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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 1999
Commission File No. 0-27994
---------------------------
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
---------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3203301
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
186 P.C.N.A. PARKWAY
LAKE HELEN, FL 32744
904-228-1000
(Address and telephone number
of principal executive offices)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at November 8, 1999
--------------------------- -------------------------------
Common Stock: no par value 3,290,720
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Operations
for the three and nine months ended September 30, 1999
and 1998 (unaudited) 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999
and 1998 (unaudited) 5 - 6
Notes to unaudited consolidated interim financial statements 7 - 9
ITEM 2. Management's Discussion and Analysis of Interim Financial
Condition and Results of Operations 10 - 14
PART II - OTHER INFORMATION
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
Exhibit 27 - Financial data schedule
2
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 2,121,265 $ 2,331,633
Accounts receivable, less allowance for doubtful
accounts of $164,543 at September 30, 1999
and $179,859 at December 31, 1998 311,160 328,045
Directories in progress 173,642 344,805
Other current assets 219,985 109,779
----------- -----------
Total current assets 2,826,052 3,114,262
Property and equipment, net 1,246,955 1,318,089
Investment in College Directory Publishing Corporation 200,000 200,000
Other assets 157,204 248,663
----------- -----------
Total assets $ 4,430,211 $ 4,881,014
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 144,812 $ 214,861
Accrued expenses 241,380 181,629
Income taxes payable -- 70,296
Deferred revenue 489,599 948,353
Mortgage payable 53,333 53,333
----------- -----------
Total current liabilities 929,124 1,468,472
Mortgage payable after one year 600,000 640,000
----------- -----------
Total liabilities 1,529,124 2,108,472
Shareholders' equity:
Common shares, no par value:
15,000,000 shares authorized; 4,925,020 shares
issued at September 30, 1999; 4,871,900 shares
issued at December 31, 1998 5,927,520 5,831,448
Accumulated deficit (1,864,129) (1,923,074)
Unearned compensation, net (3,602) (6,348)
Treasury stock, at cost; 1,634,300 shares at September
30, 1999; 1,605,300 shares at December 31, 1998 (1,158,702) (1,129,484)
----------- -----------
Total shareholders' equity 2,901,087 2,772,542
----------- -----------
Total liabilities and shareholders' equity $ 4,430,211 $ 4,881,014
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,423,123 $ 1,223,752 $ 4,298,101 $ 4,919,664
Costs and expenses:
Production 280,846 302,941 945,115 1,156,902
Marketing and selling 681,603 668,940 1,931,627 2,735,881
Depreciation 30,708 36,831 95,886 126,616
Amortization 5,613 5,637 17,620 61,611
General and administrative 430,046 400,675 1,281,498 1,469,916
----------- ----------- ----------- -----------
1,428,816 1,415,024 4,271,746 5,550,926
----------- ----------- ----------- -----------
Income (loss) from operations (5,693) (191,272) 26,355 (631,262)
Interest income, net of expense 9,814 11,515 34,794 16,701
Loss from sale of subsidiary -- -- -- (220,744)
----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes 4,121 (179,757) 61,149 (835,305)
Provision for income taxes -- -- (2,204) (70,296)
----------- ----------- ----------- -----------
Net income (loss) $ 4,121 ($ 179,757) $ 58,945 ($ 905,601)
=========== =========== =========== ===========
Net income (loss) per common share
Basic $ 0.00 ($ 0.05) $ 0.02 ($ 0.21)
=========== =========== =========== ===========
Diluted $ 0.00 ($ 0.05) $ 0.02 ($ 0.21)
=========== =========== =========== ===========
Shares used in computing net income
(loss) per share
Basic 3,276,677 3,936,592 3,264,831 4,354,518
=========== =========== =========== ===========
Diluted 3,653,010 3,936,592 3,497,564 4,354,518
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
-----------------------------
<S> <C> <C>
Net income (loss) $ 58,945 ($ 905,601)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 113,506 188,227
Accretion of unearned compensation 2,746 5,000
