<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Third Quarter Ended June 29, 1996
Commission File Number: 0-2675
United Magazine Company
An Ohio Corporation
I.R.S. Number: 31-0681050
5131 Post Road
Dublin, Ohio 43017
Registrant's Telephone Number: (614) 792-0777
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve 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 ninety days.
Yes: X No:
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Number of common shares, without par value, outstanding as of June 29,
1996 26,660,334.
Traditional Small Business Disclosure Format (check one):
Yes: X No:
---- ----
<PAGE> 2
UNITED MAGAZINE COMPANY
FORM 10-QSB
FOR THE THIRD QUARTER ENDED JUNE 29, 1996
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited) June 29, 1996 and
September 30, 1995
Condensed Consolidated Statements of Operations (Unaudited) For the
Three Months and Nine Months Ended June 29, 1996 and July 1, 1995
Condensed Consolidated Statements of Cash Flow (Unaudited) For the
Nine Months Ended June 29, 1996 and July 1, 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Default Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
UNITED MAGAZINE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 29, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
JUNE 29, SEPTEMBER 30,
1996 1995
------------ ------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 317,711 $ 755,338
Accounts receivable, net 7,516,540 2,869,762
Inventories 5,143,659 3,096,982
Accounts receivable, affiliate 1,667,000 0
Prepaids and other 640,753 58,007
----------- -----------
Total current assets 15,285,663 6,780,089
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment 2,070,553 590,068
Vehicles 1,113,378 479,628
Leasehold improvements 214,444 101,616
----------- -----------
3,398,375 1,171,312
Less - accumulated depreciation and amortization (1,571,509) (475,501)
----------- -----------
Total property and equipment, net 1,826,866 695,811
----------- -----------
INVESTMENT IN WILMINGTON
Business option 0 3,202,672
Note and interest receivable from Wilmington 0 524,375
----------- -----------
Total investment in Wilmington 0 3,727,047
----------- -----------
OTHER ASSETS:
Sales orders and regulatory records, net 2,235,518 677,959
Costs in excess of net assets acquired, net 10,161,947 446,830
Prepaid contracts and other 891,180 5,786
----------- -----------
Total other assets 13,288,645 1,130,575
----------- -----------
Total assets $30,401,174 $12,333,522
=========== ===========
</TABLE>
(Continued on next page)
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<PAGE> 4
UNITED MAGAZINE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 29, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
JUNE 29, SEPTEMBER 30.
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ ------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of debt obligations-
Shareholders $ 206,299 $ 50,000
Other 1,669,841 63,076
Accounts payable 15,525,478 4,763,693
Accrued expenses 2,106,745 792,358
Reserve for gross profit on sales returns 1,613,673 541,499
Advances from shareholders 0 8,933
------------ ------------
Total current liabilities 21,122,036 6,219,559
LONG-TERM DEBT OBLIGATIONS:
Shareholders 420,833 137,500
Other 533,333 0
ACCRUED PENSION OBLIGATION 1,534,491 0
POST RETIREMENT BENEFIT OBLIGATION 1,252,458 0
DEALER ADVANCE PAYMENTS 40,050 38,750
------------ ------------
Total liabilities 24,903,201 6,395,809
------------ ------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT
AGREEMENTS, 4,821,398 shares 4,198,011 3,804,185
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 53,250,000 shares
authorized, 42,735,052 and 42,500,561 issued,
and 26,660,334 and 26,425,843 outstanding
(including shares subject to Put Agreements) 250 250
Paid-in capital 42,972,293 42,701,846
Treasury stock, at cost (16,998) (16,998)
Retained deficit (41,655,583) (40,551,570)
------------ ------------
Total shareholders' equity 1,299,962 2,133,528
------------ ------------
Total liabilities and shareholders' equity $ 30,401,174 $ 12,333,522
