<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X]Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934. (Fee required).
For the fiscal year ended December 31, 1996.
[_]Transition report under Section 13 or 15(d) of the Securities Act of 1934.
(No fee required).
For the transition period from to .
Commission file number: 0-11744.
PUBLISHERS EQUIPMENT CORPORATION
(Name of Small Business Issuer In Its Charter)
TEXAS 75-1653425
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
16660 Dallas Parkway, Suite 1100, Dallas, 75248
TX
(Address of principal executive offices) (zip code)
(214) 931-2312
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
------------------- ON WHICH REGISTERED
---------------------
None --
</TABLE>
Securities registered under Section 12(g) of the Exchange Act:
TITLE OF CLASS
Common Stock, No Par Value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for past 90 days.
Yes X No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to Form 10-KSB. [_]
The issuers revenues for the fiscal year ended December 31, 1996 were
$16,568,599.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 14, 1997, based on the closing sales price of the common
stock on the Nasdaq Stock Market on that date was approximately $1,822,000.
Indicated below is the number of shares outstanding of each class of the
issuer's common stock as of March 14, 1997.
<TABLE>
<S> <C>
TITLE OF EACH CLASS OF COMMON STOCK NUMBER OUTSTANDING
Common Stock, No Par Value 5,205,719
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of the issuer to be
held during 1997 are incorporated hereby by reference in Part III.
Page 1 of 30 sequentially numbered pages.
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
INDEX TO THE DECEMBER 31, 1996 FORM 10-KSB
PAGE
----
PART I
Item 1. Business.................................................. 3
Item 2. Properties................................................ 5
Item 3. Legal Proceedings......................................... 6
Item 4. Submission of Matters to a Vote of
Security Holders.......................................... 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................... 6
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................. 7
Item 7. Financial Statements and Supplementary
Data...................................................... 12
Item 8. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure...................................... 25
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act......................... 25
Item 10. Executive Compensation.................................... 25
Item 11. Security Ownership of Certain
Beneficial Owners and Management.......................... 25
Item 12. Certain Relationships and Related
Transactions.............................................. 26
Item 13. Exhibits, Lists and Reports on
Form 8-K.................................................. 26
2
<PAGE>
PART I
Item 1. Business
--------
General
Publishers Equipment Corporation (the "Company") serves the single-width
newspaper, commercial and semi-commercial printing markets through its wholly-
owned subsidiary, King Press Corporation ("King Press"). King Press, acquired
by the Company in 1984, manufactures and markets single-width web offset presses
worldwide and has been an active force in the market since the early 1960's.
Single-width printing equipment prints two newspaper pages across at one time
and is generally utilized by daily, weekly, and bi-weekly newspapers, as well as
by commercial and semi-commercial printers. The markets for single-width
equipment consist of a large number of individual equipment users that produce a
wide variety of products that includes newspapers, flyers, inserts, brochures
and catalogs.
Until the mid-1960's, publishers and printers in the United States utilized
equipment employing the "letterpress" printing process. During the 1960's, many
newspapers replaced their letterpress equipment with "offset" printing equipment
because of its capability to produce sharper images and better quality color,
qualities important to advertisers who provide a newspaper's principal source of
revenue. The transition to offset presses occurred rapidly in the single-width
newspaper industry due to a relatively low capital investment in existing
letterpresses and a less demanding operating environment. Today, the vast
majority of single-width equipment in production worldwide by publishers and
printers employs the offset printing process. Suppliers of single-width web
offset equipment, including the Company, have continued to make equipment
improvements that enhance speed, productivity and color capabilities in response
to the demands of a changing mix of equipment users and their changing equipment
needs.
The Company was incorporated under the laws of the state of Texas in 1979 and
maintains its principal executive offices at 16660 Dallas Parkway, Suite 1100,
Dallas, Texas 75248, telephone number (972) 931-2312. As of December 31, 1996,
the Company employed 109 persons. King Press' manufacturing personnel are
represented by the International Association of Machinists and Aerospace Workers
of the AFL-CIO under a five-year contract that expires November 20, 2000. All
subsequent references to the Company include Publishers Equipment Corporation
and its wholly-owned subsidiary, King Press, unless the context requires
otherwise.
Principal Customers and Marketing
The Company markets its single-width equipment products through sales offices in
the U.S. as well as through independent international sales agents located in
over 50 countries. In recent years the Company has realigned its international
dealer
3
<PAGE>
network to increase effectiveness and expand into new market areas. During 1996,
the Company derived more than one-half of its revenues from foreign sales, which
included customers in the Middle East and Europe. During 1995, the Company
derived approximately one-third of its revenues from expanded sales of its cost
effective newspaper press equipment in South America. (See Item 6. Results of
Operations. Revenues.) In addition, the Company's executive officers engage in
sales activities for its single-width equipment products.
The Company's revenues are derived from sales to a broad base of small
newspapers as well as commercial and semi-commercial printers. During 1996, two
customers accounted for approximately 46 percent of the Company's revenues.
During 1995, one customer accounted for approximately 19 percent of the
Company's revenues.
Equipment and Services
The Company's line of single-width offset equipment products meet the needs of
printers and publishers ranging from cost effective presses for newspaper
production to heatset equipment that meets the high quality requirements of
commercial printers.
