<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 Second Quarter Ended March 30, 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 March 30,
1996 26,660,334.
Traditional Small Business Disclosure Format (check one):
Yes: X No:
---------------- --------------------
<PAGE> 2
UNITED MAGAZINE COMPANY
-----------------------
FORM 10-QSB
-----------
FOR THE SECOND QUARTER ENDED MARCH 30, 1996
-------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 30, 1996 and September 30, 1995
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Months and Six Months Ended March 30, 1996
and April 1, 1995
Condensed Consolidated Statements of Cash Flow (Unaudited)
For the Six Months Ended March 30, 1996
and April 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
</TABLE>
<PAGE> 3
UNITED MAGAZINE COMPANY
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
AS OF MARCH 30, 1996 AND SEPTEMBER 30, 1995
-------------------------------------------
<TABLE>
<CAPTION>
MARCH 30, 1996 SEPTEMBER 30,
1995
------------------ ------------------
ASSETS (Unaudited) (Audited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 144,539 $ 755,338
Accounts receivable, net 6,130,144 2,869,762
Inventories 5,136,080 3,096,982
Prepaids and other 398,154 58,007
------------------ ------------------
Total current assets 11,808,917 6,780,089
------------------ ------------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment 1,906,117 590,068
Vehicles 1,068,918 479,628
Leasehold improvements 214,444 101,616
------------------ ------------------
3,189,479 1,171,312
Less - accumulated depreciation and amortization (1,401,594) (475,501)
------------------ ------------------
Total property and equipment, net 1,787,885 695,811
------------------ ------------------
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 1,999,728 677,959
Costs in excess of net assets acquired, net 10,128,980 446,830
Other 515,877 5,786
------------------ ------------------
Total other assets 12,644,585 1,130,575
------------------ ------------------
Total assets $26,241,387 $12,333,522
================== ==================
</TABLE>
(Continued on next page)
1
<PAGE> 4
UNITED MAGAZINE COMPANY
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
AS OF MARCH 30, 1996 AND SEPTEMBER 30, 1995
-------------------------------------------
<TABLE>
<CAPTION>
MARCH SEPTEMBER
LIABILITIES AND SHAREHOLDERS' EQUITY 30, 1996 30, 1995
- ------------------------------------ ----------------- ------------------
(Unaudited) (Audited)
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of debt obligations-
Shareholders $ 362,675 $ 50,000
Other 1,291,408 63,076
Accounts payable 11,632,478 4,763,693
Accrued expenses 2,042,286 792,358
Reserve for gross profit on sales returns 1,613,673 541,499
Advances from shareholders 0 8,933
----------------- ------------------
Total current liabilities 16,942,520 6,219,559
LONG-TERM DEBT OBLIGATIONS:
Shareholders 308,333 137,500
Other 637,645
ACCRUED PENSION OBLIGATION 1,786,493
POST RETIREMENT BENEFIT OBLIGATION 822,827
DEALER ADVANCE PAYMENTS 40,000 38,750
----------------- ------------------
Total liabilities 20,537,818 6,395,809
----------------- ------------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT AGREEMENTS, 4,821,398 shares
4,066,736 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 42,908,043 42,701,846
Treasury stock, at cost (16,998) (16,998)
Retained deficit (41,254,462) (40,551,570)
----------------- ------------------
Total shareholders' equity 1,636,833 2,133,528
----------------- ------------------
Total liabilities and shareholders' equity $26,241,387 $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 SECOND QUARTER ENDED MARCH 30, 1996
-------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
MARCH 30, 1996 AND APRIL 1, 1995
--------------------------------
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended
1996 1995 1996 1995
-------------------------------------- --------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $13,384,307 $5,859,342 $19,749,697 $12,085,480
COST OF GOODS SOLD 10,153,582 4,406,723 14,887,022 9,020,351
-------------------------------------- --------------------------------------
GROSS PROFIT 3,230,725 1,452,619 4,862,675 3,065,129
OTHER OPERATING INCOME 175,401 100,896 279,392 205,737
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (3,771,263) (1,607,526) (5,519,251) (3,498,785)
INCOME (LOSS) FROM INVESTMENT IN WILMINGTON
0 0 (90,192)
WRITEDOWN OF GOODWILL AND
INVENTORY 0 (374,486) 0 (374,486)
-------------------------------------- --------------------------------------