Bad debt expense 215,482 110,243
Exchange of advertising for machinery and equipment (3,084) (6,480)
Exchange of common stock for services 6,299 --
Non-cash expense related to warrant issuances 13,104 --
Gain on sale of securities -- (14,847)
Loss from sale of College Directory Publishing, Inc. ("CDP") -- 220,744
Changes in assets and liabilities (in 1998, net of sale of CDP):
(Increase) decrease in accounts receivable (196,197) 694,989
Decrease (increase) in directories in progress 171,163 (665,381)
Increase in other assets (36,367) (179,039)
Decrease in accounts payable (36,099) (752,861)
Increase (decrease) in accrued expenses 59,751 (126,275)
(Decrease) increase in income taxes payable (70,296) 70,296
(Decrease) increase in deferred revenue (458,754) 729,276
----------- -----------
Net cash used in operating activities (159,801) (631,709)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of CDP, net of cash balance -- 1,072,152
Contingent consideration paid relating to acquisition of CDP -- (14,256)
Sale of securities available-for-sale -- 1,024,000
Purchases of property and equipment (21,668) (69,612)
----------- -----------
Net cash (used in) provided by investing activities (21,668) 2,012,284
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of mortgage principal (40,000) (40,000)
Repayment of capitalized leases -- (2,187)
Proceeds from the exercise of stock options 40,319 --
Purchase of treasury stock (29,218) (515,746)
----------- -----------
Net cash used in financing activities (28,899) (557,933)
Net (decrease) increase in cash and cash equivalents (210,368) 822,642
Cash and cash equivalents at beginning of period 2,331,633 1,710,304
----------- -----------
Cash and cash equivalents at end of period $ 2,121,265 $ 2,532,946
=========== ===========
</TABLE>
5
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
SUPPLEMENTAL CASH FLOW INFORMATION 1999 1998
-----------------------------
<S> <C> <C>
Interest paid $ 38,717 $ 45,104
=========== ===========
Exchange of advertising for supplies and services $ 39,936 $ 20,515
=========== ===========
Non-cash items received from sale of CDP -- $ 643,750
=========== ===========
Reduction of accounts payable by issuance of common stock $ 33,950 --
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. It is recommended that these financial statements be read
in conjunction with our audited financial statements as of December 31, 1998. In
our opinion, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included in the
accompanying unaudited consolidated financial statements. The results of
operations of any interim period are not necessarily indicative of the results
of operations for the fiscal year. Adoption of Statement of Financial Accounting
Standard ("SFAS") Number 130, "Reporting Comprehensive Income", and SFAS Number
131, "Disclosures about Segments of an Enterprise and Related Information", had
no significant impact on our results of operations or shareholders' equity.
2. CONSOLIDATION
Our consolidated financial statements include the accounts of The Publishing
Company of North America, Inc., and its wholly-owned subsidiaries College
Directory Publishing, Inc. during the period July 3, 1997 to June 10, 1998 (see
Note 10), PCNA Communications Corporation since its incorporation on October 14,
1998 and Attorneys Online, Inc. since its incorporation on February 15, 1999.
Intercompany transactions have been eliminated in consolidation.
3. CASH AND CASH EQUIVALENTS
We consider all highly-liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
4. ACCOUNTS RECEIVABLE
Accounts receivable are comprised primarily of amounts due from advertisers in
bar association directories. The allowance for doubtful accounts is estimated by
us as a percentage of sales. All amounts outstanding in excess of six months are
written off.
5. REVENUE RECOGNITION
We record print directory revenues and related costs upon shipment of
directories. We record Internet advertising revenues and costs upon the release
of the advertisement on the website. Costs accumulated under directories in
progress are stated at estimated costs, not in excess of estimated realizable
value. Deferred revenue represents amounts received from print directory
advertisers prior to shipment of the related directories.
