.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File Number 0-21998
PORTER MCLEOD NATIONAL RETAIL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 84-1195628
(State or Other Jurisdiction of (IRS Employer
Identification No.)
Incorporation or Organization)
5895 East Evans Avenue, Denver, Colorado, 80222
(Address and Zip Code of Principal Executive Offices)
Issuer=s Telephone Number: (303) 756-2227
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 registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
There were 1,970,866 shares of the registrant=s common stock
outstanding as of May 1, 1996.
This Document Contains 11 Pages
There are No Exhibit
Item 1. Financial Statements
Porter McLeod National Retail, Inc.
Balance Sheets
<TABLE>
<CAPTION>
March 31,
December 31,
1996
1995
(UNAUDITED)
Assets
<S>
<C>
<C>
Current Assets
Cash and cash equivalents
$ 283,822
$ 354,050
Accounts receivable
514,307
629,762
less allowance for doubtful
accounts
(20,000)
(20,000)
Retainage receivable
5,323
13,086
Costs and estimated earnings in
excess of billings
94,955
96,525
Prepaid expense and other assets
61,334
66,232
Total current assets
939,741
1,139,755
Property and equipment
Office furniture and equipment
21,278
21,278
Leasehold improvements
34,634
34,634
55,912
55,912
Less accumulated depreciation
(23,308)
(21,655)
Total property and equipment
32,604
34,257
Other assets
Note receivable from affiliate
677,126
677,126
Advances to affiliates
104,978
92,997
Other assets
3,119
-
Total other assets
785,223
770,123
Total Assets
$ 1,757,568
$ 1,944,135
Liabilities and Stockholders Equity
Current liabilities
Accounts payable and accrued
expenses
$ 349,895
$ 451,138
Total current liabilities
349,895
451,138
Stockholders - equity
Preferred stock, $.001 par value,
authorized - 100,000 shares-no
shares issued and outstanding
-
-
Common stock, $.0001 par value,
authorized - 3,000,000 shares-
issued and outstanding:
1,970,666
197
197
Additional paid-in capital
3,931,116
3,931,116
Accumulated deficit
(2,480,895)
(2,374,199)
Consulting agreement
(42,745)
(64,117)
Total stockholders equity
1,407,673
1,492,997
Total liabilities and stockholders
equity
$ 1,757,568
$ 1,944,135
Porter McLeod National Retail, Inc.
Statement of Operations
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31
1996
1995
<S>
<C>
<C>
Contract income
$ 663,281
$ 100,509
Contract costs
576,856
(51,066)
Gross Profit
86,425
151,575
General and administrative expenses
209,935
270,175
Income (loss) from operations
(123,510)
(118,600)
Other income (expense):
Interest income
16,814
14,348
Other expense
-
(38,446)
Total other income (expense)
16,814
(24,098)
Net income (loss) before income taxes
(106,696)
(142,698)
Income tax benefit (expense)
-
-
Net income (loss)
$ (106,696)
$ (142,698)
Net income (loss) per common share
$ (.05)
$ (.07)
Porter McLeod National Retail, Inc.
Statements of Cash Flows
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31
1996
1995
<S>
<C>
<C>
Cash flows from operating activities:
Cash received from contracts
$ 448,325
$ 112,014
Cash paid to suppliers and employees
(568,860)
(262,394)
Interest received
16,815
(14,348)
Other expenses paid
-
38,446
Out of proof adjustment
-
106,699
Income taxes paid
-
-
Net cash provided (used in)
operating activities
(103,720)
(19,583)
Net cash provided (used in) investment
activities
-
357,853
Net cash provided (used in) financing
activities
33,492
-
Net increase (decrease) in cash and cash
equivalents
(70,228)
338,270
Cash and cash equivalents - beginning of
period
354,050
236,583
Cash and cash equivalents - end of period
$ 283,822
$ 574,853
Cash flows from operating activities:
Net loss
$ (106,696)
$ (142,698)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
23,232
57,117
Loss on sale of investment securities
-
(38,446)
Accrued interest on note receivable-
affiliate
11,961
11,420
Change in certain assets and
liabilities - net
(32,217)
93,024
Net cash provided (used in )
operating activities
$ (103,720)
$ (19,583)
PORTER MCLEOD NATIONAL RETAIL, INC.
