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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, 1999.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File No. 0-27994
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3203301
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(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
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(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: [X] Yes [ ] 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,
1999 were $5,515,433.
The aggregate market value of the registrant's voting common stock held by
non-affiliates, computed by reference to the last sale price per share as of
March 10, 2000 was $18,322,848.
There were 4,228,033 shares of the registrant's common stock outstanding as of
March 10, 2000.
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THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
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, 1999, 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, 1999 are incorporated by reference
into Part III.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX
Page
PART I
Item 1. Business...........................................................3
Item 2. Properties.........................................................15
Item 3. Legal Proceedings..................................................15
Item 4. Submission of Matters to a Vote of Security Holders................15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..........16
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................19
Item 7. Financial Statements..............................................25
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................48
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...48
Item 10. Executive Compensation.............................................48
Item 11. Security Ownership of Certain Beneficial Owners and Management.....48
Item 12. Certain Relationships and Related Transactions.....................48
Item 13. Exhibits and Reports on Form 8-K, Index............................49
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FORM 10-KSB - DECEMBER 31, 1999
PART I
ITEM 1. BUSINESS
GENERAL
Throughout this document, "we", "us" or "our" shall refer to The
Publishing Company of North America, Inc. and, since the time of their
formation, our wholly-owned subsidiaries, PCNA Communications Corporation and
Attorneys.com, Inc. As of January 1, 1999, we transferred substantially all of
our operations to PCNA Communications Corporation; management reviews the
consolidated results in its analysis of operations. Unless expressly stated
otherwise, this description of the business shall not include the operations of
College Directory Publishing, Inc. ("CDP") which we acquired on July 3, 1997 and
sold on June 10, 1998.
We publish the majority of our directories "in-house", contracting the
printing and binding to outside firms. In most cases, we assume all costs of
publication, including design, layout, printing and binding of our directories.
Our management has approximately 90 years of combined experience in publishing
print specialty directories. The high quality of the print directories we
publish and our commitment to client service have contributed to our penetration
in the legal publishing marketplace.
Historically, we have specialized in publishing free membership
directories for bar associations nationwide. A small amount of our revenues (6%
in 1998 and 7% in 1999) are derived from the publication of directories for
medical associations. We rely upon the sale of advertising within the
directories to generate our principal revenues. Under our free directory
program, we provide directories for all members of an association, thereby
maximizing our printing expense. In the Spring of 1998, we introduced our new
directory participation program ("DPP") which is designed to allow attorneys,
law firms, courts or bar associations to purchase directories directly from us.
Under our directory participation program, we offer participating bar
associations the opportunity to share revenue with us from the sale of
directories to members. This program results in reducing circulation because not
all members purchase the membership directories while at the same time reducing
printing costs. Ultimately, we anticipate advertising revenues may be less under
this program. However, due to the variety of factors affecting advertising
sales, it is not practicable to isolate and quantify the impact this program has
had or will have on advertising revenues. Presently, approximately half of the
membership directories we publish are for associations that have elected the
directory participation program; we continue our free directory programs in
cases where we believe we can earn an acceptable margin above our costs.
Our 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, and telephone numbers. They often also contain
facsimile numbers, court information and specialized local information which
attorneys may require during their course of business.
Since early 1999 our president and chief executive officer has
concentrated the great majority of his time on developing and expanding our new
Internet business. In August and September 1999 we launched three websites
directed at the legal community. These websites include an online vendor
directory business and an online e-commerce business. In 1999 our online vendor
directory produced 7% of our overall revenues; revenues from our online
e-commerce business was negligible. To date, we have spent only a limited amount
of money in marketing and advertising these websites. We recognize that
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significant sums of money are currently being spent by well-capitalized public
and privately-held companies marketing their websites. We do not have
significant capital for marketing and advertising our websites.
In November 1999, we purchased the rights to the Internet address,
attorneys.com. For this new website, we are planning to introduce different
marketing strategies for our Internet operations later this year. In January
2000, we sold 115,000 shares of our common stock to one of our directors at the
then current market price of $2.188 per share, for a total of $251,620. In
February 2000, we sold a total of 790,513 shares of our common stock to four
investment funds in exchange for $2,000,000. The director and investment funds
acquired their common stock for investment, and they did not receive any
registration rights. In March 2000, we contracted a leading international
management consulting firm to provide comprehensive consulting services relating
to the further development and launch of the attorneys.com website later this
year. We are engaged in discussions with investment bankers relating to
financing to permit us to further our plans. We do not know if these
negotiations will be fruitful and if we will ultimately have sufficient capital
for these purposes.
We are a Florida corporation that was organized in September 1993. Our
wholly-owned subsidiary, PCNA Communications Corporation, conducts our print
directory operations and our online vendor directory business that we launched
on September 9, 1999. In February 1999 we organized another wholly-owned
subsidiary, Attorneys Online, Inc., which we re-named Attorneys.com, Inc. in
November 1999. Assuming we receive shareholder approval at our annual meeting
this Spring, we shall change our name to Attorneys.com, Inc. and change the name
of our subsidiary back to Attorneys Online, Inc.
ACQUISITION AND SALE OF CDP
On July 3, 1997 we acquired, through a wholly-owned subsidiary, 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. We 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 Note 6 to "Notes to Consolidated Financial Statements."
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 our bar association
directories, offer advertisers the opportunity to advertise their products and
services to these target 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-
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FORM 10-KSB - DECEMBER 31, 1999
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. We believe that many attorneys may rely on the information contained
in our 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.
OUR BAR DIRECTORIES
We provide directories to individual bar associations and attorneys
nationwide. We derive 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, we market 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 our revenues, are contained in bar
directories published by us and provide a convenient source of referrals for
attorneys who need assistance in a given area of the law for their clients.
We target 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 our target market has previously consisted of
all bar associations with approximately 300 or more members, in 1998 we began to
focus on publishing for state and larger county or city bar associations
nationwide. In targeting these bar associations, we use area demographics
including the local yellow pages and other local publications to determine if
the number of potential advertisers meeting our criteria exist in the community
and whether the publication is appropriate for our directory participation
program.
Once we target a bar association for publication of its directory, we
use referrals from other clients to assist in obtaining an agreement to publish
that directory. As we have grown our business, management has developed business
relationships with bar association executives throughout the country. In
addition, we use our published bar directories and letters from satisfied bar
associations as marketing tools to show prospective new clients.
Through 1997 our strategy had been to secure market share. However, in
1998 we began to focus more on obtaining publishing agreements that we expected
would result in acceptable gross profit margins. In doing so, we voluntarily
declined to publish a small number of directories for bar associations we had
served in the past. We believe that our revised strategy has contributed to our
improved operating results; from the fourth quarter of 1998 through the third
quarter of 1999 we operated profitably. We posted a loss in the fourth quarter
of 1999 largely due to inadequate print directory advertising revenues. See Item
6. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
A very high percentage of the directories we have published to date
were contracted by a bar or medical association. In a few cases we have
published independent directories. In such cases our demographic analysis
provides us incentive to publish independent of a contract from an association.
We are planning to expand our publication of these "independent" directories to
approximately 16 such
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directories in 2000. Since we are not bound to the terms of a publishing
agreement, we have much greater flexibility with content, design, and schedule.
Attorney and other information that we typically include in our directories is
legally available from a variety of sources.
PUBLICATION OF DIRECTORIES
We have two primary directory programs that we offer to our customers.
In 1998 we began our DPP model under which directories are purchased either by
the associations or the attorneys themselves. We also operate our traditional
free directory program. In 1999, the Company received approximately half of its
directory revenues from each program. Our no-cost approach means that we 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 us.
The publication of bar directories by us involves a number of stages.
First, for official directories we must obtain a contract to publish a directory
from a bar association as described above. Once an agreement to publish is
obtained, our 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 us 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 us are pictorial. In these instances, we assist the
association in arranging for photographs of its members using unaffiliated
photographers. Most graphics for the directory are prepared by our own graphic
artists. Once all of the graphics including advertising are completed, we
produce a draft of the directory, obtain proof approval from the bar
association, and then arrange 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 publishing
contract. For unofficial directories, we must obtain the information about
attorneys from other sources.
CLIENTS
We currently publish city, county and state directories nationwide.
While city and county bar associations represent the majority of our clients, we
made a strategic decision in 1998 to obtain publishing contracts for more state
bar associations. In 1999 we 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, Ohio State Bar, Rhode
Island Bar, and the West Virginia State Bar. As we have grown, we believe that
our emerging national presence has given us the credibility to permit us to
market our products and services to other state bar associations.
SALES AND ADVERTISING
We use account executives that specialize in selling advertisements by
telephone to businesses that supply support services and products to the legal
profession as well as to the general public. We believe that through our
in-house sales team, we are better able to maintain quality control and
establish a reputation for professionalism. Our management supervises the sales
staff in order to ensure that it is acting in an ethical and professional manner
and clearly communicates that we are independent of the bar associations.
Advertising in our print directories is contained in a section entitled
"Attorney Support
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Services" and follows a "yellow page" format. We are always evaluating methods
to improve our sales efficiencies.
Advertising sales in our official print directories usually are
assisted by a letter of introduction from the bar association stating that we
are publishing the official bar association directory. Like other forms of print
advertising including newspaper and yellow pages, we offer a variety of possible
advertisements including inside cover pages, full and partial pages, business
card listings, and simple classified line listings. We require 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
We are not engaged in the printing of our bar directories; we
subcontract this work to independent printing companies. We believe that there
is an ample supply of independent printers willing to perform quality printing
services for us and that we will not be materially adversely affected by
subcontracting our printing services. In doing so, we believe that we avoid the
need to invest substantial sums of capital in printing and binding equipment and
that we have more flexibility to meet our clients' specialized needs. However,
delays by independent contractors over which we have limited or no control could
result in a loss of contracts by us from either bar associations or advertisers
or both.
BACKLOG
Our backlog consists primarily of advertising agreements for print
directories that have not been published. As of March 1, 2000, our backlog was
approximately $1,500,000 as compared to approximately $2,100,000 a year earlier.
Implementation of our DPP model together with our elimination of contracts
having lower gross profit margins reduced our base of contracts in 1999; we
expect that the addition of our new "independent" directories to our publication
schedule later in 2000 as described above will help to offset this reduction.
Since we recognize revenues when we ship our print directories, we anticipate
that all of the March 1, 2000 backlog will be recognized as revenues during the
current fiscal year.
SIGNIFICANT CLIENTS
We rely primarily upon the sale of advertising in our print directories
to derive our revenues; directory sales and online advertising sales provide a
small portion of overall revenues. In 1999 and 1998 no single directory
contained advertising sales comprising 10% or more of our revenues. We do not
expect that we would be materially adversely affected should any single
association decide not to renew its publication in future years. See also Item
1. Business - Our Bar Directories - Clients.
COMPETITION
We encounter competition in the acquisition of publishing contracts as
well as in advertising sales. Our sales force competes with all forms of media
that sell advertising--yellow pages, alternative yellow pages, specialty
magazines, newspapers, television, and the Internet, among others.
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 our 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
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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, our
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 us. LDP publishes state bar directories
that it sells directly to attorneys and others who have a need for a state bar
directory.
Other companies, as well as the associations themselves, can publish
directories. We believe that, for many bar associations, competition is based
upon the perceived ability of the publisher to deliver a quality product on
schedule and sometimes upon the percentage of advertising revenues paid to them
as a royalty. We believe that we have been successful in the acquisition of bar
association contracts due to our directory programs, strong relationships with
bar association executives, commitment to customer service, and quality of the
directories published. We believe that our commitment and support to the
National Association of Bar Executives has helped make us the largest publisher
of official bar association directories nationwide.
We compete in two distinct ways. First, we compete for the award of the
contract for an official association directory. Secondly, where competitors such
as LDP publish an unofficial directory and we publish the official directory,
there is competition to sell advertising and to attract lawyers to acquire the
directories. In a limited number of instances where we publish unofficial
directories, similar competition exists.
OUR INTERNET BUSINESS
We announced in January 1999 that we had entered into a strategic
alliance with Photobooks, Inc. of Atlanta, Georgia, to produce our new portal
and vendor directory. (A portal refers to a site or location on the Internet
that is designed with the intent of attracting usage as an initial entrance or
gateway for browsing the Internet.) This arrangement allowed us to enter the
online publishing arena with minimal overhead and risk because the Company does
not have to hire and maintain staff, dedicate facilities, purchase certain
hardware, and contract third-party data communication services (e.g, T1 phone
lines), all of which is provided by Photobooks. Additionally, remuneration
payable to Photobooks is contingent upon revenues realized by us.
During 1999, we created three new websites designed to serve members of
the legal community and others seeking legal information. We introduced the
first website, www.lawlinks.com, at the American Bar Association annual
convention on August 3, 1999. This website is designed to be our portal. This
website consists primarily of a variety of legal information useful to lawyers
as well as members of the general public. Photobooks compiles the information on
this website from information contained elsewhere on the Internet. This
information may be viewed on lawlinks.com or through links to the other
websites. There are also direct links to our other two websites as well as to
the Martindale-Hubbell Lawyer Locator and FindLaw, a leading Internet legal
research service. There is also a link to Emplawyernet.com, on online legal
search firm containing listings of available law jobs. In November 1999, we
added a travel agency feature to lawlinks.com. This feature is operated by
Travelocity.com Inc., a leading Internet provider of travel services. For all
airline tickets, cruises, hotels, rental cars and other travel services
purchased, we will receive a small royalty or commission from Travelocity.