7
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share in accordance with SFAS Number 128, "Earnings Per Share":
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations $ 4,121 ($ 179,757) $ 58,945 ($ 905,601)
----------- ----------- ----------- -----------
Numerator for basic earnings per share - income
(loss) available to common shareholders $ 4,121 ($ 179,757) $ 58,945 ($ 905,901)
Effect of dilutive securities -- -- -- --
----------- ----------- ----------- -----------
Numerator for diluted earnings per share -
income (loss) available to common
Shareholders after assumed conversions $ 4,121 ($ 179,757) $ 58,945 ($ 905,601)
Denominator:
Denominator for basic earnings per share -
weighted-average shares 3,276,677 3,936,592 3,264,831 4,354,518
Effect of dilutive securities - stock options 376,333 -- 232,733 --
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
Adjusted weighted-average shares and
assumed conversions 3,653,010 3,936,592 3,497,564 4,354,518
Basic earnings per share $ 0.00 ($ 0.05) $ 0.02 ($ 0.21)
=========== =========== =========== ===========
Diluted earnings per share $ 0.00 ($ 0.05) $ 0.02 ($ 0.21)
=========== =========== =========== ===========
</TABLE>
In computing diluted earnings per share for 1998, options for 197,600 common
shares were excluded from the diluted earnings per share computation because
their effects would have been antidilutive.
7. INCOME TAXES
The provision for income taxes in 1998 is comprised primarily of state income
taxes related to the sale of CDP.
8. STOCK-BASED COMPENSATION
We account for employee stock-based compensation under the provisions of
Accounting Principles Board (APB) Opinion 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 us as the
exercise price of options is normally established at a price which approximates
the fair market value of our common stock on the date of grant.
8
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK-BASED COMPENSATION (continued)
In July 1999 we entered into an agreement with a consultant for investor
relations services which provided for monthly fees and a grant of warrants for
our common stock. The fair value of the warrants is being expensed over the life
of the one-year contract.
9. USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
10. ACQUISITION AND SALE OF COLLEGE DIRECTORY PUBLISHING, INC.
On July 3, 1997, through a wholly-owned subsidiary, we acquired 100% of the
outstanding capital stock of College Directory Publishing, Inc. ("CDP"). The
acquisition was accounted for under the purchase method of accounting, and
accordingly, the results of operations were included in our consolidated
statements of operations from the date of acquisition until the sale of CDP on
June 10, 1998. 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 CDP's sale, at
which time $91,935 of goodwill had been amortized.
On June 10, 1998, we 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 by us to CDP); (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 our common stock that we issued when we acquired CDP in
July 1997. We posted a loss of $220,744 and incurred $70,296 of primarily state
income tax expense as a result of the sale transaction.
11. TREASURY STOCK
Pursuant to a buy-back plan approved by our Board of Directors in May 1997, we
have purchased 884,300 shares of our common stock in open market and private
transactions through September 30, 1999 for approximately $815,000. The most
recent purchase was in January 1999 for 29,000 shares at a cost of $29,219. We
re-acquired an additional 750,000 shares of our common stock when we sold CDP in
June 1998 (see Note 10).
