<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 20, 1997
Pubco Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-1359 53-0246410
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
3830 Kelley Avenue
Cleveland, Ohio 44114
(Address of principal executive offices)
Registrant's telephone number, including area code: (216) 881-5300
<PAGE>
The undersigned Registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current
Report on Form 8-K dated October 20, 1997 by including the items set
forth below.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
Financial Statements and Pro Forma Financial Information
a. Audited Consolidated Balance Sheets of Kroy, Inc. and
Subsidiaries as of March 31, 1997 and 1996 and Audited
Consolidated Statements of Operations, Audited Consolidated
Statement of Stockholders' Equity, and Audited
Consolidated Statements of Cash Flows of Kroy, Inc. and
Subsidiaries for the years ended March 31, 1997 and 1996.
Unaudited Consolidated Balance Sheet of Kroy, Inc. and
Subsidiaries as of September 30, 1997 and unaudited
Consolidated Statements of Operations and unaudited
Consolidated Statements of Cash Flows of Kroy, Inc. and
Subsidiaries for the periods ended September 30, 1997 and
1996.
b. Proforma Condensed Consolidated Balance Sheet of the
Registrant as of September 30, 1997 and Proforma Condensed
Consolidated Statements of Operations of the Registrant for
the year ended December 31, 1996 and the period ended
September 30, 1997.
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Kroy, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Kroy, Inc. and
subsidiaries as of March 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years 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 consolidated financial position of Kroy, Inc. and
subsidiaries at March 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Kroy,
Inc. and subsidiaries will continue as a going concern. As more fully described
in Note 2, the Company has incurred a significant net loss in the recent period
and has not complied with certain covenants of loan agreements with banks.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Phoenix, AZ Ernst & Young LLP
June 24, 1997
<PAGE>
Kroy, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
March 31
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 226 $ 403
Receivables, net of allowance of $557 in 1997 and $537 in 1996 3,924 3,605
Inventories 5,134 5,685
Deferred income taxes 473 612
Other current assets 460 683
------- -------
Total current assets 10,217 10,988
Property, plant and equipment, net 2,167 1,304
Reorganization value in excess of amounts allocable to
identifiable assets, net of accumulated amortization of $831
in 1997 and $797 in 1996 611 645
Other assets 755 490
------- -------
Total assets $13,750 $13,427
======= =======
See accompanying notes.
<PAGE>
Kroy, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
March 31
1997 1996
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,829 $ 2,002
Accrued salaries, commissions, bonuses and related taxes 462 419
Accrued interest 40 32
Income taxes payable 96 131
Other current liabilities 1,126 271
Current portion of capital lease obligations 108 -
Long-term debt not in compliance with covenants 4,604 290
------- -------
Total current liabilities 9,265 3,145
Deferred income taxes 473 638
Capital lease obligations, less current portion 318 -
Long-term debt, less current portion - 3,395
Commitments
Stockholders' equity:
Common stock, Class A, $.01 par value - authorized, 1,000,000
shares; issued and outstanding, 100,000 1 1
Additional paid-in capital 3,674 3,674
Retained earnings 790 3,348
Cumulative translation adjustment (771) (774)
------- -------
Total stockholders' equity 3,694 6,249
------- -------
Total liabilities and stockholders' equity $13,750 $13,427
======= =======
See accompanying notes.
<PAGE>
Kroy, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands)
Year Ended March 31
1997 1996
Net sales $26,885 $27,125
Cost of sales 15,786 15,279
------- -------
11,099 11,846
Operating expenses:
Selling, general and administrative 10,509 10,380
Product development 1,206 1,206
Legal judgment 922 -
Restructuring charges 597 -
------- -------
Operating income (loss) (2,135) 260
Other expense (income):
Interest, net 499 374
Other, net 181 (293)
------- -------
Income (loss) before income taxes (2,815) 179
Income tax expense (benefit) (257) 74
------- -------
Net income (loss) $(2,558) $ 105
======= =======
See accompanying notes.