Product Application
------- -----------
News King Printing Press Newspaper, Small
and Add-On Units
Litho King Printing Press Newspaper, Small
and Add-On Units and Mid-Size
Color King Printing Press Newspaper; Semi-
and Add-On Units Commercial, Heatset
and Non-Heatset
Process King Printing Press Commercial, Heatset
and Add-On Units and Non-Heatset
Media King Printing Press Newspaper, Mid-Size;
and Add-On Units Semi-Commercial, Heatset
and Non-Heatset
The Company warrants the performance of its products for a period of one year
against defects in both materials and workmanship, in addition to supplemental
contractual warranties and performance guarantees as agreed to with individual
customers. Because of the complex nature of printing presses, the Company's
contracts provide for a continuing involvement with its customers' operations
following the completion of a project in order to assure that the performance of
the equipment meets both contractual obligations and customer requirements.
During 1996, approximately $383,000 was charged to operations for warranty
costs, compared to approximately $235,000 charged to operations for warranty
costs in 1995.
4
<PAGE>
Product Development
The Company separately funds research and development activities as required to
accomplish its stated goals. In 1990, a heat-set version of the Process King
was introduced for the European market. In 1992, the Company introduced an
improved steel side-framed News King printing unit. In 1993, the Company
introduced the Media King, a modular four-high stackable unit targeted for use
by printers and publishers requiring four color capability in a compact press
arrangement, and the Litho King, a highly featured version of the Company's News
King unit. The first installation of Media King units was completed in late
1994 for a West European customer. In 1995 and 1996, the Company's research and
development activities were directed primarily at improvements and modifications
to its current product lines, including the adaptation of equipment for the
printing requirements of the emerging former East Block countries. The
Company's new and redesigned products are designed to enable the Company to
compete effectively in both domestic and international markets.
The Company, in addition, conducts research and development activities in
connection with customer contracts for new and improved equipment, with the cost
of these activities included in the contract price. Currently, research and
development activities are directed towards new single-width equipment products
that will complement the Company's current products and services, as well as
improvements to the Company's current product lines.
During 1996, the Company spent approximately $67,000 on research and development
activities not connected with customer contracts. During 1995, the Company
spent approximately $79,000 on such research and development activities.
Competition
King Press' operations compete on a worldwide basis, principally with U.S. based
Harris Graphics of Harris-Heidelberg; Goss Graphic Systems, a former division of
Rockwell International Corporation and MAN Roland, Inc. The Company believes
its single-width presses provide a price/performance combination superior to its
competitors.
Item 2. Properties
----------
The Company leases 1,925 square feet for its principal executive offices at
16660 Dallas Parkway, Suite 1100, Dallas, Texas, which is used for its corporate
management offices. The lease on this office expires in 1999, at which time the
Company expects to negotiate a renewal of the lease.
The Company owns a 137,000 square foot office and manufacturing facility in
Joplin, Missouri, which is used as the principal offices of King Press.
5
<PAGE>
Item 3. Legal Proceedings
-----------------
The Company has 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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
-------------------------------------------------
Stockholder Matters
-------------------
The Company's common stock has traded on the Nasdaq Stock Market under the
symbol PECN since January 7, 1986 and prior to that time in the over-the-counter
market. The following table sets forth the range of the daily high and low
sales prices for the common stock, as reported by the National Association of
Securities Dealers, Inc. through NASDAQ for all periods after January 1, 1993.
<TABLE>
<CAPTION>
Stock
--------------
High Low
---- ---
<S> <C> <C>
1995
First Quarter............. 0.63 0.31
Second Quarter............ 0.44 0.06
Third Quarter............. 0.31 0.22
Fourth Quarter............ 0.31 0.13
1996
First Quarter............. 0.28 0.13
Second Quarter............ 0.81 0.28
Third Quarter............. 0.56 0.34
Fourth Quarter............ 0.56 0.25
1997
First Quarter............. 0.56 0.35
(Through March 14, 1997)
</TABLE>
As of March 14, 1997, there were approximately 441 record holders of the
Company's common stock.
The Company has not paid any dividends on its common stock since its inception.
Periodically, the Company will consider the payment of dividends in light of the
Company's earnings, capital requirements, financial condition and other factors,
but there is no assurance that the Company will decide to pay dividends in the
future. The loan agreement pertaining to the Company's revolving line of credit
includes restrictions on the payment of dividends.
6
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Financial Position and Liquidity
King Press was supported for the first two months of 1996 by a secured
$3,850,000 working line of credit that expired February 29, 1996. The loan
agreement pertaining to the line of credit included restrictions on
indebtedness, liens and the disposal of assets; required that certain financial
ratios be maintained; and, reduced the principal amount available under the line
over its terms to an amount of $3,100,000 at February 29, 1996.
King Press was supported for the final ten months of 1996 by a secured
$3,050,000 working capital line of credit that expires March 31, 1997. The loan
agreement pertaining to the 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 quarterly amounts from $3,050,000 at March 1, 1996, to $2,950,000
at January 31, 1997. The loan agreement was amended effective January 31, 1997,
to increase the principal amount available under the line of credit to
$3,000,000 from January 31, 1997, through March 31, 1997. At December 31, 1996,
King Press had $2,760,000 outstanding the revolving credit line, and was in
compliance with all provisions of the loan agreement.
The Company expects to receive an extension of its line of credit at its
maturity in March 1997 for a period of time sufficient to permit a restructuring
that includes an increased principal amount available. The Company is pursuing
such a restructuring, but there can be no assurances that such a restructuring
will occur. If the Company is not successful in securing a new line of credit
before the March 31, 1997, maturity date of its present line of credit, the
Company will ask the lender to extend the present line of credit.