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
2
<PAGE> 5
UNITED MAGAZINE COMPANY
FORM 10-QSB
FOR THE THIRD QUARTER ENDED JUNE 29, 1996
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 29, 1996 AND JULY 1, 1995
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
1996 1995 1996 1995
---------------------------------- ---------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 14,457,754 $ 6,302,495 $ 34,207,451 $ 18,387,975
COST OF GOODS SOLD 11,113,565 4,763,728 26,000,587 13,784,079
------------ ------------ ------------ ------------
GROSS PROFIT 3,344,189 1,538,767 8,206,864 4,603,896
OTHER OPERATING INCOME 235,590 152,925 514,982 322,399
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (3,967,588) (1,763,036) (9,486,839) (5,261,821)
INCOME (LOSS) FROM INVESTMENT
IN WILMINGTON 0 (37,238) (90,192) (37,238)
WRITEDOWN OF GOODWILL AND
INVENTORY 0 0 0 (342,148)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (387,809) (108,582) (855,185) (714,912)
INTEREST INCOME (EXPENSE), NET (151,414) (138,492) (428,879) (190,777)
SETTLEMENT, NET 0 0 0 2,352,202
OTHER INCOME (EXPENSE) 138,102 49,507 180,051 533,492
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (401,121) (197,567) (1,104,013) 1,980,005
PROVISION FOR INCOME TAXES 0 0 0 0
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (401,121) $ (197,567) $ (1,104,013) $ 1,980,005
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 26,818,364 26,364,676 26,748,701 23,242,870
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON
SHARE $ (.01) $ (.01) $ (.04) $ .09
============ ============ ============ ============
</TABLE>
3
<PAGE> 6
UNITED MAGAZINE COMPANY
FORM 10-QSB
FOR THE THIRD QUARTER ENDED JUNE 29, 1996
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED
JUNE 29, 1996 AND JULY 1, 1995
<TABLE>
<CAPTION>
9 Months Ended 9 Months Ended
June 29, July 1,
1996 1995
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH (PROVIDED BY) OPERATING ACTIVITIES $ 2,107,890 $ 951,692
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for acquisition 0 (500,000)
Purchases of property and equipment (490,688) (78,783)
----------- ---------
Net cash used in investing activities (490,688) (578,783)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance 0 166,668
Sale of common stock subject to put agreement 0 482,140
Redemption of treasury stock 0 (16,998)
Payment on debt obligations (396,762) (1,026,672)
Advances to related parties (1,658,067) (251,928)
----------- ---------
Net cash used in financing activities (2,054,829) (646,790)
----------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (437,627) (273,881)
CASH, beginning of period 755,338 623,064
----------- ---------
CASH, end of period $ 317,711 $ 349,183
=========== =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 74,092 $ 76,270
=========== =========
</TABLE>
4
<PAGE> 7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
INCREASE (DECREASE) IN CASH
Supplemental Schedule of Noncash Investing and Financing Activities
1996:
Under terms of the May 24, 1993 Partnership Dissolution Plan and Agreement
between UNIMAG, Service News Company, MDI L.P., and Magazine Distributors, Inc.,
UNIMAG is required to issue stock valued at $1.00 per share annually for
consulting fees earned at an amount equal to 1% of wholesale revenues of Yankee
News Company.
During the first fiscal quarter of 1996, UNIMAG issued 234,491 shares of UNIMAG
stock for the consulting fees earned during the fiscal year ended September 30,
1995. During the nine months ended June 29, 1996, $179,447 of consulting fees
were earned requiring future distribution of 179,447 shares of stock.
During the second quarter of 1996, UNIMAG purchased all of the outstanding stock
of Triangle News Company, Inc. See Note 6 to the Financial Statements.
1995:
During the first fiscal quarter of 1995, UNIMAG authorized the issuance of
223,046 shares of UNIMAG stock for the consulting fees earned during the fiscal
year ended October 1, 1994. During the nine months ended July 1, 1995, $172,736
of consulting fees were earned requiring future distribution of 172,736 shares
of stock.