<PAGE>
<TABLE>
Kroy, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
<CAPTION>
Additional Cumulative
Common Stock Paid-In Retained Translation
Shares Amount Capital Earnings Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1995 100,000 $1 $3,674 $3,243 $ (410) $6,508
Net income - - - 105 - 105
Unrealized translation loss - - - - (364) (364)
------- -- ------ ------ ------- ------
Balance, March 31, 1996 100,000 $1 $3,674 $3,348 $ (774) $6,249
Net loss - - - (2,558) - (2,558)
Unrealized translation gain - - - - 3 3
------- -- ------ ------ ------- ------
Balance, March 31, 1997 100,000 $1 $3,674 $ 790 $ (771) $3,694
======= == ====== ====== ======= ======
<FN>
See accompanying notes.
</TABLE>
<PAGE>
Kroy, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended March 31
1997 1996
Operating activities
Net income (loss) $(2,558) $ 105
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 727 1,114
Deferred income taxes (26) 302
Gain on sale of fixed assets - (716)
Changes in operating assets and liabilities:
Receivables (319) (199)
Inventories 554 322
Other assets (80) (835)
Accounts payable 827 659
Accrued salaries, commissions, bonuses and related taxes 43 9
Accrued interest 8 (122)
Income taxes (35) (89)
Other current liabilities 855 (525)
------- -------
Net cash provided by (used in) operating activities (4) 25
Investing activities
Capital expenditures (1,002) (470)
Proceeds from sale of fixed assets - 1,700
------- -------
Net cash provided by (used in) investing activities (1,002) 1,230
Financing activities
Net proceeds (payments) under long-term debt 919 (5,473)
Capital lease obligation payments (90) -
------- -------
Net cash provided by (used in) financing activities 829 (5,473)
Net decrease in cash and cash equivalents (177) (4,218)
Cash and cash equivalents, beginning of year 403 4,621
------- -------
Cash and cash equivalents, end of year $ 226 $ 403
======= =======
See accompanying notes.
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1997
1. The Company and Its Reorganization
The Company was incorporated under the laws of the State of Minnesota for the
principle purpose of engaging in the design, manufacture, and sale of lettering
products principally in the United States and Europe.
On December 23, 1986, members of Kroy Inc.'s then management and other investors
purchased all the Company's outstanding common stock in a leveraged buyout.
Until that date, Kroy Inc.'s common stock had been publicly traded in the over-
the-counter market. On May 15, 1990, Kroy Inc. and its subsidiary, Kroy
(Europe) Limited, filed voluntary petitions for reorganization under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court for
the District of Arizona (the "Bankruptcy Court"). On August 10, 1990, the
Company's First Amended Joint Plan of Reorganization (the "Reorganization Plan")
was confirmed by the Bankruptcy Court.
On November 16, 1990, after obtaining new equity and debt financing, the
Company's Reorganization Plan became effective and distributions under the
Reorganization Plan commenced. The Company accounted for the reorganization
using fresh-start reporting as prescribed by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
(SOP 90-7). Accordingly, all assets were restated as of the plan confirmation
date to reflect the reorganization value, which approximated fair value at the
date of reorganization.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Kroy,
Inc. and its wholly owned subsidiaries, Kroy (Europe) Limited, Kroy (Germany)
GmbH, and Kroy France SARL (collectively the "Company"). All material
intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents consist of cash in interest and noninterest bearing
checking accounts with maturity dates of less than three months from date of
purchase.
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Cost (which represents fair
value) of assets purchased prior to November 17, 1990 represents the appraised
value of the asset, unless the expected future use of the asset indicates a
lower value, in which case the asset is valued at the lower value. Depreciation
is provided on a straight-line basis over the estimated useful lives of the
assets.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets
related to the reorganization of the Company represents the excess of the
reorganization value over the fair value of identifiable assets and is being
amortized over twenty years using the straight-line method.
Income Taxes
The Company accounts for income taxes under Financial Accounting Standards Board
(FASB) Statement No. 109, "Accounting for Income Taxes." Under Statement No.
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Advertising Costs
The Company expenses advertising costs as incurred. The total amounts charged
to advertising expense were approximately $1,192,000 for the year ended March
31, 1997 and $1,011,000 for the year ended March 31, 1996.