INCOME (LOSS) FROM OPERATIONS (365,137) (428,497) (467,376) (602,405)
INTEREST INCOME (EXPENSE), NET (154,525) (23,744) (277,465) (52,285)
SETTLEMENT, NET 0 0 0 2,352,202
OTHER INCOME (EXPENSE) 28,957 510,964 41,949 480,060
-------------------------------------- --------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES (490,705) 58,723 (702,892) 2,177,572
PROVISION FOR INCOME TAXES 0 0 0 0
-------------------------------------- --------------------------------------
NET INCOME (LOSS) $(490,705) $ 58,723 $(702,982) $ 2,177,572
====================================== ======================================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 26,747,796 21,710,270 26,718,845 21,681,967
====================================== ======================================
NET INCOME (LOSS) PER COMMON SHARE
$(.02) $.00 $(.03) $.10
====================================== ======================================
</TABLE>
3
<PAGE> 6
UNITED MAGAZINE COMPANY
-----------------------
FORM 10-QSB
-----------
FOR THE SECOND QUARTER ENDED MARCH 30, 1996
-------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
MARCH 30, 1996 AND APRIL 1, 1995
--------------------------------
<TABLE>
<CAPTION>
6 Months Ended 6 Months Ended
March 30 April 1
1996 1995
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH (USED IN) OPERATING ACTIVITIES $ (112,011) $ 1,011,785
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (281,792) (40,783)
----------------- -----------------
Net cash provided by (used in) investing activities (281,792) (40,783)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance 0 166,668
Payment on debt obligations (225,929) (776,670)
Advances from related parties 8,933 (251,928)
----------------- -----------------
Net cash provided by (used in) financing activities (216,996) (861,930)
----------------- -----------------
NET DECREASE IN CASH AND EQUIVALENTS (610,799) 109,072
CASH, beginning of period 755,338 623,064
----------------- -----------------
CASH, end of period $ 144,539 $ 732,136
================= =================
Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash paid during the period for interest $ 32,956 $ 55,124
================= =================
</TABLE>
4
<PAGE> 7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 30, 1996 AND APRIL 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 that same quarter, an additional $59,727 of fees were earned for future
distribution of 59,727 shares of stock.
During the second quarter of 1996, an additional $55,470 of fees were earned
which will require the future distribution of 55,470 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 that same quarter, an additional $57,946 of fees were earned for future
distribution of 57,946 shares of stock.
During the second quarter of 1995, an additional $55,935 of fees were earned
which will require the future distribution of 55,935 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 SECOND QUARTER ENDED MARCH 30, 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 March 30, 1996 and September 30,
1995, and the results of its operations and cash flows for the six months
ended March 30, 1996 and April 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 March 30, 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). The purchase price is subject to future
adjustments and future contingencies, including a contingent earnout
payment based on successful completion of certain pending contracts for
future business. Consideration given was cash of $1,647,000 and 100,000
shares of UNIMAG stock.
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)
--------------------------------------------------------
UNIMAG's wholly-owned subsidiary, Service News Company of Connecticut
(Yankee) re-acquired the operating net assets of Yankee from MDI, L.P. on
May 24, 1993. 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.
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 December 31, 1994 first quarter financial statements.
4. PROVISION FOR INCOME TAXES
--------------------------
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended
1996 1995 1996 1995
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Current $(196,000) $23,000 $(281,000) $871,000
Deferred 196,000 (23,000) 281,000 (871,000)
------------------------------------- ------------------------------------
Total $0 $0 $0 $0
== == == ==
</TABLE>
For the six months and three months ended March 30, 1996, the difference
between the statutory tax rate of 34% and the effective rate of zero is due
primarily to the benefit of the net operating losses generated in prior
periods.
