FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter ended April 29, 1995 Commission file number 0-14900
PSS, Inc.
(Exact name of registrant as specified in its charter)
Delaware 91-1335798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1511 Sixth Avenue, Seattle, WA 98101
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (206) 621-6938
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 of common stock outstanding as of
June 1, 1995: 19,473,728.
Page 1 of 11
<PAGE>
INDEX
Page
PART I. FINANCIAL INFORMATION
1. Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
1. Legal Proceedings (a)
2. Changes in Securities (a)
3. Defaults Upon Senior Securities 10
4. Submission of Matters to a Vote of Security Holders (a)
5. Other Information (a)
6. Exhibits and Reports on Form 8-K (a)
(a) These items are inapplicable or have a negative response and
have therefore been omitted.
2
<PAGE>
PSS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
April 29, October 29,
1995 1994
ASSETS
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 10 $ 45
Investment in mortgage certificates 5,994 10,892
Interest receivable 71 112
Total current assets 6,075 11,049
Deferred Financing Costs 334
$ 6,075 $ 11,383
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Borrowings under mortgage certificate
financing agreement $ 5,558 $ 10,192
Accounts payable and accrued liabilities 23 41
PNS 12-1/8% senior notes 5,258
Interest payable on PNS notes 186 187
PSS 7-1/8% notes 22,920
Interest payable on PSS notes 1,293 479
Total current liabilities 35,238 10,899
Long-term Debt 28,159
Stockholders' Deficit:
Common stock 19,474 19,474
Additional paid-in capital 149,110 149,110
Accumulated deficit (197,747) (196,259)
Total stockholders' deficit (29,163) (27,675)
$ 6,075 $ 11,383
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
PSS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three months ended
April 29, April 30,
1995 1994
<S> <C> <C>
Interest income $ 110 $ 1,461
Interest expense (723) (2,228)
Write off of deferred financing costs
and original issue discount (226)
General and administrative expenses (23) (45)
Net loss $ (862) $ (812)
Net loss per common share $ (0.05) $ (0.04)
Six months ended
April 29, April 30,
1995 1994
Interest income $ 243 $ 3,005
Interest expense (1,454) (4,434)
Write off of deferred financing costs
and original issue discount (226)
General and administrative expenses (51) (100)
Net loss $(1,488) $(1,529)
Net loss per common share $ (0.08) $ (0.08)
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
PSS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
Six months ended
April 29, April 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,488) $ (1,529)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Amortization 127 640
Write off of deferred financing costs
and original issue discount 226
Increase (decrease) in accrued
interest payable 813 (18)
Other 23 107
Net cash used by operating activities (299) (800)
Cash flows from investing activities:
Principal payments on mortgage certificates 472 15,458
Proceeds from sale of mortgage certificates 4,426
Net cash provided by investing
activities 4,898 15,458
Cash flows from financing activities:
Repayment of borrowings under mortgage
certificate financing agreement (4,634) (14,687)
Net cash used by financing activities (4,634) (14,687)
Net decrease in cash and
short-term investments (35) (29)
Cash and short-term investments -
beginning of period 45 572
Cash and short-term investments -
end of period $ 10 $ 543
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
PSS, INC.
NOTES TO FINANCIAL STATEMENTS
April 29, 1995
NOTE 1 - Basis of Presentation
The financial statements present the consolidated financial
position and results of operations of PSS, Inc. ("PSS") and its
subsidiaries, including its direct subsidiary, PNS Inc. ("PNS"),
collectively, the "Company". The Company owns pass-through and
participation certificates issued by the Federal Home Loan
Mortgage Corporation backed by whole pool real estate mortgages
("Mortgage Certificates"), and as a result, is primarily engaged
in the business of owning mortgages and other liens on and
interests in real estate. The principal obligations of the
Company are borrowings secured by the Mortgage Certificates, the
PNS 12-1/8% Senior Subordinated Notes due July 15, 1996 (the
"Senior Notes") and the PSS 7-1/8% Convertible Debentures due
July 15, 2006 (the "Debentures").
The financial statements presented herein include all adjustments
which are, in the opinion of management, necessary to present
fairly the operating results for the interim periods reported.
The financial statements should be read in conjunction with the
audited, annual financial statements for the year ended October
29, 1994, included in the Company's Annual Report on Form 10-K.
