<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
/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
March 15, 1999 was $2,827,000.
There were 3,263,000 shares of the registrant's Common Stock outstanding as
of March 15, 1999.
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<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--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 will be 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 /X/ No
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
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
</TABLE>
2
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--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. 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. PCNA refers to the Company's bar and medical
association publishing activities.
Historically, PCNA has specialized in publishing free membership directories
for bar associations nationwide. 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 Corporation, 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.
3
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
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.
4
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
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 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. 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
5
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
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 licensing agreement with Skinder-Strauss Associates in
March, 1998, whereby PCNA published the THE LEGAL PAGES-REGISTERED TRADEMARK-
for the state of New York. 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-REGISTERED TRADEMARK-, which
is the predominant directory used by attorneys in that state. 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 trade marks 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.
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.
6
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
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.
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. 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, strengthening its management team and eliminating
unprofitable directories from its publication schedule.
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. 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. 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--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.
8
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The Publishing Company of North America, Inc.
Form 10-KSB--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.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<C> <S> <C> <C>
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
</TABLE>
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.
9
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONTINUED)
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>
AMOUNT OF
CLASS OF SECURITIES
DATE 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>
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.
10
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--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
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PCNA CDP* CONSOLIDATED PCNA CDP* CONSOLIDATED
---------- --------- ------------ ---------- ---------- ------------
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, DEC. 31,
1998 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--DECEMBER 31, 1998
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
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)%
</TABLE>
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 adminstrative (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
12
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
$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.
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. 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
13
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
was $693,333. 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.
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
14
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
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.
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--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
<TABLE>
<S> <C>
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............................................. 22
</TABLE>
16
<PAGE>
The Publishing Company of North America, Inc.
Form 10-KSB--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--DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
ASSETS
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--DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
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--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--DECEMBER 31, 1998
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
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
Exchange of advertising for machinery and equipment...................................... (7,504) (9,025)
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...................................................... (549,701) (437,931)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of subsidiary, net of cash balances................................................... 1,072,152 --
Acquisition of subsidiary, net of cash balances............................................ -- (394,950)
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........................................................ (69,612) (262,566)
--------- ---------
Net cash provided by investing activities.................................................. 2,026,540 876,694
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued as compensation........................................................ -- 15,633
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)
Contingent consideration paid relating to 1997 acquisition of subsidiary................... (14,256) --
Purchase of treasury stock................................................................. (785,734) --
--------- ---------
Net cash used in financing activities...................................................... (855,510) (489,290)
--------- ---------
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 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.
21
<PAGE>
The Publishing Company of North America, Inc.
Form 10-KSB--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.
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.
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
22
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
23
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
----------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
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>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
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
------------ ------------
------------ ------------
</TABLE>
24
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
25
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-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:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
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........................................................... $ -- $ --
---------- ----------
---------- ----------
</TABLE>
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).
26
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASE OBLIGATIONS (CONTINUED)
At December 31, 1998 the Company leases office space under an operating
lease expiring in September 2000. Approximate future minimum lease payments are:
<TABLE>
<S> <C>
Year ending December 31:
1999............................................................. $ 51,422
2000............................................................. 33,240
---------
Total minimum future rental payments............................... $ 84,662
---------
---------
</TABLE>
For the years ended December 31, 1998 and 1997, total rental expenses were
$202,432 and $135,896, respectively.
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:
<TABLE>
<S> <C>
1999.............................................................. $ 53,333
2000.............................................................. 53,333
2001.............................................................. 53,333
2002.............................................................. 53,333
2003.............................................................. 53,333
Thereafter........................................................ 426,668
---------
$ 693,333
---------
---------
</TABLE>
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
27
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITION AND SALE OF COLLEGE DIRECTORY PUBLISHING, INC. (CONTINUED)
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.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
UNAUDITED
Net sales.................................................................. $ 9,642,934
-----------------
-----------------
Net loss................................................................... $ (886,520)
-----------------
-----------------
Net loss per common share--basic........................................... $ (0.20)
-----------------
-----------------
</TABLE>
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.
28
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The following table summarizes option activity in 1998 and 1997:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
PRICE 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>
29
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
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.
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:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Pro forma net loss.................................................. $ (974,176) $ (534,115)
----------- -----------
----------- -----------
Pro forma net loss per share--basic................................. $ (0.24) $ (0.12)
----------- -----------
----------- -----------
</TABLE>
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
30
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
used in computing unearned compensation, which is shown as a separate component
of shareholders' equity in the balance sheet, are as follows:
<TABLE>
<CAPTION>
MARKET VALUE TOTAL MARKET
PER SHARE AT VALUE AT
SHARES GRANT DATE GRANT DATE
--------- ------------- ------------
<S> <C> <C> <C>
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
--------- ------------- ------------
--------- ------------- ------------
</TABLE>
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.
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>
31
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10--KSB-DECEMBER 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LOSS PER SHARE (CONTINUED)
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--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--DECEMBER 31, 1998
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO.
-----------
<C> <C> <S>
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
</TABLE>
- ------------------------
* 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--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 March 30,
1999 by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE PUBLISHING COMPANY
OF NORTH AMERICA, INC.
By: /s/ PETER S. BALISE
-----------------------------------------
Peter S. Balise
PRESIDENT
</TABLE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PETER S. BALISE
- ------------------------------ Chairman of the Board of March 30, 1996
Peter S. Balise Directors
/s/ ANDREW J. CAHILL
- ------------------------------ Director March 30, 1999
Andrew J. Cahill
/s/ RICHARD SILVER
- ------------------------------ Director March 30, 1999
Richard Silver
/s/ J. WILLIAM WRIGLEY
- ------------------------------ Director March 30, 1999
J. William Wrigley
Chief Financial Officer
/s/ JAMES M. KOLLER (Principal Financial
- ------------------------------ Officer and Chief March 30, 1999
James M. Koller Accounting Officer)
</TABLE>
35
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB--DECEMBER 31, 1998
EXHIBITS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<C> <S>
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
</TABLE>
- ------------------------
* 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
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1998
EXHIBITS
EXHIBITS
Exhibit 21.0 Subsidiaries of the Registrant
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.
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1998
EXHIBITS
Exhibit 23.0 Consent of Ernst & Young LLP
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) for the year ended December 31,
1998.
ERNST & YOUNG LLP
Orlando, Florida
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<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
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</TABLE>
