<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(x) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarter ended September 30, 1995.
( ) Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the period from _________________ to ______________.
Commission file number: 0-11744
Publishers Equipment Corporation
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(Exact name of small business issuer as specified in its charter)
Texas 75-1653425
- ---------------------- ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
16660 Dallas Parkway, Suite 1100, Dallas, Texas 75248
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 214-931-2312
Check whether the issuer (1) 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
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Number of shares outstanding of the issuer's common stock as of November 7,
1995, 5,176,651 shares of common stock, no par value.
Page 1 of 11 sequentially numbered pages.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements
-----------------------------
Page
----
Publishers Equipment Corporation Consolidated
Balance Sheet 3
Publishers Equipment Corporation Consolidated
Statements of Operations 4
Publishers Equipment Corporation Consolidated
Statements of Cash Flows 5
Publishers Equipment Corporation Notes to
Consolidated Financial Statements 6
In the opinion of management, the financial statements contained herein include
all adjustments, which adjustments are of a normal recurring nature, necessary
for a fair presentation of the Company's consolidated financial position and
results of operations and cash flows. Results of operations for the period
ended September 30, 1995, are not necessarily indicative of results of
operations for the entire year.
Page 2 of 11 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1995
- -------------------------------------------------------------------
ASSETS
------
<S> <C>
Cash and cash equivalents....................... $ 90
Accounts receivable............................. 832
Inventories..................................... 8,674
Other current assets............................ 188
---------
Total current assets.......................... 9,784
Property, plant and equipment, net.............. 1,366
---------
TOTAL ASSETS.................................... $ 11,150
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities........ $ 1,789
Accrued warranty expense........................ 158
Customer deposits............................... 1,692
Current portion of long-term debt............... 3,397
---------
Total current liabilities..................... 7,036
Convertible subordinated note................... 1,000
Other liabilities............................... 190
Shareholders' equity:
Preferred stock............................... 500
Common stock.................................. 18,815
Treasury stock................................ (168)
Retained deficit.............................. (16,223)
---------
Total shareholders' equity.................. 2,924
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 11,150
=========
</TABLE>
See accompanying notes.
Page 3 of 11 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ........................................ $ 1,727 $ 2,111 $ 4,721 $ 9,310
Cost of revenues ................................ 1,278 1,715 3,763 7,271
--------- --------- --------- ---------
Gross profit .................................... 449 396 958 2,039
Selling, general and administrative expense ..... 438 604 1,680 2,076
--------- --------- --------- ---------
Operating income (loss) ......................... 11 (208) (722) (37)
Interest expense ................................ (97) (102) (298) (286)
Interest income ................................. 6 9 14 11
Other income, net (Note 2) ...................... 6 2 160 23
--------- --------- --------- ---------
Loss before income taxes ........................ (74) (299) (846) (289)
Provision for income taxes ...................... -- -- -- --
--------- --------- --------- ---------
Net loss ........................................ $ (74) $ (299) $ (846) $ (289)
========= ========= ========= =========
Net loss per common share ....................... $ (0.01) $ (0.06) $ (0.16) $ (0.06)
========= ========= ========= =========
Weighted average common shares .................. 5,176,651 5,162,117 5,176,651 5,162,117
</TABLE>
See accompanying notes.
Page 4 of 11 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations............................. $ (846) $ (289)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization.................... 169 136
Provision for losses on doubtful accounts........ (132) 23
Change in assets and liabilities:
Decrease (increase) in accounts receivable....... 595 (6)
Increase in inventories.......................... (870) (788)
Decrease (increase) in other current assets...... 96 (51)
Decrease (increase) in other assets.............. 74 (43)
Increase (decrease) in accounts payable and
accrued liabilities........................... (817) 736
Increase in customer deposits.................... 1,688 774
Increase (decrease) in accrued warranty expense.. (220) 65
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Net cash provided by (used in) operations........... (263) 557
Cash flows from investing activities:
Retirements of property, plant & equipment....... 1 --
Additions to property, plant and equipment....... (13) (110)
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Net cash used in investing activities................ (12) (110)
Cash flow from financing activities:
Total borrowings................................... 4,289 5,295
Total repayments................................... (3,937) (5,298)
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Net cash provided by (used in) financing activities.. 352 (3)
Net increase in cash and cash equivalents............... 77 444
Cash and cash equivalents at beginning of period........ 13 10
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Cash and cash equivalents at end of period.............. $ 90 $ 454
======= =======
</TABLE>
See accompanying notes.
Page 5 of 11 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
Notes to Consolidated Financial Statements
------------------------------------------
(unaudited)
1. Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and bases of assets and
liabilities using enacted tax rates. The adoption of SFAS No. 109 had no
effect on the financial statements.
