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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 January 28, 1995
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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 January 28, 1995 Commission file number 0-14900
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PSS, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 91-1335798
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1511 Sixth Avenue, Seattle, WA 98101
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (206) 621-6938
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_____________________________________________________________________
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
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The number of shares of common stock outstanding as of
March 1, 1995: 19,473,728.
Page 1 of 11
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INDEX
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PART I. FINANCIAL INFORMATION
1. Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
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 10
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(a) These items are inapplicable or have a negative response and have therefore
been omitted.
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PSS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
January 28, October 29,
1995 1994
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ASSETS
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 360 $ 45
Investment in mortgage certificates 6,019 10,892
Interest receivable 69 112
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Total current assets 6,448 11,049
Deferred Financing Costs 273 334
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$ 6,721 $ 11,383
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current Liabilities:
Borrowings under mortgage certificate
financing agreement $ 5,596 $ 10,192
Interest payable 1,232 666
Accounts payable and accrued liabilities 32 41
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Total current liabilities 6,860 10,899
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Long-term Debt 28,162 28,159
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Stockholders' Deficit:
Common stock 19,474 19,474
Additional paid-in capital 149,110 149,110
Accumulated deficit (196,885) (196,259)
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Total stockholders' deficit (28,301) (27,675)
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$ 6,721 $ 11,383
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</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
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PSS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three months ended
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January 28, January 29,
1995 1994
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<S> <C> <C>
Interest income $ 133 $ 1,544
Interest expense (731) (2,206)
General and administrative expenses (28) (55)
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Net loss $ (626) $ (717)
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Net loss per common share $ (0.03) $ (0.04)
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</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
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PSS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
Three months ended
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January 28, January 29,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (626) $ (717)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Amortization 64 343
Increase (decrease) in accrued
interest payable 566 (1,140)
Other 34 56
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Net cash provided (used) by
operating activities 38 (1,458)
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Cash flows from investing activities:
Principal payments on mortgage certificates 447 9,308
Proceeds from sale of mortgage certificates 4,426
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Net cash provided by investing
activities 4,873 9,308
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Cash flows from financing activities:
Repayment of borrowings under mortgage
certificate financing agreement (4,596) (7,837)
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Net cash used by financing activities (4,596) (7,837)
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Net increase in cash and
short-term investments 315 13
Cash and short-term investments -
beginning of period 45 572
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Cash and short-term investments -
end of period $ 360 $ 585
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</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
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PSS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 28, 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 January 28, 1995, the Company had tangible assets (total assets less deferred
financing costs) of approximately $6.45 million and liabilities secured by such
assets of approximately $5.63 million, thus having a net difference of
approximately $820,000 available for holders of Senior Notes and Debentures.
Subsequent to January 28, PNS used $318,766.25 of net assets to make the January
15 interest payment on its Senior Notes.
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 Notes,
although PNS has advised the Trustee that it disagrees with the conclusion that
it is in default.
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At January 28, 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 January 28, 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 - INCOME TAXES
Due to losses reported for each of the three months ended January 28, 1995 and
January 29, 1994, there was no provision for income taxes recorded.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At January 28, 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. Principal payments on
the Senior Notes and Debentures are not scheduled to commence until July 1996.
The Mortgage Certificates are financed with borrowings payable on demand
provided against the Mortgage Certificates. At January 28, 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 7.1% and the average
annual interest rate on the related borrowings approximated 6.1%. The rates of
interest to be received on the Mortgage Certificates are adjustable based on
general interest rate trends with certain maximums.
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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.
At January 28, 1995, the Company had tangible assets (total assets less deferred
financing costs) of approximately $6.45 million and liabilities secured by such
assets of approximately $5.63 million, thus having a net difference of
approximately $820,000 available for holders of Senior Notes and Debentures.
Subsequent to January 28, PNS used $318,766.25 of net assets to make the January
15 interest payment on its Senior Notes.
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 Notes,
although PNS has advised the Trustee that it disagrees with the conclusion that
it is in default.
At January 28, 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 January 28, 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.
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RESULTS OF OPERATIONS
INTEREST INCOME
Interest income decreased during the three months ended January 28, 1995, as
compared to the prior year period, 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 months ended January 28, 1995, decreased as
compared to the prior year period primarily due to (i) lower borrowings related
to a declining investment in Mortgage Certificates and (ii) fewer Senior Notes
and Debentures outstanding due to bond repurchases.
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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 Notes,
although PNS has advised the Trustee that it disagrees with the conclusion that
it is in default.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none filed with this report.
(b) The Company filed a Form 8-K, the date of such report being February
14, 1995, with respect to the payment of interest due on January 15,
1995 on the 12-1/8% Senior Subordinated Notes of the Company's
subsidiary, PNS Inc., and the non-payment of interest then due on the
7-1/8% Convertible Debentures of the Company.
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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: March 14, 1995 By: /s/ James Lieb
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James M. Lieb
Director
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