SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
For the transition period from _______ to _______
Commission file number: 33-83894-NY
LOIS/USA INC.
(Exact name of the Registrant as specified in its charter)
Delaware 13-3441962
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 West 57th Street, New York, New York 10019
(Address of principal executive offices) (Zip Code)
N/A
(Former name, former address and former fiscal year,
if changed from 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___ No___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distributions of securities under a plan
confirmed by a court. Yes___ No___.
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date: 2,536,836
Transitional Small Business Disclosure Format (check one): Yes____ No____.
<PAGE>
PART I-FINANCIAL INFORMATION PAGE
NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1995 and
September 30, 1996...............................F-1
Consolidated Statements of Operations for the
Three Months Ended September 30, 1995
and 1996........................................F-2
Consolidated Statements of Operations for the
Nine Months ended September 30, 1995 and 1996...F-3
Consolidated Statements of Changes In
Stockholder's (Deficit) For the Periods
Ended December 31, 1995 and
September 30, 1996..............................F-4
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1995
And 1996........................................F-5
Notes to Consolidated Financial Statements..........F-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................9
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..........................11
SIGNATURE..........................................................12
<PAGE>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(UNAUDITED)
(000's omitted)
<TABLE>
<CAPTION>
1995 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,729 $ 675
Accounts receivable, net 19,527 30,057
Investments 150 150
Expenditures billable to clients 1,388 316
Deferred tax asset 76 0
Prepaid taxes 270 377
Other current assets 130 554
--- ---
Total current assets 23,270 32,129
PROPERTY AND EQUIPMENT, at cost 2,079 3,098
Less-Accumulated depreciation (1,747) (2,000)
and amortization ------- -------
Net property and equipment 332 1,098
--- -----
OTHER ASSETS:
Deferred financing costs 212 373
Good will 325 12,735
Other assets 51 380
-- ---
Total other assets 588 13,488
--- ------
Total assets $24,190 $46,715
======= =======
LIABILITIES AND STOCKHOLDERS' 1995 1996
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 24,613 $31,174
Accrued expenses and other current liabilities 221 563
Bank loans - 1,000
Deferred purchase price - 1,287
Total current labilities 24,834 34,024
OTHER LIABILITIES:
Deferred Rent - 1,563
Deferred payouts 46 -
Bank loans - 4,300
Deferred purchase price - 5,000
------- -------
Total other liabilities 46 10,863
------- -------
Total liabilities 24,880 44,887
------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, par value $.01 per share:
1,000,000 shares authorized; no shares
issued and outstanding
Common stock, par value $.01 per share:
20,000,000 shares authorized; 2,175,000
2,536,836 issued and outstanding 22 25
Additional paid-in capaital 3,746 5,743
Accumulated deficit (4,458) (3,940)
Total stockholders' equity (deficit) (690) 1,828
------- -------
Total liabilities and stockholders'
equity (deficit) $24,190 $46,715
-------- ----------
The accompanying notes are an integral part of the consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
(000's omitted except for share data)
<S> <C>
INCOME: 1995 1996
---- ----
Commissions and fees $4,076 $7,942
OPERATING EXPENSES:
Salaries and related costs, net 2,749 4,553
Other operating expenses 1,014 2,369
Amortization and depreciation 22 288
------- ------
Total operating expenses 3,824 7,210
----- -----
Operating income 252 732
NONOPERATING EXPENSES:
Interest, net 59 119
Amortization of deferred financing costs 14 36
-- --
Total nonoperating expenses 73 155
-- ----
Net income before provision 179 577
for income taxes
PROVISION FOR INCOME TAXES 72 312
-- ---
Net income (loss) $107 $265
==== ====
NET INCOME PER COMMON $.05 $.10
SHARE ==== ====
WEIGHTED AVERAGE NUMBER OF 2,175,000 2,536,836
========= =========
COMMON EQUIVALENT OF SHARES
OUTSTANDING
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
(000's omitted except for share data)
<S> <C> <C>
INCOME: 1995 1996
---- ----
Commissions and fees $12,128 $21,630
OPERATING EXPENSES:
Salaries and related costs, net 7,674 13,675
