U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended June 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:
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at August 12, 1999
----- ------------------------------
Common Stock: no par value 3,280,720
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Operations
for the three and six months ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows
for the six months ended June 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 4. Submission of Matters to a Vote of Securities Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
Exhibit 27 - Financial data schedule
</TABLE>
2
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------------------------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $2,087,341 $2,331,633
Accounts receivable, less allowance for doubtful
accounts of $187,792 at June 30, 1999
and $179,859 at December 31, 1998 243,632 328,045
Directories in progress 200,049 344,805
Other current assets 208,986 109,779
-----------------------------------------
Total current assets 2,740,008 3,114,262
Property and equipment, net 1,269,398 1,318,089
Investment in College Directory Publishing Corporation 200,000 200,000
Other assets 162,816 248,663
-----------------------------------------
Total assets $4,372,222 $4,881,014
=========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $151,880 $214,861
Accrued expenses 175,547 181,629
Income taxes payable --- 70,296
Deferred revenue 531,101 948,353
Mortgage payable 53,333 53,333
-----------------------------------------
Total current liabilities 911,861 1,468,472
Mortgage payable after one year 613,334 640,000
-----------------------------------------
Total liabilities 1,525,195 2,108,472
Shareholders' equity:
Common shares, no par value:
15,000,000 shares authorized; 4,902,700 shares
issued at June 30, 1999; 4,871,900 shares
issued at December 31, 1998 5,878,496 5,831,448
Accumulated deficit (1,868,250) (1,923,074)
Unearned compensation, net (4,517) (6,348)
Treasury stock, at cost; 1,634,300 shares at June 30,
1999; 1,605,300 shares at December 31, 1998 (1,158,702) (1,129,484)
-----------------------------------------
Total shareholders' equity 2,847,027 2,772,542
-----------------------------------------
Total liabilities and shareholders' equity $4,372,222 $4,881,014
=========================================
</TABLE>
See accompanying notes.
3
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Net sales $1,446,711 $1,738,179 $2,874,978 $3,695,912
Costs and expenses:
Production 331,540 407,200 664,269 853,961
Marketing and selling 626,718 1,001,798 1,250,024 2,066,941
Depreciation 32,020 44,305 65,178 89,785
Amortization 5,827 25,072 12,007 55,974
General and administrative 436,273 468,909 851,452 1,069,241
-------------------------------------- ------------------------------------
1,432,378 1,947,284 2,842,930 4,135,902
-------------------------------------- ------------------------------------
Income (loss) from operations 14,333 (209,105) 32,048 (439,990)
Interest income, net of expense 14,379 13,152 24,980 5,186
Loss from sale of subsidiary --- (220,744) --- (220,744)
-------------------------------------- ------------------------------------
Income (loss) before provision
for income taxes 28,712 (416,697) 57,028 (655,548)
Provision for income taxes (2,204) (70,296) (2,204) (70,296)
-------------------------------------- ------------------------------------
Net income (loss) $26,508 ($486,993) $54,824 ($725,844)
====================================== ====================================
Net income (loss) per common share
Basic $0.01 ($0.10) $0.02 ($0.15)
====================================== ====================================
Diluted $0.01 ($0.10) $0.02 ($0.15)
======================================= ====================================
Shares used in computing net income
(loss) per share
Basic 3,263,949 4,707,012 3,258,810 4,785,339
====================================== ====================================
Diluted 3,462,418 4,707,012 3,445,427 4,785,339
====================================== ====================================
</TABLE>
See accompanying notes.
4
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
--------------------------------------
<S> <C> <C>
Net income (loss) $54,824 ($725,844)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 77,185 145,760
Accretion of unearned compensation 1,831 4,375
Bad debt expense 196,666 206,574
Exchange of advertising for machinery & equipment (1,299) (2,100)
Exchange of stock for services 6,299 ---
Gain on sale of securities --- (17,744)
Loss from sale of CDP --- 220,744
Changes in assets and liabilities (in 1998, net of sale of CDP):
(Increase) decrease in accounts receivable (109,853) 434,994
Decrease (increase) in directories in progress 144,756 (611,329)
Increase in other assets (25,367) (162,447)
Decrease in accounts payable (29,031) (650,738)
Decrease in accrued expenses (6,082) (125,812)
(Decrease) increase in income taxes payable (70,296) 70,296
(Decrease) increase in deferred revenue (417,252) 553,530
---------------------------------------
Net cash used in operating activities (177,619) (659,741)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of CDP, net of cash balance --- 1,072,152
Sale of securities available-for-sale --- 444,000
Purchases of property and equipment (15,189) (66,427)
---------------------------------------
Net cash (used in) provided by investing activities (15,189) 1,449,725
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of mortgage principal (26,666) (26,667)
Repayment of capitalized leases --- (2,187)
Contingent consideration paid relating to acquisition of CDP --- (14,256)
Proceeds from the exercise of stock options 4,400 ---
Purchase of treasury stock (29,218) (77,917)
---------------------------------------
Net cash used in financing activities (51,484) (121,027)
Net (decrease) increase in cash and cash equivalents (244,292) 668,957
Cash and cash equivalents at beginning of period 2,331,633 1,710,304
---------------------------------------
Cash and cash equivalents at end of period $2,087,341 $2,379,261
=======================================
</TABLE>
See accompanying notes.
