<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 177,404
<SECURITIES> 0
<RECEIVABLES> 5,970,614
<ALLOWANCES> 499,000
<INVENTORY> 21,593,383
<CURRENT-ASSETS> 29,350,972
<PP&E> 8,924,952
<DEPRECIATION> 2,400,650
<TOTAL-ASSETS> 42,676,268
<CURRENT-LIABILITIES> 30,656,076
<BONDS> 1,274,763
0
0
<COMMON> 64,007
<OTHER-SE> 10,577,918
<TOTAL-LIABILITY-AND-EQUITY> 42,676,268
<SALES> 19,452,583
<TOTAL-REVENUES> 19,452,583
<CGS> 11,475,914
<TOTAL-COSTS> 11,475,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 733,777
<INCOME-PRETAX> 60,748
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,748
<DISCONTINUED> (746,848)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (686,100)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10475
PAGES, INC.
Incorporated - Delaware I.R.S. Identification No. 34-1297143
801 94th Avenue North, St. Petersburg, Florida 33702
Registrant's Telephone Number (813) 578-3300
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 CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of latest practicable date: 6,101,955 common shares
outstanding, each with par value $0.01, as of November 8, 1996.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
----------------------------------------
<TABLE>
<S> <C> <C>
ASSETS 1996 1995
------------- --------------
Current assets:
Cash $ 177,404 $ 532,855
Accounts receivable, net of allowance for
doubtful accounts of $499,000 and $457,000,
respectively 5,471,614 9,931,548
Inventory 21,593,383 27,840,561
Prepaid expenses 2,108,571 2,229,829
------------- --------------
Total current assets 29,350,972 40,534,793
------------- --------------
Property and equipment:
Buildings 4,256,881 4,256,881
Equipment 4,036,603 5,810,714
------------- --------------
8,293,484 10,067,595
Less accumulated depreciation (2,400,650) (3,442,661)
------------- --------------
5,892,834 6,624,934
Land 631,468 631,468
------------- --------------
Total property and equipment, net 6,524,302 7,256,402
------------- --------------
Other assets:
Cost in excess of net assets acquired, net of
accumulated amortization of $603,442 and
$479,075, respectively 5,870,212 5,994,579
Other 930,782 1,063,701
------------- --------------
6,800,994 7,058,280
------------- --------------
TOTAL ASSETS $42,676,268 $54,849,475
============= ==============
</TABLE>
See accompanying notes
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
----------------------------------------
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------- --------------
Current liabilities:
Accounts payable $ 6,310,074 $ 8,394,054
Short-term debt obligations 12,625,314 5,478,407
Accrued liabilities 1,305,687 2,417,940
Accrued tax liabilities 3,078,830 3,216,088
Deferred revenue 7,044,127 6,970,220
Current maturities on long-term debt obligations 159,596 157,145
Current maturities on capitalized lease
obligations 132,448 168,619
------------- --------------
Total current liabilities 30,656,076 26,802,473
------------- --------------
Long-term obligations 1,378,267 17,373,403
------------- --------------
Stockholders' equity:
Preferred shares: $.01 par value; authorized
300,000 shares; none issued and outstanding
Common shares: $.01 par value; authorized
20,000,000 shares; issued 6,400,668 and
5,474,556 shares, respectively 64,007 54,746
Capital in excess of stated value 23,734,718 22,760,194
Notes receivable from stock sales (704,013) ---
Foreign currency translation, net of tax --- (374,654)
Accumulated deficit (12,211,664) (11,525,564)
------------- --------------
10,883,048 10,914,722
Less 298,713 shares of common stock in treasury,
at cost (241,123) (241,123)
------------- --------------
Total stockholders' equity 10,641,925 10,673,599
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $42,676,268 $54,849,475
============= ==============
</TABLE>
See accompanying notes
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and the nine months ended September 30, 1996
-----------------------------------------------------------------
and the three months and the nine months ended September 30, 1995
-----------------------------------------------------------------
<TABLE>
<S> <C> <C>
Three Months Nine Months
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues $ 3,361,165 $ 6,074,458 $19,452,583 $32,375,439
----------- ----------- ----------- -----------
Costs and expenses:
Cost of goods sold 1,801,634 4,022,051 11,475,914 19,662,767
Selling, general and administrative 2,566,473 4,334,122 9,897,877 14,884,581
Interest 213,260 470,953 733,777 1,312,565
Depreciation and amortization 153,797 289,362 539,604 908,167
Foreign exchange --- (244) --- (274)
Gain on sale of distribution channel --- --- (3,255,337) ---
----------- ----------- ----------- -----------
