FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4310
FEDERATED PURCHASER, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 22-1589344
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
268 CLIFFWOOD AVENUE, CLIFFWOOD, NEW JERSEY 07721
(Address of principle executive offices)
(Zip Code)
(732) 290-2900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of September 14, 1998,
there are 1,719,758 shares of common stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 77,854 $ 69,358
Accounts receivable, less allowance for doubtful
accounts of $21,303 at July 31, 1998 and $16,803
at October 31, 1997, respectively 331,212 384,059
Inventories 203,844 228,583
Prepaid expenses and sundry receivables 1,604 49,754
Note receivable - Freedom Electronics Corporation 100,000 27,500
Restrictive covenant receivable 9,375 24,375
TOTAL CURRENT ASSETS 723,889 783,629
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $134,520 and $126,687 12,767 20,600
OTHER ASSETS:
Note receivable, Freedom Electronics Corporation,
net of current portion - 92,500
Security deposits 10,845 10,845
Other 93,601 93,601
TOTAL OTHER ASSETS 104,446 196,946
TOTAL ASSETS $ 841,102 $1,001,175
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 8,331
Accounts payable 616,448 468,479
Accrued expenses 90,029 31,984
TOTAL CURRENT LIABILITIES 706,477 508,794
DEFERRED INCOME 9,375 24,375
TOTAL LIABILITIES 715,852 533,169
STOCKHOLDERS EQUITY:
Common stock, $.10 par value,
Authorized, 5,000,000 shares,
Issued and outstanding, 1,719,758 shares 171,976 171,976
Additional paid-in capital 1,692,342 1,692,342
Accumulated deficit (1,677,990) (1,335,234)
Total 186,328 529,084
Less: Treasury stock at cost 61,078 61,078
TOTAL STOCKHOLDERS EQUITY 125,250 468,006
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 841,102 $1,001,175
</TABLE>
(1)
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
SALES $ 592,343 $ 836,668 $1,979,639 $2,515,054
OPERATING EXPENSES:
Cost of sales 420,738 636,828 1,466,692 1,919,823
Selling, shipping and general and administrative 283,869 275,579 867,033 774,253
Interest expense 259 706 1,953 2,013
Depreciation and amortization 3,172 3,290 7,833 9,436
TOTAL OPERATING EXPENSES 708,038 916,403 2,343,511 2,705,525
LOSS FROM OPERATIONS (115,695) (79,735) (363,872) (190,471)
OTHER INCOME:
Restrictive covenant 5,625 5,625 15,000 18,750
Interest income 1,837 1,838 5,177 8,721
Miscellaneous income - - 1,639 -
TOTAL OTHER INCOME 7,462 7,463 21,816 27,471
LOSS BEFORE PROVISION FOR
INCOME TAXES (108,233) (72,272) (342,056) (163,000)
PROVISION FOR INCOME TAXES - 40 700 1,015
NET LOSS $ (108,233) $ (72,312) $ (342,756) $ (164,015)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,611,317 1,611,317 1,611,317 1,611,317
LOSS PER BASIC AND DILUTED
COMMON SHARE $ (.07) $ (.05) $ (.21) $ (.10)
CASH DIVIDEND PER COMMON SHARE $ .00 $ .00 $ .00 $ .00
</TABLE>
(2)
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JULY 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Held in
Additional Treasury
Common Stock Paid-in Accumulated At Cost
Shares Amount Capital Deficit Shares Amount
<S> <C> <C> <C> <C> <C> <C>
BALANCES - November 1, 1996 1,719,758 $ 171,976 $1,692,342 $(1,053,333) 108,441 $61,078
Net loss - - - (164,015) - -
BALANCES - July 31, 1997 1,719,758 $ 171,976 $1,692,342 $(1,217,348) 108,441 $61,078
BALANCES - November 1, 1997 1,719,758 $171,976 $1,692,342 $(1,335,234) 108,441 $ 61,078
Net loss - - - (342,756) - -
BALANCES - July 31, 1998 1,719,758 $171,976 $1,692,342 $(1,677,990) 108,441 $ 61,078
</TABLE>
(3)
FEDERATED PURCHASER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(342,756) $(164,015)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 7,833 9,436
(Increase) decrease in operating assets:
Accounts receivable 52,847 89,821
Inventories 24,739 35,097
Prepaid expenses and sundry receivables 48,150 312
Increase (decrease) in operating liabilities:
Accounts payable 147,969 59,330
Accrued expenses 58,045 (29,413)
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES (3,173) 568
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in association membership - (1,700)
Collection of note receivable 20,000 15,000
NET CASH PROVIDED BY INVESTING ACTIVITIES 20,000 13,300
CASH FLOWS USED BY FINANCING ACTIVITIES:
Payments on long-term debt (8,331) (7,445)
NET INCREASE IN CASH 8,496 6,423
CASH - beginning of period 69,358 95,918
CASH - ending of period $ 77,854 $ 102,341
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,953 $ 2,013
Income taxes $ - $ -
</TABLE>
(4)
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
(Unaudited)
NOTE 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position as of July 31, 1998
and the results of operations for the nine months ended July 31, 1998 and 1997.