Other operating expenses 3,191 6,167
Amortization and depreciation 183 612
----- ------
Total operating expenses 11,048 20,454
------ ------
Operating income 1,080 1,176
NONOPERATING EXPENSES:
Interest, net 103 113
Amortization of deferred financing costs 42 64
-- --
Total nonoperating expenses 145 177
--- ---
Net income before provision 935 999
for income taxes
PROVISION FOR INCOME TAXES 374 481
--- ---
Net income $561 $518
=== ===
NET INCOME PER COMMON $.26 $.21
SHARE ==== ====
WEIGHTED AVERAGE NUMBER OF 2,175,000 2,522,093
COMMON EQUIVALENT OF SHARES ========= =========
OUTSTANDING
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
FOR THE PERIODS ENDED DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(000'S omitted)
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 $18 $1,029 $(5,176) $(4,129)
Net Income - - 718 718
Contribution of 1 1,357 - 1,358
Redeemable Warrants
Issuance of Common 3 1,360 - 1,363
- ----- -----
Shares to Public
BALANCE, January 1, 1996 22 3,746 (4,458) (690)
Net Income 518 518
Issuance of Common
Shares to EJL
shareholders 3 1,997 - 2,000
- ----- -------- ------
BALANCE, September 30, 1996 $25 $5,743 $(3,940) $1,828
=== ====== ======== ======
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
(000's omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1996
---- ----
Net income (loss) $561 $518
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities-
Amortization and depreciation 183 612
Amortization of deferred financing costs 42 64
Decrease in deferred tax asset 374 117
Changes in assets and liabilities, net of
effect from acquisitions
(Increase) decrease in accounts receivable 1,247 (2,387)
(Increase) decrease in expenditures billable
to clients (4) 1,583
(Increase) decrease in prepaid income taxes (250) (76)
(Increase) decrease in other assets (243) 517
(Increase) in investment (100) -
Increase (decrease) in accounts payable
and accrued expenses (6,312) (3,233)
(Decrease) in deferred payments (42) -
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES (2,704) (2,285)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired - (3,138)
Cash paid for acquisition related costs - (592)
Purchase of fixed assets (88) (114)
NET CASH USED IN INVESTING
ACTIVITIES (88) (3,844)
CASH FLOWS FROM FINANCING ACTIVITIES:
Drawdown of credit facility 3,266 5,300
Repayment of credit facility - -
Repayment of subordinated stockholders (3,200) -
Issuance of new shares 1,363 -
Increase in deferred financing costs - (225)
Reclass of deferred financing costs 90 -
NET CASH USED IN FINANCING
ACTIVITIES (1,519) 5,075
------- -----
NET CASH (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,273) (1,054)
CASH AND CASH EQUIVALENTS, beginning
of period 1,457 1,729
----- -----
CASH AND CASH EQUIVALENTS, end
of period $184 $675
==== ====
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period of-
Interest $103 $213
==== ====
Income taxes $250 $91
===== ===
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<PAGE>
LOIS/USA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from this report,
as is permitted by such rules and regulations; however, the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-KSB, as amended by Amendment No.1 to
Form 10-KSB.
In the opinion of management, the information furnished reflects all
adjustments, all of which are of normal recurring nature, necessary for a fair
presentation of the results for the reported interim periods. Results of
operations for interim periods are not necessarily indicative of results for the
full year.
2. ACQUISITION OF EISAMAN, JOHNS & LAWS ADVERTISING, INC.
On February 12, 1996, the Company acquired all the outstanding shares of
Eisaman, Johns & Laws Advertising, Inc., a California corporation ("EJL"), a
national advertising agency, established in 1959, with its principal advertising
offices in Los Angeles, Chicago, Houston and Detroit. For its fiscal years ended
February 28, 1993, 1994 and 1995, EJL had commission and fee revenues of
$19,087,000, $18,151,000 and $17,011,000, respectively, and net income (loss) of
$18,000, ($5,000) and ($788,000). At February 28, 1995, EJL had net working
capital of $1,238,000, total assets of $19,256,000 and stockholders' equity of
$2,263,000.
Pursuant to the Stock Purchase Agreement (the "Agreement"), between the
Company and the shareholders of EJL, (the "Sellers"), the Company made an
initial cash payment of $4,000,000 and issued 333,333 shares of the Company's
common stock, par value $.01 per share (the "Common Stock") at an issue price of
$6.00 per share to the Sellers.