As of March 30, 1996, UNIMAG had approximately $21,290,000 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.
8
<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
$10,107,000 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 are as follows:
<TABLE>
<S> <C>
Net sales $1,715,000
Gross profit 453,000
Operating income 40,000
Income (loss) before business option amortization
(18,000)
Income (loss) after business option amortization
(90,000)
</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 March 30, 1996 UNIMAG accreted
interest of $262,552 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). The purchase price is subject to future
adjustments and future contingencies, including a contingent earnout
payment based on successful completion of certain pending contracts for
future business. Consideration given was cash of $1,647,000 and 100,000
shares of UNIMAG stock.
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
9
<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
-----------------------------
During the second quarter, the Company signed options to acquire five
midwest magazine and book distribution companies. Three of the companies,
Ohio Periodical Distributors of Columbus, Ohio Periodical Distributors of
Cincinnati, and Northern News Co. of Petoskey, Michigan are affiliated with
the Chairman of United Magazine Company, Ronald E. Scherer. The Company
also signed option agreements with Stoll Cos. of Toledo, Ohio and Michiana
News Co., of Niles, Michigan. The options are contingent upon several
factors, including financing. If all of the options were exercised, United
Magazine's annual revenues would increase to in excess of $233,000,000.
8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------
The following unaudited proforma consolidated financial information
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
------------
FOR THE SIX MONTHS
ENDED MARCH 30, 1996:
<S> <C>
Net sales 28,048,423
Income (loss)
from operations (443,501)
Net income (loss) (673,014)
Earnings per share ($0.03)
FOR THE SIX MONTHS
ENDED APRIL 1, 1995:
Net sales 27,595,206
Income from operations (592,574)
Net income (loss) 1,911,767
Earnings per share $0.09
</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
MARCH 30, 1996 AND APRIL 1, 1995
- --------------------------------------------------------------------------------
During the three months ended March 30, 1996, the Company completed the
acquisitions of Wilmington and Pittsburgh distributorships. These two new
subsidiaries accounted for all of the sales increase in the quarter versus
the prior year's quarter. The gross profit increase included approximately
$1,685,000 from the two new subsidiaries plus $77,000 from the Reader's
Choice subsidiary, while Yankee gross profit was unchanged from the
corresponding prior year quarter.
The $2,164,000 increase in selling, general, and administrative expenses
included $1,973,000 from the two new subsidiaries, $69,000 from Reader's
Choice, and $127,000 in the Parent for additional professional fees. Yankee
expenses remained relatively constant for the quarter.
During the quarter ended April 1, 1995, discontinued operations resulted in
the Company incurring writedowns of goodwill and inventory of $374,486
offset by other income of $510,964, primarily from settlement of vendor
payables.
The quarter ended March 30, 1996 included accreted put interest in
connection with Wilmington in the amount of $131,275.
Reader's Choice was acquired on April 5, 1995. For the three months ended
March 30, 1996, Reader's Choice had revenues of $77,000 and net income of
$7,000.
The quarter ended March 30, 1996 produced a loss of $490,705 versus a
profit of $58,723 in the corresponding quarter ended April 1, 1995. The
March 30, 1996 loss included non-cash charges of approximately $592,000 for
depreciation, amortization, accreted put interest, and management fees,
with Pittsburgh and Wilmington accounting for approximately $278,000 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 SIX MONTHS ENDED MARCH 30, 1996
AND APRIL 1, 1995
- --------------------------------------------------------------------------------
During the six months ended March 30, 1996, the Company reported three
months of operations for Wilmington and Pittsburgh in the consolidated
results. The consolidated results also included six 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 six months
ended April 1, 1995 included only Yankee, the Parent Company, and
discontinued operations. See Note 8 to the Financial Statements.
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 six months ended
March 30, 1996 versus the corresponding six months ended April 1, 1995
included other significant transactions.
The December 31, 1994 quarter included a settlement of a lawsuit with
Prudential. As part of that settlement UNIMAG received $3,000,000 less
related professional fees of $647,798.