NOTE 2
The results of operations for the nine months ended July 31, 1998 and 1997
are not necessarily indicative of the results to be expected for the full year.
(5)
<PAGE>
Item 2.
FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
RESULTS OF OPERATIONS
The Company recognized a loss of $342,756 for the nine months ended July
31, 1998 on net sales of $1,979,639 compared to a loss of $164,015 for the nine
months ended July 31, 1997 on net sales of $2,515,054. The loss of $342,756 for
the current nine month period represents an increase of $178,741 in the loss
from the prior year to the current year. The current three month loss of
$108,233 is $35,921 higher than the prior year for the same three month period.
As a result of negative cash flows associated with these losses, as of July 31,
1998, working capital had decreased to $17,412 and the Company had an
accumulated deficit of $1,677,990. Because the Company currently has no access
to any outside source of capital, management must meet its short-term capital
requirements solely from cash from operations (if any) and existing cash
reserves. At July 31, 1998, the Company's cash reserves were $77,854. There can
be no assurance that the Company's cash reserves will be sufficient to satisfy
the Company's capital requirements or that the Company's inability to obtain
capital from outside sources will not force the Company to seek protection under
the United States Bankruptcy Code.
Net sales were $1,979,639 for the nine months ended July 31, 1998 as
compared to $2,515,054 for the nine months ended July 31, 1997, a decrease of
$535,415 or 21.3% under the prior year. Net sales were $592,343 for the three
months ended July 31, 1998 as compared to $836,668 for the three months ended
July 31, 1997, a decrease of $244,325 or 29.2% under the prior year for the same
three month period. This decrease in net sales is a result of intense
competition from larger competitors, as well as certain other industry trends
which negatively impact smaller electronics distributors such as the Company.
These competitive circumstances have continued to reduce the Company's sales
volume, which, along with gross margins, must improve in the short- term for the
Company to reverse its negative results of operations. The likelihood of
achieving the necessary increases in both sales volume and gross margins
continues to be compromised by several factors, including the loss of certain
customers due to the departure of key sales personnel, intense industry
competition and certain other industry trends which adversely impact smaller
electronics distributors. These trends include the consolidation of other small
distributors, the increase in the use of technology (which Federated's limited
capital resources have not permitted it to acquire), the diminished availability
of capital within the business, market place changes favoring value-added
services, and the reduction of franchises by major vendors. While management
continues its effort to improve sales volume while preserving the Company's
current customer base, there can be no assurances that management will succeed
in achieving the sales increases, improved margins and cost reductions which are
necessary to reverse the Company's negative results of operations.
Cost of sales were $1,466,692 for the nine months ended July 31, 1998
compared to $1,919,823 for the nine months ended July 31, 1997. Cost of sales
were $420,738 for the three months ended July 31, 1998 compared to $636,828 for
the three months ended July 31, 1997. The decrease in cost of sales for both the
nine months and three months ended July 31, 1998 is the result of the Company's
decrease in sales volume. The gross profit percentage for the nine months ended
July 31, 1998 was 25.9% as compared to 23.7% for the nine months ended July 31,
1997. The gross profit percentage for the three months ended July 31, 1998 was
29.0% as compared to 23.9% for the three months ended July 31, 1997. The
increase in gross profit percentage is the result of increases in sales prices
to customer and the implementation of more efficient purchasing policies. There
can be no assurances that the improvement in Federated's gross profit percentage
can be sustained, or that lower gross profits associated with the reduction in
sales volume will not force Federated to seek protection un the United States
Bankruptcy Code.
