<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Amendment No. 2)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996, 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: 0-3839
--------------------
BOOK CENTERS, INC.
(Exact name of registrant as specified in its charter)
OREGON
(State or other jurisdiction of incorporation or organization)
5600 N.E. HASSALO STREET
PORTLAND, OREGON
(Address of principal executive offices)
93-0508266
(IRS Employer Identification Number)
97213
(Zip code)
(503) 287-6657
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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
The number of shares outstanding of each of the issuer's classes of common
stock was 1,125,156 shares of common stock, no par value, outstanding as of
April 30, 1996.
<PAGE> 2
The Form 10-Q for the Quarter Ended March 31, 1996, filed by Book Centers,
Inc. (the "Company" or the "Registrant") on May 15, 1996, as amended by
Amendment No. 1 to Form 10-Q for the Quarter Ended March 31, 1996, filed by the
Company on July 15, 1996 (collectively, the "March 1996 Form 10-Q"), is hereby
amended as follows:
1. Item 1 captioned "Financial Information" of Part I of the March 1996
Form 10-Q is amended and restated as follows:
- 2 -
<PAGE> 3
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
3/31/96 6/30/95
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for
doubtful accounts of $40,274 and $24,525 $3,775,625 $3,453,628
Book inventories 1,317,719 1,083,856
Prepaid expenses 266,586 254,381
--------- ---------
Total current assets 5,359,930 4,791,865
Office furnishings and equipment, at cost
less accumulated depreciation of
$255,492 and $650,667 175,734 157,370
Other assets 2,395 ----
--------- ---------
$5,538,059 $4,959,235
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $1,328,600 $ 216,421
Notes payable 830,515 1,029,136
Current portion of long-term debt 24,757 16,649
Accounts payable 2,385,456 3,073,561
Deferred revenue 1,344,851 1,129,164
Accrued expenses 220,523 262,097
--------- ---------
Total current liabilities 6,134,702 5,727,028
Long-term debt, less current portion 55,233 43,201
--------- ---------
Total liabilities 6,189,935 5,770,229
Stockholders' equity:
Common stock, no par value, 50,000,000 shares
authorized, 636,889 shares issued as of
June 30, 1995, and 1,125,156 shares issued
as of March 31, 1996 1,216,160 688,837
Paid in capital 0 428,988
Deferred compensation expense ( 22,222) ----
Accumulated deficit (1,845,814) (1,938,819)
--------- ---------
Total stockholders' deficit ( 651,876) ( 820,994)
--------- ---------
$5,538,059 $4,949,235
========= =========
See notes to consolidated financial statements.
</TABLE>
- 3 -
<PAGE> 4
BOOK CENTERS, INC.
AND SUBSIDIARIES
Statement of Stockholders Equity
For the Nine Month Period Ended March 31, 1996
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Deferred Total
Number Paid in Accumulated Compensation Stockholders
of Shares Amount Capital Deficit Expense Deficit
--------- ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1995 636,889 $ 688,837 $ 428,988 $(1,936,819) $ - $ (820,994)
Compensation expense in 79,522 $ 85,884 $ (78,727) $ (7,157) $ - $ -
the form of shares
issued to directors of
the Company for the
period January 1,
1995, through June 30,
1995
Compensation expense in 161,833 $ 174,778 $(160,213) $ - $ - $ 14,565
the form of shares
issued to directors of
the Company for the
period July 1, 1996,
through March 31, 1996
Unearned compensation 246,912 $ 266,661 $(190,048) $ (54,391) $ (22,222) $ -
expense for the period
April 1, 1996, through
December 31, 1996
Net income - $ - $ - $ 154,553 $ - $ 154,553
--------- --------- -------- ---------- --------- ----------
Balances, March 31, 1996 $1,125,158 $1,216,160 $ - $(1,845,814) $ (22,222) $ (651,876)
========= ========= ======== ========== ========= ==========
See notes to consolidated financial statements.