9
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
In order to make meaningful year-to-year comparisons of our results of
operations for the nine months ended September 30, it is necessary to understand
the effect that our former subsidiary, CDP, had upon our 1998 results. The
following tables set forth our results of operations for the nine months ended
September 30, 1998 and 1999, showing the results of PCNA and all items relating
to CDP and its sale separately and on a consolidated basis (1999 results include
only The Publishing Company of North America, PCNA Communications, and Attorneys
Online (collectively "PCNA") since CDP was sold on June 10, 1998):
<TABLE>
<CAPTION>
Nine months ended Sept. 30, 1998 Nine months ended
PCNA CDP* Consolidated Sept. 30, 1999
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 4,919,664 100.0% -- $ 4,919,664 $ 4,298,101 100.0%
Costs and expenses:
Production 1,156,902 23.5 -- 1,156,902 945,115 22.0
Marketing and selling 2,577,654 52.4 $ 158,227 2,735,881 1,931,627 45.0
Depreciation 115,717 2.3 10,899 126,616 95,886 2.2
Amortization 18,279 0.4 43,332 61,611 17,620 0.4
General and administrative 1,234,349 25.1 235,567 1,469,916 1,281,498 29.8
----------- ------- ----------- ----------- ----------- -------
5,102,901 103.7 448,025 5,550,926 4,271,746 99.4
----------- ------- ----------- ----------- ----------- -------
Income (loss) from operations (183,237) (3.7) (448,025) (631,262) 26,355 0.6
Interest income (expense), net 49,384 1.0 (32,683) 16,701 34,794 0.8
Sale of subsidiary -- (220,744) (220,744) --
----------- ------- ----------- ----------- ----------- -------
Income (loss) before taxes (133,853) (2.7) (701,452) (835,305) 61,149 1.4
Provision for income taxes -- (70,296) (70,296) (2,204) 0.0
----------- ------- ----------- ----------- ----------- -------
Net income (loss) (133,853) (2.7) (771,748) (905,601) 58,945 1.4
</TABLE>
* CDP's results are through its sale on June 10, 1998.
Information relating to CDP's results of operations in 1998 can be found
in our interim reports filed on Form 10-QSB for those periods. The following
discussion and analysis excludes all items relating to CDP, since it was sold on
June 10, 1998.
Revenues were reduced in the most recent nine-month period as the result
of actions targeted at improving operating results by the elimination of some
publishing agreements and by the conversion of others to the Directory
Participation Program described in previous reports. Approximately half of our
contracts are now under the Directory Participation Program. We published 53
directories in the most recent nine months, compared to 63 a year earlier.
Production costs decreased primarily due to a decrease in third-party printing
costs to 8.9% in the most recent period from 12.5% a year earlier; this was
offset somewhat by an increase in the royalties paid to the bar associations.
The reductions in marketing and selling costs were primarily in payroll related
expenses as a result of consolidating management, restructuring commissions and
eliminating inefficient personnel, and by the elimination of expenses from the
closure of our Orlando sales office. The increase in general and administrative
(G&A) expense resulted primarily from a movement of payroll expense from Selling
and Marketing to G&A effective in August 1998 when our National Sales Manager
became Chief Operating Officer.
10
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
The following table sets forth our results of operations for the three
months ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
Three months ended Three months ended
Sept. 30, 1998 Sept. 30, 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales $ 1,223,752 100.0% $ 1,423,123 100.0%
Costs and expenses:
Production 302,941 24.8 280,846 19.7
Marketing and selling 668,940 54.6 681,603 47.9
Depreciation 36,831 3.0 30,708 2.2
Amortization 5,637 0.5 5,613 0.4
General and administrative 400,675 32.7 430,046 30.2
----------- ----- ----------- -----
1,415,024 115.6 1,428,816 100.4
----------- ----- ----------- -----
Loss from operations (191,272) (15.6) (5,693) (0.4)
Interest income, net of expense 11,515 0.9 9,814 0.7
----------- ----- ----------- -----
Net income* (loss) (179,757) (14.7) 4,121 0.3
</TABLE>
* Income taxes are not applicable in 1999 due the use of a net
operating loss carryforward
Our results of operations for the most recent quarter compare favorably to
the same period a year earlier in nearly every category. The increase in
revenues in the most recent quarter is attributable to $280,000 in revenues from
Internet operations in the third quarter of this year, all of which were derived
from advertising we began selling in late May in our online vendor directory. We
recognize Internet advertising revenue when advertisements are placed online.
