized loss on available-for-sale securities -- (3,033)
Accumulated deficit (1,923,074) (1,037,737)
Unearned compensation, net (6,348) (15,417)
Treasury stock; 1,605,300 shares at cost (1,129,484) --
----------- -----------
Total shareholders' equity 2,772,542 4,778,511
----------- -----------
Total liabilities and shareholders' equity $ 4,881,014 $ 8,051,677
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
18
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
Net sales $ 6,371,014 $ 9,618,958
Costs and expenses:
Production 1,541,078 2,788,054
Marketing and selling 3,392,576 3,793,874
Royalties -- 513,211
Depreciation 161,583 159,987
Amortization 66,835 76,020
General and administrative 1,836,076 2,693,623
------------ ------------
6,998,148 10,024,769
------------ ------------
Loss from operations (627,134) (405,811)
Other income 32,837 109,569
Sale of subsidiary (220,744) --
------------ ------------
Loss before income tax expense (815,041) (296,242)
Income tax expense 70,296 50,000
------------ ------------
Net loss $ (885,337) $ (346,242)
============ ============
Net loss per common share--basic $ (.21) $ (.08)
============ ============
Shares used in computation of net loss per share--basic 4,125,097 4,366,431
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON GAIN ACCUMULATED UNEARNED TREASURY
STOCK (LOSS) DEFICIT COMPENSATION STOCK TOTAL
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $5,137,565 $(13,024) $ (691,495) $(35,521) $ - $4,397,525
Issuance of restricted
common stock for
acquisition 687,500 - - - - 687,500
Issuance of common stock 15,633 - - - - 15,633
Forfeiture of common
stock grants (13,500) - - 13,500 - -
Unrealized holding gain on
available-for-sale
securities, net of loss - 9,991 - - - 9,991
Restricted stock granted 7,500 - - (7,500) - -
Amortization of unearned
compensation - - - 14,104 - 14,104
Net loss - - (346,242) - - (346,242)
--------------------------------------------------------------------------------------------
Balance at December 31, 1997 5,834,698 (3,033) (1,037,737) (15,417) - 4,778,511
Return of restricted
common stock upon sale
of subsidiary - - - - (343,750) (343,750)
Forfeiture of common stock
grants (6,250) - - 6,250 - -
Gain on available-for-sale
securities, net of loss - 3,033 - - 3,033
Restricted stock granted 3,000 - - (3,000) - -
Amortization of unearned
compensation - - - 5,819 - 5,819
Acquisition of common stock
for treasury - - - - (785,734) (785,734)
Net loss - - (885,337) - - (885,337)
--------------------------------------------------------------------------------------------
Balance at December 31, 1998 $5,831,448 $ - $(1,923,074) $ (6,348) $(1,129,484) $2,772,542
============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (885,337) $ (346,242)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 228,418 236,007
Accretion of unearned compensation 5,819 14,104
Bad debt expense 356,548 773,539
Common stock issued as compensation - 15,633
Gain on sale of securities (13,971) (53,769)
Loss on sale of subsidiary 220,744 -
Changes in assets and liabilities, net of sale (acquisition in 1997) of
subsidiary:
Decrease (increase) in accounts receivable 358,339 (1,847,957)
Increase in directories in progress (649,713) (9,281)
Decrease in refundable income taxes - 72,068
Increase in other assets (105,175) (122,658)
(Decrease) increase in accounts payable (725,229) 717,593
Increase in income taxes payable 70,296 50,000
Increase (decrease) in deferred revenue 747,330 (4,933)
(Decrease) increase in accrued expenses (150,266) 92,623
------------------------------------
Net cash used in operating activities (542,197) (413,273)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of subsidiary, net of cash balances 1,072,152 -
Acquisition of subsidiary, net of cash balances - (394,950)
Contingent consideration paid relating to 1997 acquisition of subsidiary (14,256) -
Purchases of available-for-sale securities - (1,375,790)
Sales of available-for-sale securities 1,024,000 2,910,000
Purchases of property and equipment (77,116) (271,591)
------------------------------------
Net cash provided by investing activities 2,004,780 867,669
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligation (2,187) (1,590)
Repayment of bank debt acquired in subsidiary acquisition - (450,000)
Repayment of mortgage principal (53,333) (53,333)
Purchase of treasury stock (785,734) -
------------------------------------
Net cash used in financing activities (841,254) (504,923)
------------------------------------
</TABLE>
21
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents 621,329 (50,527)
Cash and cash equivalents at beginning of year 1,710,304 1,760,831
------------------------------------