</TABLE>
- 4 -
<PAGE> 5
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Month Periods
Ended March 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales $5,921,986 $5,974,607
Expenses:
Cost of goods sold 4,953,800 5,026,654
Operating and administrative 892,521 845,282
Interest 29,495 50,333
--------- ---------
Total expenses 5,875,816 5,922,269
Income (loss) before taxes 46,170 52,388
Income taxes ---- ----
--------- ---------
Net income (loss) 46,170 52,388
========= =========
Earnings (loss) per share based on weighted
weighted average number of shares
outstanding of 808,587):
Income (loss) $ .06 $ .08
--------- ---------
Net income (loss) per share $ .06 $ .08
========= =========
See notes to consolidated financial statements.
</TABLE>
- 5 -
<PAGE> 6
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the
Nine Month Periods
Ended March 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income (loss) $ 154,553 $ 150,987
Gain on sale of equipment ---- ----
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 56,353 49,838
Shares issued to directors 14,565 ----
Changes in account balances:
Accounts receivable ( 321,997) ( 476,060)
Book inventories ( 233,863) ( 277,112)
Prepaid expenses and other ( 14,605) ( 47,567)
Accounts payable ( 688,105) ( 221,260)
Deferred revenue 215,687 578,018
Accrued expenses ( 41,574) ( 52,448)
--------- ---------
Net cash provided by (used in)
operating activities ( 858,986) ( 295,604)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to office furnishings
and equipment ( 74,712) ( 35,057)
Other ---- ( 13)
--------- ---------
Net cash used in investing activities ( 74,712) ( 35,070)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in bank overdraft 1,112,179 725,680
Net increase (decrease) in notes payable
to commercial factors ( 198,621) ( 375,169)
Net (payments) borrowings on long term debt 20,140 ( 19,837)
--------- ---------
Net cash provided by (used in)
financing activities 933,698 330,674
--------- ---------
Net increase (decrease) in cash 0 0
Cash, beginning of period 0 0
Cash, end of period $ 0 $ 0
========= =========
See notes to consolidated financial statements.
</TABLE>
- 6 -
<PAGE> 7
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the
Nine Month Periods
Ended March 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $17,552,954 $17,247,205
Expenses:
Cost of goods sold 14,737,853 14,433,214
Operating and administrative 2,595,531 2,530,393
Interest 65,017 132,611
---------- ----------
Total expenses 17,398,401 17,096,218
Income (loss) before taxes 154,553 150,987
Income taxes ---- ----
---------- ----------
Net income (loss) $ 154,553 $ 150,987
========== ==========
Earnings (loss) per share (based on
weighted average shares outstanding
of 694,544):
Income (loss) .22 .24
---------- ----------
Net income (loss) per share $ .22 $ .24
========== ==========
See notes to consolidated financial statements.
</TABLE>
- 7 -
<PAGE> 8
BOOK CENTERS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A: Earnings (loss) per Common Share
- -----------------------------------------
Earnings (loss) per common shares based on the average weighted number of
common shares outstanding. The number of shares outstanding at March 31, 1996,
was 1,125,156 and at March 31, 1995, was 636,889.
The Company and Mr. Daniel P. Halloran, an executive officer, director, and
shareholder, entered into an amendment to his Employment Agreement on May 6,
1996, effective February 29, 1996, by the terms of which the Company issued to
him 260,767 shares of common stock, at nine cents per share in payment of
compensation in the amount of $23,469 the Company owed and would owe to him
under his Employment Agreement. The Company and Mr. Barry E. Fast, an
executive officer, director, and shareholder, also entered into an amendment to
his Employment Agreement on May 8, 1996, effective February 29, 1996, by the
terms of which the Company issued to him 227,500 shares of common stock, at
nine cents per share, in payment of compensation in the amount of $20,475 the
Company owed and would owe to him under his Employment Agreement. On February
29, 1996, the Company's Board of Directors approved the issuance of these
shares in order to pay to Messrs. Halloran and Fast the compensation they had
deferred since the beginning of 1995 and would defer through the expiration of
the term of their Employment Agreements on December 31, 1996, to permit the
Company to pay interest on its line of credit and to finance its operations.