4,735,164 9,116,244 19,391,835 36,767,806
----------- ----------- ----------- -----------
Income/(loss) from continuing
operations before income taxes (1,373,999) (3,041,786) 60,748 (4,392,367)
Benefit for income taxes --- 1,197,000 --- 1,697,000
----------- ----------- ----------- -----------
Income/(loss) from continuing operations (1,373,999) (1,844,786) 60,748 (2,695,367)
Discontinued operations (735,846) (1,014,757) (746,848) (1,584,873)
___________ __________ ___________ __________
NET LOSS $ (2,109,845) $ (2,859,543) $ (686,100) $ (4,280,240)
=========== ========== =========== ==========
Income/(loss) per common share:
Income/(loss) from continuing operations $ (.25) $ (.36) $ .01 $ (.55)
Discontinued operations (.13) (.20) (.14) (.33)
----------- ----------- ----------- -----------
Loss per common share $ (.38) $ (.56) $ (.13) $ (.88)
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 5,483,000 5,105,000 5,366,000 4,870,000
=========== ============ =========== ===========
</TABLE>
See accompanying notes
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
-----------------------------------------------------
<TABLE>
<S> <C> <C>
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $ (686,100) $(4,280,240)
----------- -----------
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 539,604 908,167
Deferred income taxes --- (1,697,000)
Gain on sale of distribution channel (3,255,337) ---
Foreign exchange --- (274)
Changes in assets and liabilities, net of effect of
disposition in 1996 and acquisition in 1995
by the children's literature segment:
(Increase) decrease in assets:
Accounts receivable 3,733,887 5,671,124
Inventory 28,642 (3,112,853)
Prepaid expenses and other assets (516,199) (59,392)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (2,401,515) 1,469,457
Deferred revenue 73,907 193,982
----------- -----------
Total adjustments (1,797,011) 3,373,211
----------- -----------
Net cash used in operating activities (2,483,111) (907,029)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 8,031 107,412
Payments for purchases of property and equipment (352,624) (257,089)
Proceeds from disposition of division 11,287,500 ---
Payment for acquisition of division --- (733,000)
----------- -----------
Cash provided by (used in) investing activities 10,942,907 (882,677)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 279,772 275,013
Proceeds from debt and lease obligations 39,241,214 43,057,681
Principal payments on debt and lease obligations (48,320,863) (42,194,986)
----------- -----------
Cash (used in) provided by financing activities (8,799,877) 1,137,708
----------- -----------
Effect of exchange rate changes on cash (15,370) 4,686
----------- -----------
Decrease in cash (355,451) (647,312)
Cash, beginning of period 532,855 671,602
----------- -----------
Cash, end of period $ 177,404 $ 24,290
=========== ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 796,719 $ 1,472,872
========== ===========
Cash paid for taxes $ 0 $ 7,200
========== ===========
</TABLE>
During the nine months ended September 30, 1996, the Company acquired
$250,000 of inventory through the issuance of a long term note and $75,000 of
fixed assets through a capital lease. During the nine months ended September
30, 1995, the Company acquired approximately $254,000 of computer equipment
through capital leases.
See accompanying notes
<PAGE>
PAGES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have not been audited,
but reflect all adjustments which, in the opinion of management, are necessary
for a fair presentation of financial position, results of operations and cash
flows for the periods presented after elimination of all material intercompany
accounts and transactions. All adjustments are of a normal and recurring
nature. These consolidated financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto for the
fiscal year ended December 31, 1995. The consolidated group will be
collectively referred to as "the Company". The Company changed its children's
literature business name from School Book Fairs, Inc. to PAGES Book Fairs, Inc.
in May 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Internal Revenue Service Assessment
During the Spring of 1993, the Company was advised that the Internal
Revenue Service ("IRS") might assess additional income taxes in connection with
the examination of the tax returns of PAGES Book Fairs ("PBF", formerly School
Book Fairs), and its affiliates for the fiscal years ending July 31, 1989, 1990
and 1991. In June 1993, the Company recorded a $2 million adjustment to its
purchase price allocation of PBF assets, which increased the cost in excess of
assets acquired (i.e. - goodwill), and recorded a corresponding increase in
accrued tax liabilities and related costs.
