FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 COMMISSION FILE NUMBER: 0-7235
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ................ TO ................
FEDERATED PURCHASER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 22-1589344
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
268 CLIFFWOOD AVENUE
CLIFFWOOD, NEW JERSEY 07721
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (732) 290-2900
_________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS:
Common Stock, $.10 par value
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 ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. [ X ]
The aggregate market value of the 1,158,240 shares of the common stock of
the Registrant held by non-affiliates on January 7, 1998 based upon the average
of the bid and asked prices was approximately $122,158. The number of shares
of the registrant's common stock outstanding as of January 7, 1998 was
1,611,317 shares, par value $.10 per share.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
This Amendment 2 on Form 10-K/A to the Registrant's Annual Report for the
year ended October 31, 1997 on Form 10-K is submitted to reflect the amendment
of Items 7 and 8. No other Items of the Registrant's Annual Report on Form 10-
K are amended.
Federated Purchaser, Inc. ("Federated") announced on October 1, 1997 that it
has signed an agreement (the "Agreement") with Wise Components, Inc. ("Wise"),
and its chairman and sole shareholder, Martin L. Blaustein ("Mr. Blaustein"),
under which Federated will issue 4,491,988 shares of its common stock to Mr.
Blaustein in a tax-free exchange (the "Exchange") for all of the outstanding
shares of Wise's stock. Upon closing, Wise will become a wholly-owned
subsidiary of Federated and Mr. Blaustein will become Federated's principal
shareholder, owning approximately 74% of Federated's common stock. The
remaining 26% will continue to be held by current shareholders of Federated.
The Agreement also provides that upon the occurrence of certain events during
the six months subsequent to the Exchange, Federated may issue up to an
additional 390,656 shares of Common Stock to Mr. Blaustein. Accordingly, a
total of 4,882,644 shares of Common Stock are to be issued.
A Current Report on Form 8-K reporting the Exchange was filed with the
Securities and Exchange Commission on October 1, 1997.
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<PAGE>
PART I
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company has experienced significant operating losses throughout the
past five operating periods. For fiscal 1997, fiscal 1996, fiscal 1995, fiscal
1994, and fiscal 1993, the Company incurred losses of $281,901, $414,826,
$546,062, $373,849, and $315,621, respectively. As a result of negative cash
flows associated with these losses, as of October 31, 1997, working capital had
decreased 88.5% to $274,835 from $2,389,580 at October 31, 1991 and the Company
had an accumulated deficit of $1,335,234. While management is seeking to
address these problems by increasing sales and reducing operating costs, there
can be no assurances that the Company will be successful in its efforts to
improve either its liquidity position or operating results. In addition,
because the Company currently has no access to any outside source of capital
(except for an existing equipment financing arrangement), management must meet
its short-term capital requirements solely from cash from operations (if any)
and existing cash reserves. There can be no assurances 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.
While there can be no assurances, management believes that the Proposed
Transaction will improve the Company's operating performance and financial
condition. See Note 14 - Consolidated Financial Statements.
In November 1994, the Company divested its subsidiary, Freedom. In
accordance with generally accepted accounting principles, the divestiture of
the operations of Freedom has not been accounted for as a discontinued
operation because Freedom was not a separate business entity. As a result,
management's discussion compares (i) the Company's results of operations for
fiscal 1996 (which do not include Freedom) to the Company's results of
operations for fiscal 1995 (which do not include Freedom), (ii) the Company's
results of operations for fiscal 1995 (which do not include Freedom) to the
Company's results of operations for fiscal 1994 (which include Freedom) and
(iii) Federated's results of operations for fiscal 1995 to Federated's Pro
Forma results for fiscal 1994 (which include Freedom). Management believes this
approach more accurately reflects the Company's recent financial performance.
RESULTS OF OPERATIONS
The Company recognized a net loss of $281,901 for the year ended October
31, 1997 on net sales of $3,252,670, as compared to a net loss of $414,826 for
the year ended October 31, 1996 on net sales of $3,980,560, and a net loss of
$546,062 for the year ended October 31, 1995 on net sales of $4,118,799. The
loss of $546,062 for the year ended October 31, 1995 included a loss of
$182,791 on the divestiture of the Company's subsidiary, Freedom Electronics
Corp. ("Freedom").
