<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
/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
BOOK CENTERS, INC.
FORM 10-Q
INDEX
PART I: Financial Information Page
--------------------- ----
Item 1: Financial Statements Book Centers, Inc.
---------------------------------------
Consolidated Balance Sheet<F1>
at March 31, 1996 and June 30, 1995. . . . . . . . . . . . . . . 4
Consolidated Statements of Operations<F1>
for the three month periods ended March 31, 1996 and 1995. . . . 6
Consolidated Statements of Cash Flows<F1>
for the nine month periods ended March 31, 1996 and 1995 . . . . 7
Consolidated Statements of Operations<F1>
for the nine month periods ended March 31, 1996 and 1995 . . . . 9
Note to Consolidated Financial Statements . . . . . . . . . . . 10
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . 11
<F1>
In the opinion of Management, such financial statements contain all adjustments
necessary to present fairly the financial position as of March 31, 1996 and
June 30, 1995 and the results of the operations and cash flows for the nine
month period ended March 31, 1996.
- 2 -
<PAGE> 3
BOOK CENTERS, INC.
FORM 10-Q
INDEX
PART II: Other Information Page
----------------- ----
Item 1: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2: Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . 13
Item 3: Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . 14
Item 4: Submission of Matters to a Vote of Security Holders. . . . . . . . 15
Item 5: Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 17
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
- 3 -
<PAGE> 4
PART I: Item 1: Financial Information
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 2,400 ----
--------- ---------
$5,538,064 $4,959,235
========= =========
See note to consolidated financial statements.
</TABLE>
- 4 -
<PAGE> 5
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
3/31/96 6/30/95
---------- ----------
<S> <C> <C>
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
1,125,156 shares issued 688,837 688,837
Paid in capital 428,988 428,988
Accumulated deficit (1,769,696) (1,938,819)
--------- ---------
Total stockholders' deficit ( 651,871) ( 820,994)
--------- ---------
$5,538,064 $4,949,235
========= =========
See note to consolidated financial statements.
</TABLE>
- 5 -
<PAGE> 6
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 877,956 845,282
Interest 29,495 50,333
--------- ---------
Total expenses 5,861,251 5,922,269
Income (loss) before taxes 60,735 52,388
Income taxes ---- ----
--------- ---------
Net income (loss) 60,735 52,388
========= =========
Earnings (loss) per share:
Income (loss) $ .05 $ .08
--------- ---------
Net income (loss) per share $ .05 $ .08
========= =========
See note to consolidated financial statements.
</TABLE>
- 6 -
<PAGE> 7
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) $ 169,118 $ 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
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)
--------- ---------
See note to consolidated financial statements.
</TABLE>
- 7 -
<PAGE> 8
BOOK CENTERS, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
For the
Nine Month Periods
Ended March 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
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 (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 ( 178,481) ( 395,006)
--------- ---------
Net increase (decrease) in cash (1,112,179) ( 725,680)
Bank overdraft, beginning of period ( 216,421) ( 738,721)
Bank overdraft, end of period $(1,328,600) $(1,464,401)
========= =========
See note to consolidated financial statements.
</TABLE>
- 8 -
<PAGE> 9
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 2,580,966 2,530,393
Interest 65,017 132,611
---------- ----------
Total expenses 17,383,836 17,096,218
Income (loss) before taxes 169,118 150,987
Income taxes ---- ----
---------- ----------
Net income (loss) $ 169,118 $ 150,987
========== ==========
Earnings (loss) per share:
Income (loss) .15 .24
---------- ----------
Net income (loss) per share $ .15 $ .24
========== ==========
See note to consolidated financial statements.
</TABLE>
- 9 -
<PAGE> 10
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 number of common shares
outstanding (exclusive of shares held in treasury). 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 1992 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 are included herewith as
Exhibits 10.20 and 10.21.
- 10 -
<PAGE> 11
PART I: Item 2: Financial Information
BOOK CENTERS, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition
and Results of Operations
------------------------------------
Sales in the first nine months of this fiscal year increased by 1.77 percent
over the comparable period in the previous year. This included a 2.6 percent
increase in the number of units sold. Offsetting this increase slightly,
was an increase in operating and administrative costs of 2.0 percent. Net
income increased 12 percent over the prior period due mainly to the increase in
sales coupled with a decrease in interest expense of 50.97 percent as a result
of the new financing arrangement in the current year.
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 8 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.
- 11 -
<PAGE> 12
PART II: Item 1: Other Information
BOOK CENTERS, INC.