In October of 1995, the Company received four Notices of Deficiency from
the IRS relating to this examination. The Notices of Deficiency assessed
additional income taxes of $4,693,681 and penalties of $1,358,630, plus
interest. The asserted deficiencies were attributable primarily to a
restructuring of PBF and related entities that occurred on August 1, 1988, in
which, along with other events, certain assets were transferred between related
companies. The IRS had challenged, among other things, the values assigned to
those assets by the parties to the transaction, contending that the assets were
undervalued and that PBF recognized a substantial taxable gain in the
transaction. In January 1996, the Company filed petitions with the Tax Court
disputing the IRS valuation of the assets transferred, and other points in the
IRS assessment.
On March 7, 1996, the IRS filed answers to each of the four petitions,
generally denying the allegations set forth therein. On October 28, 1996, the
Company entered into a settlement with the IRS regarding the four Notices of
Deficiencies received assessing additional taxes for the fiscal years 1988,
1989, 1990 and 1991. The settlement includes income taxes of $750,000, plus
interest of approximately $750,000, for a total of approximately $1,500,000.
Payment is anticipated to be made out of operating cash flows and borrowings
during 1997.
Discontinued Operations
On November 12, 1996, the Company announced that it has filed a Form 10
under section 12 (g) of the Securities Exchange Act of 1934, for the spin-off
of CA Short Company ("CAS"), a wholly-owned subsidiary, to its stockholders.
It is anticipated that PAGES, Inc. common shareholders will receive 1.5 shares
of CAS common stock for every ten shares of PAGES common stock owned. CAS,
based in Shelby, North Carolina, is engaged in the incentive/recognition awards
business. Strategic evaluation by management has determined that the proposed
spin-off would be in the best interest of the Company's stockholders. The
decision by the Company's Board of Directors is subject to certain conditions,
including receiving a fairness opinion from an investment banker and approval
of necessary regulatory authorities. It is anticipated that the spin-off will
be effective within ninety days after the Form 10 filing. In association with
the spin-off, CAS will deliver to the Company a $5 million seven percent
subordinated debenture in satisfaction of the intercompany balance due from CAS
to the Company as of the spin-off. Any excess of the $5 million over the
intercompany balance will be reflected in the historical equity transferred to
CAS at the time of spin-off. Principal payments will be $100,000 per year for
the first five years, $200,000 per year for the second five years with a
balloon payment due the tenth year for the remaining principal balance.
Interest will be payable quarterly.
The CAS operations, reflected herein as discontinued operations, comprised
all of the Company's former incentive/recognition awards business segment.
Revenues for CAS were $3.8 million and $3.5 million for the three months
ended September 30, 1996 and 1995, respectively. Revenues for the nine months
ended September 30, 1996 and 1995 were $13.7 million and $12.7 million,
respectively. Net losses were $736,000 and 739,000 for the three months ended
September 30, 1996 and 1995, respectively. Net losses were $747,000 and $1.2
million for the nine months ended September 30, 1996 and 1995, respectively.
Losses are not expected to be incurred for CAS between the measurement date
(November 12, 1996), and the date on which the spin-off is expected to become
effective. Therefore, no provision for losses is included in the results of
discontinued operations for CAS as of September 30, 1996.
The components of net assets of the CAS discontinued operations included
in the consolidated balance sheets at September 30, 1996 and December 31, 1995,
follow:
September 30, December 31,
1996 1995
------------- -------------
Cash $ 76,931 $ 226,678
Accounts receivable, net 2,168,752 6,101,629
Inventory 6,759,997 6,890,412
Prepaid expenses 966,464 894,967
Property, plant and equipment, net 3,975,977 3,812,894
Costs in excess of net assets acquired, net 1,141,564 1,167,187
Other assets 616,256 598,256
Accounts payable (1,062,834) (1,687,705)
Accrued liabilities (4,272,050) (4,394,924)
Short-term debt obligations (2,042,663) (4,416,154)
Deferred revenue (5,940,243) (5,648,107)
Additionally, in 1995, the Company adopted plans to discontinue the
operations of its Read Aloud Book Club division (the "Club"). The operations
of the Club ceased during the second quarter of 1996. Revenues were $620,000
and $2.4 million for the three and nine months ended September 30, 1995,
respectively. Net losses were $275,000 and $408,000 for the three and nine
months ended September 30, 1995, respectively. Losses anticipated to be
incurred between the measurement date (December 31, 1995) and the date on which
operations ceased, as well as phase out costs on the Club, were provided for in
the December 31, 1995 consolidated financial statements.
