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 July 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 _________________
-----------------------------------------------------------------
For Quarter ended July 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
September 12, 1995: 19,473,728.<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)
July 29, October 29,
1995 1994
ASSETS
Current Assets:
Cash and short-term investments $ 24 $ 45
Investment in mortgage certificates 5,969 10,892
Interest receivable 78 112
----- ------
Total current assets 6,071 11,049
Deferred Financing Costs 334
------- --------
$ 6,071 $ 11,383
======= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Borrowings under mortgage certificate
financing agreement $ 5,541 $ 10,192
Accounts payable and accrued liabilities 26 41
PNS 12-1/8% senior notes 5,258
Interest payable on PNS notes 345 187
PSS 7-1/8% notes 22,920
Interest payable on PSS notes 1,700 479
------ ------
Total current liabilities 35,790 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 (198,303) (196,259)
------- -------
Total stockholders' deficit (29,719) (27,675)
------- -------
$ 6,071 $ 11,383
======= ========
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)
Three months ended
July 29, July 30,
1995 1994
Interest income $ 119 $ 1,458
Interest expense (657) (2,402)
General and administrative expenses (18) (52)
-------- --------
Net loss $ (556) $ (996)
======== ========
Net loss per common share $ (0.03) $ (0.05)
======== ========
Nine months ended
July 29, July 30,
1995 1994
Interest income $ 362 $ 4,463
Interest expense (2,111) (6,836)
Write off of deferred financing costs
and original issue discount (226)
General and administrative expenses (69) (152)
--------- ----------
Net loss $(2,044) $(2,525)
========= ==========
Net loss per common share $ (0.11) $ (0.13)
========= ==========
The accompanying notes are an integral part
of these financial statements.
4<PAGE>
PSS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands of dollars)
Nine months ended
July 29, July 30,
1995 1994
Cash flows from operating activities:
Net loss $ (2,044) $ (2,525)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Amortization 127 890
Write off of deferred financing costs
and original issue discount 226
Increase in accrued interest payable 1,379 1,102
Other 19 119
------- --------
Net cash used by operating activities (293) (414)
------- --------
Cash flows from investing activities:
Principal payments on mortgage certificates 497 21,118
Proceeds from sale of mortgage certificates 4,426
------- --------
Net cash provided by investing
activities 4,923 21,118
------- -------
Cash flows from financing activities:
Repayment of borrowings under mortgage
certificate financing agreement (4,651) (18,476)
------- --------
Net cash used by financing activities (4,651) (18,476)
------- --------
Net increase (decrease) in cash and
short-term investments (21) 2,228
Cash and short-term investments -
beginning of period 45 572
Cash and short-term investments - ------- --------
end of period $ 24 $ 2,800
======== ========
The accompanying notes are an integral part
of these financial statements.
5<PAGE>
PSS, INC.
NOTES TO FINANCIAL STATEMENTS
July 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 July 29, 1995, the Company had assets of approximately $6.07 million and
liabilities secured by such assets of approximately $5.57 million, thus
having a net difference of approximately $500,000 available for holders of
Senior Notes and Debentures.
The Company has not paid the interest due January 15, 1995 and July 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 was advised by the Trustee for said Senior Notes that it
believed that PNS was in default because it was "unable to pay its debts as the
same come due." The Trustee has purportedly accelerated payment of the
Senior Notes although the Trustee has taken no legal action. PNS has
not paid the interest due on July 15, 1995 on its Senior Notes and such
default has continued beyond the 30 day "grace" period.
As a result of the continued default due to the non-payment of interest on the
Convertible Debentures and Senior Notes, 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 July 29, 1995, approximately $5.26 million of Senior Notes and $22.92
million of Debentures remained 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 any enforcement action
which may or may not be taken by indenture trustees or bondholders 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
6<PAGE>
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. It has not been determined what course of action the
Company may pursue with respect to debt service comprising interest payments
on 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 July 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 8.1% and the
annual interest rate on the related borrowings approximated 5.8%. 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 nine months ended July 29,
1995 and July 30, 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 July 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 and July 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 was advised by the Trustee for said Senior Notes that it
believed that PNS was in default because it was "unable to pay its debts as
the same come due." The Trustee has purportedly accelerated payment of the
Senior Notes, although the Trustee has taken no legal action. PNS has not paid
the interest due on July 15, 1995 on its Senior Notes within and such default
has continued beyond the 30 day "grace" period.
As a result of the continued default due to the non-payment of interest on the
Convertible Debentures and the Senior Notes, 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 July 29, 1995, the Company had assets of approximately $6.07 million and
liabilities secured by such assets of approximately $5.57 million, thus having
a net difference of approximately $500,000 available for holders of Senior
Notes and Debentures.
At July 29, 1995, approximately $5.26 million of Senior Notes and $22.92
million of Debentures remained 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 any enforcement action
which may or may not be taken by indenture trustees or bondholders 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. 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.
8<PAGE>
Results of Operations
Interest income
Interest income decreased during the three and nine months ended July 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 nine months ended July 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 Senior Notes, 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 and July 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 was advised by the Trustee for said Senior Notes that it
believed that PNS was in default because it was "unable to pay its debts as
the same come due." The Trustee has purportedly accelerated payment of the
Senior Notes, although the Trustee has taken no legal action. PNS has
not paid the interest due on July 15, 1995 on its Senior Notes and such
default has continued beyond the 30 day "grace" period.
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: September 12, 1995 By: /s/ JAMES LIEB
James M. Lieb, Director
11<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793322
<NAME> PSS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-28-1995
<PERIOD-END> JUL-29-1995
<CASH> 24,000
<SECURITIES> 5,969,000
<RECEIVABLES> 78,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,071,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,071,000
<CURRENT-LIABILITIES> 35,790,000
<BONDS> 0
<COMMON> 168,584,000
0
0
<OTHER-SE> (198,303,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,071,000
<SALES> 0
<TOTAL-REVENUES> 362,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (295,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,111,000)
<INCOME-PRETAX> (2,044,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,044,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,044,000)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