The Company's liquidity improved in 1996 compared to 1995 as a result of the
higher level of sales activity in 1996. The step-downs in credit availability
under the line of credit in 1995 and 1996 required that measures to conserve
working capital implemented in 1995 be continued in 1996. These measures
included operating at the reduced manpower levels and restricting discretionary
spending, including capital expenditures. The increase in principal amount
available being pursued under a restructured working capital line of credit is
being sought to support anticipated increases in sales activity as market
conditions for printing equipment improve, and permit the budgeting of capital
expenditures to maintain the Company's plant and equipment.
7
<PAGE>
Results of Operations
Revenues. Revenues of $16,569,000 for 1996 compare to $7,428,000 for 1995, an
- - --------
increase of approximately 123 percent. Both domestic and foreign revenues
increased in 1996 compared to 1995. Revenues derived from sales to domestic
customers increased approximately 167 percent in 1996 compared to 1995. This
increase reflects abnormally low domestic press sales activity in 1995, and some
improvement in domestic market conditions in 1996. The largest contributor to
domestic revenues in 1996 was the shipment of a large multi-press order to
Gannett Company, a leading U.S. newspaper group, in the first quarter of the
year. This equipment had a successful startup in the first quarter and provides
versatile printing capability for color circulars, and other newspaper products
to supplement Gannett Company's large press capabilities. In recent years, the
business mix of major newspapers has included an increasing content of short
press run products such as circulars and inserts. These short-run products are
produced more cost effectively, with less waste, on single-width press equipment
such as the Company supplied to Gannett Company.
The use of single-width equipment to supplement large newspaper press room
equipment is a positive development in domestic printing equipment markets which
have begun a slow and irregular recovery from one of the worst recessions ever
experienced by the 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 industry's customer base. The reduction in domestic
advertising expenditures that began in 1990 was made in response to
uncertainties in the U.S. economy, and this decline continued through 1992. In
1993, the trend in domestic advertising expenditures began to show signs of a
slow turn-around, and in 1994 registered a clear increase, as reported in trade
publications. These slowly improving market conditions continued in 1995 and
1996, but press orders were affected by the normal lag time of equipment
expenditures behind increases in printing demand. In addition, many potential
purchasers adopted a cautious approach to equipment purchase decisions as the
strength of the recovery in print demand and the effect of increasing newsprint
costs were assessed. Newsprint cost is the single largest component of a
newspapers production expense. As advertising levels increased, newsprint
demand grew to absorb paper mill capacity, resulting in higher newsprint costs.
To a lesser extent, domestic sales activity has been affected by the absorption
of over capacity in certain market segments.
The improvement in domestic market conditions in 1996 compared to 1995 was
provided by growth in advertising expenditures and gains in profitability
achieved by major newspaper groups. The increase in profitability among
newspaper groups was the result of lower newsprint costs, which by year end 1996
had declined
8
<PAGE>
more than 30 percent from the year end 1995 level, and from measures taken to
reduce operating expenses. These cost saving measures included reductions in
work force and a narrowing of geographic distribution of newspaper products. The
Company believes that there is pent-up demand for printing equipment in domestic
markets, which can be released with stable interest rates and a continuation of
the improved market conditions developing in 1996. The successful startup of the
Company's equipment at Gannett Company is providing an important showcase for
the Company's products as domestic market conditions further improve.
Revenues derived from sales to foreign customers, which accounted for
approximately 52 percent of total revenues in 1996, increased approximately 93
percent in 1996 compared to 1995, when foreign sales accounted for approximately
60 percent of total revenues. The major contributor to foreign revenues in 1996
was the shipment of a large order for combined newspaper and commercial press
equipment to a customer in the United Arab Emirates in the fourth quarter of the
year. Newspapers in many foreign markets are increasing the glossy, heatset page
content of their products, which must be produced on commercial press equipment.
The Company believes that this development in foreign markets offers a
significant business opportunity for its cost effective newspaper and commercial
press equipment, which can be sold separately or in combination. In 1995, the
Company introduced the Commercial 2000 press package, a complete
newspaper/commercial press consisting of its Color King and News King printing
units. The Commercial 2000 press package is offered to both foreign and
domestic sales prospects.
In recent years the Company has focused increased attention on the expansion of
its international sales capabilities. This focus, which resulted in a
realignment and strengthening of the Company's international dealer network, was
driven by a belief that the most rapidly emerging markets for printing equipment
lie overseas, principally in the Middle East, the Pacific Rim and former East
Bloc countries. The Company's most promising current sales prospects lie in
these markets, and contracts with several of these prospects are currently being
pursued. The consummation of these contracts has been subject to delays as a
result of a variety of external factors affecting all equipment suppliers.
These factors include economic uncertainties affecting print demand and
financing availability in each market, and selection of equipment supplier under
very competitive conditions. The Company competes on a worldwide basis with
both domestic and foreign equipment suppliers. The Company's competitive
position relative to foreign equipment suppliers is affected by currency
exchange rates. During 1996, the U.S. dollar strengthened relative to most
foreign currencies, which had an adverse effect on the Company's competitive
pricing position with foreign equipment suppliers. This same competitive
pricing disadvantage relative to foreign equipment suppliers is expected to
continue in 1997.