Net Income (loss) per share
Net income (loss) per common share has been computed by dividing net income
(loss) by the number of shares outstanding, which for the years ended
March 31, 1997 and 1996 were $(25.58) and $1.05, respectively.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, accounts
payable, and borrowings under the revolving credit agreement reported in the
consolidated balance sheets approximate their fair value.
Basis of Presentation
The Company has experienced a large net loss in the recent period which has
weakened its financial condition and created violations of its debt covenants
which have not been waived by the bank. Accordingly, all of its debt is in
default and has been classified as current. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classifications of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Management's plans with respect to this matter are to seek additional sources of
financing to meet its immediate and long-term needs and to improve operating
results through sales programs and cost control programs. However, there is no
assurance that the Company will be able to obtain the financing sources it
requires or that it will be able to return to profitability so that it can
continue in operation.
3. Inventories
Inventories consist of the following:
March 31
1997 1996
(In thousands)
Raw materials $2,800 $2,303
Work in process 152 736
Finished goods 2,182 2,646
------ ------
$5,134 $5,685
====== ======
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
March 31
1997 1996
(In thousands)
Buildings and improvements $ 404 $ 347
Equipment 6,399 5,177
Capital projects in progress 370 164
------- -------
7,173 5,688
Less accumulated depreciation (5,006) (4,384)
------- -------
$ 2,167 $ 1,304
======= =======
During the year ended March 31, 1996, the Company entered into a sale-leaseback
transaction whereby they sold the land and building at their manufacturing
facility in Osceola, Wisconsin. As a result of the sale, the Company recorded a
gain of approximately $558,000, net of selling expenses. The gain has been
included in other income in the consolidated financial statements.
5. Long-Term Debt
Long-term debt consists of the following:
March 31
1997 1996
(In thousands)
Revolving credit agreement (Revolver), interest due monthly
at the National Bank of Canada prime lending rate plus 1.25
percent (9.75 percent at March 31, 1997), outstanding
principal and interest originally due March 1999 (not in
compliance with loan covenants). $ 4,604 $ 3,395
Term note, paid in full in 1997. - 290
------- -------
4,604 3,685
Less current portion and portion not in compliance with (4,604) (290)
covenants. ------- -------
$ - $ 3,395
======= =======
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
The Company is not in compliance with certain financial and other loan covenants
at March 31, 1997, and has not received a waiver of these covenant violations.
Accordingly, all of its long-term debt has been classified as current. While
the lender has not called the loan due, they have such right and the entire
portion of the debt has been classified as current. Management is seeking
additional sources of financing to meet its immediate and long-term needs.
The revolver allows the Company to borrow an amount up to $6,000,000, but
restricts the borrowings based on receivable and inventory levels. The term
loan and revolver are collateralized by substantially all of the Company's
assets, and contain certain covenants, the more restrictive of which prohibit
the payment of dividends, limit investments in marketable securities and capital
expenditures, and require the Company to comply with certain financial ratios.
As of March 31, 1997, no funds were available for borrowings under its revolver.
Kroy Holding Company has debt in the amount of approximately $4,397,000 at March
31, 1997, which was issued in conjunction with the reorganization of Kroy Inc.
The Company is not liable with respect to the Kroy Holding Company debt.
The Company made interest payments of $474,000 during the year ended March 31,
1997 and $575,000 during the year ended March 31, 1996.
6. Income Taxes
The components of the income tax expense (benefit) for the years ended March 31,
1997 and 1996, are as follows (in thousands):
1997 1996
Current $(231) $(228)
Deferred (26) 302
----- -----
$(257) $ 74
===== =====
The income tax expense (benefit) differs from the amount computed by applying
the federal statutory rate for the years ended March 31, 1997 and 1996, due
primarily to increases in the valuation reserve of $602,000 in 1997 and
amortization of intangibles which are not deductible for tax purposes.
The Company files consolidated income tax returns with Kroy Holding Company, its
85 percent owner and effective January 1, 1996 is further consolidated for
federal income tax purposes with Heller Equity Capital Corporation (Heller).