The loss from investment of $90,192 for the quarter ended December 30, 1995
is for the investment in Wilmington described in Note 5. Other expenses for
the six months ended March 30, 1996 includes $262,550 of interest accreted
on the Wilmington put agreements.
Reader's Choice was acquired on April 5, 1995. For the six months ended
March 30, 1996, Reader's Choice had revenues of $149,000 and a loss of
$3,000.
For the six months ended March 30, 1996 compared with the six months ended
April 1, 1995, Yankee revenue was up .3% and gross profit was down 1.0%.
Net income increased by 4.2% to $220,000. There were no significant changes
in the level of operations for Yankee.
Discontinued operations contributed $139,000 in losses to the quarter ended
December 31, 1994.
12
<PAGE> 15
C. LIQUIDITY, CAPITAL RESOURCES AND FACTORS AFFECTING FUTURE PERFORMANCE
---------------------------------------------------------------------
<TABLE>
<S> <C>
The Company's working capital (deficit) is as follows:
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 working capital position declined by $5,866,000 during the quarter
ended March 30, 1996, primarily as a result of working capital deficit
created by the acquisitions of Pittsburgh and Wilmington. Non-cash
charges exceeded the operating loss by approximately $102,000. Capital
expenditures of $173,000 and long-term debt reductions of $163,000 used
$336,000 of working capital.
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 has recently added approximately $8,000,000 in net new
business and has additional new business pending. In addition, the Company
is in the process of adding high impact marketing fixtures in larger
customer locations and is implementing technology improvements and process
changes to improve operating margins.
The Company anticipates that these operations will generate adequate cash
flow to finance the 1996 business plan. In addition, the Company plans to
pursue several acquisitions of similar magazine distributorships during
1996. In connection with these acquisitions, the Company is negotiating
the financing needs for possible acquisitions.
The future performance of wholesale distribution operations of the Company
may be improved on or 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 begun consolidating 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 due to increased
discounting; 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 passes is difficult to measure. The Company passes
magazine costs on to customers through increases in the cover prices of
publications which are determined by the publisher. 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.
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.
13
<PAGE> 16
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 Annual Report on Form 10-QSB for the
Fiscal Quarter Ended December 30, 1995.
The Company and certain of its directors and officers have been
sued by two ex-employees of Team Logos Sportstuff, Inc., in
connection with the status of employment contracts from their
predecessor company Team Logos Corporation. Although the contracts
were not assumed as part of an Asset Purchase Agreement between
United Magazine Company and Team Logos Corporation, a jury recently
found for the plaintiffs against both the Company and one of its
directors on claims of promissory estoppel and fraud in connection
with the contracts. However, in separate rulings the Company was
found to have been justified in subsequently terminating their
employment. This results in the Company's liability being limited to
a non-material amount in a small period of time in 1992 and early
1993. In addition, the Company, through its subsidiary Team Logos
Sportstuff, Inc., has separate claims pending in the state of
Connecticut for damages sustained as a result of the actions of the
ex-employees. The Company had agreed to indemnify the director
against the claim. In addition, the Company will seek indemnification
from Team Logos Corporation and its directors. It is the opinion of
the Company and its counsel that the net liability of the Company is
not material.
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:
---------------------------------
(A) On January 13, 1996 UNIMAG filed a Form 8-K for the acquisition
of Service News Company of Wilmington through the exercise of its
business option.
(B) On July 17, 1995, UNIMAG filed a Form 8-KA Amendment No. 2 for
the Services and Management Agreement with Service News Company
of North Carolina. On January 15, 1996, UNIMAG filed a Form 8-KA,
Amendment No. 3 for the Services and Management Agreement with
Service News Company of North Carolina to include the required
exhibits as well as to
14
<PAGE> 17
incorporate by reference the required audited financial
statements and pro forma information.
(C) On February 5, 1996, UNIMAG filed a Form 8-K for the acquisition
of Triangle News Company, Inc., a Pennsylvania corporation and
subsequently amended on Form 8-KA on April 5, 1996 to include the
related audited and proforma financial information.
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
15
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