NOTE 2 - Liquidity and Capital Resources
At April 29, 1995, the Company had assets of approximately $6.08
million and liabilities secured by such assets of approximately
$5.58 million, thus having a net difference of approximately
$500,000 available for holders of Senior Notes and Debentures.
In the absence of additional debt repurchases, the amount due for
the July 15, 1995 Senior Notes interest approximates $319,000.
The Company has not paid the interest due January 15, 1995 on its
Convertible Debentures and such default has continued beyond the
30 day "grace" period. The Company's subsidiary, PNS, paid the
interest due on January 15, 1995 on its Senior Notes within the
30 day "grace" period; however, PNS has been advised by the
Trustee for said Senior Notes that it believes that PNS is in
default because it "is unable to pay its debts as the same come
due." The Trustee has purportedly accelerated payment of the Senior
Notes, although PNS has advised the Trustee that it disagrees
with the conclusion that it is in default and the Trustee has
taken no legal action.
As a result of the continued default due to the non-payment of
interest on the Convertible Debentures, and as a result of the
position taken by the Trustee for the Senior Notes (with which
6
<PAGE>
the Company disagrees) that such notes are in default, during the
three months ended April 29, 1995 the Company has classified all
Senior Notes and Convertible Debentures as current liabilities
and in connection therewith has expensed remaining deferred
financing costs and original issue discount.
At April 29, 1995, approximately $5.26 million of Senior Notes
and $22.92 million of Debentures remain outstanding and, annual
interest thereon, in the absence of additional repurchases,
approximates $638,000 and $1.63 million, respectively. The
Company's future operating results, liquidity, capital resources
and requirements are primarily dependent upon the payment of
interest on and purchases of Senior Notes and Debentures and, to
a lesser extent, interest rate fluctuations as they relate to the
market value of Mortgage Certificates and to the spread of
interest income therefrom over interest expense on related
borrowings. The Company is exclusively invested in Mortgage
Certificates, and, accordingly, is presently relying solely on
such as its source of cash funds. In the absence of additional
purchases of Senior Notes and/or Debentures, based upon the
Company's April 29, 1995 assets and liabilities it is expected
that the Company will have sufficient capital resources and
liquidity to meet debt service requirements on the Senior Notes
until the January 15, 1996 interest payment; it is not expected
that the Company will have sufficient capital resources to meet
debt service requirements on the Debentures for the next 12
months. It has not been determined what course of action the
Company may pursue with respect to debt service comprising
interest payments and future maturities of Senior Notes and
Debentures.
NOTE 3 - Mortgage Certificates
The Mortgage Certificates are financed with borrowings payable on
demand provided against the Mortgage Certificates. At April 29,
1995, the average annual interest rate to be earned on the
Mortgage Certificates, as determined on the basis that interest
rates do not change, approximated 7.3% and the average annual
interest rate on the related borrowings approximated 6.2%. The
rates of interest to be received on the Mortgage Certificates are
adjustable based on general interest rate trends with certain
maximums.
NOTE 4 - Income Taxes
Due to losses reported for each of the three and six months ended
April 29, 1995 and April 28, 1994, there was no provision for
income taxes recorded.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At April 29, 1995, the Company's principal assets consisted of
approximately $6 million of Mortgage Certificates from which
interest income is earned and its principal obligations consisted
of Mortgage Financing borrowings, Senior Notes and Debentures
upon which interest expense is incurred.
PNS is restricted by terms of its Senior Notes Indenture from
paying dividends or making other payments to PSS, except that PNS
may pay dividends to PSS in amounts sufficient to enable PSS to
meet its obligation on its Debentures when due. PNS, like its
parent company, has a stockholder's deficit.
The Company has not paid the interest due January 15, 1995 on its
Convertible Debentures and such default has continued beyond the
30 day "grace" period. The Company's subsidiary, PNS, paid the
interest due on January 15, 1995 on its Senior Notes within the
30 day "grace" period; however, PNS has been advised by the
Trustee for said Senior Notes that it believes that PNS is in
default because it "is unable to pay its debts as the same come
due." The Trustee has purportedly accelerated payment of the Senior
Notes, although PNS has advised the Trustee that it disagrees
with the conclusion that it is in default and the Trustee has taken
no legal action.