The Board of Directors approved the issuance of these shares to them as of
February 29, 1996, but subject to the Company's subsequent determination of the
amount of compensation they had deferred and would defer under their Employment
Agreements through December 31, 1996, and of the number of shares to be issued
and subject to the negotiation and execution of written amendments to their
Employment Agreements. A copy of the amendments were included with the March
1996 Form 10-Q filed on May 15, 1996 as Exhibits 10.20 and 10.21.
NOTE B: Stockholders' Equity
- ----------------------------
Additional paid-in capital was reduced to zero as a result of the difference
between the par value and the market value of the common stock on the date of
the issuance of the shares of common stock to Messrs. Halloran and Fast in
February 1996. See Note A to Consolidated Financial Statements. Any remaining
difference was allocated to accumulated deficit as follows:
Shares issued to directors 488,384
Multiplied by:
Difference between par value and
market value of common stock
[($1.08 per less $.09 market) = $.99] $.99
--------
Subtotal $438,988
Less:
Total additional paid-in capital ($428,988)
--------
Remaining amount allocated to
accumulated deficit $54,396
2. Item 2 captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Part I of the March 1996 Form 10-Q is
hereby amended and restated in its entirety as follows:
-8-
<PAGE> 9
Management's Discussion and Analysis
of Financial Condition
and Results of Operations
------------------------------------
Sales in the three months ended March 31, 1996, decreased by $52,621 from
$5,974,607 in the three month period ended March 31, 1995, to $5,921,986, or
about 88/100 of one percent decrease. The Company classifies its sales as
either sales to customers in North America or sales to customers outside of
North America. Sales to customers in North America decreased $115,510 in the
three month period ending March 31, 1996, from $3,499,925 to $3,384,415, or
3.30 percent and sales to customers outside of North America in the three month
period ending March 31, 1996, increased by $224,543 from $2,474,682 to
$2,537,571, or 9.07 percent. Although the Company does not keep specific data
on sales in North America broken down by country, i.e., the United States,
Canada, and Mexico, management estimates that 90 percent of the sales to
customers in North America are to customers in the United States and 10 percent
are to customers in Canada. The Company does not sell to customers in Mexico.
Management believes that sales to customers in the United States and Canada
decreased in equal proportions. Thus, with respect to the decrease in sales
to customers in North America during the three month period ended March 31,
1996, of $115,510, it is estimated that approximately $103,959 was attributable
to sales to customers in the United States and $11,551 was attributable to
sales to customers in Canada. During the three month period ending March 31,
1996, sales to customers outside North America slightly declined from 58.58
percent to 57.15 percent. The changes were too small for the Company to draw
any conclusions concerning the reasons for the changes. The Cost of Goods in
the three months ended March 31, 1996, declined by $72,854 to $4,953,800
in the three month period ending March 31, 1996, from $5,026,654 in the three
month period ending March 31, 1995, or a decrease of 1.2 percent. This
decrease in Cost of Goods is a result of attempts to improve terms on which the
Company purchases its books from its suppliers and the decrease in sales.
Operating and Administrative Expenses during the period ending March 31, 1996,
increased by $47,239 from $845,282 in the three month period ending March 31,
1995, to $892,521 in the three month period ending March 31, 1996, or 5.59
percent. This is a result of an increased transportation costs for inbound and
outbound freight and a charge of $14,565 related to the payment in stock of
amounts owed to two employees under existing employment agreements. Interest
expense during the period ending March 31, 1996, declined by $20,838 from
$50,333 in the three month period ending March 31, 1995, to $29,494 in the
three month period ending March 31, 1996, decreased by $6,218 from $52,388
during the three month period ending March 31, 1995, to $46,170 during the
three month period ending March 31, 1996, or 15.97 percent. This is
attributable to the decrease in interest expense resulting from the new banking
arrangement into which the Company entered in June 1995, offset by higher
transportation costs and the payment in stock mentioned above. This new
banking arrangement benefits the Company in comparison to its previous banking
arrangement by lower overall interest rates--prime rate plus six percent in the
old arrangement compared to prime rate plus either 2 1/2 percent for amounts
secured by non-North American accounts receivable or prime rate plus four
percent secured by North American accounts receivable. In addition, the
current banking arrangement credits cash deposited with the bank against
borrowed amounts after only a holding period of two days compared with a
holding period of five days plus transportation time from Portland, Oregon to
the previous bank's location in New York City. With the current banking
arrangement, there is not transportation time because the bank is located in
Portland, Oregon and funds are deposited the day they are received. At April
1, 1996, the Company had available for borrowing under its lines of credit an
amount equal to $419,485.