Cash and cash equivalents at end of year $2,331,633 $1,710,304
====================================
SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for:
Interest $ 58,676 $ 79,007
====================================
Supplemental noncash investing and financing activities:
Noncash consideration received from sale of subsidiary $ 643,750 $ -
====================================
Exchange of advertising for machinery and equipment $ 7,504 $ 9,025
====================================
Exchange of advertising for supplies $ 30,944 $ 29,578
====================================
Acquisition of business by issuance of common stock $ - $ 687,500
====================================
Acquisition of property and equipment by capital leases $ - $ 7,594
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Publishing Company of North America, Inc. (PCNA) began operations on
September 30, 1993. The primary business activity of PCNA is publishing
membership directories for bar associations and selling advertising in those
directories. PCNA markets its directories to associations throughout the
continental United States. College Directory Publishing, Inc. (CDP), PCNA's
wholly-owned subsidiary from July 3, 1997 until June 10, 1998, publishes college
and university student campus directories and derives its revenues from selling
advertising in those directories.
On October 14, 1998, the Company incorporated PCNA Communications Corporation,
as a wholly-owned subsidiary. Effective January 1, 1999, the Company transferred
substantially all of its operations into its new subsidiary.
CONSOLIDATION
The consolidated financial statements include the accounts of PCNA, CDP during
the period July 3, 1997 to June 10, 1998 (see Note 7) and PCNA Communications
Corporation since its incorporation on October 14, 1998 (collectively, the
Company). Intercompany transactions have been eliminated in consolidation.
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. At December 31, 1998 and
1997, approximately $2,285,000 and $1,251,000, respectively, of the Company's
cash equivalents was in money-market funds. The remaining balances relate
primarily to funds held in checking accounts.
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.
All amounts outstanding in excess of six months are written off.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses reported in 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.
23
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation for machinery and
equipment and office furniture and fixtures is computed using straight-line and
accelerated methods over five to ten years. Real property is depreciated using
the straight-line method over 30 years. Leasehold improvements are depreciated
using the straight-line method over the remaining lease term. Equipment
purchased under capital lease is amortized over the life of the lease using the
straight-line method. Expenditures for maintenance and repairs are charged to
expense as incurred. Major improvements are capitalized.
INVESTMENT IN COLLEGE DIRECTORY PUBLISHING CORPORATION
The Investment in College Directory Publishing Corporation (the Corporation) is
accounted for on the cost basis as the Company does not participate in the
Corporation's management.
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.
During 1998 and 1997, advertising sales in any one directory did not exceed 10%
of the revenues of the Company.
GOODWILL
Goodwill resulting from the acquisition of CDP was amortized using the
straight-line method over 20 years.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
ADVERTISING COSTS
The costs of advertising are expensed as incurred. For the years ended December
31, 1998 and 1997, advertising costs included in marketing and selling costs
were $115,026 and $78,167, respectively.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation under the provisions
of Accounting Principles Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES. Accounting for the issuance of stock options under the provisions
of APB No. 25 typically does not result in compensation expense for the Company
as the exercise price of options are normally established at a price which
approximates the fair market value of the Company's common stock on the date of
award.
24
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (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.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no significant impact on the Company's net loss or shareholders' equity.
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.
2. AVAILABLE-FOR-SALE SECURITIES
The Company had no available-for-sale securities at December 31, 1998.