Additionally, lawlinks.com has a link to Amazon.com, Inc., a leading online
seller of books and other merchandise where we receive a small royalty from
sales. To date, we have not realized any royalty income from Travelocity or
Amazon.com. Amazon.com received a United States patent recently on the concept
of linking to e-
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commerce websites and the payment of royalties for sales. Assuming it enforces
this patent against us to cover other websites to which we might link our
websites, we believe that it will not materially affect our future Internet
revenues.
We launched our second website located at www.lawmiles.com also on
August 3, 1999. This website featured our online shopping mall that we called
America's Legal Superstore. It was actually operated by Value America, Inc.
Except for identifying our brandname and the links to our other websites, this
website was identical to Value America's website. As an affiliate program, we
receive a commission from Value America based upon Value America's sales through
our website. The site has generated only nominal revenues. In late December
1999, Value America announced it was laying off approximately one-half of its
employees and refocusing its business by eliminating unproductive product lines.
As a result of Value America's failure to provide reports, pay revenues to us
and set up the law miles accounts (redeemable for frequent flyer miles) as
required by our agreement with Value America, we have commenced an arbitration
proceeding against it. We also are seeking recovery for damage to our
reputation. Value America has responded to our arbitration action by denying all
of our material charges.
Our third website is www.thelegalsource.com, which is our online vendor
directory. We launched this website on September 9, 1999. This website is a
comprehensive online directory that features experts and product and service
providers to the legal community. It is searchable on either a statewide or
local area basis and by category. This website features pull-down menus which
permit the user to easily locate the type of expert, product or service desired.
We generate revenues on this website from the sale of listings to advertisers.
See Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
As a result of our experience with Value America and the limits we see
on revenue growth in our online vendor directory, we are currently refocusing
our Internet strategy. Furthermore, in 2000, we are planning to launch a new
website at the Internet address www.attorneys.com, which we acquired in November
1999. As described above, we are currently defining the products and services
that are to be featured on this new portal. We cannot assure you that any of
these efforts will lead to success in expanding our online business.
EMPLOYEES
At December 31, 1999 we had 100 full-time employees, including our
executive officers (compared to 96 last year). Our staff is divided into 12
people in administration, 62 in sales, 10 in sales management and
administration, and 16 in production. None of our employees are covered by a
collective bargaining agreement. We believe that our relationship with our
employees is good.
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RISK FACTORS AND UNCERTAINTIES
An investment in our common stock involves a high degree of risk.
Anyone should carefully consider the following risk factors and other
information in this Form10-KSB before investing in our common stock. Our
business and the results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and investors may lose part or all of their investment.
There are forward-looking statements in this report that address
matters that include our expectations with regard to our print directory
business and our Internet business. In addition to these statements, trend
analysis and other information including words such as "seek", "anticipate",
"believe", "plan", "estimate", "expect", "intend" and other similar expressions
are forward-looking statements. We may make other forward-looking statements
either orally or in writing in the future. A reader of this Form 10-KSB should
understand that it is not possible to predict or identify all such risk factors.
Consequently, the reader should not consider this list to be a complete
statement of all potential risks or uncertainties. We do not assume the
obligation to update any risk factors or forward-looking statements. The
following "Risk Factors" are intended to be cautionary statements identifying
important factors that could cause actual results to differ materially from
those in the forward-looking statements.
RISKS RELATING TO OUR BUSINESS
IF WE CANNOT EFFECTIVELY MANAGE OUR GROWTH, WE MAY INCUR OPERATING LOSSES
We recently launched our new Internet business. If our Internet
business grows, this growth may place a further strain on our administrative,
operational and financial resources and we may again lose money. We have limited
management depth, and if we grow substantially in the future, we may not be able
to hire the necessary senior and middle management personnel necessary to
implement our programs. Following the closing of our initial public offering in
the Spring of 1996, our print business grew. However, we encountered operational
difficulties and sustained operating losses for a long period of time. For the
years ended December 31, 1999 and 1998, we sustained operating losses of
$240,653 and $627,134 and net losses of $192,797 and $885,337.
IF WE SUFFER MATERIAL LOSSES IN THE FUTURE OUR STOCK MAY BE DELISTED FROM NASDAQ
Our stock currently meets Nasdaq listing requirements. If we sustain
material losses in the future, there can be no assurance that our stock will
meet the criteria for continued listing. If we are unable to satisfy Nasdaq's
listing requirements, our stock may be delisted from Nasdaq, reducing our
liquidity and our stock price.
BECAUSE WE DEPEND UPON THIRD PARTIES IN BOTH OUR PRINT AND INTERNET BUSINESSES,
THEIR FAILURE TO TIMELY AND RELIABLY PROVIDE SERVICES TO US MAY RESULT IN THE
LOSS OF REVENUES
In our print directory business, we subcontract all of the printing of
our bar and medical association directories to independent printing companies.
If printers delay the delivery of directories, this could have the consequence
of causing bar and medical associations, for which we are late in delivering
directories, to terminate their agreements with us or of causing advertisers to
cancel their media agreements with us and request refunds of prepaid fees.
Advertisers who are affected by delays in the delivery of directories, may also
decline future print and Internet advertising opportunities with us.
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Our Internet business is similarly dependent upon third parties to
provide all of the content and host and maintain our websites. To the extent
that any or all of these third parties fail to meet their obligations to us,
existing and prospective advertisers may lose confidence in our ability to
attract and maintain a consistent Internet presence. Also, users of our websites
would likely not visit our websites. Additionally, problems we encountered with
Value America, which operated our e-commerce website, have prevented us from
marketing this website to bar associations and their members. Due to these
problems with Value America, we do not anticipate future online revenues from
it. Moreover, it may reduce our future online revenues from third parties. For a
description of the problems we encountered with Value America, see Item 1.
Business - Our Internet Business.
WE WILL FACE INTENSE COMPETITION IN ALL ASPECTS OF OUR BUSINESS THAT MAY RESULT
IN FUTURE OPERATING LOSSES
WE FACE COMPETITION FOR CONTRACTS FOR PRINT DIRECTORIES
We compete for print directory contracts with a number of other
publishers of bar membership directories, including LDP, a publisher of state
bar directories, and Martindale-Hubbell which publishes what is considered to be
the premier legal directory. Martindale-Hubbell is a well-recognized name to
lawyers, which gives it an important competitive advantage. If we cannot compete
effectively, we may suffer a significant decline in our print directory business
in the future.
OUR NEW ONLINE BUSINESS FACES INTENSE COMPETITION
In our new online business, we face enormous competition from Internet
companies, a few of which are oriented towards the legal market. These
competitors are spending substantial sums advertising their websites and
developing a brand-name recognition. These companies also have significant other
competitive advantages including management depth. Because of our lack of
significant assets, we may not be able to compete effectively in our online
business. There are low barriers to entry, and competitors can launch new
websites at a relatively low cost. We believe that our ability to compete online
will be affected, among other factors, by our ability to:
o develop an online business model which offers attractive features, and
o develop and maintain a sufficiently large base of legal professionals and
others who regularly visit our websites.
Please see the risk factors beginning on page 12 that describe the hurdles our
Internet business faces.
IF OUR CHIEF EXECUTIVE OFFICER IS NOT AVAILABLE, WE MAY LOSE PRINT DIRECTORY
BUSINESS AND BE UNABLE TO ATTRACT FUTURE BUSINESS
We rely heavily upon Mr. Peter S. Balise, our chief executive officer,
in attracting and maintaining print directory agreements with bar and medical
associations. If Mr. Balise resigns or is otherwise unavailable, we may be
unable to renew existing directory agreements and attract new agreements with
bar and medical associations. We believe Mr. Balise's relationships with bar
association professionals are an important advantage and that it would be
difficult and expensive to replace him.
11
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
RISKS RELATED TO THE INTERNET
OUR LIMITED FINANCIAL RESOURCES MAY PREVENT US FROM ATTRACTING ENOUGH USERS OF
OUR WEBSITES RESULTING IN LIMITED REVENUES FROM THE INTERNET
We believe that our core business of publishing official bar and
medical association directories has limited growth opportunities. For this
reason, we are devoting substantial attention to our new Internet business. We
are currently witnessing a period in which well-capitalized businesses are
spending enormous sums advertising their websites. We have limited resources and
cannot incur any significant expenses in advertising our websites. For this
reason, we may not be successful in generating substantial revenues from our
websites.
BECAUSE WE HAVE LIMITED INTERNET EXPERIENCE AND OUR INTERNET MODEL IS UNPROVEN,
OUR INTERNET BUSINESS MAY NOT BE SUCCESSFUL
We recently launched our Internet business. To date, we have generated
limited revenues. Our current Internet business model, which is based on bar
associations encouraging members to use our websites, is unproven. Because of
our lack of experience and financial strength, we may not attract enough legal
professionals and others to our websites to make them attractive to advertisers
and product vendors. Accordingly, our Internet business may not be successful.
IF WE ARE NOT SUCCESSFUL IN INCREASING BRAND AWARENESS AMONG MEMBERS OF THE
LEGAL COMMUNITY AND INCREASING VISITS TO OUR WEBSITES, OUR INTERNET BUSINESS
WILL NOT BE SUCCESSFUL
The future success of our Internet business will depend, in part, upon
our ability to increase our brand awareness. In order to build brand awareness
and increase usage of our websites, we must succeed in our marketing efforts and
provide high-quality services and continue to add content, products and services
that satisfy the needs of the legal community and others. Our ability to
increase advertising and produce revenues from our websites will depend in part
on the success of this marketing campaign. If our marketing efforts are
unsuccessful and we cannot increase our brand awareness, our Internet business
will not be successful.
IF THE INTERNET BECOMES AN UNRELIABLE MEANS FOR PROVIDING PRODUCTS AND SERVICES,
OUR ONLINE REVENUES WILL BE REDUCED
Because of Internet growth, the Internet infrastructure may not be able
to meet the demands placed upon it and reliability may decline. In addition, our
present and any future websites may experience interruptions in service as a
result of outages or other delays. Any of these factors could reduce the use of
our websites significantly, which would reduce our future online revenues. We
have not experienced any of these problems, except that Value America has failed
to provide reports and services to us as discussed on page 9 under Item 1.
Business - Our Internet Business.
IF ADVERTISERS THAT ADVERTISE IN OUR PRINT DIRECTORIES DO NOT ACCEPT THE
INTERNET AS AN ADVERTISING MEDIUM, OUR ABILITY TO GENERATE REVENUES FROM THE
INTERNET MAY BE LIMITED
The success of our websites partly depends upon the willingness of
advertisers in our print directories to advertise online. Many of these
advertisers have little or no experience using the Internet for advertising
purposes. These businesses may find advertising on the Internet to be less
effective for
12
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
promoting their products and services relative to traditional advertising media.
As a result, our future Internet revenues may be limited.
IF WE ARE NOT SUCCESSFUL IN COMPETING FOR INTERNET ADVERTISERS, OUR INTERNET
BUSINESS WILL NOT BE SUCCESSFUL
All of our Internet revenues have come from the sale of advertising. We
compete for a share of the advertising budget of those advertisers seeking to
reach the legal community, including websites operated by direct and indirect
competitors, traditional print media, and radio and television stations. If we
cannot assure advertisers that their advertising results in meaningful business
to them, we will not be successful in this aspect of our business.
NEW LAWS AND REGULATIONS RELATING TO THE INTERNET MAY REDUCE THE USAGE OF THE
INTERNET AND INCREASE OUR COSTS OF DOING BUSINESS ONLINE
There are an increasing number of laws and regulations pertaining to
the Internet, and additional laws and regulations may be enacted in the future.
These laws and regulations may relate to liability for information retrieved
from or transmitted over the Internet, online content, user privacy, taxation
and the quality of products and services. Moreover, the applicability to the
Internet of existing laws governing intellectual property ownership, copyright,
trademark, trade secret, obscenity, libel, gambling, employment, privacy and
other issues is uncertain and developing. Any new law or regulation relating to
the Internet or the application or interpretation of existing laws, could
decrease the demand for the Internet as a vehicle for information and commerce
and could increase the cost of our conducting business and otherwise impair our
ability to generate revenues or derive profits from the Internet.
OUR WEBSITES ARE VULNERABLE TO SECURITY BREACHES AND SIMILAR THREATS WHICH COULD
RESULT IN OUR LIABILITY FOR DAMAGES AND HARM TO OUR REPUTATION
Despite the implementation of network security measures by third
parties operating our websites, our websites are vulnerable to computer viruses,
break-ins and similar disruptive problems caused by Internet users. These
occurrences could result in our liability for damages, and our reputation could
suffer. The circumvention of our security measures may result in the
misappropriation of such proprietary information as credit card and social
security numbers. Any such security breach could lead to interruptions and
delays and the cessation of service to our customers and could result in a
decline in revenues.