Despite the relative improvement in the magnitude of the loss when
compared with the years ended October 31, 1996 and 1995, the loss represents a
continuation of repeated significant operating losses experienced by Federated
since prior to 1992. As a result of negative cash flows associated with these
losses, as of October 31, 1997, working capital had decreased to $274,835 and
Federated had an accumulated deficit of $1,335,234. Because Federated
currently has no access to any outside source of capital (except for an
existing equipment financing arrangement), management must meet its short-term
capital requirements solely from cash from operations (if any) and existing
cash reserves. At October 31, 1997, Federated's cash reserves were $69,358.
There can be no assurances that Federated's cash reserves will be sufficient to
satisfy Federated's capital requirements or that Federated's inability to
obtain capital from outside sources will not force Federated to seek protection
under the United States Bankruptcy Code. While there can be no assurances,
management believes that the Proposed Transaction will improve the Company's
operating performance and financial condition. See Note 14 - Consolidated
Financial Statements.
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<PAGE>
Net sales were $3,252,670 for the year ended October 31, 1997 as compared
to $3,980,560 for the year ended October 31, 1996, or a decrease of $727,890 or
18.2% over the prior year. Net sales were $3,980,560 for the year ended
October 31, 1996 as compared to $4,118,799 for the year ended October 31, 1995,
a decrease of $138,239 or 3.4% over the prior year. The decrease in sales for
the year 1997 as compared to 1996 of $727,890 and the decrease in sales for the
year 1996 as compared to 1995 of $138,239 is due to intense competition,
particularly in the Northeast United States, and trends adversely affecting the
electronics industry as a whole (as described in more detail below). These
competitive circumstances have continued to reduce Federated's sales volume,
which, along with gross margins, must improve in the short-term and in the
long-term, for Federated 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 which has resulted in management seeking additional sales volume
through price reductions, 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,
marketplace changes favoring value-added services, and the reduction of
franchises by major vendors. While management continues its effort to improve
sales volume while preserving Federated'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 Federated's
negative results of operations.
Cost of sales were $2,493,482 or 76.6% of sales for the year ended
October 31, 1997 as compared to $3,128,019 or 78.6% of sales for the year ended
October 31, 1996 and $3,172,060 or 77.0% of sales for the year ended October
31, 1995. The decrease in cost of sales for the years ended October 31, 1997,
1996 and 1995 are the result of Federated's decrease in sales volume. The
gross profit percentage for the year ended October 31, 1997 was 23.4% as
compared to 21.4% for the year ended October 31, 1996 and 23.0% for the year
ended October 31, 1995. The increase of 2.0% in gross profit percentage for
the year ended October 31, 1997 when compared to October 31, 1996, is the
result of management's attempt to increase sales prices to customers and
decrease prices paid to suppliers. The decrease in gross profit percentage of
1.6% from 23.0% for the year ended October 31, 1995 to 21.4% for the year ended
October 31, 1996 was the result of increased competition within the industry
and management's decision to attempt to improve the Company's sales volume and
operating results by reducing prices to its customers. There can be no
assurances that the minor improvement in Federated's gross margin can be
sustained, or that lower gross profits associated with the reduction in sales
volume will not force Federated to seek protection under the United States
Bankruptcy Code.
Selling, shipping and general and administrative ("SSG&A") expenses were
$1,061,382 for the year ended October 31, 1997, compared to $1,286,444 for the
year ended October 31, 1996 and $1,353,609 for the year ended October 31, 1995.
Fiscal year 1997 thus showed a decrease in SSG&A of $225,062 when compared to
year ended October 31, 1996. The decrease of $225,062 is the result of a
reduction of sales salaries of 18.6%, a reduction of administrative salaries of
14.0% a reduction of telephone expense of 32.2% and a reduction of general
expenses of 36.2%. The decrease of $225,062 for the year ended October 31,
1997 when compared to the year ended October 31, 1996 represented a 17.4%
decrease in SSG&A expenses. SSG&A expenses for the year ended October 31, 1996
were $1,286,444 compared to $1,353,609 for the year ended October 31, 1995, a
decrease of $67,165 over the prior year. The decrease of $67,165 is the result
of a reduction in warehouse salaries of 48.6%, a reduction of administrative
salaries of 10.3%, a reduction of insurance costs of 36.0%, a reduction of bad
debt expense of 64.1%, partially offset by an increase in sales salaries of
7.7%. Management anticipates that further reductions in SSG&A expenses will be
necessary to reverse Federated's negative results of operations.