The most recent quarter's print directory revenues, which were approximately
$82,000 lower than those in the same period a year earlier, were lower than
planned for the quarter primarily due to lower than expected sales in two
directories. Production expenses as a percentage of revenues decreased in the
most recent quarter from a year earlier primarily due to the Internet
advertising revenues which don't require most of the costs involved in the
production and distribution of print directories. If Internet revenues are
excluded in the most recent quarter, production expenses as a percentage of
revenues were just slightly lower than that of a year earlier. The largest
single factor in the decrease of marketing and selling expenses as a percentage
of revenues was the elimination of rent expense relating to the Orlando office;
although the Company closed that office in May 1998, office lease expense
continued until January 1999. Sales salaries and commissions as a percentage of
revenues decreased in the most recent quarter from a year earlier, but they were
higher than in either of the two previous quarters in 1999. We are taking action
in the fourth quarter to increase efficiencies and thereby decrease this expense
as a percentage of revenues but we can not be assured that we will attain the
results we seek. G&A expense was higher (but not as a percentage) in the most
recent quarter from a year earlier mostly due to payroll, the largest single
reason being the hiring in April 1999 of a vice president who has focused on our
Internet business development. We also incurred $35,000 of new expense in the
third quarter relating to the contracting of two consultants for investor
relations services; these contracts will add approximately $25,000 of expense in
each of the next three quarters. Increases in G&A expenses were offset by a
reduction in bad debt expense in the most recent quarter.
11
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
Print directory revenues for the fourth quarter of 1999 are expected to be
approximately $250,000 lower than in each of the first two quarters of 1999 and
somewhat lower than in the third quarter of 1999; this is primarily due to lower
than projected revenues on a certain second-year publication. Revenues from the
Company's new online vendor directory are expected to partially offset this
reduction. This Fall two hurricanes which threatened Central Florida caused us
to close for one and one-half days; many on our sales force had to stay home
additional days to care for their children due to school closings. Although the
resulting loss in sales which affects primarily our fourth quarter can not be
reliably determined, we estimate that it was in the mid-five-figures. Internet
revenue for the fourth quarter may be less than half of the third quarter
volume. This is because Internet advertising is currently being sold only as an
add-on to print advertising while throughout the third quarter it had been sold
also by a staff dedicated to Internet advertising sales. Also, there will be
three months selling time for these sales in the fourth quarter while sales
recognized in the third quarter were from selling efforts from late May through
September. The Company is currently exploring devoting additional resources to
Internet sales for the balance of the fourth quarter; if this occurs, it may
increase revenues for the present quarter but adversely impact upon the sales of
print directory advertising in the first quarter of 2000. At the time of this
report, we expect that fourth quarter 1999 revenues may be approximately
$1,300,000 and that we may post a loss which can not be reliably estimated at
this time.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1999, we had $2,121,265 in cash and cash equivalents
compared to $2,331,633 at December 31, 1998. The primary reason for this
decrease in the cash balance was a decrease in deferred revenues, which are
payments made by advertisers prior to publication. This was due primarily to
starting certain sales campaigns later than originally scheduled. At this time,
we consider the decrease in deferred revenues to be a short-term occurrence
which is not indicative of a longer-term trend.
We did not purchase any shares of our common stock for our treasury in the
most recent quarter and we do not expect to make any such purchases in the
foreseeable future. Since we began purchasing our common stock in January 1998,
we purchased 884,300 shares in open market and private transactions for
approximately $815,000, or an average cost of $0.92 per share. We also
re-acquired an additional 750,000 shares of its common stock when we sold CDP in
June 1998 (see Note 10 to the financial statements).
We have no plans at this time to acquire a material amount of capital
assets.
Based on current cash and investment balances and our anticipated results
of future operations, we believe that we have sufficient cash resources to fund
our operations for the next twelve months or more.
12
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
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. We believe we have
identified our software applications and hardware and other information
technology devices that might be impacted by the Year 2000 issue.