RISKS RELATING TO OUR COMMON STOCK
WE ARE CONTROLLED BY OUR CHIEF EXECUTIVE OFFICER, WHICH MEANS HE MAY STOP A
THIRD PARTY FROM ACQUIRING US EVEN IF IT IS IN THE BEST INTERESTS OF OUR
STOCKHOLDERS AND AS A RESULT HIS CONTROL MAY REDUCE THE PRICE OF OUR COMMON
STOCK
Mr. Peter S. Balise, president and chairman of our board of directors,
owns approximately 25% of our outstanding common stock. As a practical matter,
he may have sufficient voting power to control the outcome of matters submitted
to our stockholders for approval, including the election of directors and any
merger, consolidation or sale of substantially all of our assets. The
concentration of ownership of our common stock could delay or prevent a proxy
contest, merger, tender offer or purchases of our common stock that could give
our stockholders the opportunity to realize a premium over the then-
13
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
prevailing market price for our common stock. This may have the effect of
decreasing the market price of our common stock.
OUR COMMON STOCK PRICE MAY BE HIGHLY VOLATILE AND INVESTORS MAY NOT BE ABLE TO
SELL THEIR STOCK AT OR ABOVE CURRENT MARKET PRICES
At times this year, the market price of our common stock has been
highly volatile. At the same time, the stock market in general, and the market
for Internet-related technology companies in particular, has been highly
volatile. If, as a result of our new Internet business, we are perceived as an
Internet company, our common stock price may become more volatile in the future.
Investors may not be able to resell their shares of our common stock following
periods of volatility because of the market's adverse reaction to such
volatility. We cannot assure you that our common stock will trade at the same
levels as other Internet stocks, or that Internet stocks in general will sustain
their current market prices.
Factors that could cause our common stock price to be volatile may
include:
o actual or anticipated variations in quarterly operating results,
o announcements of results concerning our new Internet business,
o new products or services,
o changes in financial estimates by securities analysts,
o changes in conditions or trends in the Internet industry,
o changes in the market valuations of Internet companies,
o changes in how the market perceives us and how it perceives the nature of
our business,
o announcements by us or competitors of significant acquisitions,
o strategic partnerships or joint ventures,
o additions or departures of key personnel, and
o sales of common stock.
Many of these factors are beyond our control. These factors may reduce the
market price of our common stock, regardless of our operating performance.
14
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
ITEM 2. PROPERTIES
Our corporate headquarters occupy approximately 21,500 square feet in a
ten year-old two-story concrete building located at 186 P.C.N.A. Parkway, Lake
Helen, Florida, 32744. We purchased the building and approximately three acres
of land for approximately $900,000 in September 1996. As a result of
improvements and modifications we made to enhance the property's usefulness to
us, our investment on a cost basis was approximately $1,015,000 at December 31,
1999. In December 1996 we obtained mortgage financing of $800,000 on the
property. Payments of principal and interest are approximately $9,000 monthly.
See Note 5 to "Notes to Consolidated Financial Statements."
We also maintain a sales office location that we opened in July 1997 in
Lakeland, Florida. We lease approximately 3,000 square feet under a
noncancellable operating lease that expires October 31, 2000 that may be renewed
for an additional one-year term. Monthly lease payments for the Lakeland office
are $2,250 plus state sales tax.
In May 1998 we closed our 7,245 square-foot sales office location in
Orlando, Florida, which we had opened in July 1996. In January 1999, we were
able to negotiate early termination of the noncancellable operating lease which
otherwise would have expired at the end of June 1999.
We believe our facilities are adequate to meet our current needs and
that suitable additional or alternative space will be available, if needed, on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings except for the
Value America arbitration. See Item 1. Business - Our Internet Business.
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.
15
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICES OF SECURITIES
Our common stock trades on the Nasdaq SmallCap Market under the symbol
PCNA. Assuming we receive shareholder approval at our annual meeting this Spring
to change our name to Attorneys.com, Inc., our symbol will be changed to ATTY.
The following table sets forth the prices as reported to us by Nasdaq for the
periods indicated. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
High Low
------ ------
1998 First Quarter 2.250 0.969
Second Quarter 1.500 0.688
Third Quarter 1.063 0.625
Fourth Quarter 1.063 0.875
1999 First Quarter 8.750 0.875
Second Quarter 2.625 1.125
Third Quarter 5.313 1.625
Fourth Quarter 3.250 1.500
As of March 10, 2000, there were 4,228,033 shares of common stock
outstanding (net of 1,634,300 shares held in treasury stock) held by 55
shareholders of record. Many shareholders hold their shares in "street name."
Our transfer agent advised us that as of March 10, 2000 there were approximately
1,150 beneficial owners of our common stock in addition to the shareholders of
record.
We did not pay dividends on our common stock in 1999 or 1998 and we do
not anticipate paying any dividends in the foreseeable future.
SALES OF UNREGISTERED SECURITIES WITHIN THE LAST THREE YEARS
During the past three years, the following persons and entities
acquired shares of our common stock and other securities from us as set forth in
the table below:
<TABLE><CAPTION>
Class of Amount of
Date Securities Securities Sold Consideration
---- ---------- --------------- -------------
<S> <C> <C> <C> <C>
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>
16
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONTINUED)
SALES OF UNREGISTERED SECURITIES WITHIN THE LAST THREE YEARS (CONTINUED)
<TABLE><CAPTION>
Class of Amount of
Date Securities Securities Sold Consideration
---- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Photobooks, Inc. 1/20/99 Common stock 10,000 Consideration for
services relating to
Internet web sites
InterWest Associates 7/8/99 Warrants to purchase 225,000 Consideration for
common stock; services relating to
exercisable at prices financial and investor
ranging from $1.69 public relations
to $7.50 per share;
expiring from 1/7/01
to 12/7/01
Frank L. Rowley 11/3/99 Warrants to purchase 25,000 Consideration
common stock; in acquisition of
exercisable at Internet web site
$2.25 per share; address
expiring 11/2/03
James J. Grace 11/3/99 Warrants to purchase 25,000 Consideration
common stock; in acquisition of
exercisable at Internet web site
$2.25 per share; address
expiring 11/2/03
Jerome D. Artz 11/3/99 Warrants to purchase 25,000 Consideration
common stock; in acquisition of
exercisable at Internet web site
$2.25 per share; address
expiring 11/2/03
Gerald J. Brentnall, Jr. 11/3/99 Warrants to purchase 25,000 Consideration
common stock; in acquisition of
exercisable at Internet web site
$2.25 per share; address
expiring 11/2/03
M & S Telecommunications 1/17/00 Warrants to purchase 100,000 Consideration
common stock; in acquisition of
exercisable at intangible asset
$2.188 per share;
expiring 1/16/04
</TABLE>
17
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONTINUED)
SALES OF UNREGISTERED SECURITIES WITHIN THE LAST THREE YEARS (CONTINUED)
<TABLE><CAPTION>
Class of Amount of
Date Securities Securities Sold Consideration
---- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Matt Butler 1/18/00 Common stock 115,000 $251,620
Randall L. Lewis 2/4/00 Warrants to purchase 3,000 Consideration
common stock; for consulting
exercisable at services
$2.25 per share;
expiring 2/3/02
Tiedemann Boltres Partners 2/18/00 Common stock 517,787 $1,310,000
IRA Partners, LP 2/18/00 Common stock $460,000
181,818
Canadian Imperial Holdings 2/18/00 Common stock 86,956 $220,000
Apaquogue GP 2/18/00 Common stock 3,952 $10,000
</TABLE>
The sales of common stock were exempt from registration pursuant to
Section 4 (2) of the Securities Act of 1933. We did not engage in any general
solicitation; all investors acquired their securities for investment;
restrictive legends were placed on all certificates and instruments and stop
transfer instructions have been given to our transfer agent. Most, if not all,
of the investors are also accredited investors.
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 we sold 1,150,000
shares of our common stock in our initial public offering. Gross proceeds were
$6,325,000; net proceeds to us after paying all related costs of the offering
were approximately $4,900,000. During 1996 and 1997 we used approximately
$2,885,000 of the proceeds as detailed in our annual report on Form 10-KSB for
the year ended December 31, 1997. During 1998 we used approximately $1,336,000
of the proceeds as detailed in our annual report on Form 10-KSB for the year
ended December 31, 1998.
During 1999 we used approximately $171,000 of the proceeds in operating
activities and approximately $29,000 for purchases of the Company's common stock
for its treasury. The remaining approximately $479,000 in net proceeds at
December 31, 1999 were invested in U.S. treasury securities and money market
funds.
18
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
In comparing our results of operations for the years ended December 31,
1999 and 1998, it is important to understand the effect that our former
subsidiary, CDP, had upon our results in 1998. The table below provides those
results. Throughout the following discussion and analysis, comparisons of
year-to-year and quarter-to-quarter results will exclude the effect CDP had on
those results unless expressly stated otherwise.
<TABLE><CAPTION>
Year ended Year ended December 31, 1998
December 31, 1999 PCNA CDP* Consolidated
-------------------------- --------------------------------------------------------
-------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $5,515,433 100.0% $6,371,014 100.0% - $6,371,014
Costs and expenses:
Production 1,335,436 24.2% 1,541,078 24.2% - 1,541,078
Marketing and selling 2,531,405 45.9% 3,234,349 50.8% $ 158,227 3,392,576
Depreciation 124,948 2.3% 150,684 2.4% 10,899 161,583
Amortization 26,389 0.5% 66,835 1.0% - 66,835
General and admin. 1,737,908 31.5% 1,600,509 25.1% 235,567 1,836,076
-------------------------- --------------------------------------------------------
5,756,086 104.4% 6,593,455 103.5% 404,693 6,998,148
-------------------------- --------------------------------------------------------
Loss from operations (240,653) (4.4%) (222,441) (3.5%) (404,693) (627,134)
Other income (expense) 47,856 0.9% 65,520 1.0% (32,683) 32,837
Loss on sale of CDP - 0.0% - 0.0% (220,744) (220,744)
-------------------------- --------------------------------------------------------
Loss before taxes (192,797) (3.5%) (156,921) (2.5%) (658,120) (815,041)
Income taxes - 0.0% - 0.0% 70,296 70,296
-------------------------- --------------------------------------------------------
Net loss $ (192,797) (3.5%) $ (156,921) (2.5%) $(728,416) $ (885,337)
========================== ========================================================
</TABLE>
* Amounts shown for CDP are until its sale on June 10, 1998. The loss on the
sale of CDP and the provision for income taxes are shown under CDP because they
relate directly to CDP, and in order to show our results without the effect of
items relating to CDP.
Our revenues for the year ended December 31, 1999 decreased $855,600 or
13% from the same period a year earlier due primarily to a decrease in the
number of directories published in 1999 and secondarily to a decrease in the
average revenues per directory. In 1999 we published 66 directories having
average revenues of $77,700 per directory; in 1998 we published 77 directories
having average revenues of $82,600 per directory. Fewer directories were
published in 1999 because of the DPP model which we began to implement in the
first half of 1998. Under the DPP, directories are sold to the bar associations
or to the individual members for a charge that usually covers the printing and
distribution cost and sometimes provides for a royalty to the association. In
some cases, bar associations declined to renew or sign up under the DPP; in
other cases we were unwilling to accept a contract under the free directory
program because we did not expect that the contract would provide an acceptable
contribution margin. In 1999 approximately one-half of our directories were
published under the DPP. The DPP reduces the number of directories that must be
produced and distributed. We believe that in the last half of 1999, as some
directories were published in their second year under the DPP, the reduced
distribution had a negative effect upon advertising sales. This effect of the
DPP can not be isolated and quantified
19
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
because of the numerous other variables that have an effect. However, we believe
that the DPP was a significant contributor to the lower average revenues per
directory in 1999.
In May 1999 we began selling advertising in our online (Internet)
directory of vendors serving the legal community, which we launched on September
9, 1999. (See Item 1. Business) We recognized approximately $389,000 in online
advertising revenues during 1999.
Production costs remained 24.2% of revenues in 1999. Our third-party
production costs, primarily printing and binding, decreased as a percentage of
revenues in 1999 as a result of the reduced quantity of directories required
under DPP contracts; these savings were partially offset by the payment of
royalties to the bars.
Marketing and selling costs, which represent primarily costs associated
with the sale of advertising in our directories rather than our procurement of
publishing contracts, decreased to 45.9% of revenues in 1999 from 50.8% in 1998.
The largest component of these expenses is salaries, commissions and related
expenses for the sales staff, which is also the area where we were able to
realize most of our reductions in 1999. Our second-most significant area of
reduction was elimination of operating costs for our Orlando sales office that
we closed in May 1998; the last of those costs were recorded in December 1998
pursuant to negotiation in January 1999 of an early termination of our lease for
the office space which otherwise would have expired at the end of June 1999.