AND SUBSIDIARIES
Legal Proceedings
-----------------
There are no additional matters to be reported beyond those contained in the
Registrant's Annual Report on Form 10-K for the year ended June 30, 1995.
- 12 -
<PAGE> 13
PART II: Item 2: Other Information
BOOK CENTERS, INC.
AND SUBSIDIARIES
Changes in Securities
---------------------
a. Modification of Instruments
- None applicable
b. Modification of Any Other Class of Securities
- None applicable
- 13 -
<PAGE> 14
PART II: Item 3: Other Information
BOOK CENTERS, INC.
AND SUBSIDIARIES
Defaults Upon Senior Securities
-------------------------------
a. Default in Installment Payments
- None applicable
b. Default in Dividend Payments
- None applicable
- 14 -
<PAGE> 15
PART II: Item 4: Other Information
BOOK CENTERS, INC.
AND SUBSIDIARIES
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
- 15 -
<PAGE> 16
PART II: Item 5: Other Information
BOOK CENTERS, INC.
AND SUBSIDIARIES
Other Information
-----------------
None applicable
- 16 -
<PAGE> 17
PART II: Item 6: Exhibits and Reports on Form 8-K
BOOK CENTERS, INC.
AND SUBSIDIARIES
Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
10.20 Amendment to Employment Agreement between Daniel P. Halloran and
the Company dated May 6, 1996, effective February 29, 1996.
10.21 Amendment to Employment Agreement between Barry E. Fast and the
Company dated May 8, 1996, effective February 29, 1996.
27 Financial Data Schedule (filed electronically only)
b. Reports on Form 8-K
- None applicable
- 17 -
<PAGE> 18
PART II: Signatures
BOOK CENTERS, INC.
AND SUBSIDIARIES
Signatures
----------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
BOOK CENTERS, INC.
Date: May 15, 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)
- 18 -
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
EX-10.20 Amendment to Employment Agreement between Daniel P.
Halloran and the Company dated May 6, 1996, effective
February 29, 1996.
EX-10.21 Amendment to Employment Agreement between Barry E.
Fast and the Company dated May 8, 1996, effective
February 29, 1996.
EX-27 Financial Data Schedule (filed electronically only)
</TABLE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered on May 6, 1996, effective February 29, 1996 (the "Effective Date"), by
and between BOOK CENTERS, INC., an Oregon corporation (the "Corporation"), and
DANIEL P. HALLORAN (the "Employee").
RECITALS:
--------
A. Corporation and Employee entered into an Employment Agreement
(the "Agreement") dated January 1, 1992;
B. Employee has deferred and continues to defer the payment of a
part of the salary due and owing to Employee under the Agreement (collectively,
the "Deferred Salary") in order to permit the Corporation to pay interest on
its indebtedness and to finance its operations;
C. Corporation desires to pay the Deferred Salary in shares of
common stock of the Corporation in lieu of the payment thereof in cash; and
D. Employee desires to accept the issuance of shares of the
Corporation's common stock in payment of the Deferred Salary, upon the terms
and conditions set forth herein.
NOW, THEREFORE, it is agreed as follows:
1. Continued Effectiveness. Except as expressly modified by this
Amendment, all terms, conditions, agreements, and covenants set forth in the
Agreement are hereby ratified and confirmed and shall continue in full force
and effect.
2. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
3. Issuance of Shares. Corporation shall issue to Employee as of
the Effective Date hereof Two Hundred Sixty Thousand Seven Hundred Sixty-Seven
(260,767) shares of the Corporation's common stock (the "Shares") in payment of
the amount of Twenty-Three Thousand Four Hundred Sixty-Nine Dollars ($23,469),
representing the Deferred Salary for the period January 1, 1992, through
December 31, 1996. The issuance of the Shares shall be in full satisfaction of
the payment of the Deferred Salary. Corporation shall deliver to Employee a
stock certificate for such Shares concurrently with the execution hereof.
4. Investment Intent. The Shares being acquired under this
Agreement are being acquired for Employee's own account and not with the view
to, or for resale in connection with, any
Page 1 - AMENDMENT TO EMPLOYMENT AGREEMENT
<PAGE> 2
distribution or public offering thereof within the meaning of the Securities
Act of 1933. Employee understands that the Shares have not been registered
under the Securities Act of 1933 in reliance upon an exemption from
registration. Employee understands that the Shares must be held indefinitely,
unless the Shares subsequently are registered under the Securities Act of 1933
or unless an exemption from registration is otherwise available. Employee
understands that the Corporation is not obligated to register the Shares.