5
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
SUPPLEMENTAL CASH FLOW INFORMATION 1999 1998
---------------------------------------
<S> <C> <C>
Interest paid $25,585 $30,213
=======================================
Exchange of advertising for supplies $13,754 $4,076
=======================================
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 - JUNE 30, 1999
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Publishing
Company of North America, Inc. and subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. It is recommended that these financial statements be read
in conjunction with the Company's audited financial statements as of December
31, 1998. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included in the accompanying unaudited consolidated financial statements. The
results of operations of any interim period are not necessarily indicative of
the results of operations for the fiscal year.
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
the Company's results of operations or shareholders' equity.
2. CONSOLIDATION
The consolidated financial statements include the accounts of The Publishing
Company of North America, Inc., and its wholly-owned subsidiaries College
Directory Publishing, Inc. (CDP) 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 (collectively, the Company). Intercompany transactions have been
eliminated in consolidation.
3. CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
4. ACCOUNTS RECEIVABLE
Accounts receivable are comprised primarily of amounts due from advertisers in
bar association 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.
5. REVENUE RECOGNITION
Revenues and related costs are recorded by the Company upon shipment of
directories. Costs accumulated under directories in progress are stated at
estimated costs, not in excess of estimated realizable value. Deferred revenue
represents amounts received from advertisers prior to shipment of the related
directories.
7
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 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 June 30, Six months ended June 30,
1999 1998 1999 1998
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations $26,508 ($486,993) $54,824 ($725,844)
---------------------------- -----------------------------
Numerator for basic earnings per share - income
(loss) available to common shareholders 26,508 (486,993) 54,824 (725,844)
Effect of dilutive securities --- --- --- ---
---------------------------- -----------------------------
Numerator for diluted earnings per share -
income (loss) available to common
shareholders after assumed conversions 26,508 (486,993) 54,824 (725,844)
Denominator:
Denominator for basic earnings per share -
weighted-average shares 3,263,949 4,707,012 3,258,810 4,785,339
Effect of dilutive securities - stock options 198,469 --- 186,617 ---
---------------------------- -----------------------------
Denominator for diluted earnings per share -
Adjusted weighted-average shares and
assumed conversions 3,462,418 4,707,012 3,445,427 4,785,339
Basic earnings per share $0.01 ($0.10) $0.02 ($0.15)
============================ =============================
Diluted earnings per share $0.01 ($0.10) $0.02 ($0.15)
============================ =============================
</TABLE>
In computing diluted earnings per share for 1998, options for 228,000 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 current state
income taxes payable related to the sale of CDP.
8. STOCK-BASED COMPENSATION
The Company accounts 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 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
grant.
8
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. 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.
10. 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. ("CDP").
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 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, the Company sold 100% of CDP to a group headed by the
executive management of CDP in exchange for (i) $1,400,000 (including $1,100,000
in operating loans made to CDP by the Company); (ii) a $100,000 note from the
corporation acquiring CDP (the "Acquiror" or "College Directory Publishing
Corporation") due upon the earlier of December 15, 1999 or completion of the
Acquiror's initial public offering ("IPO"); $200,000 in preferred stock of the
Acquiror convertible into $1,000,000 of common stock upon completion of an IPO
by the Acquiror; and (iv) 750,000 shares of the Company's common stock that it
issued when it acquired CDP in July 1997. The Company posted a loss of $220,744
as a result of the sale transaction.
11. TREASURY STOCK
Pursuant to a buy-back plan approved by its Board of Directors in May 1997, the
Company has purchased 884,300 shares of its common stock in open market and
private transactions through June 30, 1999 for approximately $815,000. The most
recent purchase was in January 1999 for 29,000 shares at a cost of $29,219. The
Company re-acquired an additional 750,000 shares of its common stock when it
sold CDP in June 1998 (see Note 10).