Depreciation expense was slightly lower in 1999 than in 1998 because we
acquired less than $25,000 of depreciable equipment during 1999. Approximately
$43,000 of the amortization expense in 1998 related to the goodwill resulting
from the acquisition of CDP. With the sale of CDP in June 1998, there was no
goodwill amortization in 1999. In late 1999 and early 2000 we acquired two
intangible assets that will result in a future non-cash operating expense of
approximately $201,000 that we will amortize over the next five years, including
approximately $3,000 for the fourth quarter of 1999.
General and administrative expenses ("G&A") rose in 1999 from 1998 both
in dollars and as a percentage of revenues primarily due to payroll expenses,
which rose approximately $148,500 in 1999. For the first eight months of 1998,
our president also functioned as chief operating officer. In August 1998 our
national sales manager, whose salary had been recorded under marketing and
selling expenses, became chief operating officer and his compensation then was
recorded under G&A. Secondly, in April 1999 we hired a vice president of
business development whose services have been dedicated primarily to the
development of our Internet business. Also adding to G&A expenses in 1999 was
approximately $60,000 of expense relating to investor relations consultants
which were contracted in mid-1999. Offsetting these increases was a $97,800
reduction in bad debt expense to $258,700 or 4.7% of net revenues in 1999 from
$356,500 or 5.6% of net revenues in 1998.
Income taxes in 1998, which primarily related to state taxes, were in
connection with the sale of CDP that had been acquired in 1997.
20
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
COMPARISON OF QUARTERS ENDED DECEMBER 31, 1999 AND 1998
The following table sets forth the Company's results of operations for
the quarters ended December 31, 1999 and 1998:
<TABLE><CAPTION>
Quarter ended Quarter ended Change Change
December 31, 1999 December 31, 1998 in $ in %
------------------------ ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,217,332 100.0% $1,451,350 100.0% $(234,018) (16.1%)
Costs and expenses:
Production 390,321 32.1% 384,176 26.5% 6,145 1.6%
Marketing and selling 599,778 49.3% 656,695 45.2% (56,917) (8.7%)
Depreciation 29,062 2.4% 34,967 2.4% (5,905) (16.9%)
Amortization 8,769 0.7% 5,224 0.4% 3,545 67.9%
General and admin. 456,410 37.5% 366,159 25.2% 90,251 24.6%
------------------------ ----------------------- ------------------------
1,484,340 122.0% 1,447,221 99.7% 37,119 2.6%
------------------------ ----------------------- ------------------------
Income (loss) from operations (267,008) (22.0%) 4,129 0.3% (271,137)
Other income 13,062 1.1% 16,135 1.1% (3,073)
------------------------ ----------------------- -------------
Income (loss) before taxes (253,946) (20.9%) 20,264 1.4% (274,210)
Provision for income taxes 2,204 0.2% - 0.0% (2,204)
------------------------ ----------------------- -------------
Net loss $(251,742) (20.7%) $20,264 1.4% $(272,006)
======================== ======================= =============
Net loss per share $(0.08) $0.01
============= =============
Shares used in calculation 3,276,677 3,444,043
============= =============
</TABLE>
The loss in fourth quarter 1999 was primarily related to the level of
revenues, which was more than $200,000 lower than any of the previous four
quarters. Our revenues for the quarter ended December 31, 1999 decreased
$234,000 or 16% from the same period a year earlier due both to a decrease in
the number of directories published in 1999 and to a decrease in the average
revenues per directory. In the fourth quarter of 1999 we published 12
directories having average revenues of $92,500 per directory; in the same
quarter in 1998 we published 14 directories having average revenues of $103,700
per directory. In May 1999 we began selling online listings and recognized
$281,000 of revenues in the third quarter (ended September 30). Primarily
because of the shorter time available for selling online advertising, our fourth
quarter Internet revenues from the sale of listings decreased to approximately
$108,000. Also, during the fourth quarter we began selling Internet listings for
the online vendor directory as part of a package consisting of advertising for
our print membership directories and online Internet listings; whereas through
the third quarter we had sales staff dedicated to selling Internet listings
only.
While most categories of production costs decreased in the most recent
quarter from a year earlier, the decreases were not nearly proportionate to the
decrease in revenues. Fourth quarter 1999 production costs in dollars were
higher primarily because of the significant distribution costs for a state
directory which, in 1998, was published in the third quarter. Selling and
marketing expense in dollars was lower in 1999 primarily because of the closure
of the Orlando sales office discussed above in the year-to-year analysis;
otherwise, these expenses would have been nearly the same dollar amount as in
1998.
21
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
The second most significant contributor to the loss in fourth quarter
1999, after the lower revenue level, was the increase in G&A expense.
Approximately $30,000 of the $90,000 increase in G&A expense in 1999 was
payroll-related; approximately $25,000 was related to the investor relations
consultants which were contracted in mid-1999.
We expect revenues for the first quarter of 2000 to be approximately
$1,000,000. We expect to post a loss that can not be reliably estimated at this
time. We are able to estimate the first quarter's revenues because most of the
advertising sales are complete by the time this report is filed. Additionally,
at the time of this report, we can reasonably estimate which directories will be
shipped by the end of the first quarter. However, operating results for the
first quarter can not be estimated practicably or reliably and will not become
known until approximately one month after the end of the quarter. In early March
we contracted a leading management consulting firm to provide its services in
connection with the further development of plans for attorneys.com, our new
website scheduled for launch later this year. We expect to incur expenses of
approximately $725,000 in connection with the consulting contract, split
approximately evenly between the first and second quarters of 2000, thus, having
a significant impact upon operating results for these periods. A substantial
portion of the consulting fee will be paid in our common stock.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1999 we had $2,095,866 in cash and equivalents,
compared to $2,331,633 at December 31, 1998. At the end of 1999, approximately
$1,500,000 was invested in short-term U.S. Treasury securities, approximately
$469,000 was invested in money market funds and the balance was primarily in
checking accounts. At March 20, 2000, we had approximately $4,150,000 in cash
and equivalents that was invested primarily in money market funds and a small
portion in checking accounts. The increase since December 31, 1999 was due to
the sales of our common stock in 2000 as described below.
Our largest use of cash during 1999 was $171,183 used in operating
activities, primarily due to the net loss of $192,797. We purchased 29,000
shares of our common stock in open market transactions during 1999 for
approximately $29,000 or $1.01 per share.
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, 1999 was $640,000. At December
31, 1999 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 Consolidated Financial Statements.
In connection with our acquisition of the Internet address
attorneys.com, in November 1999 we issued the sellers four-year non-interest
bearing promissory notes in the total amount of $100,000. We also issued to the
sellers warrants to purchase 100,000 shares of our common stock exercisable for
four years at $2.25 per share. The sellers have the option to either exercise
the warrants or have the notes paid.
22
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
If on the due date of the notes on October 28, 2003 the notes have not been
paid, we may extend the due date for an additional nine years in which case the
notes increase to $500,000, payable $50,000 per year.
In January 2000, we acquired the rights to an intangible asset in
exchange for the issuance of four-year warrants to purchase our common stock at
$2.188 per share. These warrants and the warrants issued to acquire the
attorneys.com website (see Note 8 of the Notes to Consolidated Financial
Statements) result in expense of approximately $201,000 to be amortized over
five years.
In January 2000 a member of our board of directors purchased 115,000
shares of our common stock at the then current market price of $2.188 per share
or $251,620. In February 2000 we sold a total of 790,513 shares of our common
stock to four investment funds in exchange for $2,000,000. The investment funds
acquired their common stock for investment, and they did not receive any
registration rights.
We are pursuing discussions with various possible sources of additional
capital in connection with our plans to launch our new Internet business later
this year. We cannot assure you that any of these discussions will lead to
agreements or that we will be able to raise the capital necessary to expand our
online business.
IMPACT OF YEAR 2000
- -------------------
In prior years, we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, we completed our remediation and testing
of systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change, including the occurrence of
February 29th. We expensed less than $25,000 during 1999 in connection with
remediating our systems. We are not aware of any problems resulting from Year
2000 issues, either with our products, our internal systems, or the products and
services of third parties. We will continue to monitor our mission critical
computer applications and those of our suppliers and vendors throughout the year
2000 to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
23
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements made above relating to our plans to raise additional
capital and to our launching a new Internet business later this year are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The statements that express the "belief",
"anticipation", "plans", "expectations" and similar expressions are also
intended to identify forward-looking statements. The results anticipated by
these forward-looking statements may not occur. While we believe that these
statements are accurate, our 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) our ability to successfully negotiate, contract and work with
other companies to provide site content or management; (2) our ability to
successfully achieve the technical requirements of the site as intended; (3) our
ability to successfully implement our plans with the capital resources we
already have on hand or are able to additionally raise in the future; (4) our
ability to successfully gain recognition and usage of our site(s) by the legal
community and by users of law-related services; (5) fluctuations in the capital
markets or in our operating results that may cause our stock price to fall
making new capital more expensive in terms of dilution (6) whether the capital
markets find our current business or our plans for our new Internet business
acceptable for investment; (7) the intense competition we face both in our
current and planned business and in the market for raising additional capital;
and (8) our ability to convince sources of capital that our management is able
to carry out its new business strategy.
24
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
ITEM 7. FINANCIAL STATEMENTS
CONTENTS
Report of Independent Certified Public Accountants..........................26
Consolidated Financial Statements
Consolidated Balance Sheets.................................................27
Consolidated Statements of Operations.......................................28
Consolidated Statements of Shareholders' Equity.............................29
Consolidated Statements of Cash Flows.......................................30
Notes to Consolidated Financial Statements..................................32
25
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
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, 1999 and
1998, 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.
ERNST & YOUNG LLP
Orlando, Florida
February 25, 2000, except for Note 12, as to
which the date is March 6, 2000
26
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Consolidated Balance Sheets
<TABLE><CAPTION>
DECEMBER 31
ASSETS 1999 1998
------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,095,866 $2,331,633
Accounts receivable, less allowance for doubtful accounts of $153,901 and
$179,859 in 1999 and 1998, respectively 246,952 328,045
Directories in progress 164,309 344,805
Other current assets 175,067 109,779
------------------------------------
Total current assets 2,682,194 3,114,262
Property and equipment, net 1,217,894 1,318,089
Investment in College Directory Publishing Corporation 200,000 200,000
Other assets 213,676 248,663
------------------------------------
Total assets $4,313,764 $4,881,014
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 247,827 $ 214,861
Accrued expenses 169,999 181,629
Income taxes payable - 70,296
Deferred revenue 492,574 948,353
Mortgage payable 53,333 53,333
------------------------------------
Total current liabilities 963,733 1,468,472
Notes payable 100,000 -
Mortgage payable after one year 586,667 640,000
------------------------------------
Total liabilities 1,650,400 2,108,472
Commitments and contingencies
Shareholders' equity:
Common shares, no par value:
15,000,000 shares authorized; 4,925,020 shares issued and
outstanding in 1999; 4,871,900 shares issued and outstanding
in 1998 5,914,416 5,831,448
Paid-in capital for stock warrants 26,208 -
Accumulated deficit (2,115,871) (1,923,074)
Unearned compensation, net (2,687) (6,348)
Treasury stock, at cost; 1,634,300 shares in 1999;
1,605,300 shares in 1998 (1,158,702) (1,129,484)
------------------------------------
Total shareholders' equity 2,663,364 2,772,542
------------------------------------
Total liabilities and shareholders' equity $4,313,764 $4,881,014
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
27
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Consolidated Statements of Operations
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
------------------------------------
<S> <C> <C>
Net sales $5,515,433 $6,371,014
Costs and expenses:
Production 1,335,436 1,541,078
Marketing and selling 2,531,405 3,392,576
Depreciation 124,948 161,583
Amortization 26,389 66,835
General and administrative 1,737,908 1,836,076
------------------------------------
5,756,086 6,998,148
------------------------------------
Loss from operations (240,653) (627,134)
Other income 47,856 32,837
Sale of subsidiary - (220,744)
------------------------------------
Loss before income tax expense (192,797) (815,041)
Income tax expense - 70,296
------------------------------------
Net loss $ (192,797) $ (885,337)
====================================
Net loss per common share--basic and diluted $ (.06) $ (.21)
====================================
Shares used in computation of net loss per share--basic and diluted 3,270,606 4,125,097
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
28
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Consolidated Statements of Shareholders' Equity
<TABLE><CAPTION>
PAID-IN
UNREALIZED CAPITAL FOR
COMMON GAIN STOCK ACCUMULATED UNEARNED TREASURY
STOCK (LOSS) WARRANTS DEFICIT COMPENSATION STOCK TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 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
Issuance of restricted common
stock in exchange for goods
and services 40,248 -- -- -- -- -- 40,248
Issuance of stock warrants in
exchange for services -- -- 26,208 -- -- -- 26,208
Shares issued under Stock
Option Plan 42,720 -- -- -- -- -- 42,720
Amortization of unearned
compensation -- -- -- -- 3,661 -- 3,661
Acquisition of common stock
for treasury -- -- -- -- -- (29,218) (29,218)
Net loss -- -- -- (192,797) -- -- (192,797)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 5,914,416 $ -- $ 26,208 $(2,115,871) $ (2,687) $(1,158,702) $ 2,663,364
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Consolidated Statements of Cash Flows
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (192,797) $ (885,337)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 151,337 228,418
Accretion of unearned compensation 3,661 5,819
Bad debt expense 258,746 356,548
Issuance of common stock in exchange for goods and services 6,298 -
Issuance of stock warrants in exchange for goods and services 26,208 -
Gain on sale of securities - (13,971)
Loss on sale of subsidiary - 220,744
Changes in assets and liabilities, net of sale of subsidiary:
(Increase) decrease in accounts receivable (177,653) 358,339
Decrease (increase) in directories in progress 180,496 (649,713)
Decrease (increase) in other assets 43,310 (105,175)
Increase (decrease) in accounts payable 66,916 (725,229)
Decrease in accrued expenses (11,630) (150,266)
(Decrease) increase in income taxes payable (70,296) 70,296
(Decrease) increase in deferred revenue (455,779) 747,330
------------------------------------
Net cash used in operating activities (171,183) (542,197)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of subsidiary, net of cash balances - 1,072,152
Sales of available-for-sale securities - 1,024,000
Contingent consideration paid relating to 1997 acquisition of subsidiary - (14,256)
Purchases of property and equipment (24,753) (77,116)
------------------------------------
Net cash (used in) provided by investing activities (24,753) 2,004,780
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of stock options 42,720 -
Repayment of capital lease obligation - (2,187)
Repayment of mortgage principal (53,333) (53,333)
Purchase of treasury stock (29,218) (785,734)
------------------------------------
Net cash used in financing activities (39,831) (841,254)
------------------------------------
</TABLE>
30
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Consolidated Statements of Cash Flows (continued)
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
------------------------------------
<S> <C> <C>
Net (decrease) increase in cash and cash equivalents (235,767) 621,329
Cash and cash equivalents at beginning of year 2,331,633 1,710,304
------------------------------------
Cash and cash equivalents at end of year $2,095,866 $2,331,633
====================================
SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for:
Interest $ 52,415 $ 58,676
====================================
Supplemental noncash activities:
Noncash consideration received from sale of subsidiary $ - $ 643,750
====================================
Exchange of advertising for machinery and equipment $ (3,084) $ (7,504)
====================================
Exchange of advertising for supplies and services $ 45,513 $ 30,944
====================================
Reduction of accounts payable by issuance of common stock $ 33,950 $ -
====================================
Exchange of note payable for other asset $ 100,000 $ -
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
31
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements
December 31, 1999
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, published college
and university student campus directories and derived its revenues from selling
advertising in those directories.