As a result of the continued default due to the non-payment of
interest on the Convertible Debentures, and as a result of the
position taken by the Trustee for the Senior Notes (with which
the Company disagrees) that such notes are in default, during the
three months ended April 29, 1995 the Company has classified all
Senior Notes and Convertible Debentures as current liabilities
and in connection therewith has expensed remaining deferred
financing costs and original issue discount.
At April 29, 1995, the Company had assets of approximately $6.08
million and liabilities secured by such assets of approximately
$5.58 million, thus having a net difference of approximately
$500,000 available for holders of Senior Notes and Debentures.
In the absence of additional debt repurchases, the amount due for
the July 15, 1995 Senior Notes interest approximates $319,000.
At April 29, 1995, approximately $5.26 million of Senior Notes
and $22.92 million of Debentures remain outstanding and, annual
interest thereon, in the absence of additional repurchases,
approximates $638,000 and $1.63 million, respectively. The
Company's future operating results, liquidity, capital resources
and requirements are primarily dependent upon the payment of
8
<PAGE>
interest on and purchases of Senior Notes and Debentures and, to
a lesser extent, interest rate fluctuations as they relate to the
market value of Mortgage Certificates and to the spread of
interest income therefrom over interest expense on related
borrowings. The Company is exclusively invested in Mortgage
Certificates, and, accordingly, is presently relying solely on
such as its source of cash funds. In the absence of additional
purchases of Senior Notes and/or Debentures, based upon the
Company's April 29, 1995 assets and liabilities it is expected
that the Company will have sufficient capital resources and
liquidity to meet debt service requirements on the Senior Notes
until the January 15, 1996 interest payment; it is not expected
that the Company will have sufficient capital resources to meet
debt service requirements on the Debentures for the next 12
months. It has not been determined what course of action the
Company may pursue with respect to debt service comprising
interest payments and future maturities of Senior Notes and
Debentures.
Results of Operations
Interest income
Interest income decreased during the three and six months ended
April 29, 1995, as compared to the prior year periods, as a
result of a declining investment due primarily to sale of most of
the mortgage certificate portfolio.
Interest expense
Interest expense for the three and six months ended April
29, 1995, decreased as compared to the prior year periods
primarily due to lower borrowings related to a declining
investment in Mortgage Certificates and fewer Senior Notes and
Debentures outstanding due to bond repurchases.
Write off of deferred financing costs and original issue
discount
As a result of the continued default due to the non-payment of
interest on the Convertible Debentures, and as a result of the
position taken by the Trustee for the Senior Notes (with which
the Company disagrees) that such notes are in default, during the
three months ended April 29, 1995 the Company has classified all
Senior Notes and Convertible Debentures as current liabilities
and in connection therewith has expensed remaining deferred
financing costs and original issue discount.
9
<PAGE>
ITEM 3 - Defaults Upon Senior Securities
The Company has not paid the interest due January 15, 1995
on its 7-1/8% Convertible Debentures and such default has
continued beyond the 30 day "grace" period. The Company's
subsidiary, PNS Inc., paid the interest due on January 15, 1995
on its 12-1/8% Senior Subordinated Notes within the 30 day
"grace" period; however, PNS has been advised by the Trustee for
said Notes that it believes that PNS is in default because it "is
unable to pay its debts as the same come due." The Trustee has
purportedly accelerated payment of the Senior Notes, although PNS has
advised the Trustee that it disagrees with the conclusion that it
is in default and the Trustee has taken no legal action.
10
<PAGE>
SIGNATURE
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.
PSS, INC.
(Registrant)
Date: June 13, 1995 By: /s/ JAMES LIEB
James M. Lieb, Director
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793322
<NAME> PSS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-28-1995
<PERIOD-START> OCT-30-1994
<PERIOD-END> APR-29-1995
<CASH> 10
<SECURITIES> 5,994
<RECEIVABLES> 71
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,075
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,075
<CURRENT-LIABILITIES> 35,238
<BONDS> 0
<COMMON> 168,584
0
0
<OTHER-SE> (197,747)
<TOTAL-LIABILITY-AND-EQUITY> 6,075
<SALES> 0
<TOTAL-REVENUES> 243
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (277)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,454)
<INCOME-PRETAX> (1,488)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,488)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