Interest earned on the Company's cash reserves and notes receivable were
$11,054 for the year ended October 31, 1997 as compared to $14,830 for the year
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<PAGE>
ended October 31, 1996 and $32,530 for the year ended October 31, 1995. The
decrease of $3,776 for the year ended October 31, 1997 as compared to October
31, 1996 was attributable to lower cash balances, which continue to deteriorate
as a result of the Company's operating losses and lower note receivable
balances. The decrease of $17,700 for the year ended October 31, 1996 when
compared to October 31, 1995 was due to lower cash balances as a result of
recurring operating losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has been and continues to be adversely
affected by a variety of factors, including the $281,901 loss for the year
ended October 31, 1997, the loss of $414,826 for the year ended October 31,
1996 and the loss of $546,062 for the year ended October 31, 1995. 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 Federated's sales
levels, gross profit margins, or both. While Federated enhanced its short-term
liquidity position when it received a one-time cash payment of $755,845 from
its November 15, 1994 divestiture of a former subsidiary, Freedom Electronics,
those proceeds have been used to sustain operations since that time. Thus,
Federated'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. Due to Federated's impaired
liquidity position, negative financial performance, reliance on cash to sustain
operations and certain other factors, Federated's independent auditors raise
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. While there
can be no assurances, management believes that the Proposed Transaction will
improve the Company's operating performance and financial condition. See
"Going Concern Question", below, and Note 14 to the Consolidated Financial
Statements.
Cash and cash equivalents decreased by $26,560 for the year ended October
31, 1997 as compared to a decrease of $90,597 for the year ended October 31,
1996 and an increase of $23,655 for the year ended October 31, 1995. During
the year ended October 31, 1997, the Company used net cash of $71,461 from
operating activities primarily from the net loss of $281,901, a decrease of
$118,762 in accounts receivable, a decrease of $85,864 in inventories and a
increase of $30,741 in accounts payable and accrued expenses. The Company
generated cash of $55,525 for the year ended October 31, 1997, primarily though
collections of a note receivable from Freedom Electronics of $55,000. During
the year ended October 31, 1997, the Company used cash of $10,624 for payments
on long-term debt.
During the year ended October 31, 1996, the Company used net cash of
$190,456 from operating activities, primarily because of the net loss for the
year, the decrease of $77,835 in inventories and the increase of $127,913 in
accounts payable and accrued expenses. The Company generated cash of $110,601
for the year ended October 31, 1996, primarily through the receipt of $99,744
on the redemption of marketable securities and the collection of $35,000 in
notes receivable; these decreases were partially offset by the $23,672 increase
in association membership costs. The collection of $35,000 in notes receivable
is due to Federated's renegotiation of certain terms relating to debt owed by
Freedom to Federated as a result of the divestiture. During the year ended
October 31, 1996, the Company used cash of $10,742 for payments on long-term
debt.
During the year ended October 31, 1995, the Company used net cash of
$474,722 from operating activities, primarily because the net loss for the
year. The Company generated cash from investing activities of $573,001 for the
year ended October 31, 1995, primarily from the $755,845 proceeds on the
divestiture of Freedom, and used cash of $286,224 to purchase marketable
securities, while redeeming marketable securities of $192,439. During the year
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<PAGE>
ended October 31, 1995, the Company used cash of $74,624 to pay off a note
payable in the amount of $63,999 and long-term debt in the amount of $10,625.
The note was pursuant to a credit line agreement with New Jersey National Bank,
which had previously been withdrawn by the bank. The note was secured by
accounts receivable and inventory of the Company. As part of the consideration
received in connection with the divestiture of Freedom, Federated was relieved
of its obligations under a note payable to United Jersey Bank in the amount of
$250,000. Federated had been a guarantor of this obligation of Freedom.
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 47% of its accounts payable are over
30 days old and 21% are over 60 days old as of October 31, 1997. 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 October 31, 1997, open trade accounts payable and accrued
expenses for unsecured creditors totaled $500,463. Secured creditors on long-
term debt, namely for the purchase of computer equipment totaled $8,331. As of
October 31,1996, open trade accounts payable and accrued expenses for unsecured
creditors totaled $469,712, and secured creditors on long-term debt, namely for
the purchase of computer equipment totaled $18,955. The Company anticipates
that the increased cash flow and greater efficiency resulting from the Exchange
will enable it to resume a current payment schedule, and plans to do so as soon
as it becomes practicable.