Sales in the nine month period ending March 31, 1996, increased by $305,749
from $17,247,205 in the nine month period ending March 31, 1995, to
$17,552,954, or 1.77 percent. The Cost of Goods in the nine month period
ending March 31, 1996, increased by $304,639 from $14,433,214 during the nine
month period ending March 31, 1995, to $14,737,853 during the nine month
period ending March 31, 1996, or 2.11 percent. Most of the change in Cost of
Goods can be explained by increased sales. There was a slight decrease in
discounts from suppliers of books and increase in discounts to customers that
account for the 28/100 of one percent increase in Cost of Goods from the nine
month period ending March 31, 1995, to March 31, 1996. Operating and
Administrative costs increased by $50,573 from $2,530,393 in the nine month
period ending March 31, 1995, to $2,580,966 in the nine month period ending
March 31, 1996, or two percent. Most of this change can be attributed to
higher transportation costs both for freight arriving from publishers,
suppliers, and distributors, and outbound freight to customers. Interest
expense decreased during the nine month period ending March 31, 1996, from
$132,611 in the nine month period ending March 31,1995, to $65,017, or 50.97
percent. The discussion concerning the changes in the Company's banking
arrangement that affect the Company's interest expenses also applies to the
nine month period ending March 31, 1996. Net income increased during the nine
month period ending March 31, 1996,
-9-
<PAGE> 10
by $3,566 from $150,987 during the nine month period ending March 31, 1995, to
$154,553 during the nine month period ending March 31, 1996, or 2.36 percent.
This increase is attributable to the factors discussed above including
increases in sales, Cost of Goods, Operating and Administrative costs,
and a decrease in interest expense.
Net cash used in operating activities was $859,000 for the nine month period
ended March 31, 1996. Approximately $688,000 and $234,000 of this amount
related to a decrease in accounts payables and an increase in book inventories,
respectively, while $322,000 related to an increase in the Company's
receivables offset by a $216,000 increase in deferred revenues and net income
of $154,553. Net cash used in investing activities consisted of approximately
$75,000 for additions to office furnishings and equipment. Net cash provided
by financing activities was approximately $934,000 due mainly to an increase
in the bank overdraft of $1,112,000 offset by a decrease of $20,000 in payments
on long term debt. The net change in cash was zero due to the fact that the
Company had a bank overdraft at the end of the period. At March 31, 1996, the
Company's bank overdraft equaled $1,328,600 and its working capital deficit
equaled $774,772 (current assets less current liabilities).