The tax provisions set forth herein relate solely to Kroy, Inc. and do not
reflect tax benefits related to the results of operations of other companies
which join in a consolidated tax filing with Heller. The Company has tax
sharing arrangements
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
with Kroy Holding Company (KHC) and Heller. At March 31, 1997, the Company's
income tax payable includes a liability of $464,000 due to KHC for use of KHC
tax losses from prior years. During 1997, a portion of the Company's net
operating losses were eligible for carryback under built-in loss rules for tax
attributes economically accrued prior to the Heller tax sharing arrangement.
The Company has reduced its income tax payable by $365,000 for the refund
available through this carryback. Under the Heller tax sharing arrangement, the
Company and KHC are to pay Heller any taxes due as if they were a separate
consolidated group for federal income tax purposes. At March 31, 1997, the
Company has approximately $1,000,000 of net operating loss carryforwards which
under the Heller tax sharing arrangement can only be recovered through future
taxable income relating to periods in which the Company will be included in a
consolidated tax filing with Heller. The Company has provided for a valuation
reserve against the future tax benefit of this net operating loss carryforward.
During the year ended March 31, 1997, the Company received an income tax refund
of $192,000 and in 1996, the Company made payments related to income taxes in
the amount of $10,000.
Significant components of the Company's deferred tax liabilities and assets as
of March 31, 1997 and 1996 are as follows (in thousands):
1997 1996
Deferred tax liabilities:
Fixed asset depreciable basis $ 41 $ 204
Other asset basis differences 432 434
------ ------
Total deferred tax liabilities 473 638
Deferred tax assets:
Inventory allowances 127 262
Accrued liabilities 504 220
Receivables allowances 83 80
Alternative minimum tax credit - 50
Net operating loss carryforward 361 -
------ ------
Total deferred tax assets 1,075 612
Less valuation reserve (602) -
------ ------
Net deferred tax assets 473 612
Net deferred tax liabilities $ - $ 26
====== ======
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Commitments
Leases
The Company leases equipment under capital leases. The Company is also
obligated under noncancelable operating leases for premises and equipment.
Certain real property leases provide for increased rentals based upon stipulated
escalation clauses or increases in real estate taxes or operating costs.
Property and equipment includes the following amounts for leases that have been
capitalized at March 31, 1997 (in thousands):
Equipment $ 516
Less accumulated amortization (99)
-------
$ 417
=======
Amortization of leased assets is included in depreciation and amortization
expense.
During the year ended March 31, 1997, the Company acquired approximately
$516,000, respectively, of equipment under capital leases.
Future minimum payments under capital leases and noncancelable operating leases
with initial terms of one year or more consisted of the following at March 31,
1997:
Capital Operating
Leases Leases
(In thousands)
1998 $ 151 $1,017
1999 151 868
2000 114 723
2001 101 544
2002 12 117
Thereafter - 340
------ ------
Total minimum lease payments 529 $3,609
Less amounts representing interest (103) ======
------
Present value of net minimum lease payments 426
Less current portion (108)
------
$ 318
======
<PAGE>
Kroy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Commitments (continued)
Total rental expense for all operating leases was approximately $965,000 and
$959,000 for the years ended March 31, 1997 and 1996, respectively.
Legal Judgment
During 1997, the Company was sued by another party which claimed an improper use
of its trade secret information to stop the infringement of a Company patent.
The initial trial resulted in a judgment against the Company in the total amount
of approximately $630,000. The Company believes the judgment is not proper and
has begun the appeals process to reverse the judgment. However, given the
uncertainty of certain legal matters, the Company has recorded a liability for
the judgment and estimated legal costs at March 31, 1997 which is included in
other liabilities.
8. Benefit Plan
The Company has a defined contribution 401(k) benefit plan (401(k) Plan) which
covers all employees who have completed one year of service and have attained
age 21. Under the terms of the 401(k) Plan, employees may contribute up to 15
percent of their salary to the 401(k) Plan, subject to Internal Revenue Service
limitations. The Company will match a percentage of employee contributions
based upon consolidated earnings each year. The Company recorded approximately
$91,400 of contribution expense during the year ended March 31, 1997 and $81,000
during the year ended March 31, 1996.