CAPITAL RESOURCES - WORKING CAPITAL REQUIREMENTS
Federated currently has no access to any outside source of capital,
except for approximately $8,300 outstanding under an existing equipment
financing arrangement. While management continues to seek new sources of
financing from other financial institutions, no such arrangements has 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. While there can be no
assurances, management believes that the Proposed Transaction will improve the
Company's operating performance and financial condition. See Note 14 -
Consolidated Financial Statements.
A supplier of electronic parts to Federated Purchaser terminated
Federated Purchaser's franchise agreement as an Industrial Electronic
Distributor effective July 1, 1997. Federated expects to continue to be able
to obtain electronic parts from the supplier through a cooperative purchasing
group.
Federated maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when incurred.
Federated's accounting policies with respect to customer right of returns is to
require written authorization by Federated, except for special order items,
which are handled on a case by case basis.
The Company's balance sheet reflects working capital of $274,835 and
$490,614 at October 31, 1997 and 1996, respectively, a decrease of $215,779 or
43.9% for the year 1997.
The Company's stockholders' equity amounted to $468,006 at October 31,
1997, equivalent to a book value per common share of $.29. As of October 31,
1996, stockholders' equity amounted to $749,907 equivalent to a book value per
common share of $.47.
On October 1, 1997, Federated Purchaser, Inc. signed an agreement whereby
Federated will acquire all of the outstanding shares of stock of Wise
Components, Inc. in an exchange of stock which will be accounted for as a
purchase.
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<PAGE>
On November 15, 1994, by unanimous vote of all non-interested directors,
Federated divested its subsidiary, Freedom. In consideration of the
divestiture of 100% of the outstanding shares of Freedom, Federated received
approximately $360,500, including $100,000 in cash, a $210,000 promissory note
and 88,889 shares of common stock of Federated (representing 4.9% of the
outstanding class of common shares) held personally by Freedom's President. In
addition, the parties entered into customary covenants not to compete, pursuant
to which Federated became entitled to receive $90,000 over a four year period.
As part of this transaction, certain intercompany indebtedness to Federated was
satisfied by payment of an additional $656,000. While there are no written,
oral or other binding agreements between Federated and Freedom regarding their
ongoing business relationship, both Federated and Freedom anticipate selling
certain goods to each other on mutually beneficial terms. During the period
November 16, 1994 to October 31, 1995, the period immediately following the
divestiture of Freedom, Freedom sold goods to Federated in the amount of
$76,112 and Federated sold goods to Freedom for $69,193. During the year ended
October 31, 1996, Federated purchased goods from Freedom totaling $776 and did
not sell any goods to Freedom during the same period. During the year ended
October 31, 1997, Federated did not purchase any goods from Freedom, nor did it
sell any goods to Freedom.
The loss on the divestiture of Freedom amounted to $182,791 or $.11 per
share.
GOING CONCERN QUESTION
The Company is addressing the threat to its ability to continue as a
going concern primarily by pursuing the Exchange with Wise and Mr. Blaustein,
and by continuing its efforts to diminish costs and increase sales -- both of
which will be much easier to attain with the addition of Wise's resources. It
is estimated that $150,000 would constitute sufficient funds to overcome the
threat to Federated's ability to continue as a going concern. Under the
Exchange, neither Wise nor Blaustein have committed to provide these funds, and
it is doubtful that the Company will be able to raise these funds either
through results of operations or by other means. Based on Federated's current
impaired liquidity, in the event the Exchange is not consummated, management
believes that Federated can continue operations for the next two to three
months without the protection of the federal bankruptcy laws. There can be no
assurances that Federated will not seek bankruptcy protection at an earlier
date. However, assuming consummation of the Exchange, management believes that
as the two firms integrate their operations, the losses experienced by
Federated will be offset by the much stronger operations of Wise. The
combination of the two firms will also allow Federated to reduce certain of its
operating expenses by eliminating overlapping operations. Assuming
consummation of the Exchange, the Company's auditors have indicated that their
report for the year ending December 31, 1998 will not include any question
regarding Federated's ability to continue as a going concern.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
FEDERATED PURCHASER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
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<PAGE>
FEDERATED PURCHASER, INC.
OCTOBER 31, 1997, 1996 AND 1995
CONTENTS
PAGE
Independent Auditors' Report 9
Consolidated Balance Sheets 10
Consolidated Statements of Operations 11
Consolidated Statements of Stockholders' Equity 12
Consolidated Statements of Cash Flows 13-14
Notes to Consolidated Financial Statements 15-19
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Federated Purchaser, Inc.