The accompanying notes to condensed consolidated financial statement are an
integral part of these condensed consolidated statements.
5
<PAGE> 8
UNITED MAGAZINE COMPANY AND SUBSIDIARIES
FORM 10-QSB
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER ENDED JUNE 29, 1996
(UNAUDITED)
1. GENERAL
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of United Magazine Company and
subsidiaries (UNIMAG or the Company) as of June 29, 1996 and September
30, 1995, the results of its operations for the three and nine months
ended June 29, 1996 and July 1, 1995, and the cash flows for the nine
months ended June 29, 1996 and July 1, 1995. All such adjustments were
of a normal recurring nature. The results of operations in any interim
period are not necessarily indicative of results for the full year.
2. THE BUSINESS
United Magazine Company (UNIMAG or the Company) is an Ohio corporation
which was incorporated on April 8, 1964 under the name Citizens Holding
Company. UNIMAG (the Parent) is a holding company. All operations for
the quarter ended June 29, 1996 were conducted through four of its
seven consolidated subsidiaries.
All operations for the period from April 1, 1995 through December 30,
1995 were conducted through two of its then five consolidated
subsidiaries and through its investment in Service News Company of
Wilmington, North Carolina (Wilmington). All operations for the period
from October 1, 1994 through April 1, 1995 were conducted through its
consolidated subsidiary Service News Company of Connecticut, doing
business as Yankee News Company (Yankee).
Yankee is engaged in wholesale magazine, newspaper and book
distribution and owns and operates four newsstands and one bookstore.
Reader's Choice(RC), acquired in April, 1995, is engaged in the
business of managing and reporting information on retail display
allowances and collecting these allowances which are paid by publishers
to retailers.
On April 5, 1995, UNIMAG entered into a Services and Management
Agreement with Service News Company of Wilmington, North Carolina
("Wilmington") and SNPC, Inc. ("SNPC"), both North Carolina
corporations, and with Doris R. Marshall, the individual shareholder of
the Companies, pursuant to which UNIMAG agreed to manage the operations
commencing April 1, 1995. In consideration, UNIMAG was to receive a
Management Fee.
The Agreement granted UNIMAG an option to purchase all of the
outstanding stock of Wilmington through the life of the Agreement. The
option price was originally $482,140, but was subject to additional
adjustments upon resolution of contingent provisions of the Agreement.
On January 12, 1996, UNIMAG exercised the option and purchased
Wilmington for $10.00.
6
<PAGE> 9
On January 23, 1996, United Magazine Company (UNIMAG) purchased all of
the outstanding stock of Triangle News Company, Inc., a Pennsylvania
corporation (Triangle) from Marilyn R. Watson, John G. Watson and
Lonnie Watson, individuals residing in Pittsburgh, Pennsylvania
(Sellers). The purchase price is subject to future adjustments and
future contingencies, including a contingent payment based on
successful completion of certain pending contracts for future business.
Consideration given was cash of $1,647,000, seller financing of
$646,590 and 100,000 shares of UNIMAG stock. The seller financing may
be subject to future adjustments.
UNIMAG also owns three inactive subsidiaries. Sportstuff Marketing,
Inc. (SSM) was a wholesale distributor of sports apparel products and
operated one sports apparel retail outlet. Team Logos Sportstuff, Inc.
(TLSI) previously owned and operated sports apparel retail stores.
UNIMAG I, Inc. (UNIMAG I), a wholly-owned subsidiary of TLSI,
previously held certain intangible assets related to the franchise
operations of TLSI. Imperial News Co., Inc. (Imperial), previously
engaged in the wholesale magazine and book distribution business, has
been in bankruptcy since 1991, and has no material assets.