All computer software used by us is operated on personal computers. Year
2000 compliant versions of our general ledger system and our primary database
application for sales order management and billing have been in use by us since
early this year. We believe that all of our desktop publishing software is Year
2000 compliant. Our internal telephone system has been upgraded to be Year 2000
compliant. We estimate that our total costs in obtaining Year 2000 compliance
have been less than $25,000. We are not aware of any additional purchases
necessary for us to be Year 2000 compliant.
Generally, the goods and services that we purchase from our 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 us
from numerous alternative vendors and suppliers. Reliable telephone service is
critical particularly to our sale of advertising in our publications; disruption
of telephone service could have a material effect upon our results of operations
and, depending on the duration, financial condition. We have contacted our
important vendors in an effort to assess the compliance of their systems with
Year 2000 and their responses indicate that they are Year 2000 compliant. In the
event any of them are found to be otherwise, we believe that alternative
suppliers are available; however, we may encounter delays in delivering
directories. In consideration of this, we have not scheduled any deliveries for
Year 2000 directories until late January. We do not believe it is practicable to
contact our many thousands of advertising clients with regard to assessing their
Year 2000 compliance. No single client represents as much as 1% of our overall
revenues; therefore, we believe that we would not be materially adversely
affected by the impact of Year 2000 upon any individual client.
At this time, we consider 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 few days. In preparation for such an event, we have procured and
installed our own generator to power our telephone system in the event of a
failure by the utility company to maintain service. We do have alternative means
available if our primary source for long-distance telephone service fails;
however, given that such a failure would likely be widespread if it occurs at
all, we can not reliably predict how satisfactory these alternative means would
be and they may be more expensive than our current service. We can not replicate
an alternative source for our local telephone service, if it should fail. Except
for the matters discussed above, we do not have a contingency plan for any Year
2000 problems that may arise.
With regard to Year 2000 issues affecting our Internet operations, we rely
upon third parties to host and operate our websites and provide content for
them. Many of these third parties are privately-held and we do not have access
to reliable information concerning their Year 2000 status. However, we rely most
heavily upon two third parties which host and operate our websites; they are
Value America ("VA") and Photobooks, Inc. ("Photobooks").
VA is a publicly-owned company and, therefore, disclosures on its status
with regard to Year 2000 issues are included in its regular reports to the SEC.
We believe that it is not desirable to include those complete disclosures here.
We understand those disclosures to report, in summary, that VA's ability to
address Year 2000 issues is, to a large extent, dependent upon the remediation
activities of third parties. To the extent that VA can execute remediation
activities on its own accord and to provide contingency plans for possible
unsuccessful remediation efforts of third
13
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
YEAR 2000 CONSIDERATIONS (CONTINUED)
- ------------------------
parties upon which it relies, and in consideration of VA's estimated costs for
its own remediation efforts, VA does not expect Year 2000 issues to have a
significant and negative impact upon its financial condition or results of
operations. We have not developed a contingency plan if VA encounters unforseen
Year 2000 problems and cannot operate our co-branded website or if VA is
otherwise affected by the Year 2000. This is because presently we are only
receiving nominal revenues from VA.
All of our Internet operations through Photobooks utilize recently
acquired personal computers and software. Photobooks is a privately-held company
and is not required to provide formal disclosure of its Year 2000 status.
Photobooks has advised us that its Internet activities are all being hosted on a
Windows NT platform, which is consistently maintained with the latest updates
(software upgrades and any interim service patches) available from Microsoft.
Photobooks has a high degree of confidence that there will be no Year 2000
problems in the Internet operations which it maintains for us. In reliance upon
Photobook's assurances, we have not created a contingency plan if it encounters
Year 2000 problems. Since our Internet revenues currently come the sale of
advertising, we believe we can minimize any potential damage by replacing
Photobooks and extending the term of advertising agreements. Although we cannot
realistically estimate the total financial loss, it appears it would come from
advertisers which do not renew because of the interruption of our online legal
vendor directory.