Available-for-sale securities and the related gross unrealized gains and losses
at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 976,063 $22,987 $ - $ 999,050
Equity securities 34,020 - (26,020) 8,000
--------------------------------------------------------------
$1,010,083 $22,987 $(26,020) $1,007,050
==============================================================
</TABLE>
25
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31
1998 1997
---------------------------------
Land $ 255,000 $ 255,000
Building 760,387 760,387
Machinery and equipment 640,104 706,212
Office furniture and equipment 87,106 92,697
---------------------------------
1,742,597 1,814,296
Less accumulated depreciation (424,508) (332,747)
---------------------------------
$1,318,089 $1,481,549
=================================
4. INCOME TAXES
At December 31, 1998, the Company had available net operating loss carryforwards
of approximately $480,000 for federal income tax purposes. These net operating
loss carryforwards expire approximately $54,000 in 2011 and $426,000 in 2012.
The 1998 and 1997 provisions for income taxes are comprised primarily of current
state income taxes payable related to the sale and operations of CDP,
respectively.
The reconciliation of income tax computed at the U.S. federal statutory rates to
income tax expense is as follows:
DECEMBER 31
1998 1997
-------------------------
Income taxes computed at the federal statutory
rate of 34% $(277,114) $(100,722)
State income taxes, net of federal benefit 79,166 24,993
Goodwill amortization 14,733 16,525
Officers life insurance 370 6,527
Write-off of goodwill on sale of subsidiary 643,193 -
Other--net (39,847) 4,606
Change in valuation allowance (350,205) 98,071
-------------------------
Total $ 70,296 $ 50,000
=========================
26
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
The components of the deferred income tax asset and liability are as follows:
DECEMBER 31
1998 1997
--------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 67,681 $ 156,049
Net operating loss carryforward 180,563 290,820
Unearned compensation 9,652 7,463
Accounts payable - 23,366
Accrued expenses 1,320 77,328
Deferred revenue - 123,786
Tax credits 1,796 -
Other 245 -
--------------------------
Total deferred tax assets 261,257 678,812
--------------------------
Deferred tax liabilities:
Prepaid expenses (2,522) (1,453)
Property and equipment (4,031) (25,576)
Accounts receivable - (46,394)
Directories in progress (129,750) (119,886)
Other - (10,344)
--------------------------
Total deferred tax liabilities (136,303) (203,653)
--------------------------
Valuation allowance (124,954) (475,159)
--------------------------
Total $ - $ -
==========================
In accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES, valuation
allowances are provided against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. The Company has evaluated the realizability of
the deferred tax assets on its balance sheet and has established a valuation
allowance in the amount of $124,954 against its net deferred tax assets.
5. LEASE OBLIGATIONS
During 1997, CDP entered into certain noncancelable leases which are classified
as capital leases, and the leased assets in the amount of $18,200 are included
as part of property and equipment at December 31, 1997. All of these leases were
assumed by the buyer of CDP in June 1998 (see Note 7).
At December 31, 1998 the Company leases office space under an operating lease
expiring in September 2000. Approximate future minimum lease payments are:
Year ending December 31:
1999 $51,422
2000 33,240
================
Total minimum future rental payments $84,662
================
For the years ended December 31, 1998 and 1997, total rental expenses were
$202,432 and $135,896, respectively.
27
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. MORTGAGE PAYABLE
Monthly principal payments related to the mortgage on the Company's headquarters
are due along with accrued interest on the outstanding principal based upon the
LIBOR (London InterBank Offering Rate) plus 250 basis points. The interest rate
charged on the mortgage was 8.0918% at December 31, 1998. In December 2011, a
final balloon payment is due of the then remaining principal balance together
with any unpaid interest accrued.
The mortgage is secured by assets with a carrying value of approximately
$1,306,000 at December 31, 1998.
The mortgage becomes due for the year ending December 31 as follows:
1999 $ 53,333
2000 53,333
2001 53,333
2002 53,333
2003 53,333
Thereafter 426,668
---------------
$693,333
===============
The mortgage agreement requires the Company, among other provisions, to maintain
minimum levels of funds flow (as defined in the agreement). The covenant was not
met as of and for the year ended December 31, 1998 and the Company has obtained
a waiver of the required minimum level of funds flow through January 1, 2000.
Accordingly, amounts payable under the mortgage agreement are classified as
long-term in the accompanying balance sheet.