9. Restructuring Charges
During 1997, the Company performed a comprehensive evaluation of its personnel
in light of its future manufacturing, sales and distribution plans. This
resulted in additional costs relating to personnel changes and business process
modifications that management believes are outside of its normal ongoing
operating cost. Accordingly, the Company recorded restructuring charges of
$597,000 related to these matters.
10. Subsequent Event
The Company has engaged an investment banking firm to assist in meeting its
financial needs through sale or investment. This agreement calls for certain
minimum fees and a contingent payment based upon the outcome. Relating to this
arrangement, subsequent to March 31, 1997, the Company has entered into a letter
of intent to sell the assets of the Company to an unrelated third party. There
can be no assurances of the final terms of the proposed transaction or that the
transaction will occur at all.
<PAGE>
KROY, INC
CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
($ Dollars)
CURRENT ASSETS:
CASH 181,344
ACCOUNTS RECEIVABLE, NET 3,530,448
INVENTORY, NET 4,316,843
OTHER CURRENT ASSETS 946,161
----------
TOTAL CURRENT ASSETS 8,974,796
PROPERTY PLANT & EQUIPMENT 7,898,627
LESS: ACCUMULATED DEPRECIATION (5,883,778)
----------
NET PROPERTY, PLANT & EQUIPMENT 2,014,849
OTHER ASSETS 1,283,518
----------
TOTAL ASSETS 12,273,163
==========
LIABILITIES AND SHAREHOLDERS EQUITY:
CURRENT LIABILITIES:
CURRENT LONG-TERM DEBT (LEASES) 51,078
CURRENT REVOLVING BANK DEBT 4,608,981
ACCOUNTS PAYABLE 2,146,318
INTEREST PAYABLE 36,964
ACCRUED EXPENSES 460,564
ACCRUED FEDERAL AND STATE TAXES 54,851
CURRENT DEFFERED TAXES 18
----------
TOTAL CURRENT LIABILITIES 7,358,774
LONG-TERM LIABILITIES:
OTHER CURRENT LIABILITIES 800,173
DEFERRED TAXES 472,492
LONG-TERM CAPITAL LEASES AND OTHER DEBT 299,075
----------
TOTAL LONG-TERM LIABILITIES 1,571,740
SHAREHOLDERS EQUITY:
COMMON SHARES 1,000
ADDITIONAL PAID IN CAPITAL 3,674,100
RETAINED EARNINGS 467,264
CUMULATIVE TRANSLATION ADJUSTMENT (799,715)
----------
TOTAL SHAREHOLDERS EQUITY 3,342,649
----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 12,273,163
==========
<PAGE>
KROY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the six
months ending
September 30, 1997
------------------
Gross Sales 11,374,138
Sales R & A 114,444
Net Sales 11,259,694
Cost of Sales 6,495,977
Gross Margin 4,763,717
Selling 1,594,608
Marketing 739,610
Engineering 380,216
Gen. & Admin. 1,826,730
Total Operating Expenses 4,541,164
Operating Income (Loss) 222,553
Interest Expense (Income) 257,323
Other Expense (Income) 267,705
Pre-Tax Income (Loss) (302,475)
Tax Expense (Benefit) 21,172
Net Income (Loss) (323,647)
<PAGE>
KROY, INC
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
($ Dollars)
For the six
months ending
September 30, 1997
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) (323,647)
Non-Cash Activities Included in Net Income (Loss)
Depreciation 262,544
Amortization 52,893
(Gain) Loss on Sales of Fixed Assets 0
Cumulative Translation Adjustment (29,028)
--------
(37,238)
Changes in Operating Assets and Liabilities
(Increase) Decrease in Accounts Receivable 394,036
(Increase) Decrease in Inventory 816,934
(Increase) Decrease in Other Assets 16,952
Increase (Decrease) in Accounts Payable (682,935)
Increase (Decrease) in Interest Payable (3,107)
Increase (Decrease) in Accrued Expenses (1,821)
Increase (Decrease) in Federal and State Taxes Payable (40,589)
Increase (Decrease) in Other Current Liabilities (326,194)
Increase (Decrease) in Other Long-Term Liabilities (19,112)
Increase (Decrease) in Deferred Taxes 15
--------
Changes in Operating Assets/Liabilites 154,179
Net Cash Provided (Used) By Operating Activities 116,941
CASH FLOWS FROM INVESTING ACTIVITIES:
Debt Repayments (57,048)
Capital Expenditures (113,914)