Cliffwood, New Jersey
We have audited the consolidated balance sheets of Federated Purchaser, Inc.
and its subsidiaries as of October 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended October 31, 1997, 1996 and 1995. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Federated
Purchaser, Inc. and its subsidiaries as of October 31, 1997 and 1996, and the
results of its operations and its cash flows for the years ended October 31,
1997, 1996 and 1995 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BEDERSON & COMPANY LLP
January 8, 1998
West Orange, New Jersey
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<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
CURRENT ASSETS:
<S> <C> <C>
Cash $ 69,358 $ 95,918
Accounts receivable, less allowance for doubtful
accounts of $16,803 and $26,339, respectively 384,059 493,285
Inventories 228,583 314,447
Prepaid expenses and sundry receivables 49,754 22,925
Note receivable - Freedom Electronics Corporation 27,500 20,000
Restrictive covenant receivable 24,375 24,375
TOTAL CURRENT ASSETS 783,629 970,950
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 20,600 32,028
OTHER ASSETS:
Note receivable - Freedom Electronics Corporation,
net of current portion 92,500 155,000
Restrictive covenant receivable, net of current portion - 24,375
Security deposits 10,845 10,845
Association membership 93,601 94,126
TOTAL OTHER ASSETS 196,946 284,346
TOTAL ASSETS $1,001,175 $1,287,324
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of long-term debt $ 8,331 $ 10,624
Accounts payable 468,479 375,851
Accrued expenses 31,984 93,861
TOTAL CURRENT LIABILITIES 508,794 480,336
LONG-TERM DEBT, less current portion - 8,331
DEFERRED INCOME 24,375 48,750
TOTAL LIABILITIES 533,169 537,417
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, authorized,
5,000,000 shares, 1,719,758 shares issued 171,976 171,976
Additional paid-in capital 1,692,342 1,692,342
Accumulated deficit (1,335,234) (1,053,333)
Total 529,084 810,985
Less: Treasury stock, 108,441 shares, at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 468,006 749,907
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,001,175 $1,287,324
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
REVENUES:
<S> <C> <C> <C>
Sales, net $3,252,670 $3,980,560 $4,118,799
COSTS AND EXPENSES (INCOME):
Cost of sales 2,493,482 3,128,019 3,172,060
Selling, shipping, and general and administrative 1,061,381 1,286,444 1,353,609
Loss on sale of subsidiary - - 182,791
Depreciation and amortization 11,427 11,575 11,260
Interest expense 2,850 2,828 3,811
Interest income (11,054) (14,830) (32,530)
Restrictive covenant (24,375) (20,625) (20,625)
Other income (240) - (9,878)
TOTAL COSTS AND EXPENSES (INCOME) 3,533,471 4,393,411 4,660,498
LOSS BEFORE PROVISION FOR INCOME TAXES (280,801) (412,851) (541,699)
PROVISION FOR INCOME TAXES 1,100 1,975 4,363
NET LOSS $ (281,901) $ (414,826) $ (546,062)
LOSS PER SHARE $ (.17) $ (.26) $ (.34)
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
Additional Held in
COMMON STOCK Paid-in Accumulated Treasury At Cost
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCES - October 31, 1994 1,719,758 $ 171,976 $1,692,342 $ (92,445) 19,552 $ 16,633
Purchase of treasury stock - - - - 88,889 44,445
Net loss - - - (546,062) - -
BALANCES - October 31, 1995 1,719,758 171,976 1,692,342 (638,507) 108,441 61,078
Net loss - - - (414,826) - -
BALANCES - October 31, 1996 1,719,758 171,976 1,692,342 (1,053,333) 108,441 61,078
Net loss - - - (281,901) - -
BALANCES - October 31, 1997 1,719,758 $ 171,976 $1,692,342 $(1,335,234) 108,441 $ 61,078
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-12-
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(281,901) $ (414,826) $(546,062)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 11,427 11,575 11,260
Allowance for doubtful accounts (9,525) 4,751 4,001
Accrued interest income - - (5,959)
Loss on divestiture of Freedom Electronics, Corp. - - 182,791
(Increase) decrease in current assets:
Accounts receivable 118,762 (11,647) (100,164)
Inventories 85,864 77,835 48,370
Prepaid expenses and sundry receivables (26,829) 13,943 (6,033)
Tax refund receivable - - 5,119
Decrease in security deposits - - 9,228
Increase (decrease) in current liabilities:
Accounts payable 92,628 92,526 (47,095)
Accrued expenses (61,887) 35,387 (30,178)
NET CASH USED BY OPERATING ACTIVITIES (71,461) (190,456) (474,722)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on divestiture of Freedom Electronics, Corp. - - 100,000
Investment in subsidiary - - (50,471)
Purchase of marketable securities - - (286,224)
Sale of marketable securities - 99,744 192,439
Advance to subsidiary - - (15,500)
Purchase of property and equipment - (471) (2,688)
Collection of note receivable 55,000 35,000 655,845
(Increase) decrease in association membership costs 525 (23,672) (20,400)
NET CASH PROVIDED BY INVESTING ACTIVITIES 55,525 110,601 573,001
CASH FLOWS USED BY FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (10,624) (10,742) (74,624)
NET INCREASE (DECREASE) IN CASH (26,560) (90,597) 23,655
CASH - beginning of year 95,918 186,515 162,860
CASH - end of year $ 69,358 $ 95,918 $ 186,515
</TABLE>
(Continued)
The accompanying notes are an
integral part of these financial statements.