7. 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 College Directory Publishing, Inc. The
Company issued an aggregate of 750,000 shares of its common stock and paid
$300,000 to CDP's two stockholders. Up to 250,000 of the shares were subject to
cancellation if CDP's net pre-tax income did not aggregate at least $1,875,000
over a three-year period commencing January 1, 1997. Additionally, the two
former stockholders of CDP were entitled to each receive 12-1/2% of CDP's net
pre-tax income for each of the three fiscal years beginning January 1, 1997
which would be accounted for as additional costs of the acquired assets and
amortized over the remaining life of the assets.
The acquisition was accounted for under the purchase method of accounting, and
accordingly, the results of operations were 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.
The unaudited pro forma information for the periods set forth below give effect
to the purchase transaction as if it had occurred at the beginning of 1997. The
pro forma information is presented for illustrative purposes only and may not be
indicative of the results of operations which would have actually been reported
had the merger been consummated as of that time, nor is it intended to project
future financial positions or results of operations.
28
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITION AND SALE OF COLLEGE DIRECTORY PUBLISHING, INC. (CONTINUED)
YEAR ENDED
Unaudited DECEMBER 31, 1997
-----------------
Net sales $9,642,934
=================
Net loss $ (886,520)
=================
Net loss per common share--basic $ (0.20)
=================
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 recorded a loss of
$220,744 on the sale of CDP.
8. TREASURY STOCK
Pursuant to a buy-back plan approved by its Board of Directors in May 1997, the
Company purchased 855,300 shares of its common stock in open market and private
transactions during 1998 for approximately $786,000.
The Company re-acquired an additional 750,000 shares of its common stock when it
sold CDP in June 1998 (see Note 7).
9. RELATED PARTY TRANSACTION
In 1998, the Company purchased 250,000 shares of its common stock from a former
officer and director for approximately $166,000.
10. SHAREHOLDERS' EQUITY
INCENTIVE STOCK PLAN
The Company has elected to follow APB Opinion No. 25 and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
The Company's 1996 Stock Plan covers 500,000 shares of the Company's common
stock and provides for incentive stock options, non-qualified stock options,
non-discretionary stock options, and awards of stock to employees, officers,
directors, and certain other parties related to the Company. Generally, grants
of options are exercisable each December 31 equally over three or five years and
they expire ten years from the date of grant.
29
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes option activity in 1998 and 1997:
<TABLE>
<CAPTION>
EXERCISE PRICE WEIGHTED AVERAGE
SHARES RANGE EXERCISE PRICE
--------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1997 121,500 $2.75-$6.25 $5.35
Granted 202,100 1.88-2.63 2.24
Granted 51,500 2.88-3.50 3.09
Granted 50,000 5.50 5.50
Forfeited (18,500) 2.63-2.75 2.69
Forfeited (10,000) 6.25 6.25
--------------------------------------------------------
Outstanding at December 31, 1997 396,600 1.88-6.25 3.59
Granted 259,550 1.00 1.00
Forfeited (35,500) 1.00 1.00
Forfeited (55,000) 1.88 1.88
Forfeited (45,000) 2.63-3.50 2.86
Forfeited (23,500) 5.50 5.50
--------------------------------------------------------
Outstanding at December 31, 1998 497,150 $1.00-$6.25 $1.27
========================================================
Exercisable at December 31, 1997 92,320 $1.88-$2.75 $2.17
7,500 2.88-3.13 3.03
55,600 5.50-6.25 5.70
--------------------------------------------------------
155,420 $1.88-$6.25 $3.47
========================================================
Exercisable at December 31, 1998 164,950 $1.00 $1.00
24,000 2.38-2.75 2.49
14,600 5.50-6.25 5.76
--------------------------------------------------------
203,550 $1.00-$6.25 $1.52
========================================================
</TABLE>
During 1998, options for 228,100 shares of common stock were repriced to the
then current market value of $1 per share. The weighted average exercise price
of options vested at December 31, 1998 and 1997 was $1.52 and $3.47 per share,
respectively. The average contractual life remaining on options outstanding at
December 31, 1998 and 1997 was 8.34 and 8.63 years, respectively.
PRO FORMA DISCLOSURES
Pro forma information regarding net income is required by SFAS No. 123 and has
been determined as if the Company had accounted for its employee stock options
under the fair value method. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998 and 1997: risk-free interest rate of 4.64%
and 5.43%, respectively; dividend yields of 0% and 0%, respectively; volatility
factor of 2.824 and 1.040, respectively; and a weighted-average expected life of
the options of five years during both 1998 and 1997.