9
<PAGE>
The Company currently has contracts for two significant foreign orders whose
closure is pending only finalization of financing arrangements. In addition to
these contracts, which are not included in backlog, the Company is competing for
other foreign orders that would call for the shipment of equipment in 1997.
With backlog of $3.8 million entering 1997, the Company's financial performance
for the first half of 1997 will be below the first half of 1996, which had
entering backlog of $6.1 million. The Company attributes the reduction in
backlog at year end 1996 to delays in contract signings, principally foreign
contracts for the reasons cited above, but also several important domestic
contracts which are being delayed by uncertainties in print demand that affect
equipment selection. These uncertainties in foreign and domestic markets often
result in multiple contract proposals for the same sales prospect that contain
different equipment configurations and contract values. The volume of potential
equipment sales in foreign and domestic markets offers an opportunity for
improved financial performance by the Company in late 1997, much like was
experienced in 1996. The Company's financial results for the second half of
1997 will depend on the Company's ability to achieve a timely booking of certain
of these foreign and domestic contracts in the first half of the year.
Competitive pricing pressures remain intense in both domestic and foreign
markets, which will have an adverse effect on contract profit margins in 1997,
as was experienced in 1996.
The recession in domestic printing equipment markets has resulted in an industry
restructuring that has included business consolidations, failures and the down-
sizing of operations to match capacity with demand. The Company's operations
have been scaled back consistent with meeting contract commitments and providing
support for its worldwide equipment installations. This action, together with
the institution of other cost containment measures, have enabled the Company to
manage through the difficult period of 1990 through 1995 while maintaining its
overall competitiveness.
The adverse market conditions of recent years has not only affected equipment
suppliers, but also many in the Company's customer base whose financial strength
has been weakened as printing demands declined. Increasingly, the Company's
sales efforts have become dependent upon its ability to provide assistance in
arranging equipment financing for both domestic and foreign customers. In the
case of domestic customers, this assistance generally involves a coordination of
activities with third party leasing companies. For foreign customers, this
assistance comes from the ability of the Company to arrange third party
financing through such institutions as the Export-Import Bank of the United
States. Such international financial arrangements are complex, involving both
foreign and domestic banks, and often impede equipment delivery schedules.
Gross Profit. Gross profit of $3,164,000, or 19.1 percent of revenues, for 1996
- - ------------
compares to $1,964,000, or 26.4 percent of
10
<PAGE>
revenues, for 1995. The reduction in gross profit expressed as a percent of
revenues in 1996 is principally a result of differences in product mixes for the
two years. The Company's profit margins on its products and services sold did
not change materially from 1995 to 1996; however, the business mix in 1995
contained a larger component of spare parts sales, which have a higher profit
margin than other Company products and services. The level of sales of spare
parts for the Company's press equipment has remained relatively stable from year
to year, and in 1996 was essentially unchanged from 1995. This same level of
parts sales represented a percentage of total revenues in 1995 that is more than
twice as large as the spare parts percentage of total revenues in 1996. This
larger component of spare parts sales in 1995 compared to 1996 had a
corresponding favorable effect on gross profit margin in 1995 compared to 1996.
Selling, General and Administrative Expense. Selling, general and
- - -------------------------------------------
administrative expense of $2,435,000, or 14.7 percent of revenues for 1996
compares to $2,449,000, or 33.0 percent of revenues, for 1995. The reduction in
selling, general and administrative expense in 1996 is a result of the higher
level of revenues in 1996 compared to 1995.
The Company maintained cost containment measures in 1996 that were adopted in
recent years in response to slowing business activity in printing equipment
markets.
Other Income (Expense). Interest expense of $276,000 for 1996 compares to
- - ----------------------
$383,000 for 1995, reflecting primarily a lower level of borrowing by King Press
under its working capital line of credit. Interest income of $10,000 in 1996
compares to $16,000 in 1995, and is derived primarily from short term money
market investments. Net other income of $2,000 for 1996 compares to net other
income of $105,000 in 1995. During the first quarter of 1995, the Company sold
shares held in an affiliated company for $150,000 (See Note 3 of Notes to
Consolidated Financial Statements).
Provision For Taxes. The Company utilized available net operating loss
- - -------------------
carryforwards to offset federal and state income tax liabilities for 1996.
There was no provision required for federal or state income taxes in 1995. (See
Note 8 of Notes to Consolidated Financial Statements).
Net Income(Loss). Net income of $465,000, or 2.8 percent of revenues, for 1996
- - ----------------
compares to a net loss of $747,000, or 10.1 percent of revenues, for 1995.