A. Business of Service News Company of Connecticut (Yankee)
Yankee is headquartered in a 34,000 square foot leased facility
located in Waterbury, Connecticut. From this facility Yankee
distributes magazines, books, newspapers and various sundry items to
retailers who sell to customers in the central Connecticut market.
Yankee also operates four retail "Newsrack" outlets which sell
magazines, newspapers, and related products and operates one retail
bookstore. During 1995 Yankee generated approximately 99% of UNIMAG's
net sales.
B. Business of Service News Company of Wilmington (Wilmington)
Service News Company of Wilmington (Wilmington) is headquartered in a
20,000 square foot leased facility located in Wilmington, North
Carolina. From this location, Wilmington distributes magazines, books
and various sundry items to retailers who sell to customers in eastern
North Carolina.
C. Business of Triangle News Company, Inc. (Triangle)
Triangle News Company, Inc. (Triangle) is headquartered in a 62,400
square foot leased facility located in Pittsburgh, Pennsylvania. From
this location, Triangle distributes magazines, books, newspapers, and
various sundry items to retailer who sell to consumers in Western
Pennsylvania, West Virginia and Eastern Ohio.
D. Business of Reader's Choice, Inc. (RC)
Reader's Choice, Inc. (RC), established in October, 1984, was acquired
on April 11, 1995. RC is engaged in the business of managing and
reporting information on retail display allowances and collecting these
allowances which are paid by publishers to retailers. For these
management services RC receives a percentage of the allowances
collected on behalf of
7
<PAGE> 10
the retailers. From its location in Dublin, Ohio, RC provides these
services to major retail chains and major independent retailers with
outlets in 43 states and the District of Columbia.
E. Business of Sportstuff Marketing, Inc. (SSM)
Sportstuff Marketing, Inc. (SSM) established in March, 1993 was engaged
in the wholesale distribution of sports apparel merchandise and
services, primarily to major grocery and pharmaceutical chains. In
March, 1995, SSM ceased all wholesaling of sports apparel merchandise.
SSM is no longer an active company.
F. Business of Team Logos Sportstuff, Inc. (TLSI) and UNIMAG I
Team Logos Sportstuff, Inc. (TLSI) and its subsidiary UNIMAG I, both
established in July, 1992, were engaged in the business of owning and
franchising retail sports apparel stores throughout the country. During
the fiscal year ended October 2, 1993 TLSI closed all remaining retail
locations, and UNIMAG I deactivated its franchising operations. TLSI is
currently inactive except for the winding down of final business
activities. UNIMAG I is no long an active company.
3. SETTLEMENT OF PRUDENTIAL LAWSUIT
On January 26, 1995, the Company reached final settlement of its
lawsuit against Prudential Insurance Company of America and two (2) of
its affiliates. As part of the settlement, the Company received
$3,000,000, less related professional fees of $647,798. This
transaction was recorded in the first quarter of fiscal 1995
financial statements.
4. PROVISION FOR INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
1996 1995 1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Current $(161,000) $ (79,000) $(442,000) $ 792,000
Deferred 161,000 79,000 442,000 (792,000)
--------- --------- --------- ---------
Total $ 0 $ 0 $ 0 $ 0
========= ========= ========= =========
</TABLE>
For the nine months and three months ended June 29, 1996, and July 1,
1995, the difference between the statutory tax rate of 34% and the
effective rate of zero is due primarily to the uncertainty of the
realization of net operating losses generated.
As of June 29, 1996, UNIMAG had approximately $21,690,000 of Federal
net operating loss (NOL) carryfowards for tax purposes. The amount that
UNIMAG can utilize each year is restricted due to multiple changes in
ownership. The NOL carryforwards will expire in the years 2003 through
2009.
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<PAGE> 11
The company has provided deferred income taxes at a 40% tax rate which
represents a blended statutory federal and state income tax rate. The
Company has recorded a full valuation allowance of approximately
$10,268,000 due to the uncertainty of future realization of its
remaining available net operating loss (NOL) carryforwards in
accordance with the provisions of SFAS No. 109.