-13-
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
<S> <C> <C> <C>
Interest $ 2,850 $ 2,828 $ 3,811
Income taxes $ 404 $ - $ 421
NON-CASH INVESTING AND FINANCING ACTIVITY:
Divestiture of Freedom Electronics Corp.,
summarized as follows:
Selling price $ - $ - $1,100,290
Less:
Note receivable - - (210,000)
Restrictive covenant - - (90,000)
Treasury stock - - (44,445)
Cash received $ - $ - $ 755,845
Cash received $ - $ - $ 755,845
Applied to:
Sale of stock - - (100,000)
Intercompany indebtedness - - (655,845)
- - (755,845)
$ - $ - $ -
</TABLE>
(Concluded)
The accompanying notes are an
integral part of these financial statements.
-14-
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Companies are engaged in the sale of electronic parts, components
and related equipment.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
REVENUE RECOGNITION
Federated Purchaser, Inc. and its subsidiaries, ("the Company" or
"Federated") maintain 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.
DEFERRED REVENUE
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany items have been eliminated. (See Note 13,
Sale of Subsidiary.)
INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment, including significant betterments, are recorded
at cost. Upon retirement or disposal of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or
loss is included in income. Maintenance and repair costs are charged
to expense as incurred. Provisions for depreciation are made using the
straight-line method over the estimated economic lives of the assets.
ADVERTISING
Advertising costs are expensed as incurred and included in Selling,
Shipping and General and Administrative Expenses. Advertising expenses
for the years ended October 31, 1997, 1996 and 1995 were $6,898,
$19,792 and $20,149, respectively.
DEFERRED INCOME TAXES
Deferred income taxes are provided on a liability method whereby
deferred income tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred income tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred income tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all
deferred tax assets will not be realized. Deferred income tax assets
and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
-15-
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with current
year presentation. Such reclassifications had no effect on reported net
losses.
NET LOSS PER COMMON SHARE
The computations of losses per share are based upon the Company's net loss
of $281,901, $414,826 and $546,062 for the years ended October 31, 1997,
1996 and 1995, respectively, divided by the weighted average number of
shares outstanding of 1,611,317 in 1997 and 1996 and 1,614,726 in 1995.
There were no common stock equivalents or other reconciling items affecting
either the numerator or denominator in calculating earnings (loss) per
share.
LONG-LIVED ASSETS
Effective November 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In
accordance with SFAS No. 121, the Company reviewed long-lived assets for
impairment whenever events or changes in business circumstances occur that
indicate that the carrying amount of the assets may not be recoverable.
The Company assesses the recoverability of long-lived assets held and to be
used based on undiscounted cash flows, and measures the impairment, if any,
using discounted cash flows. Adoption of SFAS No. 121 did not have a
material impact on the Company's financial position, operating results or
cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, trade accounts receivable,
notes receivable, accounts payable, accrued expenses, the carrying amounts
approximate fair value due to their short term maturities. The amount
shown for long-term receivables also approximate fair value. The fair
value of the Company's long-term debt is based upon rates currently
available to the Company for loans with similar terms and average
maturities. The fair value of the long-term debt approximates its carrying
value.
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.