9
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 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 the Company's
results of operations, it is necessary to understand the effect that the
Company's former subsidiary, CDP, had upon the Company's 1998 results. The
following tables set forth the Company's results of operations for the three and
six months ended June 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>
Three months ended Three months ended
June 30, 1998 June 30, 1998 June 30, 1999
PCNA CDP Consolidated PCNA
---------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,738,179 --- $1,738,179 $1,446,711
Costs and expenses:
Production 407,200 --- 407,200 331,540
Marketing and selling 908,539 $93,259 1,001,798 626,718
Depreciation 38,667 5,638 44,305 32,020
Amortization 25,072 --- 25,072 5,827
General and administrative 347,135 121,774 468,909 436,273
---------------------------------- ---------------------------------------------
1,726,613 220,671 1,947,284 1,432,378
---------------------------------- ---------------------------------------------
Income (loss) from operations 11,566 (220,671) (209,105) 14,333
Interest income (expense), net 32,913 (19,761) 13,152 14,379
Loss from sale of subsidiary --- (220,744) (220,744) ---
---------------------------------- ---------------------------------------------
Income (loss) before taxes 44,479 (461,176) (416,697) 28,712
Provision for income taxes --- (70,296) (70,296) (2,204)
---------------------------------- ---------------------------------------------
Net income (loss) $44,479 ($531,472) ($486,993) $26,508
Six months ended Six months ended
June 30, 1998 June 30, 1998 June 30, 1999
PCNA CDP Consolidated PCNA
---------------------------------- ---------------------------------------------
Net sales $3,695,912 --- $3,695,912 $2,874,978
Costs and expenses:
Production 853,961 --- 853,961 664,269
Marketing and selling 1,908,714 $158,227 2,066,941 1,250,024
Depreciation 78,886 10,899 89,785 65,178
Amortization 55,974 --- 55,974 12,007
General and administrative 833,674 235,567 1,069,241 851,452
---------------------------------- ---------------------------------------------
3,731,209 404,693 4,135,902 2,842,930
---------------------------------- ---------------------------------------------
Income (loss) from operations (35,297) (404,693) (439,990) 32,048
Interest income (expense), net 37,869 (32,683) 5,186 24,980
Loss from sale of subsidiary --- (220,744) (220,744) ---
---------------------------------- ---------------------------------------------
Income (loss) before taxes 2,572 (658,120) (655,548) 57,028
Provision for income taxes --- (70,296) (70,296) (2,204)
---------------------------------- ---------------------------------------------
Net income (loss) $2,572 ($728,416) ($725,844) $54,824
</TABLE>
10
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
The following analysis and discussion excludes all items relating to
CDP, since it was sold by the Company in June 1998. Information relating to
CDP's results of operations in 1998 can be found in the Company's interim
reports filed on Form 10-QSB for those periods.
PCNA's revenues decreased 17% for the quarter ended June 30, 1999 from
the same period a year earlier; its revenues decreased 22% for the six months
then-ended from the same period a year earlier. PCNA published 21 directories in
the most recent quarter and 37 in the first half of 1999; in 1998 it published
23 and 48, respectively.
The following table sets forth PCNA's results of operations (excluding
CDP) in percentages of revenues for the three and six months ended June 30, 1999
and 1998:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
1999 1998 1999 1998
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Production 22.9% 23.4% 23.1% 23.1%
Marketing and selling 43.3% 52.3% 43.5% 51.7%
Depreciation 2.2% 2.2% 2.3% 2.1%
Amortization 0.4% 1.4% 0.4% 1.5%
General and administrative 30.2% 20.0% 29.6% 22.6%
-------------------------------------------------------------------------
99.0% 99.3% 98.9% 101.0%
-------------------------------------------------------------------------
Income (loss) from operations 1.0% 0.7% 1.1% (1.0%)
</TABLE>
Production costs, which are primarily third-party printing and
distribution costs and in-house labor, have stabilized since 1997 during which
they averaged 29.1%.
During 1998 management endeavored to reduce marketing and selling
costs, the great majority of which are related to the selling of print
advertising in the Company's publications rather than expenses related to the
securing of publishing contracts. Management's efforts did not result in
reductions of these expenses as a percentage of revenues for the first three
quarters of 1998. However, these expenses were reduced to 45.2% of revenues in
the fourth quarter of 1998, 43.7% in the first quarter of 1999, and 43.3% in the
second quarter of 1999. The reductions were primarily in payroll related
expenses as a result of consolidating management, restructuring commissions and
eliminating inefficient personnel.