11
<PAGE>
Item 7. Financial Statements and Supplementary Data
-------------------------------------------
Index to Consolidated Financial Statements Page
and Financial Statement Schedules: ----
Report of Independent Public Accountants..... 13
Consolidated Balance Sheet as of
December 31, 1996.......................... 14
Consolidated Statements of Operations -
two years in the period ended
December 31, 1996.......................... 15
Consolidated Statements of Shareholders'
Equity - two years in the period
ended December 31, 1996.................... 16
Consolidated Statements of Cash Flows -
two years in the period ended
December 31, 1996.......................... 17
Notes to Consolidated Financial
Statements................................. 18
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Publishers Equipment Corporation:
We have audited the accompanying consolidated balance sheet of Publishers
Equipment Corporation (a Texas corporation) as of December 31, 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Publishers Equipment
Corporation as of December 31, 1996, and the results of its operations and its
cash flows for the two years in the period then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 14, 1997
13
<PAGE>
<TABLE>
<CAPTION>
PUBLISHERS EQUIPMENT CORPORATION
- - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
- - --------------------------------------------------------------------------------
December 31,
1996
- - --------------------------------------------------------------------------------
ASSETS
- - ------
<S> <C>
Current assets:
Cash and cash equivalents ............................... $ 148,239
Trade accounts receivable (net of allowance for
doubtful accounts of $49,404) ...................... 882,565
Inventories (Note 4) .................................... 7,444,457
Prepaid expenses and other current assets ............... 129,309
-----------
Total current assets ............................... 8,604,570
-----------
Property, plant and equipment, at cost (Note 6):
Land .................................................... 30,138
Building ................................................ 1,555,309
Transportation equipment ................................ 51,112
Furniture and fixtures .................................. 816,006
Machinery and tools ..................................... 1,683,366
-----------
4,135,931
Less accumulated depreciation ........................... 2,826,414
-----------
Net property, plant and equipment .................. 1,309,517
-----------
$ 9,914,087
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Trade accounts payable .................................. $ 1,000,243
Accrued liabilities ..................................... 400,200
Accrued warranty expense (Note 5) ....................... 174,821
Customer deposits ....................................... 631,940
Deferred installation revenue ........................... 377,950
Current portion of long-term debt (Note 6) .............. 3,671,604
-----------
Total current liabilities .......................... 6,256,758
-----------
Other liabilities ........................................... 169,613
-----------
Contingencies and commitments (Notes 7)
Shareholders' equity ( Notes 9 and 10):
Preferred stock, no par value; 1,000,000 authorized;
Series A convertible preferred stock, 250,000 shares
authorized, 58,136 issued in 1996,
liquidation value of $6.88 per share (Note 9) ...... 400,000
Common stock, no par value; 9,000,000 shares authorized
5,236,899 issued in 1996 ........................... 18,914,871
Treasury stock, 45,714 shares at cost ................... (168,496)
Retained deficit ........................................ (15,658,659)
-----------
Total shareholders' equity ........................ 3,487,716
-----------
$ 9,914,087
===========
See accompanying notes
</TABLE>
14
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
- - ------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------
Years ended December 31,
1996 1995
- - ------------------------------------------------------------------
<S> <C> <C>
Revenues .......................... $ 16,568,599 $ 7,428,033
Cost of revenues .................. 13,404,351 5,464,322
------------ ------------
Gross profit ...................... 3,164,248 1,963,711
Selling, general and administrative
expenses (Note 11) ............ 2,435,037 2,448,853
------------ ------------
Operating profit (loss) ........... 729,211 (485,142)
Other income (expense):
Interest expense ............... (276,397) (382,906)
Interest income ................ 9,772 15,553
Other income, net (Note 3) ..... 2,043 105,307
------------ ------------
Income (loss) before taxes ........ 464,629 (747,188)
Provision for income taxes ........ -- --
------------ ------------
Net income (loss) ................. $ 464,629 $ (747,188)
============ ============
Net income (loss) per common share $ 0.09 $ (0.14)
============ ============
Weighted average common shares .... 5,191,185 5,176,651
</TABLE>
See accompanying notes.
- - -------------------------------------------------------------------
15
<PAGE>
<TABLE>
<CAPTION>
PUBLISHERS EQUIPMENT CORPORATION
- - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995 and 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
Series A
Convertible
Preferred Stock Common Stock Treasury Stock
----------------- -------------------- ------------------ Retained
Shares Amount Shares Amount Shares Amount Deficit Total
------ ------ ------ ------ ------ ------ ------------ ---------
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ..... 87,204 $ 600,000 5,207,831 $ 18,714,871 45,714 $(168,496) $(15,376,100) 3,770,275
Issuance of shares upon
conversion of preferred
stock (Note 9)............... (14,534) (100,000) 14,534 100,000 -- -- -- --
Net loss ....................... -- -- -- -- -- -- (747,188) (747,188)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 ..... 72,670 500,000 5,222,365 18,814,871 45,714 (168,496) (16,123,288) 3,023,087
Issuance of shares upon
conversion of preferred
stock (Note 9)............... (14,534) (100,000) 14,534 100,000 -- -- --
Net income ..................... -- -- -- -- -- -- 464,629 464,629
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 ..... 58,136 $ 400,000 5,236,899 $ 18,914,871 45,714 $(168,496) $(15,658,659) $3,487,716
======= ========= ========= ============ ====== ========= ============ ==========
</TABLE>
See accompanying notes.