Proceeds From Sale of Fixed Assets 0
Translation Effect From Revaluing Europe Fixed Asset 3,722
--------
Net Cash Provided (Used) By Investing Activities (167,240)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Current L-T Debt 0
Increase (Decrease) in L-T Debt, Excluding Revolver 0
Increase (Decrease) in NCFC Borrowing 5,008
--------
Net Cash Provided (Used) By Financing Activities 5,008
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (45,291)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 226,634
CASH AND CASH EQUIVALENTS AT END OF PERIOD 181,343
<PAGE>
KROY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the six
months ending
September 30, 1996
------------------
Gross Sales 13,741,407
Sales R & A 126,666
Net Sales 13,614,741
Cost of Sales 7,897,276
Gross Margin 5,717,465
Selling 2,398,631
Marketing 1,216,108
Engineering 606,357
Gen. & Admin. 1,835,308
Total Operating Expenses 6,056,404
Operating Income (Loss) (338,939)
Interest Expense (Income) 235,831
Other Expense (Income) 249,112
Pre-Tax Income (Loss) (823,882)
Tax Expense (Benefit) (240,159)
Net Income (Loss) (583,723)
<PAGE>
KROY, INC
CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
($ Dollars)
For the six
months ending
September 30, 1996
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) (583,724)
Non-Cash Activities Included in Net Income (Loss)
Depreciation 301,901
Amortization 28,107
(Gain) Loss on Sales of Fixed Assets 0
Cumulative Translation Adjustment (56,167)
----------
(309,883)
Changes in Operating Assets and Liabilities
(Increase) Decrease in Accounts Receivable (417,506)
(Increase) Decrease in Inventory (1,292,090)
(Increase) Decrease in Other Assets (268,931)
Increase (Decrease) in Accounts Payable 1,362,415
Increase (Decrease) in Interest Payable 11,564
Increase (Decrease) in Accrued Expenses 20,063
Increase (Decrease) in Federal and State Taxes Payable (71,124)
Increase (Decrease) in Other Current Liabilities (149,513)
Increase (Decrease) in Other Long-Term Liabilities 14,592
Increase (Decrease) in Deferred Taxes (20,643)
----------
Changes in Operating Assets/Liabilites (811,173)
Net Cash Provided (Used) By Operating Activities (1,121,056)
CASH FLOWS FROM INVESTING ACTIVITIES:
Debt Repayments (34,148)
Capital Expenditures (824,516)
Proceeds From Sale of Fixed Assets 0
Translation Effect From Revaluing Europe Fixed Asset 7,167
----------
Net Cash Provided (Used) By Investing Activities (851,497)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Current L-T Debt 0
Increase (Decrease) in L-T Debt, Excluding Revolver (182,500)
Increase (Decrease) in NCFC Revolver (Current) 2,375,117
Investment Activity by shareholders 0
----------
Net Cash Provided (Used) By Financing Activities 2,192,617
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 220,064
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 402,671
CASH AND CASH EQUIVALENTS AT END OF PERIOD 622,737
<PAGE>
KROY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE A -- Basis of Presentation
- -------------------------------
The financial information presented herein should be read in conjunction with
the audited consolidated financial statements and footnotes as of the years
ending March 31, 1997 and 1996.
On October 20, 1997, all of the capital stock was purchased by Pubco
Corporation, which becomes the new parent company.
The accompanying unaudited consolidated financial statements include the
accounts of Kroy, Inc. and its wholly owned subsidiaries, Kroy (Europe)
Limited, Kroy (Germany) GmbH, and Kroy France SARL . All material
intercompany accounts and transactions have been eliminated.
The accompaying unaudited consolidated financial statements have been prepared
in accordance with generally accepted principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included, all of which
are of a normal recurring nature.