The components of net assets of the Club discontinued operations included
in the consolidated balance sheets at September 30, 1996 and December 31, 1995,
follow:
September 30, December 31,
1996 1995
------------ -------------
Accounts receivable, net $ - $ 338,977
Inventory 70,063 195,015
Accounts payable (198,736) (595,180)
Accrued liabilities (327,440) (839,255)
Disposition of United Kingdom and Discontinuance of Canadian Distribution
Channels
On March 6, 1996, the Company sold to Scholastic Limited, a United Kingdom
subsidiary of Scholastic, Inc. and its affiliates ("Scholastic") all the
capital stock of School Book Fairs, Limited ("Limited"), the Company's United
Kingdom subsidiary for $4,764,781 cash. Additionally, as part of the
transaction, (i) Scholastic paid in full (1) the outstanding balance of
$2,129,846 due by Limited to Lloyds Bank and (2) an intercompany payable due
from Limited to the Company in the amount of $2,317,873 and (ii) the Company
signed a Non-Competition Agreement pursuant to which, in return for the payment
of $1,500,000 in cash, the Company agreed for a five-year period not to compete
with the book fair business of Scholastic and its affiliates in the following
countries: Canada, the United Kingdom, Ireland, Germany, Italy, Greece,
Eastern Europe, including without limitation, the Commonwealth of Independent
States, Turkey, the countries of the Middle East and Africa.
On March 6, 1996, the Company closed its distribution channel in Canada
and on March 13, 1996, the Company sold a portion of its inventory in Canada to
Scholastic Canada, Ltd., a corporation organized under the laws of Canada for
$575,000 cash.
The net proceeds of the above-described transactions of $8,950,000 after
the repayment of the Lloyds Bank debt and estimated transaction costs were
used to reduce the Company's domestic bank indebtedness. Included in the
accompanying June 30, 1996 consolidated financial statements is a $3,255,337
gain on the transaction.
Notes Receivable from Stock Sales
In September 1996, certain officers exercised stock options for notes.
These notes are full recourse promissory notes bearing interest at 7%. The
principal sum is due in September, 1999. The interest is payable only in the
event that and only to the extent that the fair market value of the shares of
common stock at the close of business in September 1999 exceeds the exercise
price.
Quarter and Nine Months Ended September 30, 1996 Compared to Quarter and Nine
- -----------------------------------------------------------------------------
Months Ended September 30, 1995:
- -------------------------------
Revenues for the three months ended September 30, 1996, approximated $3.4
million compared to approximately $6.1 million for the three months ended
September 30, 1995, a decrease of 44% or approximately $2.7 million. The
decrease in revenues for the three months ended September 30, 1996 over the
same period in 1995 is principally attributable to the following: the sale of
the United Kingdom operations in early March 1996; the discontinuance of the
Canadian distribution channel in early March 1996; the disposal and phase out
of Read Aloud Book Club and certain other children's literature distribution
channels in the third quarter of 1995, and a reduction in the number of
domestic book fair events held in the current quarter compared to the same
period in 1995.
Revenues for the nine months ended September 30, 1996, approximated $19.5
million, compared to $32.4 million for the nine months ended September 30,
1995, a decrease of 40% or approximately $12.9 million. The decrease in
revenues for the nine months ended September 30, 1996 over the same period in
1995 is due to the following: the sale of the United Kingdom operations in
early March 1996; the discontinuance of the Canadian distribution channel in
early March 1996; the disposal and phase out of Read Aloud Book Club and
certain other children's literature distribution channels in the third and
fourth quarters of 1995, and a reduction in the number of domestic book fair
events held in the nine months ended September 30, 1996, compared to the same
period in 1995.
Cost of goods sold was approximately $1.8 million for the three months
ended September 30, 1996, compared to approximately $4.0 million for the three
months ended September 30, 1995, a decrease of 55% or approximately $2.2
million. The decrease in cost of goods sold for the three month period is due
to the reduction in revenues discussed above. As a percentage of revenues,
cost of goods sold decreased 12.6% to 53.6% during the three months ended
September 30, 1996, compared to 66.2% for the same period in 1995. The
decrease is due to changes in product mix sold, the sale of the United Kingdom
operations and the discontinuance of the Canadian distribution channel in early
March 1996, and improvements in the cost of book fair products.