16
<PAGE>
<TABLE>
<CAPTION>
PUBLISHERS EQUIPMENT CORPORATION
- - -----------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -----------------------------------------------------------------------------------------
Years ended December 31,
1996 1995
- - -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from operations ...................... $ 464,629 $ (747,188)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization .................. 238,138 224,175
Provision for losses on doubtful accounts ...... 30,586 (189,008)
Change in assets and liabilities:
Decrease (increase) in accounts receivable ..... (98,744) 668,769
Decrease (increase) in inventories ............. 1,898,740 (1,539,013)
Decrease in other current assets ............... 17,572 136,789
Decrease in other assets ....................... -- 74,349
Decrease in accounts payable and
accrued liabilities ...................... (1,081,672) (301,066)
Increase (decrease) in customer deposits ....... (1,602,280) 2,234,220
Increase (decrease) in accrued warranty expense 51,243 (253,892)
Increase in deferred installation revenue ...... 396,450 139,000
----------- -----------
Net cash provided by operations ........................ 314,662 447,135
Cash flows from investing activities:
Net retirements of property, plant and equipment -- 1,378
Additions to property, plant and equipment ..... (223,120) (26,552)
----------- -----------
Net cash used in investing activities .................. (223,120) (25,174)
Cash flows from financing activities:
Total borrowings .................................... 9,455,000 5,880,000
Total repayments .................................... (9,489,400) (6,223,743)
----------- -----------
Net cash used in financing activities .................. (34,400) (343,743)
----------- -----------
Net increase in cash and cash equivalents ................. 57,142 78,218
Cash and cash equivalents at beginning of period .......... 91,097 12,879
----------- -----------
Cash and cash equivalents at end of period ................ $ 148,239 $ 91,097
=========== ===========
See accompanying notes.
- - -----------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Publishers Equipment Corporation (the "Company") is a multinational manufacturer
of single-width newspaper, commercial and semi-commercial printing presses. The
Company markets its products through it's wholly-owned subsidiary, King Press
Corporation ("King Press"). King Press was acquired by the Company in 1984 and
has served printing equipment markets since the early 1960's. Presses are sold
primarily to small newspapers as well as commercial and semi-commercial printers
and publishers located throughout the world.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The Consolidated Financial Statements of the
Company include the accounts of Publishers Equipment Corporation and King Press
Corporation. All significant intercompany transactions are eliminated.
REVENUE RECOGNITION - Revenues from sales of manufactured presses and parts are
recognized when shipped.
ACCOUNTS RECEIVABLE - A majority of the Company's accounts receivable are due
from companies in the printing industry. Credit is extended based on evaluation
of the customer's financial condition and, generally, collateral is not
required. Credit losses have historically been within management's
expectations.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out)
or market.
DEPRECIATION - Depreciation is determined for financial reporting by the
straight-line method using the following estimated useful lives:
Building 30 years
Transportation equipment 3 years
Furniture and fixtures 3 to 10 years
Machinery and tools 2 to 20 years
For income tax purposes, depreciation is determined by accelerated methods.
RESEARCH AND DEVELOPMENT COSTS - The costs and expenses related to basic
research, engineering, and product development are expensed as incurred. During
1996 and 1995, research and development costs aggregated approximately $67,000
and $79,000, respectively.
18
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
INCOME TAXES - Deferred income taxes are provided for differences in the
recognition of income and expenses for financial statement and tax purposes (See
Note 8).
EARNINGS PER SHARE - Earnings per share is based upon the weighted average
number of common shares outstanding. The effects of the Company's common stock
equivalents, convertible debentures and preferred stock were insignificant in
1996 and anti-dilutive in 1995, and were therefore excluded from the calculation
of earnings per share for both 1996 and 1995.
CASH EQUIVALENTS - The Company considers all highly liquid instruments purchased
with a maturity of three months or less and certificates of deposit to be cash
equivalents.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVESTMENT IN AFFILIATE
At December 31, 1994, the Company had a 7.0 percent equity interest in KBA-
Motter Corp., which it had written off in 1991. In January 1995, the Company
sold its interest in KBA-Motter Corp. representing its 7.0 percent equity
interest for $150,000, which amount is reflected in "Other income, net" in the
accompanying Consolidated Statements of Operations. As a result, at December
31, 1996 and 1995, the Company had no equity interest in this affiliated
company.
4. INVENTORIES
Year ended
December 31,
1996
- - --------------------------------------------------------------------------------
Raw materials................ $ 95,003
Work-in process.............. 929,805
Finished goods............... 6,295,808
Used presses................. 657,762
----------
7,978,378
Less inventory reserves (533,921)
----------
$7,444,457
==========
19
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
5. WARRANTY
The Company warrants the performance of its products for a period of one year
against defects in both materials and workmanship, in addition to supplemental
contractual warranties and performance guarantees as agreed to with individual
customers.
Warranty expense provided was approximately $383,000 in 1996 and $235,000 in
1995, and is included in cost of revenues in the accompanying Consolidated
Statements of Operations. During 1996 and 1995, reductions to the Company's
warranty reserve of approximately $101,000 and $336,000 respectively were made
to bring this reserve in line with the estimated liability for equipment in
warranty at year end. This reserve activity resulted in a net warranty expense
of $282,000 in 1996 and ($101,000) in 1995.
6. DEBT
Year ended
December 31,
1996
- - --------------------------------------------------------------------------------
Amounts outstanding under
the King Press bank revolving line
of credit, interest at prime plus
1.5% (9.75% at December 31, 1996)
due March 1997, secured by all real
and personal property of King Press............. $2,670,000
Subordinated note, convertible into common stock
at $7.50 per share (subject to anti-dilution
provisions), interest at 0% in 1995 and
German Prime rate in 1996 and 1997,
due December 1997, unsecured.................... 1,000,000
Other............................................ 1,604
----------
3,671,604
Less current maturities.......................... 3,671,604
----------
$ --
==========
20
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
At December 31, 1996, King Press may borrow up to $2,850,000 at the U.S. Prime
rate of interest plus 1.5 percent under a revolving credit line expiring March
31, 1997. At December 31, 1996, King Press had $2,670,000 outstanding under the
revolving credit line. The loan agreement pertaining to the revolving line of
credit includes restrictions on indebtedness, liens, disposal of assets and
requires that certain financial ratios be maintained. At December 31, 1996, the
Company was in compliance with all provisions of the loan agreement.