On October 14, 1998, PCNA Communications Corporation was incorporated as a
wholly-owned subsidiary of PCNA. Effective January 1, 1999, PCNA transferred
substantially all of its operations into this subsidiary. PCNA Communications
Corporation also conducts operations of an Internet-based online vendor
directory business that was launched in September 1999. On February 15, 1999,
Attorneys Online, Inc. was incorporated as a wholly-owned subsidiary of PCNA. On
November 12, 1999, Attorneys Online, Inc. changed its name to Attorneys.com,
Inc.
CONSOLIDATION
The consolidated financial statements include the accounts of PCNA, CDP through
June 10, 1998 (see Note 6) and PCNA Communications Corporation and
Attorneys.com, Inc. since their respective dates of incorporation (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.
32
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable are comprised primarily of amounts due from advertisers in
the bar association directories and the online vendor directory. 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.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation for machinery and
equipment and office furniture and fixtures is computed using straight-line and
accelerated methods over five to ten years. Real property is depreciated using
the straight-line method over 30 years. Expenditures for maintenance and repairs
are charged to expense as incurred. Major improvements are capitalized.
INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets, which are comprised of purchased software and an Internet web
site address, are recorded at cost and included in other assets. The cost is
amortized over an estimated useful life of five years using the straight-line
method.
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. Internet advertising revenues and costs are recorded 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 advertisers prior to
shipment of the related directories.
33
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BARTER TRANSACTIONS
The Company engages in nonmonetary trades of advertising space in exchange for
goods or services. These barter transactions are recorded at the estimated fair
value of the asset or services received in accordance with Financial Standards
Board Statement No. 29, Accounting for Nonmonetary Transactions.
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, 1999 and 1998, advertising costs included in marketing and selling costs
were $65,469 and $115,026, 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
Basic income (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average common shares
outstanding for the period. Diluted income (loss) per share is computed giving
effect to all potentially dilutive common shares. Potentially dilutive common
shares may consist of incremental shares issuable upon the exercise of stock
34
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
options, adjusted for the assumed repurchase of the Company's common stock, at
the average market price, from the exercise proceeds and also may include
incremental shares issuable in connection with convertible securities. In
periods in which a net loss has been incurred, all potentially dilutive common
shares are considered antidilutive and thus are excluded from the calculation.
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.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Accounting Standards Executive Committee issued Statement
of Position No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE (SOP 98-1). SOP 98-1 establishes the accounting for
costs of software products developed or purchased for internal use, including
when these costs should be capitalized. The adoption of this pronouncement did
not materially impact the Company's results of operations for the year ended
December 31, 1999.
The Financial Accounting Standards Board Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (FAS 133), as amended, is
effective for financial statements for all fiscal years beginning after June 15,
2000. FAS 133 requires the recognition of all derivatives in the consolidated
balance sheet as either assets or liabilities measured at fair value. The
Company does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
BUSINESS SEGMENT REPORTING
The Company operates in one reportable business segment, the publishing of
membership directories for bar associations and the selling of advertising in
those directories, with respect to the segment disclosure requirement of FAS
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
35
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE><CAPTION>
DECEMBER 31
1999 1998
------------------------------------
<S> <C> <C>
Land $ 255,000 $ 255,000
Building 760,387 760,387
Machinery and equipment 664,858 640,104
Office furniture and equipment 87,106 87,106
------------------------------------
1,767,351 1,742,597
Less accumulated depreciation (549,457) (424,508)
------------------------------------
$1,217,894 $1,318,089
====================================
</TABLE>
3. INCOME TAXES
At December 31, 1999, the Company had available net operating loss carryforwards
of approximately $566,000 for federal income tax purposes. These net operating
loss carryforwards expire approximately $33,000 in 2011, $426,000 in 2012,
$4,000 in 2018 and $103,000 in 2019.
The 1998 provision for income taxes is comprised primarily of current state
income taxes payable related to the sale and operations of CDP.
36
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The reconciliations of income tax computed at the U.S. federal statutory rates
to income tax expense are as
follows:
<TABLE><CAPTION>
DECEMBER 31
1999 1998
------------------------------------
<S> <C> <C>
Income taxes computed at the federal statutory
rate of 34% $(68,951) $(277,114)
State income taxes, net of federal benefit (7,055) 79,166
Goodwill amortization - 14,733
Write-off of goodwill on sale of subsidiary - 643,193
Other--net 9,436 (39,477)
Change in valuation allowance 66,570 (350,205)
------------------------------------
Total $ - $ 70,296
====================================
</TABLE>
37
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The components of the deferred income tax asset and liability are as follows:
<TABLE><CAPTION>
DECEMBER 31
1999 1998
------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 57,912 $ 67,681
Net operating loss carryforward 212,698 180,563
Unearned compensation 11,030 9,652
Organizational costs 602 -
Accrued expenses 961 1,320
Intangible assets 2,091 -
Tax credits 2,087 1,796
Other 188 245
------------------------------------
287,569 261,257
Valuation allowance (191,524) (124,954)
------------------------------------
Total deferred tax assets 96,045 136,303
Deferred tax liabilities:
Prepaid expenses (2,348) (2,522)
Property and equipment (31,867) (4,031)
Directories in progress (61,830) (129,750)
------------------------------------
Total deferred tax liabilities (96,045) (136,303)
------------------------------------
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 sheets and has established valuation
allowances in the amounts of $191,524 and $124,954 against its net deferred tax
assets at December 31, 1999 and 1998, respectively.
38
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
4. LEASE OBLIGATIONS
At December 31, 1999, the Company leases office space under an operating lease
expiring October 31, 2000 with an option to renew for an additional one year.
Approximate future minimum lease payments during 2000 are $28,500.
For the years ended December 31, 1999 and 1998, total rental expenses were
$38,590 and $202,432, respectively.
5. LONG-TERM OBLIGATIONS
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 8.9787% at December 31, 1999. 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
$1,209,000 at December 31, 1999.
The mortgage becomes due for the year ending December 31 as follows:
2000 $ 53,333
2001 53,333
2002 53,333
2003 53,333
2004 53,333
Thereafter 373,335
-----------------
$640,000
=================
39
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM OBLIGATIONS (CONTINUED)
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, 1999 and the Company has obtained
a waiver of the required minimum level of funds flow through January 31, 2001.
Accordingly, amounts payable under the mortgage agreement are classified as
long-term in the accompanying consolidated balance sheet.
NOTES PAYABLE
On November 3, 1999, in connection with the Company's acquisition of an Internet
address, the Company issued the sellers four-year non-interest bearing
promissory notes in the total amount of $100,000. Principal is due on November
3, 2003 unless the holders elect to exercise warrants issued by the Company in
connection with the transaction (see Note 8). The notes are collateralized by
right, title and interest in the Internet address.
6. 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
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 its
sale on June 10, 1998.
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 in 1998 of
$220,744 on the sale of CDP. Also in connection with the sale, the Company
incurred income tax expense of approximately $70,000, primarily related to state
taxes.
40
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
6. ACQUISITION AND SALE OF COLLEGE DIRECTORY PUBLISHING, INC. (CONTINUED)
On December 15, 1999, CDP defaulted on the $100,000 note due to the Company. No
charge against operations was made as the Company expects the note and accrued
interest to be paid in full during 2000.
7. TREASURY STOCK
Pursuant to a buy-back plan approved by its Board of Directors in May 1997, the
Company purchased 29,000 shares of its common stock in open market transactions
during 1999 for approximately $29,000. During 1998 the Company purchased 855,300
shares in open market and private transactions 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 6).
8. 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 1,000,000 shares of the Company's common
stock and provides for incentive stock options, nonqualified stock options,
nondiscretionary 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.
41
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
8. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes option activity in 1999 and 1998:
<TABLE><CAPTION>
WEIGHTED
EXERCISE PRICE AVERAGE
SHARES RANGE EXERCISE PRICE
--------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1998 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
Granted 140,000 1.41-1.69 1.47
Granted 420,000 2.00 2.00
Exercised (22,720) 1.00 1.00
Exercised (10,000) 2.00 2.00
Forfeited (58,530) 1.00 1.00
--------------------------------------------------------
Outstanding at December 31, 1999 965,900 $1.00-$6.25 $1.63
========================================================
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
========================================================
Exercisable at December 31, 1999 248,500 $1.00 $1.00
43,334 1.41-1.69 1.47
218,000 2.00 2.00
24,000 2.38-2.75 2.49
17,800 5.50-6.25 5.71
--------------------------------------------------------
551,634 $1.00-$6.25 $1.65
========================================================
</TABLE>
During 1998, options for 228,100 shares of common stock were repriced to the
then current market value of $1 per share. The weighted average exercise price
of options vested at December 31, 1999 and 1998 was $1.65 and $1.52 per share,
respectively. The weighted average contractual life remaining on options
outstanding at December 31, 1999 and 1998 was 8.62 and 8.34 years, respectively.
42
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
8. SHAREHOLDERS' EQUITY (CONTINUED)
PRO FORMA DISCLOSURES
Pro forma information regarding net loss 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 1999 and 1998: risk-free interest rate of 5.36%
and 4.64%, respectively; dividend yields of 0% and 0%, respectively; volatility
factor of 1.136 and 2.824, respectively; and a weighted-average expected life of
the options of five years during both 1999 and 1998.
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, 1999 and
1998 are as follows:
<TABLE><CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Pro forma net loss $(572,607) $(974,176)
===================================
Pro forma net loss per share--basic and diluted $ (0.18) $ (0.24)
===================================
</TABLE>
RESTRICTED STOCK
The Company granted 3,000 restricted shares of its common stock in 1998 to one
of its directors; no such shares were granted to any of its directors in 1999.
The number of shares and related
43
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
8. SHAREHOLDERS' EQUITY (CONTINUED)
value used in computing unearned compensation, which is shown as a separate
component of shareholders' equity in the consolidated 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, 1998 4,000 $2.50-$6.25 $13,750
Granted 3,000 1.00 3,000
Restrictions lifted (2,000) 2.50 (5,000)
Forfeited (1,000) 6.25 (6,250)
-----------------------------------------------------------
Outstanding at December 31, 1998 4,000 1.00-2.50 5,500
Granted - - -
Restrictions lifted (3,000) 1.00-2.50 (4,500)
Forfeited - - -
-----------------------------------------------------------
Outstanding at December 31, 1999 1,000 $1.00 $1,000
===========================================================
</TABLE>
The release of restrictions on grants of restricted stock is time based.
Restricted stock grants vest over three years, one third each fiscal year-end
beginning in the year of grant.