2. In January 1995, the Company sold common shares of KBA-Motter Corp.
representing a 7.0 percent equity interest in this affiliated company for
$150,000. As a result, at January 31, 1995, the Company had no equity
interest in KBA-Motter Corp. The Company wrote off its investment in KBA-
Motter Corp. at December 31, 1991.
Page 6 of 11 sequentially numbered pages.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Results of Operations
---------------------
Three Months Ended September 30, 1995
- -------------------------------------
REVENUES. Revenues of $1,727,000 for the third quarter of 1995 compare to
$2,111,000 for the third quarter of 1994, a decrease of approximately 18 percent
that reflects reductions in both domestic and foreign revenues. Revenues
derived from sales to foreign customers decreased approximately 22 percent in
the current quarter as a result of an equipment delivery that was rescheduled to
the fourth quarter. Foreign sales accounted for approximately 61 percent of
total revenues in the third quarter of 1995, compared to approximately 64
percent for the third quarter of 1994. The Company expects foreign revenues to
remain a significant component of total revenues in 1995.
Revenues derived from the sales to domestic customers decreased approximately 11
percent in the third quarter of 1995 compared to the third quarter of 1994. The
domestic markets for printing equipment are experiencing a slow recovery from
one of the worst recessions ever experienced by the Company's industry. This
recession began in 1990 when reductions in printing demand occurred following a
curtailment of advertising expenditures by major domestic business segments.
Advertising expenditures represent the major source of income for the Company's
customer base. The level of domestic advertising revenues as reported in the
trade publications declined through 1992, began a slow turn around in 1993, and
registered a clear increase in 1994. As printing demand has increased,
newsprint demand has placed a strain on current papermill capacity and resulted
in higher newsprint costs. Newsprint cost is the single largest component of a
newspapers production expense, and the Company believes that increases in
newsprint costs have caused equipment purchases to be deferred by domestic
printers.
During the third quarter of 1995 the Company's order entry rate increased,
including the booking of a significant order from a large domestic newspaper
group for equipment to be delivered in the fourth quarter of 1995. The Company
believes that there is pent-up demand for printing equipment in domestic markets
that will be released with continued strength in printing demand and easing of
newsprint costs.
Page 7 of 11 sequentially numbered pages.
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GROSS PROFIT. Gross profit for the third quarter of 1995 of $449,000, or 26.0
percent of revenues, compares to $396,000, or 18.8 percent of revenues, for the
third quarter of 1994. The improvement in gross profit in the current quarter
reflects an adjustment to the Company's warranty reserve made to bring this
reserve in line with the estimated requirement for equipment currently under
warranty. The Company warrants the performance of its products for a period of
one year against defects in both materials and workmanship. An addition to the
warranty reserve is made in connection with each sale of the Company's products.
The warranty reserve of $158,000 at September 30, 1995, (See "Consolidated
Balance Sheet") compares to $378,000 at December 31, 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses of $438,000, or 25.4 percent of revenues, compare to
$604,000, or 28.6 percent of revenues, for the third quarter of 1994. The
reduction in selling, general and administrative expense in the current quarter
is principally a result of cost reduction measures taken by the Company in
response to lower business activity.
OTHER INCOME (EXPENSE). Interest expense of $97,000 for the third quarter of
1995 compares to $102,000 for the third quarter of 1994, and is attributable
primarily to borrowings under the King Press Corporation revolving line of
credit. Interest income of $6,000 for the third quarter of 1995 compares to
$9,000 for the third quarter of 1994, and is attributable primarily to a trade
note payable to King Press Corporation. Net other income of $6,000 for the
third quarter of 1995 compares to net other income of $2,000 for the third
quarter of 1994.
NET LOSS. A net loss of $74,000, or 4.3 percent of revenues, for the third
quarter of 1995 compares to a net loss of $299,000, or 14.1 percent of revenues,
for the third quarter of 1994.
Nine Months Ended September 30, 1995
- ------------------------------------
REVENUES. Revenues of $4,721,000 for the first nine months of 1995 compare to
$9,310,000 for the first nine months of 1994, a decrease of approximately 49
percent. The reduction in revenues in the current period reflects decreases in
both foreign and domestic sales. The Company attributes the reduction in
domestic revenues, which declined 53 percent in the first nine months of 1995
compared to the first nine months of 1994, to increased newsprint costs.
Revenues derived from sales to foreign customers, which accounted for
approximately 54 percent of total revenues for the first nine months of 1995,
decreased approximately 45 percent compared to the first nine months of 1994,
when foreign sales accounted for approximately 50 percent of total revenues.