5. WILMINGTON FINANCIAL INFORMATION (UNAUDITED)
In April of 1995, UNIMAG entered into a Services and Management
Agreement with Service News Company of Wilmington, North Carolina
(Wilmington). Included in the Agreement was an option to purchase all
of the outstanding stock of Wilmington. As of December 30, 1995, UNIMAG
had not exercised its option and therefore, treated the option as an
investment and accounted for the investment under the equity method.
UNIMAG exercised their option to acquire Wilmington on January 12, 1996
The unaudited condensed operating results of Wilmington for the three
months ended December 30, 1995 and July 1, 1995 are as follows:
<TABLE>
<CAPTION>
December 30, July 1,
1995 1995
------------------------------
<S> <C> <C>
Net sales $ 1,715,000 $ 1,915,000
Gross profit 453,000 486,000
Operating income 40,000 134,000
Income (loss) before business option
amortization (18,000) 30,000
Income (loss) after business option
amortization (90,000) (37,000)
</TABLE>
The shareholders of Wilmington have shares, issued as part of the
consideration for the option to purchase the stock of Wilmington, that
are subject to future Put Agreements commencing in April of 1997.
During the period from September 30, 1995 through June 30, 1996 UNIMAG
accreted interest of $393,826 for the increase in value of the putable
shares during that period.
6. PITTSBURGH ACQUISITION
On January 23, 1996, United Magazine Company (UNIMAG) purchased all of
the outstanding stock of Triangle News Company, Inc., a Pennsylvania
corporation (Triangle) from Marilyn R. Watson, John G. Watson and
Lonnie Watson, individuals residing in Pittsburgh, Pennsylvania
(Sellers). The purchase price is subject to future adjustments and
future contingencies, including a contingent payment based on
successful completion of certain pending contracts for future business.
Consideration given was cash of $1,647,000, seller financing of
$646,590 and 100,000 shares of UNIMAG stock. The seller financing may
be subject to future adjustments.
In connection with the closing, UNIMAG financed $1,000,000 through its
wholly-owned subsidiary Service News Company of Connecticut, which
utilized part of a line of credit from
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<PAGE> 12
the Bank of Boston and financed an additional $700,000 secured by the
assets of Triangle from the Bank of Boston.
7. OPTIONS TO PURCHASE COMPANIES
On July 26, 1996, the Company entered into an asset transfer agreement
with Northern News Company. On July 30, 1996, the Company entered into
a stock transfer agreement with Michiana News Co. On July 31, 1996,
the Company entered into a stock transfer agreement with Stoll Cos.
An asset transfer agreement with Ohio Periodical Distributors of
Columbus and Ohio Periodical Distributors of Cincinnati (collectively
"OPD") is pending. The Company has filed with the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 for approval of the acquisition of the assets of OPD, and that
application was approved on August 9, 1996. If all of the acquisitions
are successfully consummated, UNIMAG's annual revenues would increase
to in excess of $233,000,000.
8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited proforma consolidated balance sheet contains
certain proforma adjustments to reflect the acquisition of Service News
Company of Wilmington and Triangle News Company, Inc. as if they had
occurred on October 2, 1994.
<TABLE>
<CAPTION>
UNIMAG
COMBINED
PRO FORMA
------------
<S> <C>
FOR THE NINE MONTHS
ENDED JUNE 29, 1996:
Net sales 42,506,177
Income (loss)
from operations (831,310)
Net income (loss) (1,074,135)
Earnings per share ($0.04)
FOR THE NINE MONTHS
ENDED JULY 1, 1995:
Net sales 41,960,277
Income from operations (459,166)
Net income (loss) 1,778,289
Earnings per share $0.08
</TABLE>
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS OF UNIMAG FOR THE THREE MONTHS ENDED JUNE 29,
1996 AND JULY 1, 1995
During the three months ended March 30, 1996, the Company
completed acquisitions of Wilmington and Pittsburgh distributorships.