The unearned compensation is being amortized over 36 months from the date of
grant. Expense charged against operations during 1999 and 1998 was $3,661 and
$5,819, 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, 1999.
In connection with a contract for investor relations services, in July 1999 the
Company issued warrants valued at $52,416, to purchase 225,000 shares of the
Company's common stock exercisable at prices ranging from $1.69 to $7.50 per
share and having expiration dates ranging from January 7, 2001 to December 7,
2001. The Company is expensing the value of these
44
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
8. SHAREHOLDERS' EQUITY (CONTINUED)
warrants over the life of the contract. Expense charged against operations
during 1999 was $26,208. The Company is pursuing registration of the shares
underlying these warrants in a registration statement on Form S-3 under the
Securities Act of 1933.
As described in Note 5, the Company issued promissory notes in connection with
an asset acquisition. It also issued to the sellers warrants to purchase 100,000
shares of Attorneys Online, Inc. common stock exercisable for four years at
$2.25 per share. In February 2000 the Company agreed to cancel these warrants in
exchange for warrants to purchase 100,000 shares of PCNA common stock at $2.25
per share exercisable over the same four-year period that the Attorneys Online,
Inc. warrants were exercisable. In the event that the Company has more than
15,000,000 shares of common stock outstanding, the warrants will be adjusted to
permit the holders to purchase more shares. The sellers have the option to
either exercise the warrants or have the notes paid.
In 1998, the Company purchased 250,000 shares of its common stock from a former
officer and director for approximately $166,000.
9. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE><CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Numerator:
Net loss from continuing operations $ (192,797) $ (885,337)
------------------------------------
Numerator for basic loss per share--loss available to common
shareholders (192,797) (885,337)
Effect of dilutive securities: - -
------------------------------------
Numerator for diluted loss per share--loss available to
common shareholders after assumed conversions (192,797) (885,337)
Denominator:
Denominator for basic and diluted loss per share--weighted-
average shares 3,270,606 4,125,097
------------------------------------
Net loss per common share $ (0.06) $ (0.21)
====================================
</TABLE>
45
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
9. LOSS PER SHARE (CONTINUED)
In computing diluted loss per share, 235,623 and 38,068 common share equivalents
were excluded for the years ended December 31, 1999 and 1998, respectively, from
the diluted loss per share computation because their effects would have been
antidilutive.
10. 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
12% 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 $11,000 and $13,000 for 1999 and 1998, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement with the President of the Company which
provides for salary continuation through May 2002 and immediate vesting of all
remaining unvested options in the event of termination without cause. The
agreement provides for annual compensation of $130,000, $156,000 and $182,000
for each of the three years in the period ending May 24, 2002 and an annual
bonus equal to 5% of the Company's increase in the prior fiscal year pre-tax
income.
12. SUBSEQUENT EVENTS
On January 17, 2000, the Company acquired the rights to an intangible asset in
exchange for the issuance of four-year warrants to purchase the Company's common
stock at the then current market price of $2.188 per share. These warrants
result in expense of approximately $101,000 to be amortized over five years.
On January 17, 2000, the Company entered into an employment agreement with its
Chief Operating Officer which provides for, among other things, salary
continuation through December 2001, a grant of 65,000 Incentive Stock Options
and three months severance pay in the event of termination by the Company. The
agreement provides for annual compensation of approximately $136,000 beginning
in May 2000 and approximately $150,000 for the year 2001. If either party
exercises the one-year extension, salary will be increased 10% for the year
2002.
On January 18, 2000, 115,000 shares of PCNA's common stock was purchased by a
member of the Company's Board of Directors at the then current market price of
$2.188 per share or $251,620.
46
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
Notes to Consolidated Financial Statements (continued)
12. SUBSEQUENT EVENTS (CONTINUED)
On February 18, 2000, the Company sold a total of 790,513 shares of its common
stock to four investment funds in exchange for $2,000,000.
On March 6, 2000, the Company entered into an agreement to purchase management
consulting services. Total consideration under terms of the agreement will
approximate $700,000, 40% of which shall be paid in cash and 60% of which shall
be paid in restricted common stock of the Company. Services are to be provided
through April 2000.
- --------------------------------------------------------------------------------
47
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
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, 1999, 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, 1999.
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, 1999,
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, 1999.
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, 1999, 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, 1999.
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, 1999, 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, 1999.
48
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Form of First Amendment to Amended and Restated Articles of
Incorporation (1)
3.3 Amended and Restated Bylaws (1)
4.1 Form of Representative's Warrant Agreement (1)
4.2 Form of Common Stock Certificate (2)
4.3 Form of Warrants (for purchase of Internet address known as
"attorneys.com") (3)
4.4 Form of Notes (for purchase of Internet address known as
"attorneys.com") (3)
4.5 Form of Warrants (for acquisition of intangible asset) (4)
10.1 1996 Stock Plan (2)
10.2 Agreement to Sell College Directory Publishing, Inc. (5)
10.3 Form of Employment Agreement of Peter S. Balise
10.4 Agreement to purchase Internet address known as "attorneys.com" (3)
10.5 Financial Public Relations Services Agreement (3)
10.6 Consulting Agreement
21.0 Subsidiaries of the Registrant
23.0 Consent of Ernst & Young LLP
27.0 Financial Data Schedule
(1) Contained in the Registration Statement on Form SB-2 filed on March
11, 1996
(2) Contained in Amendment No. 2 to the Registration Statement on Form
SB-2 filed on April 18, 1996
(3) Contained in the Registration Statement on Form S-3/A No. 1 filed on
December 14, 1999
(4) Contained in the Registration Statement on Form S-3/A No. 2 filed on
February 7, 2000
(5) 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, 1999.
49
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
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 29, 2000
by the undersigned, thereunto duly authorized.
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
/s/ Peter S. Balise
----------------------------------
President and Chief Executive Officer
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>
<S> <C> <C>
Signatures Title Date
- ---------- ----- ----
/s/ Peter S. Balise Chairman of the Board of Directors March 29, 2000
- ----------------------------
Peter S. Balise
/s/ James M. Koller Chief Financial Officer March 29, 2000
- ---------------------------- (Principal Financial Officer
James M. Koller and Chief Accounting Officer)
/s/ Matt Butler Director March 29, 2000
- ----------------------------
Matt Butler
/s/ Andrew J. Cahill Director March 29, 2000
- ----------------------------
Andrew J. Cahill
/s/ J. William Wrigley Director March 29, 2000
- ----------------------------
J. William Wrigley
</TABLE>
50
<PAGE>
THE PUBLISHING COMPANY OF NORTH AMERICA, INC.
FORM 10-KSB - DECEMBER 31, 1999
INDEX TO EXHIBITS
Exhibit No.
- -----------
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Form of First Amendment to Amended and Restated Articles of
Incorporation (1)
3.3 Amended and Restated Bylaws (1)
4.1 Form of Representative's Warrant Agreement (1)
4.2 Form of Common Stock Certificate (2)
4.3 Form of Warrants (for purchase of Internet address known as
"attorneys.com") (3)
4.4 Form of Notes (for purchase of Internet address known as
"attorneys.com") (3)
4.5 Form of Warrants (for acquisition of intangible asset) (4)
10.1 1996 Stock Plan (2)
10.2 Agreement to Sell College Directory Publishing, Inc. (5)
10.3 Form of Employment Agreement of Peter S. Balise
10.4 Agreement to purchase Internet address known as "attorneys.com" (3)
10.5 Financial Public Relations Services Agreement (3)
10.6 Consulting Agreement
21.0 Subsidiaries of the Registrant
23.0 Consent of Ernst & Young LLP
27.0 Financial Data Schedule
(1) Contained in the Registration Statement on Form SB-2 filed on March
11, 1996
(2) Contained in Amendment No. 2 to the Registration Statement on Form
SB-2 filed on April 18, 1996
(3) Contained in the Registration Statement on Form S-3/A No. 1 filed on
December 14, 1999
(4) Contained in the Registration Statement on Form S-3/A No. 2 filed on
February 7, 2000
(5) Contained in the Annual Report on Form 10-KSB filed on April 15, 1998
51
EXHIBIT 10.3
------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT entered into as of this 24th day of May 1999,
between The Publishing Company of North America, Inc. (the "Company") and Peter
S. Balise (the "Executive").
WHEREAS, the Company desires to employ Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement and
WHEREAS, the Company has provided and/or will provide specialized
training in its business to the Executive;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth in this Agreement, and intending to be legally bound, the
Company and the Executive agree as follows:
1. Term of Employment.
------------------
(a) Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, for a period
commencing May 24, 1999 and ending three years thereafter.
(b) Continuing Effect. Notwithstanding any termination of this
Agreement except for termination under Section 5(c), at the end of the
Term or otherwise, the provisions of Sections 6 and 7 shall remain in
full force and effect and the provisions of Section 7 shall be binding
upon the legal representatives, successors and assigns of the
Executive.
2. Duties.
------
(a) General Duties. The Executive shall serve as president and
chief executive officer of the Company, with duties and
responsibilities that are consistent with the Executive's duties and
responsibilities as of the date of this Agreement. The Executive will
also perform services for such subsidiaries as may be necessary. The
Executive will use his best efforts to perform his duties and discharge
his responsibilities pursuant to this Agreement competently, carefully
and faithfully. In determining whether or not the Executive has used
his best efforts hereunder, the Executive's and the Company's
delegation of authority and all surrounding circumstances shall be
taken into account and the best efforts of the Executive shall not be
judged solely on the Company's earnings or other results of the
Executive's performance.
(b) Devotion of Time. The Executive shall devote all of his
time, attention and energies during normal business hours (exclusive of
periods of sickness and disability and of such normal holiday and
vacation periods as have been established by the Company) to the
affairs of the Company.
3. Compensation and Expenses.
-------------------------
(a) Salary. For the services of the Executive to be rendered
under this Agreement, the Company shall pay the Executive a salary as
follows: (1) For the first year of this Agreement, the Executive shall
receive $2,500 per week; (2) For the second year of this Agreement, the
Executive shall receive $3,000 per week; (3) For the third year of this
Agreement, the Executive shall receive $3,500 weekly.
(b) Expenses. In addition to any compensation received
pursuant to Section 3(a) and (c), the Company will reimburse or advance
funds to the Executive for all reasonable travel, entertainment and
miscellaneous expenses incurred in connection with the performance of
his duties under this Agreement.
<PAGE>
(c) Management Bonus. The Executive shall receive an annual
bonus equal to 5% of the Company's increase in incremental (measured
from the previous year) year-end pre-tax net income. Bonus calculation
for fiscal 1999 shall use as a basis, zero dollars profit for fiscal
year 1998, whereas the Executive shall not be paid a bonus on the
difference between zero dollars profit and the Company's $885,337.00
1998 year-end loss.
4. Benefits.
--------
(a) Vacation. For each 12-month period during the Term, the
Executive will be entitled to four weeks of vacation without loss of
compensation or other benefits to which he is entitled under this
Agreement, to be taken at such times as the Executive may select and
the affairs of the Company may permit. Any unused vacation will be paid
for by the Company in addition to regular salary at the annual rate in
effect during 12 month period.
(b) Options. Upon execution of this Agreement, the Executive
shall be granted 150,000 non-qualified options to purchase the
Company's common stock, exercisable at Two Dollars each ($2.00) and
vesting over a three year period, with one third vesting each December
31st for the duration of this Agreement, and expiring ten years after.
(c) Employee Benefit Programs. The Executive is entitled to
participate in any pension, 401(k), insurance or other employee benefit
plan that is maintained by the Company for its executive officers,
including programs of life and medical insurance and reimbursement of
membership fees in civic, social and professional organizations.
(d) Insurance. The Company shall provide to Executive and pay
premiums on the Company's medical insurance policy and any other
medical, dental or insurance programs offered through the company,
covering Executive and Executive's dependents.
(e) Car Allowance. The Executive is entitled to the use of a
Company automobile currently consisting of the 1996 Chevrolet Tahoe
used by him which may be replaced by the Executive once during the term
of this agreement with a new comparable automobile at his discretion.
All expenses associated with the use of such automobile including
insurance, gas, oil and repairs shall be paid by the Company.
5. Termination.
-----------
(a) Termination for Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement at any
time for cause by giving written notice of termination. Such
termination will become effective upon the giving of such notice. Upon
any such termination for cause, the Executive shall have no right to
compensation, bonus or reimbursement under Section 3, or to participate
in any employee benefit programs under Section 4, except as provided by
law, for any period subsequent to the effective date of termination.
For purposes of this Section 5(a), "cause" shall mean: (i) the
Executive is convicted of a felony which is directly related to the
Executive's employment or the business of the Company; (ii) the
Executive, in carrying out his duties hereunder, has been found in a
civil action to have committed gross negligence or intentional
misconduct resulting in either case in direct material harm to the
Company; (iii) the Executive is found in a civil action to have
breached his fiduciary duty to the Company resulting in direct profit
to him; or (iv) the Executive is found in a civil action to have
materially breached any provision of Section 6 or Section 7. The term
"found in a civil action" shall not apply until all appeals permissible
under the applicable rules of procedure or statute have been determined
and no further appeals are permissible.