Net income (loss) per common share has been computed by dividing net income
(loss) by the number of shares outstanding, which for the six months ending
September 30, 1997 and 1996 were a loss of $3.24 and $5.84 respectively.
NOTE B -- Inventories
- ---------------------
The components of inventories consist of the following :
September 30,
1997
Raw materials and supplies $1,668,523
Work in process 420,502
Finished goods 2,227,818
----------
$4,316,843
==========
<PAGE>
Pro Forma Condensed Consolidated Financial Information (Unaudited) of
Pubco Corporation (the "Company")
The accompanying unaudited pro forma condensed
consolidated financial information of the Company gives effect to the
acquisition of all of the outstanding capital stock of Kroy Inc. ("Kroy")
by the Company. The Company purchased all of the stock in Kroy
for $273,000, and a Company subsidiary purchased Kroy's secured bank loan
for the approximately $5,000,000 amount then outstanding and now acts as
its secured lender.
The pro forma balance sheet was prepared as if such transaction
had occurred on September 30, 1997. The pro forma statements
of operations were prepared as if such transaction had occurred at
the beginning of the periods presented.
The pro forma condensed consolidated balance sheet and
statements of operations are not necessarily indicative of the
consolidated financial position or results of operations as they
might have been had the transaction actually occurred on the date
indicated on such statements. The pro forma condensed consolidated
balance sheet and statements of operations should be read in
conjunction with the financial statements of Pubco Corporation and
Subsidiaries, incorporated by reference into this Form 8-K from the
Company's Quarterly Report on Form 10-Q for the nine months ending
September 30, 1997 and the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<CAPTION>
September 30, 1997
Pubco Pro Forma Pro Forma
Corporation Kroy Adjustments Consolidated
(As Reported)
<S> <C> <C> <C> <C>
ASSETS :
CURRENT ASSETS :
Cash and cash equivalents $5,305 $181 ($273)(a) $604
($4,609)(c)
Marketable securities and other
investments available for sale 25,794 0 0 25,794
Trade receivables 5,934 3,536 0 9,470
Inventory 7,333 4,317 (1,000)(b) 10,650
Deferred income taxes 735 474 0 1,209
Prepaid expenses and other current assets 1,217 466 0 1,683
-------- -------- -------- --------
TOTAL CURRENT ASSETS 46,318 8,974 (5,882) 49,410
PROPERTY AND EQUIPMENT 5,274 2,015 (631)(d) 6,658
INTANGIBLE ASSETS 973 680 (680)(b) 973
OTHER ASSETS 21,299 604 (87)(b) 21,816
-------- -------- -------- --------
TOTAL ASSETS $73,864 $12,273 ($7,280) $78,857
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $5,690 $2,146 $0 $7,836
Accrued Liabilities 7,904 605 671 (b) 9,180
Loans Payable - Banks 300 4,609 (4,609)(c) 300
TOTAL CURRENT LIABILITIES 13,894 7,360 (3,938) 17,316
LONG-TERM DEBT 112 0 0 112
DEFERRED CREDITS AND NONCURRENT LIABILITIES 21,623 1,571 0 23,194
MINORITY INTEREST 771 0 0 771
STOCKHOLDERS' EQUITY 37,464 3,342 (273)(a) 37,464
(2,438)(b)
(631)(d)
-------- -------- -------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $73,864 $12,273 ($7,280) $78,857
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<CAPTION>
For the nine months ending September 30, 1997
Pubco Pro Forma Pro Forma
Corporation Kroy Adjustments Consolidated
(As Reported)
<S> <C> <C> <C> <C>
Net sales $38,748 $17,868 $0 $56,616
Cost of sales 27,477 $10,485 0 37,962
---------- ------- ---- ---------
GROSS PROFIT 11,271 7,383 0 18,654
========== ======= ==== =========
Costs and expenses :
Selling, general and
administrative expenses 8,380 $7,419 (47)(b) 15,752
Interest, net (2,072) $371 (375)(c) (1,888)
188 (d)
--------- ------- ---- ---------
6,308 7,790 (234) 13,864
Other income (expense) 516 ($1,251) 58 (a) (677)
--------- ------- ---- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST 5,479 (1,658) 292 4,113
Provision for income taxes 221 $108 0 329
--------- ------- ---- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST 5,258 (1,766) 292 3,784
Minority interest (163) 0 0 (163)