These two new subsidiaries accounted for $7,723,000 of the sales
increase in the third quarter ended June 29, 1996 versus the prior
year's quarter, while Yankee increased sales by $499,000, or 8%, due
to new chain business. The gross profit increase included
approximately $1,726,000 from the two new subsidiaries plus $118,000
from the Reader's Choice subsidiary, while Yankee gross profit was
down $85,000 from the corresponding prior year quarter.
The decline in the gross profit and net income of Yankee was
primarily due to the absorption by Yankee of approximately $400,000 in
product returns from new customers acquired during the quarter.
Although Yankee did not sell this inventory to the acquired customers,
it had to give these customers full wholesale sales credit while
receiving only wholesale cost credits from publishers. This reduced
revenues for the quarter by approximately $400,000 and reduced net
income for the quarter by approximately $100,000.
The $2,205,000 increase in selling, general, and administrative
expenses included $2,054,000 from the two new subsidiaries, $96,000
from Reader's Choice, and a $72,000 increase in Yankee.
During the quarter ended July 1, 1995, approximately 97% of the revenue
was derived from Yankee. During that same quarter, UNIMAG recognized
$37,000 in income from its management agreement with Wilmington,
amortized the option by $74,000, and accreted $119,000 in interest
for the future put agreements.
The quarter ended June 29, 1996 included accreted put interest in
connection with Wilmington in the amount of $131,275.
The quarter ended June 29, 1996 produced a loss of $401,121 versus a
loss of $197,567 in the corresponding quarter ended July 1, 1995. The
June 29, 1996 loss included non-cash charges of approximately $721,000
for depreciation, amortization, accreted put interest, and management
fees. Pittsburgh and Wilmington accounted for approximately $381,000 of
the non-cash charges.
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
B. RESULTS OF OPERATIONS OF UNIMAG FOR THE NINE MONTHS ENDED JUNE 29,
1996 AND JULY 1, 1995
During the nine months ended June 29, 1996, the Company reported six
months of operations for Wilmington and Pittsburgh in the consolidated
results. The consolidated results also included nine months of Reader's
Choice, Yankee, and the Parent company and three months of Wilmington
ended December 30, 1995 under the equity method. The corresponding nine
months ended July 1, 1995 included only Yankee, the Parent Company,
discontinued operations and three months of Wilmington ended July 1,
1995 under the equity method. See Note 8 to the Financial Statements.
The six months combined results of Wilmington and Pittsburgh included
revenues of $15,260,000, a gross margin of $3,411,000, and a net loss
of $375,000.
In addition to the changes in the financial statements reported above
as a result of the Wilmington and Pittsburgh acquisitions during the
quarter ended March 30, 1996, the comparative results for the nine
months ended June 29, 1996 versus the corresponding nine months ended
July 1, 1995 included other significant transactions.
The first quarter of fiscal 1995 included a settlement of a lawsuit
with Prudential. As part of that settlement UNIMAG received $3,000,000
less related professional fees of $648,000.
The loss from investment for the quarters ended July 1, 1995 and
December 30, 1995 is for the investment in Wilmington described in Note
5. Other expenses for the nine months ended June 29, 1996 includes
$393,825 of interest accreted on the Wilmington put agreements.
Reader's Choice was acquired on April 5, 1995. For the nine months
ended June 29, 1996 Reader's Choice had revenues of $267,000 and a
profit of $19,000.
For the nine months ended June 29, 1996 compared with the nine months
ended July 1, 1995, Yankee revenue was up 3% and gross profit was down
by $3,000. Net income decreased by $84,000 to $216,000 with the
difference due primarily to the loss of gross margin on excess returns
for new customers as described in the discussion and analysis of the
results of operations for the three months ended June 29, 1996.