<PAGE>
(b) Death or Disability. Except as otherwise provided in this
Agreement, it shall terminate upon the death or disability of the
Executive. For purposes of this Section 5(b), "disability" shall mean
that for a period of 12 consecutive months in any 12-month period the
Executive is incapable of substantially fulfilling the duties set forth
in Section 2 because of physical, mental or emotional incapacity
resulting from injury, sickness or disease. In the event of Executive's
disability, the Executive will be paid compensation, benefits and bonus
which may accrue during the period of disability up to a total of 18
months, or for the remainder of this Agreement, whichever time is
greater.
(c) Special Termination. In the event that (i) the Executive,
with or without change in title or formal corporate action, shall no
longer exercise all of the duties and responsibilities and shall no
longer possess substantially all the authority set forth in Section 2;
or (ii) the Company materially breaches this Agreement or the
performance of its duties and obligations hereunder; or (iii) any
entity or person not now an executive officer of the Company becomes
either individually or as part of a group the beneficial owner of 25%
or more of the Company's common stock, in any such event the Executive,
by written notice to the Company, may elect to deem the Executive's
employment hereunder to have been terminated by the Company without
cause, in which event the Executive shall be entitled to the
compensation, reimbursement and benefits payable pursuant to Sections 3
and 4 herein for the remaining term of this Agreement and all of
Executive's remaining unvested options shall vest immediately upon such
termination. In such event, the Executive, by written notice to the
Company, may elect to refuse all further obligations of the Company
under Sections 3 and 4 and to release the Company with respect thereto,
in which event the Company shall release the Executive from the
provisions of Section 6.
(d) Continuing Effect. Notwithstanding any termination of the
Executive's employment as provided in this Section 5 or otherwise, the
provisions of Section 6 shall remain in full force and effect, except
as otherwise provided in Section 5(c).
6. Non-competition Agreement.
-------------------------
(a) Competition with the Company. Until termination of his
employment and for a period of 12 months commencing on the date of
termination, the Executive, directly or indirectly, in association with
or as a shareholder, director, officer, consultant, employee, partner,
joint venturer, member or otherwise of or through any person, firm,
corporation, partnership, association or other entity, will not compete
with the Company or any of its affiliates in the offer, sale or
marketing of products or services that are competitive with any of the
products or services offered by the Company, within any metropolitan
area in the United States or elsewhere in which the Company is then
engaged in the offer and sale of competitive products or services;
provided, however, the foregoing shall not prevent Executive from
accepting employment with an enterprise engaged in two or more lines of
business, one of which is the same or similar to a portion of the
Company's business (the "Prohibited Business") if Executive's
employment is totally unrelated to the Prohibited Business; provided,
further, the foregoing shall not prohibit Executive from owning up to
5% of the securities of any publicly-traded enterprise provided
Executive is not an employee, director, officer, consultant to such
enterprise or otherwise reimbursed for services rendered to such
enterprise.
(b) Solicitation of Customers. During the periods in which the
provisions of Section 6(a) shall be in effect, the Executive, will not
seek Prohibited Business from any Customer (as defined below) on behalf
of any enterprise or business that is in direct competition with the
Company's bar association print directory programs, refer Prohibited
Business from any Customer to any enterprise or business that is in
direct competition with the Company's bar association print directory
programs or receive commissions based on sales or otherwise relating to
the Prohibited Business from any Customer, or any enterprise that is in
direct
<PAGE>
competition with the Company's bar association print directory
programs. For purposes of this Section 6(b), the term "Customer" means
any person, firm, corporation, partnership, association or other entity
to which the Company or any of its affiliates sold or provided goods or
services during the 6-month period prior to the time at which any
determination is required to be made as to whether any such person,
firm, corporation, partnership, association or other entity is a
Customer.
(c) No Payment. The Executive acknowledges and agrees that no
separate or additional payment will be required to be made to him in
consideration of his undertakings in this Section 6.
7. Nondisclosure of Confidential Information. The Executive
acknowledges that during his employment he will learn and will have
access to confidential information regarding the Company and its
affiliates, including without limitation (i) confidential or secret
plans, programs, documents, agreements or other material relating to
the business, services or activities of the Company and its affiliates
and (ii) trade secrets, market reports, customer investigations,
customer lists and other similar information that is proprietary
information of the Company or its affiliates (collectively referred to
as "Confidential Information"). The Executive acknowledges that such
Confidential Information as is acquired and used by the Company or its
affiliates is a special, valuable and unique asset. All records, files,
materials and Confidential Information obtained by the Executive in the
course of his employment with the Company are confidential and
proprietary and shall remain the exclusive property of the Company or
its affiliates, as the case may be. The Executive will not, except in
connection with and as required by his performance of his duties under
this Agreement, for any reason use for his own benefit or the benefit
of any person or entity with which he may be associated or disclose any
such Confidential Information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever
without the prior written consent of the Board unless such Confidential
Information previously shall have become public knowledge through no
action by or omission of the Executive.
8. Equitable Relief.
----------------
(a) The Company and the Executive recognize that the services
to be rendered under this Agreement by the Executive are special,
unique and of extraordinary character, and that in the event of the
breach by the Executive of the terms and conditions of this Agreement
or if the Executive, without the prior consent of the Board shall leave
his employment for any reason and take any action in violation of
Section 6 or Section 7, the Company will be entitled to institute and
prosecute proceedings in any court of competent jurisdiction referred
to in Section 8(b) below, to enjoin the Executive from breaching the
provisions of Section 6 or Section 7. In such action, the Company will
not be required to plead or prove irreparable harm or lack of an
adequate remedy at law. Nothing contained in this Section 8 shall be
construed to prevent the Company from seeking such other remedy in
arbitration in case of any breach of this Agreement by the Executive,
as the Company may elect.
(b) Any proceeding or action must be commenced in Volusia
County, Florida where the Company maintains its principal offices. The
Executive and the Company irrevocably and unconditionally submit to the
exclusive jurisdiction of such courts and agree to take any and all
future action necessary to submit to the jurisdiction of such courts.
The Executive and the Company irrevocably waive any objection that they
now have or hereafter irrevocably waive any objection that they now
have or hereafter may have to the laying of venue of any suit, action
or proceeding brought in any such court and further irrevocably waive
any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Final judgment against
the Executive or the Company in any such suit shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment, a
certified or true copy of
<PAGE>
which shall be conclusive evidence of the fact and the amount of any
liability of the Executive or the Company therein described, or by
appropriate proceedings under any applicable law or otherwise.
9. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company, provided that such successor or
assign shall acquire all or substantially all of the securities or
assets of the Company. The Executive's obligations hereunder may not be
assigned or alienated and any attempt to do so by the Executive will be
void.
10. Severability.
------------
(a) The Executive expressly agrees that the character,
duration and geographical scope of the provisions set forth in this
Agreement are reasonable in light of the circumstances as they exist on
the date hereof. Should a decision, however, be made at a later date by
a court of competent jurisdiction that the character, duration or
geographical scope of such provisions is unreasonable, then it is the
intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to impose
only those restrictions on the Executive's conduct that are reasonable
in the light of the circumstances and as are necessary to assure to the
Company the benefits of this Agreement. If, in any judicial proceeding,
a court shall refuse to enforce all of the separate covenants deemed
included herein because taken together they are more extensive than
necessary to assure to the Company the intended benefits of this
Agreement, it is expressly understood and agreed by the parties hereto
that the provisions of this Agreement that, if eliminated, would permit
the remaining separate provisions to be enforced in such proceeding
shall be deemed eliminated, for the purposes of such proceeding, from
this Agreement.
(b) If any provision of this Agreement otherwise is deemed to
be invalid or unenforceable or is prohibited by the laws of the state
or jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The
remaining provisions of this Agreement shall be valid and binding and
of like effect as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any
other acts under this Agreement (except payment) shall be in writing,
and shall be sufficiently given if delivered to the addressees in
person, by Federal Express or similar receipted delivery, by facsimile
delivery or, if mailed, postage prepaid, by certified mail, return
receipt requested, as follows:
To the Company: The Publishing Company of
North America, Inc.
186 PCNA Parkway
Lake Helen, Florida 32744
With a Copy to: Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes Blvd., Ste. 550
West Palm Beach, FL 33401
<PAGE>
To the Executive: Mr. Peter S. Balise
2394 River Tree Circle
Sanford, Florida 32771
or to such other address as either of them, by notice to the other may
designate from time to time. The transmission confirmation receipt from
the sender's facsimile machine shall be conclusive evidence of
successful facsimile delivery. Time shall be counted to, or from, as
the case may be, the delivery in person or by mailing.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. The
execution of this Agreement may be by actual or facsimile signature.
13. Attorney's Fees. In the event that there is any controversy or
claim arising out of or relating to this Agreement, or to the
interpretation, breach or enforcement thereof, and any action or
proceeding is commenced to enforce the provisions of this Agreement,
the prevailing party shall be entitled to a reasonable attorney's fee,
costs and expenses.
14. Governing Law. This Agreement and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether
relating to its execution, its validity, the obligations provided
therein or performance shall be governed or interpreted according to
the internal laws of the State of Florida without regard to choice of
law considerations.
15. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written
agreements between the parties hereto with respect to the subject
matter hereof. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, except by a statement
in writing signed by the party or parties against which enforcement or
the change, waiver discharge or termination is sought.
16. Section and Paragraph Headings. The section and paragraph headings
in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
THE PUBLISHING COMPANY OF
NORTH AMERICA, INC.
- ------------------
- ------------------ By:
--------------------------
William Wrigley, Chief
Operating Officer
- ------------------
- ------------------ By:
--------------------------
Peter S. Balise
EXHIBIT 10.6
------------
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is dated as of February 29,
2000 (the "Effective Date"), and is made by and between McKinsey & Company, Inc.
United States, a Delaware corporation ("McKinsey"), and The Publishing Company
of North America, Inc., a Florida corporation ("Client") with respect to certain
services provided by McKinsey as described herein. The parties hereby agree to
the following terms and conditions in connection with such services.
1. Services. McKinsey agrees to assist the Client in connection with
its development of a business plan, launch program and financing negotiations
for Attorneys.com, as more fully described in Exhibit A (the "Project"). In the
event the Client requests additional services related to the Project, the scope
of such additional services shall be as agreed by the parties and shall be
governed by this agreement.
2. Compensation. The parties agree that McKinsey will be compensated by
Client for its professional fees in connection with the Project as provided on
Exhibit B. In addition, Client will reimburse McKinsey for expenses incurred,
which expenses will include external costs such as travel and courier, and other
costs such as administrative support, report reproduction and computer support
as provided in Exhibit B. Compensation for any additional services provided by
McKinsey relating to the Project shall be as agreed by the parties.
3. Term. McKinsey's services in connection with the Project shall begin
on or about March 6, 2000, and are expected to be completed approximately by
April 28, 2000. This agreement shall govern all services provided by McKinsey in
connection with the Project and any additional services related to the Project
as agreed by the parties. Either party may terminate the Project by giving ten
(10) days' prior written notice to the other. In the event of any such
termination, McKinsey shall be compensated pro rata for professional fees and
expenses incurred with respect to services performed through the effective date
of termination in accordance with Section 2, but will not be entitled to any
additional compensation.
4. Confidentiality. McKinsey recognizes that certain confidential
information concerning the Client will be furnished by the Client to McKinsey in
connection with the Project ("Confidential Information").
McKinsey agrees that it will disclose Confidential Information only to
those of its directors, officers, employees, advisors or agents who have a need
to know such information, or to advisors to the Client. Confidential Information
shall not include information that (i) is in the possession of McKinsey prior to
its receipt of such information from the Client, (ii) is or becomes publicly
available other than as a result of a breach of this agreement by McKinsey, or
(iii) is or can be independently acquired or developed by McKinsey without
violating any of its obligations under this agreement.
The Client recognizes and confirms that McKinsey (a) will use and rely
primarily on the Confidential Information and on information available from
public sources in performing the services
<PAGE>
contemplated by this agreement without having independently verified the same,
and (b) does not assume responsibility for the accuracy or completeness of the
Confidential Information or such other publicly available information.
In the event that McKinsey receives a request to disclose all or any
part of any Confidential Information under the terms of a valid and effective
subpoena or order issued by a court of competent jurisdiction, judicial or
administrative agency or by a legislative body or committee, such disclosure by
McKinsey shall not constitute a violation of this Agreement provided that
McKinsey (a) promptly notifies Client of the existence, terms and circumstances
surrounding such request, (b) consults with Client on the advisability of taking
available legal steps to resist or narrow such request, and (c) if disclosure of
such Confidential Information is required or deemed advisable, exercises its
best efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to such portion of the Confidential Information to be
disclosed which Client designates.
5. Use of McKinsey Name and Work Products. In connection with the
Project, McKinsey may furnish the Client with reports, analyses or other such
materials (the "Materials"). The Client understands and agrees that any such
Materials will be furnished solely for its internal use and may not be furnished
in whole or in part to any other person other than its directors, officers and
employees without the prior written consent of McKinsey.