Page 8 of 11 sequentially numbered pages.
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GROSS PROFIT. Gross profit for the first nine months of 1995 of $958,000, or
20.3 percent of revenues, compares to $2,039,000, or 21.9 percent of revenues,
for the first nine months of 1994. The reduction in gross profit expressed as a
percent of revenues in the first nine months of 1995 compared to the year
earlier period is primarily the result of less fixed cost coverage provided by
the lower level of revenues in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense of $1,680,000, or 35.6 percent of revenues, for the first
nine months of 1995 compares to $2,076,000, or 22.3 percent of revenues, for the
first nine months of 1994. The reduction in selling, general and administrative
expense for the first nine months of 1995 compared to the year earlier period is
a result of a lower level of commissions paid on sales to foreign customers and
the cost reduction measures taken by the Company in response to lower business
activity.
OTHER INCOME (EXPENSE). Interest expense of $298,000 for the first nine months
of 1995 compares to $286,000 for the first nine months of 1994, and is
attributable primarily to borrowings under the King Press Corporation revolving
line of credit. Interest income of $14,000 for the first nine months of 1995
compares to $11,000 for the first nine months of 1994, and is attributable
primarily to a trade note payable to King Press Corporation. Net other income
of $160,000 for the first nine months of 1995 compares to net other income of
$23,000 for the first nine months of 1994. During the first quarter of 1995,
the Company sold shares held in an affiliated Company (See "Note 2 of Notes to
Consolidated Financial Statements".)
NET LOSS. A net loss of $846,000, or 17.9 percent of revenues, for the first
nine months of 1995 compares to a net loss of $289,000, or 3.1 percent of
revenues, for the first nine months of 1994.
Financial Position and Liquidity
--------------------------------
The Company's wholly-owned operating subsidiary King Press Corporation is
supported by a secured $3,850,000 line of credit that expires January 31, 1996.
The loan agreement pertaining to the revolving line of credit includes
restrictions on indebtedness, liens and the disposal of assets; requires that
certain financial ratios be maintained; and, reduces the principal amount
available under the line of credit in even monthly increments from $3,850,000 at
July 31, 1995, to $2,950,000 at January 1, 1996. At September 30, 1995, King
Press Corporation had $3,397,000 outstanding under the line of credit and was in
compliance with all financial covenants.
Page 9 of 11 sequentially numbered pages.
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The Company's liquidity in the first nine months of 1995 has been adversely
affected by low order entry rates in the fourth quarter of 1994 and the first
half of 1995 (See "Results of Operations"). The Company estimates that King
Press Corporation line of credit will be sufficient to meet working capital
requirements through January 31, 1996, but is seeking alternative sources of
increased working capital.
The Company has maintained manpower levels consistent with contract commitments
and tightly controlled all discretionary spending, including capital
expenditures, to conserve working capital. Additional cost reduction steps will
be taken to maintain viability of the Company in the event that working capital
required to maintain the Company's normal operations is not available.
Backlog at September 30, 1995, totalled approximately $5,958,000 compared to
approximately $3,391,000 at June 30, 1995 and $1,351,000 at December 31, 1994.
Page 10 of 11 sequentially numbered pages.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and its subsidiaries from time to time become involved in
various claims and lawsuits incidental to their businesses. In the
opinion of management of the Company, any ultimate liability arising
out of currently pending claims and lawsuits will not have a material
adverse effect on the consolidated financial condition or results of
operations of the Company.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLISHERS EQUIPMENT CORPORATION
November 7, 1995 By: /s/ Roger R. Baier
-------------------------------
Roger R. Baier
Vice President Finance &
Treasurer
(Principal Financial Officer)
Page 11 of 11 sequentially numbered pages.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JUL-01-1995 JAN-01-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 90 0
<SECURITIES> 0 0
<RECEIVABLES> 832 0
<ALLOWANCES> 0 0
<INVENTORY> 8,674 0
<CURRENT-ASSETS> 9,784 0
<PP&E> 1,366 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 11,150 0
<CURRENT-LIABILITIES> 7,036 0
<BONDS> 0 0
<COMMON> 18,815 0
0 0
500 0
<OTHER-SE> (16,223) 0
<TOTAL-LIABILITY-AND-EQUITY> 11,150 0
<SALES> 0 0
<TOTAL-REVENUES> 1,727 4,721
<CGS> 1,278 3,763
<TOTAL-COSTS> 1,278 3,763
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 97 298
<INCOME-PRETAX> (74) (846)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (74) (846)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (74) (846)
<EPS-PRIMARY> (0.01) (0.16)
<EPS-DILUTED> (0.01) (0.16)
</TABLE>