Overdue foreign receivables continue to run at high levels with approximately
17 percent of foreign receivables over normal terms. Foreign receivables over
normal terms represent eight percent of total receivables of the Company. As
stated in prior periods, it is expected that this will improve with the end of
many foreign libraries' fiscal years in March as well as continued collection
efforts. These efforts will include a series of actions beginning with dunning
letters to the libraries' Accounts Payable Office from the Company's Accounts
Receivable Clerk accompanied by copies of statements of all of the invoices
which are open and outstanding with the particular customer, and copies of
particular invoices which are overdue. If no action or acknowledgment of the
issues raised is received within 30 days from the date of the original dunning
letter, another dunning letter to the libraries' Accounts Payable Office is
sent this time from the Company's Controller asking for action and response
directly to the Controller. The Controller's telephone number, electronic mail
address, and the Company's facsimile number are all included to make
communication as quick and easy as possible. The Salesperson and Customer
Service Representative for the libraries involved are also notified at this
time and requested to provide background on any issues that may effect the
libraries' payments. These issues can include problems with items billed on
particular invoices, staffing problems at the library, invoicing issues related
to the preparation of the invoices by the Company, or issues related to a
customs clearance. If no action or acknowledgment of the issues raised is
received within another 30 days from the date of the last dunning letter and no
extenuating circumstances are raised by either the Salesperson or the Customer
Service Representative, another dunning letter to the libraries' Accounts
Payable Office is sent this time from the Company's President asking for action
and response directly to the President. The President's telephone number,
electronic mail address, and the Company's facsimile number are all included to
make communication as quick and easy as possible with an additional statement
that the President will be contacting the Librarian personally if no response
is received or efforts to resolve outstanding issues are not made. Since
virtually all of the Company's library customers outside of North America are
financed by governmental agencies, payment is usually received after this
process has begun. It is anticipated that this process will be successful, but
the Company is prepared to take steps not outlined above if particular
situations arise that are not resolved. This situation occurred only once in
the Company's history when a payment was made by a customer outside of North
America, but the check was non-collectable, because the bank on which the check
was drawn declared insolvency before the check cleared. The Company sought
legal help in the country where the customer was located and the issue was
resolved to the Company's satisfaction.
The Company has no plans to change its marketing and sales activities in
countries outside of North America, because of this problem. The Company looks
at all cost aspects of each of its customers and makes appropriate adjustments
in pricing for customers based on the nature of the services and other issues
related to servicing each customer. One of the aspects considered in this
process is the collectability of accounts receivable.
This report contains forward-looking statements which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements, which are based on current expectations,
involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements, including, without limitation,
variability in freight costs, price pressures from both suppliers and
customers, delays in collecting account receivables (particularly, from foreign
customers), trends in the library industry toward non-book materials,
cancellation of orders, and the risk factors and assumptions specifically
mentioned in this report and those listed from time to time in the Company's
SEC reports. The forward-looking statements should be considered in light of
risks and uncertainties.
-10-
<PAGE> 11
3. The Financial Data Schedule included herewith as Exhibit 27 amends and
restates in its entirety the Financial Data Schedule included as Exhibit 27 to
the March 1996 Form 10-Q filed on July 15, 1996.
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 HEREUNTO DULY AUTHORIZED.
BOOK CENTERS, INC.
Date: August 6, 1996 /s/ DANIEL P. HALLORAN
--------------------------------------
DANIEL P. HALLORAN, PRESIDENT,
CHAIRMAN OF THE BOARD OF
DIRECTORS, CHIEF FINANCIAL
OFFICER, CONTROLLER, AND SECRETARY/
TREASURER (PRINCIPAL ACCOUNTING
OFFICER)
- 11 -
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
EX-27 Financial Data Schedule (filed electronically only)
</TABLE>
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BOOK
CENTERS, INC.'S MARCH 31, 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000050326
<NAME> BOOK CENTERS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,775,625
<ALLOWANCES> 40,274
<INVENTORY> 1,317,719
<CURRENT-ASSETS> 5,359,930
<PP&E> 431,226
<DEPRECIATION> 255,492
<TOTAL-ASSETS> 5,538,059
<CURRENT-LIABILITIES> 6,134,702
<BONDS> 0
<COMMON> 1,216,165
0
0
<OTHER-SE> (1,868,036)
<TOTAL-LIABILITY-AND-EQUITY> 5,538,059
<SALES> 17,552,954
<TOTAL-REVENUES> 17,552,954
<CGS> 14,737,853
<TOTAL-COSTS> 17,318,819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,017
<INCOME-PRETAX> 154,553
<INCOME-TAX> 0
<INCOME-CONTINUING> 154,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,553
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