The decrease in amortization expense in 1999 from 1998 is due to the
elimination of the goodwill relating to the acquisition of CDP.
General and administrative ("G&A") expenses increased $89,138 for the
three months ended June 30, 1999 from that in the same period a year earlier for
several primary reasons. In the quarter ended June 30, 1998 the Company
recognized a $43,000 insurance reimbursement for certain legal expenses which
were incurred in prior periods. Also in that quarter, bad debt expense was only
4.0% of net revenues ($70,278) due to an adjustment of management's estimate for
an appropriate allowance for doubtful accounts; bad debt expense in the most
recent quarter was 6.6% of net revenues ($94,874). In April 1999 the Company
hired a vice president for marketing and business development whose primary
charge is to identify and to partner with businesses complimentary to PCNA's
goals and objectives, with a particular focus on e-commerce activities. This and
other factors caused G&A payroll to be $47,000 higher in the most recent quarter
from that in the same period in 1998.
11
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
In early August 1999 the Company launched its new Internet portal
(Lawlinks.com) which is targeted and designed particularly for members of the
legal profession. A broad variety of relevant information is available to users
at no charge; this content is being obtained by the Company at very low cost
primarily through strategic alliances with third parties. The new portal also
facilitates a number of e-commerce opportunities for the Company. Through a
strategic alliance with Value America, Inc. the Company also opened an online
retail store which offers thousands of business and home products. America's
Legal Super StoreTM is a co-branded website (www.lawmiles.com) operated by Value
America which has agreed to pay the Company a royalty based upon net sales.
Under this arrangement, the costs and risks to the Company are low. In September
1999 the Company plans to launch through its portal an online vendor directory
of goods and services for the legal profession. America's Legal Source
(www.thelegalsource.com) will leverage from the Company's base of print
directory advertisers and is expected to be the Company's primary source of
Internet revenues. The contribution margin of the online directory is expected
to be significantly higher than that of the Company's print directories because
it won't require most of the costs involved in the production and distribution
of print directories; it also will require little in additional general and
administrative costs.
In July 1999 the Company entered into two one-year agreements with
consultants for investor relations services. One of the agreements provides for
the granting of warrants for the Company's common stock in addition to monthly
fees. The fair value of the warrants will be expensed over the life of the
contract. The two agreements will add new expenses of approximately $35,000 in
the third quarter of 1999 and approximately $25,000 in each of the three
quarters following thereafter.
Print directory revenues for the third quarter of 1999 are expected to
be approximately $200,000 lower than in each of the first two quarters of 1999
primarily due to lower than projected revenues on a first-year unofficial
statewide medical directory. Revenues from the Company's new online vendor
directory are expected to offset this reduction and third quarter 1999 revenues
are expected to be approximately $1,450,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1999, the Company had $2,087,341 in cash and cash
equivalents compared to $2,347,445 at March 31, 1999. The primary reason for
this decrease in liquidity 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,
management considers the decrease in deferred revenues to be a short-term
occurrence which is not indicative of a longer-term trend.
The Company did not purchase any shares of its common stock for its
treasury in the most recent quarter and it does not expect to make any such
purchases in the foreseeable future. Since the Company began purchasing its
common stock in January 1998, it purchased 884,300 shares in open market and
private transactions for approximately $815,000, or an average cost of $0.92 per
share. The Company also re-acquired an additional 750,000 shares of its common
stock when it sold CDP in June 1998 (see Note 10 to the financial statements).
The Company has no plans at this time to acquire a material amount of
capital assets.
12
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
Based on current cash and investment balances and the Company's
anticipated results of future operations, the Company believes that it has
sufficient cash resources to fund its operations for the next twelve months or
more.
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 operated on 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 in use by
the Company since early this year. The Company has to complete a small number of
installations of minor software upgrades that are on hand in order for its
Information Technology (IT) systems, including its internal telephone system, to
be Year 2000 compliant. The Company estimates that its total costs in obtaining
Year 2000 compliance 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 before
September 30, 1999, well in time to switch to alternative suppliers if
necessary. The Company does not believe it is practicable to contact its many
thousands of advertising clients with regard to assessing their Year 2000
compliance. No single client represents as much as 1% of the Company's overall
revenues; therefore, the Company believes that it would not be materially
adversely affected by the impact of Year 2000 upon any individual client.