Selling, shipping and general and administrative ("SSG&A") expenses were
$867,033 for the nine months ended July 31, 1998, compared to $774,253 for the
nine months ended July 31, 1997, an increase of $92,780 or 12.0% over the prior
year. The increase is primarily the result of an increase of $5,000 in office
salaries, an increase of $108,000 in professional fees and a decrease of $22,000
in sales salaries. For the three months ended July 31, 1998, selling, shipping
and general and administrative expenses were $283,869 compared to $275,579 for
the nine months ended July 31, 1997, an increase of $8,290 over the prior year.
The increase is primarily the result of an increase of $27,000 in professional
fees, a decrease of $26,000 in sales salaries and a decrease of $5,000 in sales
expenses. Management anticipates that further reductions in SSG&A expenses will
be necessary to reverse the Company's negative results of operations.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
became effective for financial statements for periods ending after December 31,
1997, and requires presentation of two calculations of earnings per common
share. "Basic" earnings per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" earnings per
common share equals net income divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents. The
Company's Basic and Diluted per share amounts are the same since there are no
outstanding common stock equivalents. The Company restated all prior period
amounts to reflect these calculations.
(6)
<PAGE>
FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has been and continues to be adversely
affected by a variety of factors, including the operating loss of $281,901 for
the year ended October 31, 1997 and the operating loss of $342,756 for the nine
months ended July 31, 1998. Moreover, the Company's liquidity position may be
further negatively impacted to the extent that certain trends, including intense
competition from larger competitors in the electronics industry and the
migration of certain customers, from smaller to larger distributors, continue to
decrease the Company's sales levels, gross profit margins, or both. The
Company's ability to satisfy its fixed costs of operations in the future will
depend upon management's success in increasing sales, improving gross margins,
reducing operations costs, securing additional lines of credit from outside
lenders or entering into strategic alliances. There can be no assurances that
the Company's liquidity position will not continue to be impaired both in the
short-term and in the future. Due to Federated's impaired liquidity position,
negative financial performance, reliance on cash to sustain operations and
certain other factors, Federated's independent auditors raised substantial doubt
regarding Federated's ability to continue as a going concern in Federated's
annual report for the year ended October 31, 1997. If Federated is not
successful in achieving any or all of its strategic objectives, it may have to
seek protection under the United States Bankruptcy Code.
Cash and cash equivalents increased by $8,496 for the nine months ended
July 31, 1998 compared to a increase of $6,423 for the nine months ended July
31, 1997. For the nine months ended July 31, 1998, the Company used cash from
operating activities of $3,173 primarily from the loss of $342,756, an increase
of $206,014 in accounts payable and accrued expenses, a decrease of $52,847 in
accounts receivable, a decrease of $24,739 in inventories and a decrease of
$48,150 in prepaid expenses. For the nine months ended July 31, 1997, the
Company generated cash from operating activities of $568 primarily as a result
of a decrease of $89,821 in accounts receivable, a decrease of $35,097 in
inventories, an increase of $59,330 in accounts payable offset by the net loss
of $164,015 and a decrease of $29,413 in accrued expenses. The Company generated
cash of $20,000 from investing activities for the nine months ended July 31,
1998 by collections on a note receivable. The Company generated cash of $13,300
for the nine months ended July 31, 19987 from investing activities from the
$15,000 collected on a note receivable offset by $1,700 in association
membership costs. During the nine months ended July 31, 1998, the Company used
cash of $8,331 for payments on notes payable and for the nine months ended July
31, 1997 used cash of $7,445 for payments on notes payable.