The Company paid interest of approximately $248,000 in 1996 and $424,000 in
1995.
7. CONTINGENCIES
The Company has from time to time become involved in various claims and lawsuits
incidental to its business. In the opinion of management, any 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.
8. INCOME TAXES
The Company applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS 109 requires
recognition of deferred tax liabilities and assets for the expected future
consequences of events that have been included a company's financial statements
and tax return. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates.
The Company had no provision for Federal or state income taxes for 1996 or 1995.
The following is a reconciliation of the U.S. Federal statutory rate to the
effective tax rate.
1996 1995
---- ----
U.S. Federal statutory rate (benefit) 34% (34%)
Loss producing no current tax benefit -- 34%
Utilization of net operating loss carryforwards (34%) --
---- ----
0% 0%
==== ====
21
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
At December 31, 1996, the Company had deferred tax liabilities of $200,000,
deferred tax assets of $5,982,000 and a valuation allowance of $5,782,000.
The principal temporary differences included above are long term capital loss
carryforwards ($2,581,000), net operating loss carryforwards ($1,797,000),
general business credits ($614,000), minimum tax credit ($98,000), uniform
inventory cost capitalization ($367,000), depreciation $171,000 and accruals
($496,000).
The Company has long term capital loss carryforwards for U.S. tax purposes of
$7,592,000, net operating loss carryforwards of $5,285,000 and general business
credit carryforwards of $614,000. The long term capital loss carryforwards, the
tax loss carryforward and general business credit carryforwards expire beginning
in 2001 and 1997.
9. PREFERRED STOCK
In connection with the acquisition of a Swedish subsidiary whose operations were
discontinued in 1991, the Company issued 145,349 shares of its Series A
Convertible Preferred Stock ("Series A"), no par value, to AB Bonnierforetagen.
The terms of the Series A shares provide that such shares shall be nonvoting
stock with a nonparticipating liquidation preference of $6.88 per share. The
Series A shares shall be entitled to receive dividends at the same rate as the
common stock on an "as converted" basis. The terms of the Series A further
provide that all of the issued shares will be converted to common stock ratably
over a 10 year period commencing January 1, 1991. The Series A will not be
convertible at the option of the holder unless and until the occurrence of
certain events, such as a merger, recapitalization or change in control of the
Company. The Series A shares are convertible at a rate of one share of
preferred stock for one share of common stock and the conversion rate is subject
to certain anti-dilution adjustments. On each January 1, 1992, 1993, 1994,
1995, 1996 and 1997, 14,534 shares of the Series A converted to 14,534 shares of
common stock. As a result of the foregoing, the Company has reserved 58,136
common shares for issuance upon conversion of the outstanding Series A shares.
10. STOCK OPTIONS AND PREEMPTIVE RIGHTS
The Company has granted incentive stock options to key employees and directors
of the Company at prices equal to the greater of $1.00 or market value at date
of grant. The stock options are exercisable in 25% cumulative annual
installments beginning at the date of grant.
22
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
A summary of option transactions in 1995 and 1996 follows:
<TABLE>
<CAPTION>
Options Total Option
(Shares) Price
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at
December 31, 1994................................................ 387,492 $ 392,555
Granted............................................................ -- --
Cancelled.......................................................... (213,242) (213,242)
Exercised.......................................................... -- --
-------- ---------
Outstanding at
December 31, 1995................................................ 174,250 $ 179,313
Granted............................................................ 3,000 3,000
Cancelled.......................................................... (40,000) (44,063)
Exercised.......................................................... -- --
Outstanding at
December 31, 1996................................................ 137,250 $ 138,250
------- ---------
Exercisable at end of 1996......................................... 105,438
Common stock reserved for
options at end of 1996........................................... 317,725
Exercise price of options
outstanding at end of 1996....................................... $ 1.00 - $ 1.50
</TABLE>
The Company has adopted the disclosure-only provision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock - Based Compensation" (SFAS
No. 123). SFAS No. 123 established financial accounting and reporting standards
for stock-based compensation plans and to transactions in which an entity issues
its equity instruments to acquire goods and services from non-employees. Since
the effect of SFAS No. 123 is not material, the Company has made no disclosure
of pro forma net income and earnings per share as if SFAS No. 123 had been
adopted.
23
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan available to the employees of the Company after
six months of service. The plan provides for voluntary contributions from
participating employees. A participant may elect to make contributions up to
the maximum permissible amount (the lesser of $30,000 or 25% of the
participant's annual compensation) on a before tax basis. The 401(k) plan
allows the Company to make voluntary contributions to the accounts of
participating employees. The Company made no contributions to the 401(k) plan
for 1996 or 1995. The Company pays all fees and expenses incurred for
administration of the 401(k) plan.
Employees of the Company participate in defined contribution pension plans.
Contributions to the pension plans are based on hours worked and wages earned.
Contributions to the plans are funded currently. The costs of the pension plans
were approximately $193,000 in 1996 and $133,000 in 1995.
12. EXPORT SALES
Included in revenues are export sales to foreign customers which aggregated
approximately $8,550,000 in 1996 and $4,423,000 in 1995.
13. SIGNIFICANT CUSTOMERS
During 1996, two customers accounted for approximately 46 percent of the
Company's revenues. During 1995, one customer accounted for approximately 19
percent of the Company's revenues.