Note to Financial Statement
Note 1 - Summary of Significant Accounting Policies
The unaudited financial statements included herein were prepared
from the books of the Company in accordance with generally
accepted accounting principles and reflect all adjustments which
are, in the opinion of management, necessary to provide a fair
statement of the results of operations and financial position for
the statements presented. Such financial statements generally
conform to the presentation reflected in the Company=s Annual
Report on Form 10-KSB for the year ended December 31, 1995, and
reflect adjustments which are solely of a normal recurring
nature. These financial statements do not include all of the
disclosures normally made in the company=s annual Form 10-KSB
filing. These financial statements should be read in conjunction
with the Company=s Annual Report on Form 10-KSB.
Certain amounts from the 1995 financial statements have been
reclassified to conform to the 1996 presentation.
Item 2. Management=s Discussion and Analysis of Financial
Condition and Results of Operation.
Three Months Ended March 31, 1996 as Compared with the
Three Months Ended March 31, 1995
Results of Operations
Contract Income - The Company experienced an increase in contract
income from $100,509 during the three months ended March 31, 1995
to $663,281 for the three months ended March 31, 1996. During the
three months ended March 31, 1995, contract income was impacted
due to delays in getting final plans from owners and/or
architects as well as delays caused by the complexity of the
projects which the Company was bidding. During the first three
months of 1995 the Company put in place a new management team
that focused on improving client selection and implementing
systems in order to improve the profitability of each project.
The management team has focused on negotiated contracts as
opposed to the prior emphasis on competitively bid fixed price
contracts. The contract income for the three month period ended
March 31, 1996, is representative of the change in focus of the
operations of the Company as 77% of the income resulted from
negotiated contracts while none of the Company=s contract income
for the comparable period of 1995 resulted from negotiated
contracts. The average size construction project that the Company
had under contract at March 31, 1996 was $446,500 as compared to
$880,800 as of March 31, 1995.
Contract costs - The efforts of the Company=s new management
team, which commenced
approximately February 1995, have resulted in levels of contract
costs that are better than the industry average as compiled by
the Construction Financial Management Association, which reported
a 1994 industry contract cost stated as a percentage of contract
income of 91.9% . For the three months ended March 31, 1996, the
Company experienced contract costs, stated as a percentage of
contract income, of 87%.
Gross Profit - For the first quarter of 1996 the Company realized
a gross profit percentage of 13% which reflects the impact of new
management personnel and improved systems on the estimating,
pricing and bidding of projects. The shift in emphasis to
negotiated contracts reduces the risk that is attached to
competitive bidding for projects. Negotiated contracts complement
the business strategy of focusing on renovations and remodeling
projects as these type of projects can be negotiated,
subcontracted out and completed in a short time frame.
General and Administrative Expenses - The Company=s general and
administrative expenses are generally fixed in nature. The
expenses decreased $60,240 from $270,175 in the first quarter of
1995 to $209,935 during the comparable period of 1996. Of that
decrease in expenses, $55,488 was attributable to a reduction in
amortization expense related to a marketing agreement. The
Company recognized the impairment of its International Marketing
Agreement in 1995 and the asset was written off in its entirety
in 1995 under the guidelines of Statement of Financial Accounting
Standards No. 121.
Income (Loss) from Operations - The Company experienced a net
operating loss of $(123,510) for the three months ended March 31,
1996 as compared to a loss of $(118,600) for the three months
ended March 31, 1995.
Other Income and Expense - The Company realized $16,815 in
interest income for the first three months of 1996 as compared to
$14,348 in interest income during the same reporting period of
1995. However, in 1995 the Company also realized a $38, 446 loss
from the sale of marketable securities.
Liquidity and Capital Resources
The Company=s current assets decreased 19% to $939,741 over the
three months ended March 31, 1996. Current liabilities decreased
by 22%, resulting in an increase in the current ratio from 2.52
to 2.68 over the same period. Working capital decreased 17% to
$568,335 over the three month period. The decrease in current
assets, current liabilities and working capital resulted from a
decrease in the Company=s backlog of contracts to be performed
from $5,031,619 at March 31, 1995 to $1,365,955 at March 31,
1996. With less construction in process, the relative accounts
receivable and accounts payable were at lower levels at March 31,
1996 as compared to the same date in 1995.