Cost of goods sold was approximately $11.5 million for the nine months
ended September 30, 1996, compared to approximately $19.7 million for the nine
months ended September 30, 1995, a decrease of 42% or approximately $8.2
million. The decrease in cost of goods sold is due to the reduction in
revenues discussed above and improvements in the cost of book fair products.
Cost of goods sold as a percentage of revenues was 58.9% for the nine months
ended September 30, 1996 compared to 60.7% for the nine months ended September
30, 1995.
Selling, general and administrative expense was approximately $2.6 million
for the three months ended September 30, 1996, compared to $4.3 million for the
three months ended September 30, 1995, a decrease of 40%, or approximately
$1.7 million. The decrease in selling, general and administrative expense is
attributable to the sale of the United Kingdom operations in early March 1996;
the discontinuance of the Canadian distribution channel in early March 1996;
and the disposal and phase out of Read Aloud Book Club and certain other
children's literature distribution channels in the third and fourth quarters of
1995.
Selling, general and administrative expense was approximately $9.9 million
for the nine months ended September 30, 1996, compared to $14.9 million for the
nine months ended September 30, 1995, a decrease of 33%, or approximately $5.0
million. The reasons for the decrease in selling, general and administrative
expense for the nine months ended September 30, 1996 are consistent with the
items mentioned above for the decrease in the three months ended September 30,
1996 selling, general and administrative expense.
Interest expense was approximately $213,000 for the three months ended
September 30, 1996, compared to approximately $471,000 for the three months
ended September 30, 1995, a decrease of 55%, or approximately $258,000. For
the nine months ended September 30, 1996, interest expense approximated
$734,000, compared to approximately $1.3 million for the nine months ended
September 30, 1995, a decrease of 44%, or approximately $566,000. In
connection with the sale of the United Kingdom distribution channel in March
1996, a portion of the proceeds was used to pay down outstanding debt. The
average outstanding debt for the three and nine months ended September 30,
1996, approximated $10.5 million and $12.8 million, respectively, compared to
approximately $20.7 million and $23.3 million for the three and nine months
ended September 30, 1995, respectively. The average interest rate for the
three and nine months ended September 30, 1996, approximated 8.92% and 8.68%,
respectively, compared to approximately 8.23% and 9.02% for the three and nine
months ended September 30, 1995, respectively.
Depreciation and amortization expense was approximately $154,000 for the
three months ended September 30, 1996, compared to approximately $289,000 for
the three months ended September 30, 1995, a decrease of 47%, or approximately
$135,000. Depreciation and amortization expense was approximately $540,000 and
$908,000 for the nine months ended September 30, 1996 and 1995, respectively, a
decrease of 40%, or approximately $368,000. The decrease for both the three
and nine months ended September 30, 1996 is principally attributable to the
disposal of the United Kingdom distribution channel in early March 1996 and its
related fixed assets.
There was no income tax provision for the three and nine months ended
September 30, 1996. The current period and year to date provisions are based
on the Company's anticipated annual effective tax rate.
Liquidity and Capital Resources:
The Company's primary sources of liquidity have been cash generated from
operating activities from both of its business segments, amounts available
under its existing credit facilities, and cash generated from the disposal of
the United Kingdom distribution channel. The Company's primary uses of funds
consist of financing inventory and receivables for both business segments, with
the funding of acquisitions as a secondary use. See "Seasonality".
The following table presents a summary of the Company's cash flows (in
thousands) for the nine months ended September 30, 1996 and 1995:
<TABLE>
<S> <C> <C>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------- ------------------
Cash used in by operating activities $ (2,483) $ (907)
Capital expenditures, net (345) (150)
Net (repayments) borrowings on debt obligations (9,080) 863
Payment for business acquisitions --- (733)
Proceeds from sale of distribution channel 11,288 ---
Other 265 280
-------------- --------------
Net decrease in cash $ (355) $ (647)
============== ==============
</TABLE>
The Company has a $16 million revolving credit facility which consists of
the following: a $5 million short-term credit line ($2,957,337 unused at
September 30, 1996) for use in the discontinued incentive/recognition awards
business (the "CA Short Line") and an $11 million short-term credit line
($417,349 unused at September 30, 1996) for use in the children's literature
business (the "PAGES Book Fairs Line") . The interest rate on the facility is
prime plus 1%. The CA Short Line and PAGES Book Fairs Line are due in full on
June 1, 1997, subject to annual renewal. In conjunction with the spin-off of
CA Short, the revolving credit facility will be restructured for the Company's
children's literature business.