We do not expect that the cost of addressing any Year 2000 issue that is
within our control will be a material event or uncertainty that would have a
material adverse effect on our future operating results or financial condition.
FORWARD-LOOKING STATEMENTS
- --------------------------
THE STATEMENTS MADE ABOVE RELATING TO OUR EFFORTS TO DECREASE OUR
MARKETING AND SELLING EXPENSES AS A PERCENTAGE OF REVENUES IN THE FOURTH
QUARTER, TO OUR EXPECTATIONS REGARDING REVENUES AND OPERATING RESULTS IN THE
FOURTH QUARTER OF 1999, TO OUR FUTURE LIQUIDITY, AND TO OUR READINESS FOR THE
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 OUR "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. IMPORTANT FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE FORWARD-LOOKING STATEMENTS INCLUDE THE FOLLOWING: 1) LOWER THAN PLANNED
REVENUES IN THE FOURTH QUARTER WHICH WOULD AFFECT THE LEVEL OF MARKETING AND
SELLING EXPENSES WHEN EXPRESSED AS A PERCENTAGE OF REVENUES, 2) OUR ABILITY TO
CONVINCE OUR EXISTING PRINT DIRECTORY ADVERTISERS TO PARTICIPATE IN OUR NEW
ONLINE DIRECTORY, 3) A DECISION NOT TO DEVOTE ADDITIONAL RESOURCES TO INTERNET
SALES FOR THE BALANCE OF THE FOURTH QUARTER AS DESCRIBED ABOVE, 4) AN UNEXPECTED
DOWNTURN IN OUR OPERATING PERFORMANCE, 5) OUR FAILURE TO TAKE PLANNED ACTIONS
WHICH ARE EXPECTED TO INCREASE SALES EFFICIENCIES, 6) THIRD PARTIES MAY NOT BE
YEAR 2000 COMPLIANT DESPITE THEIR REPRESENTATIONS TO US THAT THEY WILL BE. WHILE
WE BELIEVE THAT THESE STATEMENTS ARE ACCURATE, OUR BUSINESS IS DEPENDENT UPON
GENERAL ECONOMIC CONDITIONS AND VARIOUS CONDITIONS SPECIFIC TO OUR INDUSTRY AND
FUTURE TREND RESULTS CANNOT BE PREDICTED WITH CERTAINTY. RISKS CONTAINED IN OUR
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION ALSO SHOULD BE CONSIDERED.
14
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
PART II - OTHER INFORMATION
ITEM 5. Other Information
Non applicable.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
1. Exhibit 27 - Financial Data Schedule
b. We filed no reports on Form 8-K during the quarter ended
September 30, 1999.
15
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - SEPTEMBER 30,1999
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf on November 12,
1999 by the undersigned, thereunto duly authorized.
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
/s/ Peter S. Balise
-----------------------------------
President (Chief Executive Officer)
/s/ James M. Koller
-----------------------------------
Chief Financial Officer (Principal
Financial and Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OUR
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,121,265
<SECURITIES> 0
<RECEIVABLES> 475,703
<ALLOWANCES> (164,543)
<INVENTORY> 0
<CURRENT-ASSETS> 2,826,052
<PP&E> 1,767,351
<DEPRECIATION> 520,396
<TOTAL-ASSETS> 4,430,211
<CURRENT-LIABILITIES> 929,124
<BONDS> 653,333
0
0
<COMMON> 5,914,416
<OTHER-SE> (3,013,329)
<TOTAL-LIABILITY-AND-EQUITY> 4,430,211
<SALES> 4,017,124
<TOTAL-REVENUES> 4,298,101
<CGS> 945,115
<TOTAL-COSTS> 3,326,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,794
<INCOME-PRETAX> 61,149
<INCOME-TAX> 2,204
<INCOME-CONTINUING> 58,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,945
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