--------- ------- ---- ---------
NET INCOME (LOSS) $5,095 ($1,766) $292 $3,621
========= ======= ==== =========
Preferred stock dividend requirements 656 0 0 656
--------- ------- ---- ---------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS $4,439 ($1,766) $292 $2,965
========= ======= ==== =========
NET INCOME PER SHARE $1.18 $0.79
========= =========
WEIGHTED AVERAGE NUMBER OF 3,752,473 3,752,473
SHARES OUTSTANDING ========= =========
</TABLE>
<PAGE>
<TABLE>
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<CAPTION>
For the year ending December 31, 1996
Pubco Pro Forma Pro Forma
Corporation Kroy (1) Adjustments Consolidated
(As Reported)
<S> <C> <C> <C> <C>
Net sales $51,069 $26,885 $0 $77,954
Cost of sales 36,747 15,786 0 52,533
--------- ------- ---- ---------
GROSS PROFIT 14,322 11,099 0 25,421
========= ======= ==== =========
Costs and expenses :
Selling, general and
administrative expenses 11,339 11,715 (63) (b) 22,991
Interest, net (2,287) 499 (500) (c) (2,038)
250 (d)
--------- ------- ---- ---------
9,052 12,214 (313) 20,953
Other income (expense) 558 (1,700) 77 (a) (1,065)
--------- ------- ---- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 5,828 (2,815) 390 3,403
Provision for income taxes (534) (257) 0 (791)
--------- ------- ---- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST 6,362 (2,558) 390 4,194
Minority interest (71) 0 0 (71)
--------- ------- ---- ---------
NET INCOME (LOSS) $6,291 ($2,558) $390 4,123
========= ======= ==== =========
Preferred stock dividend requirements 875 0 0 875
--------- ------- ---- ---------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $5,416 ($2,558) $390 $3,248
========= ======= ==== =========
NET INCOME PER SHARE $1.50 $0.90
========= =========
WEIGHTED AVERAGE NUMBER OF 3,610,278 3,610,278
SHARES OUTSTANDING ========= =========
<FN>
(1) Reported for the year ending March 31, 1997
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
NOTE 1 -- BASIS OF PRESENTATION
The acquisition of Kroy by the Company has been accounted for under the purchase
method of accounting, certain aspects of which are reflected in the form of
adjustments to the pro forma condensed consolidated financial information.
Certain balances of Kroy's audited and interim financial statements have been
reclassifed to conform to the pro forma format.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES -- Continued
NOTE 2 -- PRO FORMA CONDENSED BALANCE SHEET ADJUSTMENTS (UNAUDITED)
Adjustments to the Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
were made to :
(a) reflect the Company's purchase of all of the outstanding stock
of Kroy ;
(b) record adjustments to Kroy's historical assets and liabilities, to
record them to fair market value. ;
(c) eliminate Kroy's bank debt from the consolidation because the debt was
purchased by a Company subsidiary ;
(d) adjust stockholders' equity to equal Company's investment in
Kroy, recognizing a write down of property and equipment since
the fair value of net assets was more than the purchase price.
NOTE 3 -- PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ADJUSTMENTS (UNAUDITED)
The following adjustments to the Pro Forma Condensed Consolidated Statement of
Operations (Unaudited) were made to :
(a) remove amortization on intangibles and other assets, which were
written off to restate Kroy's assets and liabilities to fair market
value ;
(b) reduce depreciation on property and equipment, which was written
down since the fair value of net assets was more than the purchase
price ;
(c) based on the elimination of Kroy's bank debt from the consolidation
because the debt was purchased by a Company subsidiary, interest
expense was removed ;
(d) based on the elimination of Kroy's bank debt from the consolidation
because the debt was purchased by a Company subsidiary, interest
income was removed which the Company would have earned on the funds
used.
<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, thereto duly authorized.
PUBCO CORPORATION
By /s/ Robert H. Kanner
------------------------------
Robert H. Kanner
President
Date: December 29, 1997