Cash and Cash Equivalents - The $103,720 loss from operations
incurred during the three month period ending March 31, 1996, was
the primary cause of the 20% decrease to $283,822 in the
Company=s cash and cash equivalents.
Net Cash Used in Operating Activities - Operating activities used
net cash of $103,720 during the three months ended March 31, 1996
as compared to net cash used in operating activities of $19,583
during the same period of 1995. Such increase in cash usage was
attributable to the lower level of construction in process at
March 31, 1996 than at March 31, 1995 resulting in more funds
being applied to accounts payable and less funds being provided
by accounts receivable during the comparable three month periods.
Net Cash Used In Investing Activities - During the three months
ended March 31, 1995, the Company=s source of cash provided from
investing activities was $357,853 in proceeds from the sale of
investment securities. The 1995 transaction resulted in a
complete liquidation of the Company=s holdings of investment
securities.
Net Cash Used in Financing Activities - For the three months
ended March 31, 1996, and the three months ended March 31, 1995,
the major use of cash for financing activities was advances made
to Porter McLeod Management, Inc. (APMM@) and Porter McLeod
Colorado, Inc. (APMC@), both of which are subsidiaries of Porter
McLeod Holdings, Inc. (APMH@), the Company=s major shareholder.
As the following table shows, the Company=s investment of capital
resources in contract activities decreased due to fewer contracts
as well as improved operations, billing and collection systems.
</TABLE>
<TABLE>
<CAPTION>
March 31,
1996
1995
<S>
<C>
<C>
Accounts receivable - net
$ 478,120
$ 489,944
Costs and estimated earnings in excess of
billings on uncompleted contracts
94,955
293,698
Billings in excess of costs and estimated
earnings on uncompleted contracts
-
(36,767)
Total investment in contracts
$ 573,075
$ 746,875
</TABLE>
Accounts receivable affiliates - PMM, an affiliate of the
Company, owes $780,104 to the Company, representing advances made
to PMM with respect to the provision of key administrative
services including management, bidding, data processing,
accounting, marketing, and cash management services. The increase
of $11,981 over the balance due at December 31, 1995 represents
interest accrual on that portion of the accounts receivable that
is evidenced by the promissory note discussed below. Management
believes this relationship to be economically beneficial to the
Company through reduced overall administrative costs. PMM does
not make any profit with regard to such activities. The Company
has made such advances to protect the economic benefits and
preserve the above-mentioned business benefits which the Company
derives from its dealings with its affiliate. PMM=s obligation to
repay approximately $605,000 of such advanced funds, plus
interest thereon computed at the rate of seven percent per annum,
is evidenced by a promissory note providing for payment of said
obligation in three annual installments of $201,976, plus accrued
interest, commencing on March 31, 1995 and continuing yearly
thereafter through 1997. Payment of such indebtedness was
guaranteed by PMC, PMH, and by Messrs. Bruce Porter and Joseph
McLeod, both of whom are officers and directors of the Company,
and the sole shareholders of PMH. PMM failed to pay the first two
such installments, and the default created thereby remains in
effect through March 31, 1996. Based upon a plan which management
began to formulate prior to the time when such installment became
due, the Company expects to collect the full amount of such
indebtedness through a transfer of ownership of more than 80% of
the outstanding common stock of PMC by PMH to the Company, and a
merger of PMH, PMC and PMM with and into the Company. Management
presently anticipates that the Company=s shareholders will be
asked to consider and grant approval of such transaction at the
annual meeting of stockholders which is scheduled to take place
on or about July, 1996.
Part II - Other Information
Item 1. Legal Proceedings
Harvey Sender, Trustee, et al, against Bruce M. Porter, Joseph R.