30
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because change in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. The Company's pro
forma net loss and net loss per share for the years ended December 31, 1998 and
1997 are as follows:
1998 1997
-------------------------------
Pro forma net loss $(974,176) $(534,115)
===============================
Pro forma net loss per share--basic $ (0.24) $ (0.12)
===============================
RESTRICTED STOCK
The Company granted 3,000 restricted shares of its common stock in 1997 to one
of its directors and 3,000 such shares were granted to another of its directors
in 1998. The number of shares and related value used in computing unearned
compensation, which is shown as a separate component of shareholders' equity in
the balance sheet, are as follows:
MARKET VALUE TOTAL MARKET
PER SHARE AT VALUE AT
SHARES GRANT DATE GRANT DATE
----------------------------------------
Outstanding at January 1, 1997 9,000 $2.75-$6.25 $45,750
Granted 3,000 2.50 7,500
Forfeited (2,000) 2.75 (5,500)
Forfeited (2,000) 6.25 (12,500)
----------------------------------------
Outstanding at December 31, 1997 8,000 2.50-6.25 35,250
Granted 3,000 1.00 3,000
Forfeited (1,000) 6.25 (6,250)
----------------------------------------
Outstanding at December 31, 1998 10,000 $1.00-$6.25 $32,000
========================================
The unearned compensation is being amortized over the respective vesting period
of the shares. Expense charged against operations during 1998 and 1997 was
$5,819 and $14,104, respectively.
STOCK WARRANTS
The underwriter of the Company's initial public offering purchased for $95
warrants to purchase up to 95,000 shares of the Company's common stock at $6.60
per share (120% of the initial public offering price). The warrants are
exercisable for a period of four years commencing May 17, 1997, at which time
holders of these warrants obtain certain registration rights. None of the
warrants have been exercised through December 31, 1998.
31
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Numerator:
Net loss from continuing operations $ (885,337) $ (346,242)
------------------------------------
Numerator for basic loss per share--loss available to common stockholders (885,337) (346,242)
Effect of dilutive securities: - -
------------------------------------
Numerator for diluted loss per share--loss available to common stockholders
after assumed conversions (885,337) (346,242)
Denominator:
Denominator for basic loss per share--weighted-average shares 4,125,097 4,366,431
------------------------------------
Net loss per common share $ (0.21) $ (0.08)
====================================
</TABLE>
In computing diluted EPS, options for 452,150 and 261,600 common shares were
excluded from the diluted loss per share computation because their effects would
have been antidilutive for the years ended December 31, 1998 and 1997,
respectively.
12. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Salary Reduction Plan covering substantially all
employees with six months of service or more. A participant may contribute up to
10% of his or her annual compensation. The Company's matching contribution is
determined annually by the Board of Directors. The Company's contributions were
approximately $13,000 and $9,000 for 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
32
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Information concerning Directors, Executive Officers, Promoters and
Control Persons is incorporated herein by reference to the definitive proxy
statement of the Company for the Company's Annual Meeting of the Shareholders
for the fiscal year ended December 31, 1998, which definitive proxy statement
will be filed with the Securities and Exchange Commission not later than 120
days after the Company's fiscal year end of December 31, 1998.
ITEM 10. EXECUTIVE COMPENSATION
Information concerning Executive Compensation is incorporated herein by
reference to the definitive proxy statement of the Company for the Company's
Annual Meeting of the Shareholders for the fiscal year ended December 31, 1998,
which definitive proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the Company's fiscal year end of
December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning Security Ownership of Certain Beneficial Owners
and Management is incorporated herein by reference to the definitive proxy
statement of the Company for the Company's Annual Meeting of the Shareholders
for the fiscal year ended December 31, 1998, which definitive proxy statement
will be filed with the Securities and Exchange Commission not later than 120
days after the Company's fiscal year end of December 31, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning Certain Relationships and Related Transactions
is incorporated herein by reference to the definitive proxy statement of the
Company for the Company's Annual Meeting of the Shareholders for the fiscal year
ended December 31, 1998, which definitive proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the Company's
fiscal year end of December 31, 1998.