24
<PAGE>
Item 8. Changes In and Disagreements with Accountants
---------------------------------------------
on Accounting and Financial Disclosure
--------------------------------------
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
----------------------------------------------------
Persons; Compliance with Section 16(a) of the Exchange
------------------------------------------------------
Act
---
Executive Officers Of The Company
---------------------------------
Name Age Present Position
------ ----- ----------------
Evans Kostas 61 Chairman of the Board
Chief Executive Officer
and President
Roger R. Baier 54 Chief Financial Officer
and Vice President
Finance
Both of the Executive Officers of the Company have served in their present
capacities for the Company for at least the past five years.
[The remaining information required by Part III, Items 9, 10, 11 and 12 are set
forth in the Proxy Statement to be delivered to Shareholders in connection with
the Company's Annual Meeting of Shareholders presently scheduled to be held on
June 20, 1997, which information is incorporated herein by reference.]
Item 10. Executive Compensation
----------------------
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation", which information is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management
--------------
The information concerning Security Ownership of Certain Beneficial Owners and
Management is set forth in the Proxy Statement under the heading "Security
Ownership of Management and Principal Shareholders", which information is
incorporated herein by reference.
25
<PAGE>
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
The information concerning Certain Relationships and Related Transactions is set
forth in the Proxy Statement under the heading "Certain Transactions", which
information is incorporated herein by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K
---------------------------------------
(a) Exhibits.
See Index to Exhibits.
(b) Reports on Form 8-K.
Not applicable.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PUBLISHERS EQUIPMENT CORPORATION
By: /s/ Evans Kostas
-------------------------- Date: March 7, 1997
Evans Kostas -------------------
Chairman of the Board,
President and Chief Executive Officer
In accordance with the Exchange Act, the report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Evans Kostas Chairman of the Board March 7, 1997
- - ------------------- President and Chief -------------
Evans Kostas Executive Officer
/s/ Roger R. Baier Vice President-Finance March 7, 1997
- - -------------------- and Treasurer (Principal -------------
Roger R. Baier Financial and Accounting
Officer)
/s/ Simon Bonnier
- - --------------------- Director March 18, 1997
Simon Bonnier --------------
/s/ James K. Feeney
- - --------------------- Director March 15, 1997
James K. Feeney --------------
/s/ Robert S. Hamilton
- - ----------------------- Director March 10, 1997
Robert S. Hamilton --------------
/s/ Ole B. Rygh
- - ----------------------- Director March 18, 1997
Ole B. Rygh --------------
/s/ Reinhart Siewert
- - ----------------------- Director March 10, 1997
Reinhart Siewert --------------
27
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- - ----------- ----------- ----
3.1 Articles of Incorporation of the
Company, together with Articles
of Amendment and Form of Amendment *
3.2 Articles of Amendment to Articles
of Incorporation of the Company,
filed with the Office of the Secre-
tary of State of Texas on June 2,
1988 **
3.3 Certificate of Correction of
Articles of Incorporation of the
Company, filed with the Office of
the State of Texas on April 9, 1990 ***
3.4 Amended and Restated Bylaws of the
Company ***
10.1 Loan Agreement, dated as of March
1, 1996, between the Company and
Mercantile Bank of Joplin, N.A. *****
10.2 Promissory Note, dated as of March
1, 1996, between the Company and
Mercantile Bank of Joplin, N.A. *****
10.3 Publishers Equipment Corporation
Stock Option Plan, as Amended ***
10.4 Purchase Agreement for 7%
Convertible Subordinated Notes
Due 1993, dated as of December
6, 1986, by and among the
Company, Windmoller & Holscher
and Koenig & Bauer AG ****
10.5 Employment Agreement, dated as
of May 2, 1988, as Amended by
and between the Company and
Robert S. Hamilton ****
22 Subsidairies of the Company 29
Jurisdiction
Name of Incorporation
---- ----------------
King Press
Corporation Missouri
Applied Graphics,
Inc. Texas
24 Consent of Independent Public
Accountants 30
- - ----------------------------------
* Incorporated by reference from the Exhibits to the Company's Registration
Statement on Form S-1 (Registration No. 2-28017).
** Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988.
*** Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989.
**** Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1992.
*****Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995.
28
<PAGE>
EXHIBIT 24
----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
- - -----------------------------------------
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-8142) pertaining to the Stock Option Plan of Publishers Equipment
Corporation and in the related Prospectus of our report dated March 14, 1997,
with respect to the financial statements and schedules of Publishers Equipment
Corporation included in this Annual Report (Form 10-KSB) for the year ended
December 31, 1996.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 14, 1997
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 148,239
<SECURITIES> 0
<RECEIVABLES> 882,565
<ALLOWANCES> 0
<INVENTORY> 7,444,457
<CURRENT-ASSETS> 8,604,570
<PP&E> 1,309,517
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,914,087
<CURRENT-LIABILITIES> 6,256,758
<BONDS> 0
0
400,000
<COMMON> 18,914,871
<OTHER-SE> (15,658,659)
<TOTAL-LIABILITY-AND-EQUITY> 9,914,087
<SALES> 0
<TOTAL-REVENUES> 16,568,599
<CGS> 13,404,351
<TOTAL-COSTS> 13,404,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276,397
<INCOME-PRETAX> 464,629
<INCOME-TAX> 0
<INCOME-CONTINUING> 464,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 464,629
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