McLeod, et al, United States Bankruptcy Court for the District of
Colorado (Case No. 94-21830 RJB). The trustee in bankruptcy of
Porter McLeod, Inc. (APMI@) and its subsidiaries, commenced an
adversary proceeding on or about March 29, 1996 against the
Company, PMH, PMM, PMC, Messrs. Porter and McLeod, and others,
alleging among other things, that (a) in or about the early part
of 1992, the defendants formulated a plan of reorganization to
help PMI to deal with losses that it had suffered in connection
with operations it had conducted in 1991 in Southern California;
(b) such plan of reorganization included the isolation of
Aproblem contracts@ in PMI and its subsidiaries, and the transfer
of Agood contracts@ to the Company, PMH and PMC, which allegedly
had been formed for the purpose of implementing such plan; and
(c) through a series of allegedly backdated documents, assets
belonging to PMI and its subsidiaries were purportedly
transferred to the Company, PMC, PMM, and PMH for deminimus or
non-existent consideration. By reason of such factual
allegations, the plaintiffs are seeking (i) to recover all of the
assets of PMI which were allegedly transferred without adequate
consideration; (ii) an accounting of all the assets of PMI and
its subsidiaries which were allegedly transferred without
adequate consideration; (iii) a turnover of the proceeds derived
by the defendants from their performance of the Agood contracts;@
(iv) subordination of the claims of the Company, PMC and PMM to
the claims of all other unsecured creditors in PMI=s bankruptcy
proceedings; (v) damages against the Company, PMH, PMC, and PMM
for alleged breaches of contract in the aggregate amount of
approximately $4.7 million; (vi) unspecified damages and
exemplary damages against PMH and Messrs. Porter and McLeod by
reason of their alleged breaches of fiduciary duties owed to the
plaintiffs; (vii) imposition of constructive trust upon all of
the assets of the Company, PMC, PMM, and Messrs. Porter and
McLeod until all sums due and owing to the plaintiffs are paid in
full; (viii) damages in the amount of approximately $5.4 million,
plus interest, costs and attorneys fees, based upon the above-
mentioned allegedly wrongful acts purportedly undertaken by the
Company, PMC, PMM, and Messrs. Porter and McLeod as part of a
civil conspiracy; and (ix) treble damages in the amount of
approximately $893, 000, plus interest, costs and attorneys fees,
based upon an alleged conversion and civil theft of the proceeds
of checks which were allegedly property of the plaintiffs and
deposited into accounts maintained by PMC.
A companion case was simultaneously commenced by the same
plaintiffs against the Company, PMH, PMC, and PMM in the District
Court for the City and County of Denver, Colorado (Case NO. 96 CV
1240) which alleges that the Company, PMH, PMC, and PMM are the
successors to all the liabilities of the plaintiffs. By reason
thereof, the plaintiffs are seeking (i) judgment against the
defendants in the amount of the plaintiffs= indebtedness to their
respective creditors, i.e., the aggregate amount of approximately
$4.7 million; and (ii) preliminary and permanent injunctive
relief requiring the defendants to operate only in the normal
course of business.
The Company is confident that the true facts regarding the
corporate reorganization which took place in 1992 will firmly
establish that (a) the reorganization was undertaken for proper
purposes, and was validly and legally executed; (b) none of the
assets of the plaintiffs was improperly or illegally transferred
to any of the defendants; (c) the defendants received full and
fair consideration for any assets transferred by the plaintiffs
to any of the defendants; (d) none of the defendants breached any
contractual or fiduciary obligation owed to any of the
plaintiffs; and (e) none of the defendants committed any of the
wrongful acts alleged against them by the plaintiffs. In addition
to the above-described substantive defenses, the Company believes
that many, if not all, of the claims alleged in both proceedings
have been time barred under applicable procedural rules.
Accordingly, the Company and other defendants intend to
vigorously defend themselves in both proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits have been filed with this Report.
(b) The Company did not file any Current Reports on
Form 8-K
during the quarter ended March 31, 1996.
Signature
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Porter McLeod National Retail,
Inc.
Dated: May 3, 1996 By
Joseph R. McLeod,
President
By
A.J. Shilling, Treasurer
and
Chief Financial
Officer
1
See notes to financial statements.
- - - 2 -
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 283,822
<SECURITIES> 0
<RECEIVABLES> 514,307
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 939,741
<PP&E> 55,912
<DEPRECIATION> 23,308
<TOTAL-ASSETS> 1,757,568
<CURRENT-LIABILITIES> 349,895
<BONDS> 0
0
0
<COMMON> 197
<OTHER-SE> 1,407,476
<TOTAL-LIABILITY-AND-EQUITY> 1,757,568
<SALES> 663,281
<TOTAL-REVENUES> 680,095
<CGS> 576,856
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 209,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (106,696)
<INCOME-TAX> 0
<INCOME-CONTINUING> (106,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,696)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