At this time, the Company considers that the most reasonably likely
worst case scenario would include a loss of power and/or a loss of telephone
service for more than a very few days. In preparation for such an event, the
Company has procured and installed its own generator to power its telephone
system in the event of a failure by the utility company to maintain service. The
Company plans to procure a similar generator as an alternative power supply for
its critical computer systems by September 30, 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.
13
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements made above relating to the Company's plans to launch an
online vendor directory in September 1999, to the Company's plans to leverage
from its base of print directory advertisers when selling into the online
directory, to the Company's expectation of a higher contribution margin from
online directory revenues, to the Company's expectations regarding revenues in
the third quarter of 1999, to the Company's future liquidity, and to the
Company's 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 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. Important factors that may cause
actual results to differ materially from the forward-looking statements include
the following: 1) unexpected difficulties encountered in launching the online
vendor directory, 2) the Company's ability to convince its existing print
directory advertisers to participate in its new online directory, 3) unexpected
costs or inefficiencies relating to the Company's online directory operations,
4) unexpected downturns in the Company's sales into third quarter 1999
directories over the balance of the quarter, 5) an unexpected downturn in the
Company's operating performance, 6) unexpected impacts of the Year 2000 event
directly or indirectly upon the Company, and 7) impacts of the Year 2000 event
over which the Company has no control and could not practicably prepare for.
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. Risks contained in the Company's filings with the Securities and
Exchange Commission also should be considered.
14
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Securities Holders
The annual meeting of the shareholders of the Company was held at the
Company's corporate offices in Lake Helen, Florida, on May 24, 1999. At that
time the shareholders, by direct vote and by proxy, re-elected Mr. Peter Balise
as a director of the Company. The vote was 3,052,451 shares for Mr. Balise, and
2,500 shares that withheld approval. The terms of Messrs. Richard C. Silver, J.
William Wrigley and Andrew J. Cahill continued and they remained as directors of
the Company.
Also at that meeting the shareholders, by direct vote and by proxy,
ratified an amendment to the Company's 1996 Stock Plan. The vote was 1,686,642
shares for the amendment, a majority of the outstanding shares; 30,550 shares
voted against the amendment; no shares abstained.
Also at that meeting the shareholders, by direct vote and by proxy,
ratified the appointment of Ernst & Young LLP as independent auditors for the
fiscal year ending December 31, 1999. The vote was 3,048,701 shares for, 1,250
shares against, and 5,000 shares abstaining.
There was no other business brought at the meeting requiring a vote of
the shareholders.
ITEM 5. Other Information
On July 2, 1999 the Company's Board of Directors appointed Mr. Russell
Perkins to serve as a director of the Company. Mr. Perkins has over twenty years
of experience in the directory and database publishing industry. He is currently
President and CEO of Dorland Healthcare Information, a Philadelphia-based
publisher of healthcare industry directories and databases. From 1994-1995, Mr.
Perkins was Group President of North American Publishing Company, a privately
held diversified publisher of trade magazines and directories based in
Philadelphia. From 1987-1994, Mr. Perkins was President of Morgan-Rand Inc., a
company that provided consulting and research to the directory industry as well
as contract publishing services. Mr. Perkins has also worked as a consultant
with AT&T, as an editor at Thomas Publishing Company, and has been involved with
a number of Internet initiatives within the directory industry. Mr. Perkins is
also the author of several books on database publishing, speaks extensively at
industry gatherings and is a former director of the Information Industry
Association. His term will expire at the Company's annual meeting in 2002.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
1. Exhibit 27 - Financial Data Schedule
b. No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
15
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-QSB - JUNE 30, 1999
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf on August 13, 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 THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,087,341
<SECURITIES> 0
<RECEIVABLES> 431,424
<ALLOWANCES> (187,792)
<INVENTORY> 0
<CURRENT-ASSETS> 2,740,008
<PP&E> 1,759,086
<DEPRECIATION> 489,688
<TOTAL-ASSETS> 4,372,222
<CURRENT-LIABILITIES> 911,861
<BONDS> 666,667
0
0
<COMMON> 5,878,496
<OTHER-SE> (3,031,469)
<TOTAL-LIABILITY-AND-EQUITY> 4,372,222
<SALES> 2,874,978
<TOTAL-REVENUES> 2,874,978
<CGS> 664,269
<TOTAL-COSTS> 2,842,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,980
<INCOME-PRETAX> 57,028
<INCOME-TAX> 2,204
<INCOME-CONTINUING> 54,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,824
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
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