33
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
No.
---
3.1 Amended and Restated Articles of Incorporation*
3.2 Form of First Amendment to Amended and Restated
Articles of Incorporation*
3.3 Amended and Restated Bylaws*
4.1 Form of Representative's Warrant Agreement*
4.2 Form of Common Stock Certificate**
10.0 Form of Employment Agreement of Peter S. Balise**
10.1 1996 Stock Plan**
10.2 Agreement to Sell College Directory
Publishing, Inc.***
21.0 Subsidiaries of the Registrant
23.0 Consent of Ernst & Young LLP
27.0 Financial Data Schedule
* Contained in the Registration Statement on Form SB-2
filed on March 11, 1996.
** Contained in Amendment No. 2 to the Registration
Statement on Form SB-2 filed on April 18, 1996.
*** Contained in the Annual Report on Form 10-KSB filed
on April 15, 1998.
b. No reports on Form 8-K were filed during the quarter ended December 31, 1998.
34
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf on December 10,
1999 by the undersigned, thereunto duly authorized.
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
/s/ Peter S. Balise
-------------------------------------
President and Chief Executive Officer
/s/ James M. Koller
-------------------------------------
Chief Financial Officer
(Principal financial officer and
chief accounting officer)
35
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB/A - DECEMBER 31, 1998
EXHIBITS
Index to Exhibits
Exhibit
No.
---
3.1 Amended and Restated Articles of Incorporation*
3.2 Form of First Amendment to Amended and Restated Articles of
Incorporation*
3.3 Amended and Restated Bylaws*
4.1 Form of Representative's Warrant Agreement*
4.2 Form of Common Stock Certificate**
10.0 Form of Employment Agreement of Peter S. Balise**
10.1 1996 Stock Plan**
10.2 Agreement to Sell College Directory Publishing, Inc.***
21.0 Subsidiaries of the Registrant
23.0 Consent of Ernst & Young LLP
27.0 Financial Data Schedule
* Contained in the Registration Statement on Form SB-2 filed on
March 11, 1996.
** Contained in Amendment No. 2 to the Registration Statement on
Form SB-2 filed on April 18, 1996.
*** Contained in the Annual Report on Form 10-KSB filed on
April 15, 1998.
36
EXHIBIT 21.0
For the period from July 3, 1997 until June 10, 1998 the Company had
one subsidiary, which was wholly owned and incorporated in the state of
Delaware, College Directory Publishing, Inc. of Conshohocken,
Pennsylvania.
Effective October 14, 1998 the Company incorporated PCNA Communications
Corporation in the state of Florida as a wholly owned subsidiary.
Effective February 15, 1999 the Company incorporated Attorneys
Online, Inc. in the state of Florida as a wholly owned subsidiary.
EXHIBIT 23.0
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-27629) pertaining to The Publishing Company of North America, Inc.
1996 Stock Plan of our report dated March 3, 1999, with respect to the
consolidated financial statements of The Publishing Company of North America,
Inc. included in the Annual Report (Form 10-KSB/A) for the year ended December
31, 1998.
ERNST & YOUNG LLP
Orlando, Florida
December 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 2,331,633
<SECURITIES> 0
<RECEIVABLES> 507,904
<ALLOWANCES> 179,859
<INVENTORY> 0
<CURRENT-ASSETS> 3,114,262
<PP&E> 1,742,597
<DEPRECIATION> 424,508
<TOTAL-ASSETS> 4,881,014
<CURRENT-LIABILITIES> 1,468,472
<BONDS> 693,333
0
0
<COMMON> 5,831,448
<OTHER-SE> (3,058,906)
<TOTAL-LIABILITY-AND-EQUITY> 4,881,014
<SALES> 6,657,727
<TOTAL-REVENUES> 6,671,014
<CGS> 1,541,078
<TOTAL-COSTS> 6,998,148
<OTHER-EXPENSES> 220,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32,837)
<INCOME-PRETAX> (815,041)
<INCOME-TAX> 70,296
<INCOME-CONTINUING> (885,337)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (885,337)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