5. Application of Agreement to Successor Lender. All references in
the Agreement to the Ambassador Factors Division of Fleet Factors Corp or
Ambassador shall mean Centennial Bank, Security Agreements shall mean those
certain Loan Agreements dated June 28, 1995, between Centennial Bank and
Academic Book Center, Inc. and any and all other agreements or other documents
executed thereunder or in connection therewith, and Ambassador Guaranty shall
mean the guaranty Employee executed and delivered to Centennial Bank under and
in connection with such Loan Agreements.
IN WITNESS WHEREOF, the Corporation and Employee have executed this
Amendment as of the date set forth above.
CORPORATION:
BOOK CENTERS, INC.
By:________________________________________
Title:_____________________________________
EMPLOYEE:
___________________________________________
Daniel P. Halloran
Page 2 - AMENDMENT TO EMPLOYMENT AGREEMENT
<PAGE> 1
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered on May 8, 1996, effective February 29, 1996 (the "Effective Date"), by
and between BOOK CENTERS, INC., an Oregon corporation (the "Corporation"), and
BARRY E. FAST (the "Employee").
RECITALS:
--------
A. Corporation and Employee entered into an Employment Agreement
(the "Agreement") dated January 1, 1992;
B. Employee has deferred and continues to defer the payment of a
part of the salary due and owing to Employee under the Agreement (collectively,
the "Deferred Salary") in order to permit the Corporation to pay interest on
its indebtedness and to finance its operations;
C. Corporation desires to pay the Deferred Salary in shares of
common stock of the Corporation in lieu of the payment thereof in cash; and
D. Employee desires to accept the issuance of shares of the
Corporation's common stock in payment of the Deferred Salary, upon the terms
and conditions set forth herein.
NOW, THEREFORE, it is agreed as follows:
1. Continued Effectiveness. Except as expressly modified by this
Amendment, all terms, conditions, agreements, and covenants set forth in the
Agreement are hereby ratified and confirmed and shall continue in full force
and effect.
2. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
3. Issuance of Shares. Corporation shall issue to Employee as of
the Effective Date hereof Two Hundred Twenty-Seven Thousand Five Hundred
(227,500) shares of the Corporation's common stock (the "Shares") in payment of
the amount of Twenty Thousand Four Hundred Seventy-Five Dollars ($20,475),
representing the Deferred Salary for the period January 1, 1992, through
December 31, 1996. The issuance of the Shares shall be in full satisfaction of
the payment of the Deferred Salary. Corporation shall deliver to Employee a
stock certificate for such Shares concurrently with the execution hereof.
4. Investment Intent. The Shares being acquired under this
Agreement are being acquired for Employee's own account and not with the view
to, or for resale in connection with, any
Page 1 - AMENDMENT TO EMPLOYMENT AGREEMENT
<PAGE> 2
distribution or public offering thereof within the meaning of the Securities
Act of 1933. Employee understands that the Shares have not been registered
under the Securities Act of 1933 in reliance upon an exemption from
registration. Employee understands that the Shares must be held indefinitely,
unless the Shares subsequently are registered under the Securities Act of 1933
or unless an exemption from registration is otherwise available. Employee
understands that the Corporation is not obligated to register the Shares.
5. Application of Agreement to Successor Lender. All references in
the Agreement to the Ambassador Factors Division of Fleet Factors Corp or
Ambassador shall mean Centennial Bank, Security Agreements shall mean those
certain Loan Agreements dated June 28, 1995, between Centennial Bank and
Academic Book Center, Inc. and any and all other agreements or other documents
executed thereunder or in connection therewith, and Ambassador Guaranty shall
mean the guaranty Employee executed and delivered to Centennial Bank under and
in connection with such Loan Agreements.
IN WITNESS WHEREOF, the Corporation and Employee have executed this
Amendment as of the date set forth above.
CORPORATION:
BOOK CENTERS, INC.
By:________________________________________
Title:_____________________________________
EMPLOYEE:
___________________________________________
Barry E. Fast
Page 2 - AMENDMENT TO EMPLOYMENT AGREEMENT
<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> 175,734
<DEPRECIATION> 255,492
<TOTAL-ASSETS> 5,538,064
<CURRENT-LIABILITIES> 6,134,702
<BONDS> 0
<COMMON> 688,837
0
0
<OTHER-SE> (1,340,708)
<TOTAL-LIABILITY-AND-EQUITY> 5,538,064
<SALES> 17,552,954
<TOTAL-REVENUES> 17,552,954
<CGS> 14,737,853
<TOTAL-COSTS> 17,383,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,817
<INCOME-PRETAX> 169,118
<INCOME-TAX> 0
<INCOME-CONTINUING> 169,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,118
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