Based upon the Company's continuing losses, the Company has experienced
periods of declining cash balances, which have negatively impacted the accounts
payable balances of trade creditors. The Company has been slow in the payment of
its accounts payable and approximately 66% of its accounts payable are over 30
days old and 53% are over 60 days old as of July 31, 1998. On open trade
accounts payable for unsecured creditors, the Company has no knowledge of any
pending or threatened legal actions which would force the Company into
bankruptcy. As of July 31, 1998, open trade accounts payable and accrued
expenses for unsecured creditors totaled $706,477.
CAPITAL RESOURCES - WORKING CAPITAL REQUIREMENTS
Federated currently has no access to any outside source of capital. While
management continues to seek new sources of financing from other financial
institutions, no such arrangements have yet been established. As a result,
management must meet substantially all of its short-term capital requirements
from cash from operations (if any) and existing cash reserves which continue to
deteriorate as a result of the Company's recurring operating losses. There can
be no assurances that the Company's current cash reserves will be sufficient to
satisfy the Company's financing requirements or that the Company's inability to
obtain capital from outside sources will not impair its ability to continue
future operations.
Federated maintains their records on the accrual basis of accounting.
Income is earned and recorded at the time of shipment which is when title
passes. Expenses are recorded when incurred. Any merchandise returned by
customers in the normal course of business must be pre-approved by management.
(7)
<PAGE>
FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
In conjunction with the sale of all the common stock of its wholly-owned
subsidiary, Freedom Electronics Corporation, on November 14, 1994, Federated
entered into a noncompete agreement with the purchaser. The $90,000 noncompete
agreement is being recognized into income over the four-year term of the
agreement based upon monthly installments received.
The Company's balance sheet at July 31, 1998 reflects working capital of
$17,412 as compared to $344,129 at July 31, 1997, which represents a decrease of
$326,717.
The Company' stockholders' equity amounted to $125,250 at July 31, 1998,
equivalent to a book value per common share of $.08. As of July 31, 1997,
stockholders' equity amounted to $585,892 equivalent to a book value per common
share of $.36.
On June 22, 1998, Wise Components, Inc. notified the Company of its
intention to cease negotiations whereby Federated would acquire all of the
outstanding shares of Wise Components, Inc.
(8)
<PAGE>
PART II - OTHER INFORMATION
FEDERATED PURCHASER, INC.
OTHER INFORMATION
JULY 31, 1998 AND 1997
(Unaudited)
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company was not required to report any material, unusual charges or
credits to income pursuant to Item 10(a) or a change in independent accountants
pursuant to Item 12 of Form 8-K for the nine months ended July 31, 1998 other
than which has been reported.
Form 8-K filed on November 30, 1994 in regard to the divestiture of Freedom
Electronics Corp.
Form 8-K filed on December 20, 1994 in regard to the change in registrant's
certifying accountant.
There were no securities of the Company sold by the Company during the nine
months ended July 31, 1998, which were not registered under the Securities Act
of 1933, in reliance upon an exemption from registrations provided by Section
4(2) of the Act.
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.
FEDERATED PURCHASER, INC.
(Registrant)
/s/ Harry J. Fallon
Harry J. Fallon, President and
Principal Accounting Officer
12/11/98
Date
(9)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-START> May-1-1998
<PERIOD-END> Jul-31-1998
<CASH> 77,854
<SECURITIES> 0
<RECEIVABLES> 352,515
<ALLOWANCES> 21,303
<INVENTORY> 203,844
<CURRENT-ASSETS> 723,889
<PP&E> 147,287
<DEPRECIATION> 134,520
<TOTAL-ASSETS> 841,102
<CURRENT-LIABILITIES> 706,477
<BONDS> 0
0
0
<COMMON> 171,976
<OTHER-SE> (46,726)
<TOTAL-LIABILITY-AND-EQUITY> 841,102
<SALES> 1,979,639
<TOTAL-REVENUES> 2,001,455
<CGS> 1,466,692
<TOTAL-COSTS> 1,466,692
<OTHER-EXPENSES> 870,366
<LOSS-PROVISION> 4,500
<INTEREST-EXPENSE> 1,953
<INCOME-PRETAX> (342,756)
<INCOME-TAX> 700
<INCOME-CONTINUING> (342,756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (342,756)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