The Company anticipates that operating cash flows during the next twelve
months will cover operating expenditures and meet the current maturities on
long-term obligations. The Company does not anticipate any material
expenditures for property, plant and equipment during the next twelve months.
The IRS settlement of approximately $1,500,000 is anticipated to be paid out of
operating cash flows and borrowings during 1997.
During 1995, Gruner + Jahr Printing and Publishing Company ("G + J") filed
an action against the Company seeking in excess of $900,000 in damages which
has been stayed by the court pending the resolution of an action filed by the
Company in federal court against G + J and Gareth Stevens, Inc., seeking
compensation arising out of Company's purchase from G + J of the Read Aloud
Book Club. Gareth Stevens, Inc. filed a counterclaim in the action seeking an
unspecified amount of damages. The Company and Gareth Stevens, Inc. have
reached a settlement. The federal court action against G + J is in the
pleading and discovery stage and it is not possible at this time to predict the
outcome. However, if the Company is unsuccessful in its action and G + J is
successful, the Company's liquidity may be adversely affected.
Seasonality:
The children's literature business is highly seasonal and correlates
closely to the school year. The incentive/recognition awards business is
skewed towards the end of a calendar year. Due to the seasonality, the Company
experiences negative cash flow during the summer months. Further, in order to
build its inventory for its fall sales, the Company's borrowings increase over
the summer and generally peak during late fall. As a result of the Company's
seasonality, inventory and receivables reach peak levels during the months of
October through December.
<PAGE>
PART II
ITEM 1: LEGAL PROCEEDINGS
- ------
The description of the legal proceedings included in Management's Discussion
and Analysis of Financial Condition and Results of Operations included in Part
I of this report is incorporated herein by reference.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
- ------
(a) Exhibit Number 11
Computation of Earnings Per Share
ITEM 10: MATERIAL CONTRACTS
- -------
<PAGE>
Signature
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAGES, INC.
Registrant
Date: November 14, 1996 By: /S/ Randall J. Asmo
___________________________________
Randall J. Asmo
Principal Financial and
Accounting Officer
<PAGE>
EXHIBIT II
PAGES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<S> <C> <C>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ -------------------
Primary:
Weighted average number of common shares outstanding 5,483,000 5,366,000
Adjustment for stock options which have a dilutive effect
based upon the average market price per common stock:
Add dilutive stock options
Deduct shares that could be repurchased from the
proceeds of dilutive options
------------------ -------------------
Weighed average common and common equivalent shares 5,483,000 5,366,000
================== ===================
Income/(loss) from continuing operations $(1,373,999) $ 60,748
Discontinued operations ( 735,846) (746,848)
------------------ -------------------
Net income/(loss) (2,109,845) (686,100)
Earnings adjustment (20% rule) --- ---
------------------ -------------------
Net income/(loss) for computation purposes $(2,109,845) $ (686,100)
================== ===================
Income/(loss) per common share:
Income/(loss) from continuing operations $ (.25) $ .01
Discontinued operations (.13) (.14)
------------------ -------------------
Earnings/(loss) per common and common equivalent share $ (.38) $ (.13)
================== ===================
Fully diluted:
Weighted average number of common shares outstanding 5,483,000 5,366,000
Adjustment for stock options which have a dilutive
effect based upon the market price for common stock
at end of period:
Add dilutive stock options --- ---
Deduct shares that could be repurchased from
the proceeds of dilutive options --- ---
------------------ -------------------
Fully diluted shares 5,483,000 5,366,000
================== ===================
Income/(loss) per common share:
Income/(loss) from continuing operations $(1,373,999) $ 60,748
Discontinued operations (735,846) (746,848)
------------------ -------------------
Net income/(loss) $(2,109,845) $ (686,100)
Earnings adjustment (20% rule) --- ---
------------------ -------------------
Net income/(loss) for computation purposes $(2,109,845) $ (686,100)
================== ===================
Income/(loss) from continuing operations $ (.25) $ .01
Discontinued operations (.13) (.14)
------------------ -------------------
Earnings/(loss) per common and common
equivalent share assuming full dilution $ (.38) $ (.13)
================== ===================
</TABLE>