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<PAGE> 15
C. Liquidity, Capital Resources and Factors Affecting Future Performance
<TABLE>
The Company's working capital (deficit) is as follows:
<S> <C>
June 29, 1996 (9 months) $(5,836,000)
March 30, 1996 (6 months) (5,134,000)
September 30, 1995 (fiscal year) 560,000
October 1, 1994 (fiscal year) (1,371,000)
</TABLE>
The decline in working capital position of $702,000 during the quarter
ended June 29, 1996 is due primarily to operating losses and the
payment of up-front fees to secure three year contracts with
customers. The payments are being amortized over three years, and the
long-term portion of the prepaid fees increased by approximately
$375,000. During the quarter non-cash charges exceeded the operating
loss by approximately $320,000. Capital expenditures of $209,000 and
long-term debt reductions of $171,000 used $380,000 of working
capital.
The working capital position declined by $5,866,000 during the quarter
ended March 30, 1996, primarily as a result of the acquisition of
Pittsburgh and Wilmington where current liabilities exceeded current
assets.
The Company anticipates improvements in working capital and cash flow
in the remainder of 1996 from operations in Yankee, Pittsburgh, and
Wilmington, from additional management fees paid by stock, and by
continued depreciation, amortization, and accretion of long-term
interest, net of planned capital expenditures and reductions in
long-term debt.
The Company anticipates that these operations will generate adequate
cash flow to finance the remainder of the 1996 business plan. In
addition, the Company is completing several acquisitions of similar
magazine distributorships during 1996. In connection with these
acquisitions, the Company is negotiating for funds for these
acquisitions and for additional working capital.
The future performance of wholesale distribution operations of the
Company may be impaired by changes currently occurring in the industry.
Historically, a magazine distributor serviced all accounts within a
fixed geographic territory with minimal competition. Recently, several
large retail chains have consolidated magazine purchases from a reduced
number of wholesalers, creating opportunities for increased business as
well as risks for a loss of business. In addition, this consolidation
can result in reduced gross profit margins as a percent of sales due
to increased discounting and advance payment of fees; however, these
can be offset by increased revenue and gross profit. Although the
Company believes it is strategically positioned to take advantage of
market conditions, the future outcome of these changes is uncertain at
this point in time.
D. Inflation
The impact of inflation on wholesale and retail operations is difficult
to measure. The Company cannot easily pass magazine costs on to
customers, so it must control inflation at the point of purchase. The
Company is engaged in activities to control these costs. As a result,
the Company believes that the effect of inflation on the results of
operations and financial condition has been minor and is expected to
remain so in the future.
13
<PAGE> 16
E. Seasonality
The sale of magazines and newspapers is subject to minimal seasonality,
except for small increases during the summer months. Books achieve
their highest level of sales during the first fiscal quarter.
14
<PAGE> 17
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. LEGAL PROCEEDINGS
Except as set forth below, there have been no material developments in
legal proceedings involving either the Company or its subsidiaries
since the filing of the Company's Quarterly Report on Form 10-QSB for
the Fiscal Quarter Ended March 30, 1996.
On May 30, 1996, the Company's Motion for Summary Judgment was granted
in an action in the Franklin County Common Pleas Court in a matter
brought by a shareholder of Team Logos Corporation with respect to
certain agreements he had with that corporation
Item 2. CHANGE IN SECURITIES:
None
Item 3. DEFAULT UPON SENIOR SECURITIES:
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
Item 5. OTHER INFORMATION:
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
On August 8, 1996 UNIMAG filed a Form 8-K in connection with the stock
transfer agreements and asset transfer agreements described in Note 7.
15
<PAGE> 18
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED MAGAZINE COMPANY
Registrant
/s/ Ronald E. Scherer
-------------------------------
Ronald E. Scherer
President and Chief Executive Officer
/s/ Thomas L. Gerlacher
-------------------------------
Thomas L. Gerlacher
Chief Financial Officer
16
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