The Client may furnish Materials to its legal counsel, accountants or
investment bankers who have been retained by the Client to provide services in
connection with the Project and who need to know such information in the
performance of such services if (i) the Client informs each such person of the
confidential nature of the Materials, (ii) each such person agrees not to
disclose the Materials to any other person and to use the Materials solely in
connection with the performance of its services to the Client, and (iii) each
such person agrees that in connection with discussions with or disclosures to
other third parties, it will not attribute any information contained in the
Materials to McKinsey.
The Client further agrees not to refer to McKinsey or attribute any
information to McKinsey (i) in the press, (ii) for advertising or promotional
purposes, or (iii) for the purpose of informing or influencing any third party,
including the investment community, without the prior written consent of
McKinsey.
In the event that the Client receives a request to disclose all or any
part of any Materials under the terms of a valid and effective subpoena or order
issued by a court of competent jurisdiction, judicial or administrative agency
or by a legislative body or committee, such disclosure by the Client shall not
constitute a violation of this Agreement provided that the Client (a) promptly
notifies McKinsey of the existence, terms and circumstances surrounding such
request, (b) consults with McKinsey on the advisability of taking available
legal steps to resist or narrow such request, and (c) if disclosure of such
Materials is required or deemed advisable, exercises its best efforts to obtain
an order or other reliable assurance that confidential treatment will be
accorded to such portion of the Materials to be disclosed which McKinsey
designates.
<PAGE>
6. Work Product. Client shall have a perpetual, irrevocable,
nontransferable, paid-up right and license to use and copy the Materials and
prepare derivative works based on the Materials for its internal use, subject to
the terms of Section 5. All other rights in the Materials, subject to the terms
of Section 4, remain in and/or are assigned to McKinsey. The parties will
cooperate with each other and execute such other documents as may be appropriate
to achieve the objectives of this Section.
Client acknowledges that McKinsey may develop for itself, or for
others, problem solving approaches, frameworks or other tools or information
similar to the Materials and processes developed in performing the Project and
any additional Services, and nothing contained herein precludes McKinsey from
developing or disclosing such materials and information provided that the same
do not contain or reflect Confidential Information.
7. Indemnification. The Client hereby agrees to indemnify and hold
harmless (i) McKinsey, (ii) any entity directly or indirectly controlling,
controlled by, or under common control with, McKinsey, or any other affiliates
of McKinsey or such entities (collectively "McKinsey Affiliates"), and (iii) the
respective directors, officers, stockholders, agents and employees of McKinsey
and such entities (collectively, "Indemnified Persons"), from and against all
claims, liabilities, losses, damages, and expenses as incurred (including
reasonable legal fees and disbursements of counsel and the costs of McKinsey
professional time), joint or several (including actions or proceedings in
respect thereof) (collectively "Losses"), relating to or arising out of: (i) the
Project (including without limitation the provision of consulting services), or
(ii) any transaction or matter which is related to the subject matter of the
Project. The Client shall not, however, be liable under the foregoing indemnity
agreement to the extent that any such Losses are determined by an arbitration
pursuant to Section 14 or are otherwise finally determined, as the case may be,
to have resulted primarily from the gross negligence, willful misconduct or bad
faith of any Indemnified Person in connection with the Project. The Client also
agrees that no Indemnified Person shall have any liability (whether direct or
indirect, in contract or in tort or otherwise) to the Client or any person
claiming through the Client, including without limitation its owners, parents,
affiliates, security holders or creditors, for any Losses suffered by the Client
or any such other person relating to or arising out of (i) the Project
(including without limitation the provision of consulting services), or (ii) any
transaction or matter which is related to the subject matter of the Project, and
further agrees that McKinsey shall be reimbursed for any expenses as incurred by
any Indemnified Persons relating to the foregoing (including reasonable legal
fees and disbursements of counsel and the costs of McKinsey professional time),
except to the extent that any such Losses are determined by an arbitration
pursuant to Section 14 or are otherwise finally determined, as the case may be,
to have resulted primarily from the gross negligence, willful misconduct or bad
faith of any Indemnified Person in connection with the Project.
The Client further agrees that it will not settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding in respect of which indemnification may be sought hereunder
(whether or not any Indemnified Person is an actual or potential party to such
claim, action or proceeding) unless the Client has given McKinsey reasonable
prior written notice thereof and obtained an unconditional release of each
Indemnified Person from all liability arising therefrom, which unconditional
release shall not place any non-financial obligations on any Indemnified Person.
<PAGE>
The Client acknowledges and agrees that its obligations hereunder shall
be in addition to any rights that any Indemnified Person may have at law or
otherwise.
Upon receipt by McKinsey of notice of a claim, action or proceeding in
respect of which indemnity may be sought hereunder, McKinsey shall promptly
notify the Client with respect thereto. If in McKinsey's reasonable judgment
there is no conflict of interest between McKinsey (or any Indemnified Person)
and the Client, the Client may at its option assume and control the defense of
any litigation or proceeding in respect of which indemnity is sought hereunder
with counsel reasonably acceptable to McKinsey. If in McKinsey's reasonable
judgment there is a conflict of interest between McKinsey (or any Indemnified
Person) and the Client, McKinsey shall assume and control the defense of any
litigation or proceeding (as it relates to McKinsey or any such Indemnified
Person) in respect of which indemnity is sought hereunder with counsel
reasonably acceptable to the Client. The Client shall not be liable hereunder or
otherwise for any settlement of any claim, action or proceeding effected without
its written consent, which shall not be unreasonably withheld. Nothing contained
herein shall prevent McKinsey from retaining, at its own expense, legal counsel
of its choice.
8. Client Acknowledgment. It is the long-standing practice of McKinsey
to serve multiple clients within industries, including those with opposing
economic interests, as well as counter-parties in potential and actual merger,
acquisition and alliance transactions. McKinsey is committed to maintaining the
confidentiality of each client's information (generally as described in this
agreement) in all such situations. Accordingly, the Client acknowledges the
possibility and agrees that McKinsey may have served, may currently be serving
or may in the future serve other companies whose interests are adverse to those
of the Client, including parties with whom the Client (i) competes; (ii) has a
commercial relationship or potential commercial relationship (e.g., suppliers,
distributors); (iii) enters into competitive bidding situations; and (iv) enters
into or considers entering into merger, acquisition, divestiture, alliance or
joint venture transactions.
9. Independent Contractor. The parties agree that McKinsey is an
independent contractor to Client and will not be deemed an employee of Client
for any purpose whatsoever. Without limiting the foregoing, all income taxes
arising from or in connection with professional fees paid by Client to McKinsey
for the services provided under this Agreement shall be borne by McKinsey.
Neither party nor such party's directors, officers, employees or agents, shall
bind or make any commitment on behalf of the other party.
10. Survival and Succession. This agreement shall survive the
completion or termination of the Project and any related services provided by
McKinsey. Further, this agreement, in its entirety, shall inure to the benefit
of and be binding on the successors and assigns of the Client and McKinsey.
<PAGE>
11. Assignment. Neither of the parties hereto shall assign or transfer
its interest in this Agreement or any portion thereof without the prior written
consent of the other party except that (i) Client may assign or transfer its
rights and obligations under this Agreement to a subsidiary or entity
controlling, controlled by or under common control with Client (an "Affiliate")
or to any entity that acquires all or substantially all of the assets of Client
or more than 50% of the current outstanding voting stock of Client and (ii)
McKinsey shall be entitled to assign the right to receive any compensation
received hereunder to a third party without the prior written consent of Client,
subject to restrictions of applicable law.
12. Severability. The various provisions and subprovisions of this
Agreement are severable and if any provision or subprovision or part thereof is
held to be unenforceable by any court of competent jurisdiction, then such
enforceability shall not affect the validity or enforceability of the remaining
provisions or subprovisions or parts thereof in this Agreement.
13. Entire Agreement/Governing Law. This Agreement (including Exhibit
A) constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, oral and written, and may not be modified or
amended except in writing signed by both parties. The laws of the State of New
York, excluding that body of law controlling conflicts of law, will govern all
disputes arising out of or relating to this Agreement.
14. Arbitration. Any dispute, controversy or claim arising out of or in
connection with, or relating to, this agreement, or the breach, termination or
validity thereof, shall be finally settled by arbitration. The arbitration shall
be conducted in accordance with the commercial arbitration rules of the American
Arbitration Association (the "AAA") in effect at the time of the arbitration,
except as they may be modified by mutual agreement of the parties. The seat of
the arbitration shall be New York, New York, and the arbitration shall be
conducted in English.
The arbitration shall be conducted by three arbitrators. The party
initiating arbitration (the "Claimant") shall appoint an arbitrator in its
request for arbitration (the "Request"). The other party (the "Respondent")
shall appoint an arbitrator within 30 days of receipt of the Request. If by that
date either party has not appointed an arbitrator, then that arbitrator shall be
appointed promptly by the AAA. The first two arbitrators appointed shall appoint
a third arbitrator within 30 days after the Respondent has notified Claimant of
the appointment of Respondent's arbitrator or, in the event of a failure by a
party to appoint, within 30 days after the AAA has notified the parties of its
appointment of an arbitrator on behalf of the party failing to appoint. If the
first two arbitrators appointed fail to appoint a third arbitrator within the
time period prescribed above, then the AAA shall appoint the third arbitrator.
The arbitral award shall be in writing, state the reasons for the
award, and be final and binding on the parties. The award may include an award
of costs, including reasonable attorneys' fees and disbursements. Judgment upon
the award may be entered by any court having jurisdiction thereof or having
jurisdiction over the relevant party or its assets.
15. Notices. Any notices under this Agreement will be sent by certified
or registered mail, return receipt requested, or by facsimile (provided that the
sender received electronic confirmation of
<PAGE>
receipt by recipient) to the address specified below or such other address as
the party specifies in writing. Such notice will be effective upon being sent as
specified in this Section.
The Publishing Company of
North America, Inc.
By: /s/ Peter S. Balise
---------------------
Title: President
------------------
Date: March 6, 2000
------------------
McKinsey & Company, Inc. United States
By: /s/ Joachim Heel
---------------------
Title: Principal
------------------
Date: March 6, 2000
-------------------
<PAGE>
EXHIBIT A
SCOPE OF SERVICES
The scope of McKinsey's services shall be as described in McKinsey's letter of
proposal to the Client dated February 2000, attached hereto and incorporated
herein by reference, subject to any changes as mutually agreed by the parties.
<PAGE>
EXHIBIT B
PROFESSIONAL FEES AND EXPENSES
McKinsey's professional fees for the Project shall be $300,000 per month, 40% of
which shall be paid by the Client in cash and 60% of which shall accrue and be
paid in restricted common stock of The Publishing Company of North America,
Inc., ("PCNA") as described further below. The cash and equity portions of the
professional fees shall be earned on a weekly basis; the cash portions shall be
billed and paid monthly and the equity shall be issued as described below. In
addition, the Client agrees to reimburse McKinsey in cash on a monthly basis for
expenses incurred in connection with the Project.
The common stock shall be valued at the end of each week at a 20% discount to
the average closing price of PCNA common stock for such week.
o The Client shall grant to McKinsey piggy-back registration
rights relating to the shares of common stock issued to
McKinsey in connection herewith.
o The Client shall issue the common stock payable to McKinsey
hereunder in 2 tranches as follows: on 3/31/00 the Client
shall issue all equity earned by McKinsey prior to such date,
and on 4/28/00 the Client shall issue to McKinsey all equity
earned after 3/31/00, unless otherwise agreed by the parties.
o The shares shall be issued to and held in the name of 52nd
Street Associates, Inc., which is a Delaware corporation and a
McKinsey affiliate.
EXHIBIT 21.0
------------
Subsidiaries of the Registrant
Date of Place of
Name of subsidiary Incorporation Incorporation
- ------------------ ------------- -------------
PCNA Communications Corporation October 14, 1998 Florida
Attorneys.com, Inc. February 15, 1999 Florida
EXHIBIT 23.0
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-27629) pertaining to The Publishing Company of North America, Inc.
1996 Stock Plan of our report dated February 25, 2000, except for Note 12, as to
which the date is March 6, 2000, 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, 1999.
ERNST & YOUNG LLP
Orlando, Florida
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 2,095,866
<SECURITIES> 0
<RECEIVABLES> 400,853
<ALLOWANCES> 153,901
<INVENTORY> 0
<CURRENT-ASSETS> 2,682,194
<PP&E> 1,767,351
<DEPRECIATION> 549,457
<TOTAL-ASSETS> 4,313,764
<CURRENT-LIABILITIES> 973,733
<BONDS> 640,000
0
0
<COMMON> 5,914,416
<OTHER-SE> (3,251,052)
<TOTAL-LIABILITY-AND-EQUITY> 4,313,764
<SALES> 5,126,768
<TOTAL-REVENUES> 5,515,433
<CGS> 1,308,677
<TOTAL-COSTS> 5,756,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (47,856)
<INCOME-PRETAX> (192,797)
<INCOME-TAX> 0
<INCOME-CONTINUING> (192,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (192,797)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