As shown in the financial statements, the Company has incurred net losses
of $281,901, $414,826 and $546,062 for the fiscal years ended October 31,
1997, 1996 and 1995, respectively and sales and working capital have
continued to decline. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's continued operations will depend on its ability to raise
additional funds through a combination of equity or debt financing,
strategic alliances, increased revenues and reduction of operating costs.
See Note 14 - Proposed Acquisition.
The Company's long-term liquidity will depend on its ability to raise
substantial additional funds. There can be no assurances that such funds
will be available to the Company on acceptable terms, if at all.
NOTE 3 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH DEPOSITS IN
EXCESS OF INSURED LIMITS
The Company sells its products to various customers primarily in the
Northeast United States. The Company performs ongoing credit evaluations
on its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been
within management's expectations. At times throughout the year the Company
may maintain certain bank accounts in excess of the FDIC insured limits.
-16-
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following: 1997 1996
<S> <C> <C>
Merchandise for resale $228,583 $314,447
</TABLE>
<TABLE>
<CAPTION>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1997 1996 USEFUL LIFE
<S> <C> <C> <C>
Leasehold improvements $ 12,522 $ 12,522 5 - 31 years
Furniture, fixtures and equipment 110,626 110,626 5 - 15 years
Automotive equipment 24,139 24,139 4 years
Total 147,287 147,287
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Less: Accumulated depreciation
and amortization 126,687 115,259
Net property and equipment $ 20,600 $ 32,028
</TABLE>
NOTE 6 - ASSOCIATION MEMBERSHIP
The Company is a member of a cooperative buying group and has been
purchasing stock in such group pursuant to group guidelines. The total
investment as of October 31, 1997 and 1996 was $93,601 and $94,126,
respectively. In the event that the Company were to leave the group,
the group would be obligated to refund all invested amounts over a five
year period. The association membership is valued at cost, which
approximates the current market value.
<TABLE>
<CAPTION>
NOTE 7 - LONG-TERM DEBT
Long-term debt payable consist of the following:
1997 1996
<S> <C> <C>
IBM Credit Corporation, payable in monthly
installments of $1,122, including interest
at 11% through July 1998, secured by data
processing equipment. $ 8,331 $ 18,955
Less: Current portion 8,331 10,624
Total long-term debt $ - $ 8,331
NOTE 8 - ACCRUED EXPENSES
Accrued expenses as of October 31, consist of the following:
1997 1996
Payroll $12,944 $ 17,693
Professional fees 11,680 63,470
Sundry 7,360 12,698
Total accrued expenses $31,984 $ 93,861
</TABLE>
-17-
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 9 - RETIREMENT PLAN
The Company sponsored a profit sharing plan covering substantially all
employees. There was no charge to income for 1996 and 1995. The Board
of Directors adopted a resolution on December 1, 1995 to terminate the
Company's sponsored profit sharing plan covering substantially all
employees.
NOTE 10 - INCOME TAXES DEFERRED AND PAYABLE
Components of provision for income taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
Current:
Federal $ - $ - $ -
State 1,100 1,975 4,363
Total 1,100 1,975 4,363
Deferred:
Federal - - -
Total taxes $ 1,100 $ 1,975 $ 4,363
</TABLE>
Accounting for income taxes provides for an asset and liability
approach to accounting for income taxes that require the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
In estimating future consequences, all expected future events other
than proposed changes in the tax law or rates prior to enactment. A
valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Temporary differences between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to significant
portions of the net deferred tax asset relate to the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accounts receivable, principally due to
allowance for doubtful accounts $ 7,225 $ 11,326
Carryforward losses 801,423 672,025
Valuation allowance (808,648) (683,351)
Net deferred tax assets and liabilities $ - $ -
</TABLE>
At October 31, 1997, the Company had net operating loss carryforwards
of approximately $1,796,000 that expire in the years 2008 to 2012.
The consolidated income tax (benefit) was different than the amount
computed using the United States statutory income tax rate for the
reasons set forth in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Expected tax (credit) at U.S.
statutory income tax rate $ (95,472) $(141,041) $(184,178)
State income taxes 1,100 1,975 4,363
Valuation allowance 95,472 141,041 184,178
$ 1,100 $ 1,975 $ 4,363
</TABLE>
-18-
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 11 - LEASE COMMITMENT
As of September 30, 1992, the Company moved to a new facility under an
operating lease agreement which will expire on December 31, 1998 at a
minimum annual lease rental of $106,970. The lease was modified on
June 1, 1995 to remove the premises used by Freedom Electronics
Corporation at a minimum annual lease rental of $58,000. In addition
to minimum rentals, the Company will be responsible for real estate
taxes and a pro-rata share of all common charges. Rent charged to
operations was $76,528, $80,979 and $82,885, respectively, for the
years ended October 31, 1997, 1996 and 1995.
The future aggregate minimum rental payments under this operating lease
agreement are as follows:
Years Ended
OCTOBER 31,
1998 $ 58,000
1999 9,667
$ 67,667
NOTE 12 - MAJOR SUPPLIER INFORMATION
The Company had one supplier from whom it purchased approximately
$418,000 or 17% of purchases for the year ended October 31, 1997 and
one supplier from whom it purchased approximately $523,000 or 16% of
purchases for the year ended October 31, 1996.
NOTE 13 - SALE OF SUBSIDIARY
On November 15, 1994, by unanimous vote of all non-interested
directors, Federated Purchaser, Inc. (Federated) divested its
subsidiary, Freedom Electronics Corporation (Freedom).
In consideration of the divestiture of 100% of the outstanding shares
of Freedom, Federated Purchaser, Inc. received approximately $354,000,
including $100,000 in cash, a $210,000 7% promissory note due on
November 15, 1998 and 88,889 shares of common stock of Federated
(representing 4.9% of the class outstanding) held personally by
Freedom's President. In addition, the parties entered into customary
covenants not to compete, pursuant to which Federated would become
entitled to receive $90,000 over a period of four years. As part of
this transaction certain intercompany indebtedness to Federated was
satisfied by payment of an additional $656,000.
The loss on the divestiture of Freedom amounted to $182,791 or $.11 per
share.
NOTE 14 - PROPOSED ACQUISITION
On October 1, 1997, Federated Purchaser, Inc. signed an agreement
whereby Federated will exchange 4,491,988 newly issued shares of its
common stock having a per share value of $.22 for all of the
outstanding capital stock of Wise Components, Inc. ("Wise"). As a
result of this transaction the controlling interest of Wise will also
become the controlling interest of Federated. For financial statement
purposes, Wise is deemed to be the acquiror of Federated and the
transaction will be recorded by Wise under the purchase method of
accounting. Once the transaction has been concluded, the financial
position and results of operations of Federated will thereafter be
consolidated with Wise.
In order to conclude the transaction referred to in the preceding
paragraph, Federated will increase the number of common shares it has
authorized, from 5,000,000 to 10,000,000 shares. This increase has
not yet been approved by the shareholders of Federated; accordingly,
the issuance has not been recorded as of October 31, 1997.
-19-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Federated Purchaser, Inc.
Cliffwood, New Jersey
We have audited the financial statements of Federated Purchaser, Inc. and its
subsidiaries as of October 31, 1997 and have issued our report thereon dated
January 8, 1998; such financial statements and report are included elsewhere in
this Form 10K. Our audit also included the financial statements schedules of
Federated Purchaser, Inc. and its subsidiaries listed in Item 14. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
BEDERSON & COMPANY LLP
January 8, 1998
West Orange, New Jersey
-20-
<PAGE>
SCHEDULE VIII
FEDERATED PURCHASER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Charged to
Balance at Profit and Deductions Balance
Beginning Loss or From at Close
CLASSIFICATION OF PERIOD INCOME RESERVES OF PERIOD
Year ended October 31, 1997:
Allowance for doubtful accounts $ 26,339 $ 6,000 $ 15,536 $ 16,803
Year ended October 31, 1996:
Allowance for doubtful accounts $ 22,835 $ 4,751 $ 1,247 $ 26,339
Year ended October 31, 1995:
Allowance for doubtful accounts $ 28,682 $ 13,235 $ 19,082 $ 22,835
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FEDERATED PURCHASER, INC.
By:/S/ HARRY J. FALLON
HARRY J. FALLON, President
April 16, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
SIGNATURES: TITLE DATE
/S/ HARRY J. FALLON Acting Chairman, President, April 16, 1998
HARRY J. FALLON Principal Executive Officer,
Principal Financial
Officer, Principal
Accounting Officer and
Director
/S/ EDMUND L. HOENER Director April 16, 1998
EDMUND L. HOENER
/S/ EDWIN S. SHORTESS Director April 16, 1998
EDWIN S. SHORTESS
/S/ JANE A. CHRISTY Director, Vice April 16, 1998
JANE A. CHRISTY President Operations
-22-