The Sellers will receive as additional purchase price, an amount equal to
5% of the combined revenue of the Company and EJL, as defined in the Agreement,
for an additional $12,000,000 of purchase price (the "Additional Purchase
Price") over a period of five years from the date of the acquisition. Payments
will be made in the ratio of 75% cash and 25% in Common Stock, valued at $6.00
per share for the first four quarters and thereafter valued at the fair market
value of the Common Stock as defined in the Agreement. At least $1,750,000 of
Additional Purchase Price must be paid for the year ending December 31, 1996,
and the Sellers have been guaranteed a minimum Additional Purchase Price of
$6,000,000 in cash. To the extent that this minimum cash amount is not paid by
December 31, 1999, all further Purchase Price will be paid in cash until the
payment ratio has been restored and then all remaining payments will be made in
the payment ratio. The Agreement provides the Sellers with the ability to put
shares of Additional Purchase Price back to the Company in the event that the
minimum cash amounts have not been paid to the Sellers. Such shares can be put
back to the Company based at the value on the date such shares were initially
issued, on a last-in first-out basis. However, the Sellers cannot put the
initial 333,333 shares back to the Company.
Interest will be payable on any missed payment of Additional Purchase Price
at the prime rate plus 2% for the first missed payment and an additional 5%
shall be paid beginning with the second consecutive missed and incurred payment.
The Sellers will receive a final purchase price payment of $750,000 in
additional shares in 2001.
At the closing of the acquisition on February 12, 1996, the Sellers were
required to deliver $2,200,000 of net worth, as defined in the Agreement, based
upon EJL's historical cost as required under generally accepted accounting
principles. The parties have not yet finalized the amount of net worth delivered
by the Sellers. To the extent an amount in excess of $2,000,000 is delivered,
the Company will issue to the Sellers a three-year subordinated installment
note, payable quarterly, and bearing interest at Chemical Bank's prime rate plus
1.5%. This note will be subordinated to the Company's existing bank
indebtedness. If less than $2,200,000 is delivered, the cash portion of the
Additional Purchase Price will be reduced.
To the extent the Company consummates a public offering within 12 months of
the acquisition date at a price per share less than $6.00, the Company will
increase the number of initial shares to the Sellers based upon the offering
price. The Company has granted the Sellers certain rights with respect to
registration of the Common Stock under the Securities Act of 1933. The Company's
two majority shareholders also entered into a shareholders' agreement with EJL's
four majority shareholders which, among other things, entitles the former EJL
shareholders to elect one director to the Company's Board of Directors.
Concurrent with the acquisition of EJL, the Company entered into five-year
employment agreements with four of the senior EJL executives which provide for
aggregate compensation of $1,165,000 per year, renewable upon the mutual
agreement of the parties. Bonuses are discretionary. Upon termination of three
of the employment agreements with three of the executives, those executives will
enter into consulting agreements each for a five-year term, with compensation to
each executive of $100,000 per year. Each employment agreement provides for a
two year non-competition clause and provisions for health and life insurance and
the payment of costs of medical coverage.
The Company accounted for the acquisition using the purchase method of
accounting. Since February 12, 1996, the Company's consolidated financial
statements have included EJL's activity. At the date of acquisition, the excess
of the minimum guaranteed purchase price of $12,750,000 over the fair market
value of the net assets acquired was reflected in the Company's consolidated
financial statements as goodwill. Presently, such amount is estimated to be
approximately $12,500,000. As payments of Additional Purchase Price are made,
such payments will be accounted for as increases to goodwill. None of the
recorded goodwill will be deductible for income tax purposes. This goodwill will
be amortized over a 20-year life. As a result of the non-deductibility of
goodwill, the Company's effective tax rate will be adversely impacted.
Additional minimum guaranteed purchase price payments of $6,750,000 have
been reflected as a liability on the Company's balance sheet at the acquisition
date and will be reduced as additional cash payments are made. The accounting
for additional share issuances through the date that the put feature continues
to be available to the Sellers will be similar to redeemable stock which is
classified outside of shareholders' equity. At the time that the minimum cash
purchase price payments have been made, and the ability of the Sellers to put
shares back to the Company ceases, the value of additional shares, if any,
issued to the Sellers will be reclassified as stockholders' equity.
Currently, the Company is continuing to study the fair value of the assets
and liabilities acquired. Upon the completion of this study, amounts recorded
might differ from those given in this interim report. The unaudited consolidated
results of operations on a pro forma basis as adjusted to reflect the
acquisition of EJL as if such acquisition had been effective as of January 1 of
each year indicated are as follows:
Nine Months Ended September 30,
(Amounts in thousands except per share data)
1995 1996
---- ----
Commissions and fees $ 23,663 $ 21,959
Operating (loss) $ (169) $ 385
Net (loss) $ (107) $ (12)
Net (loss) per weighted
average common share $ .05 $ (.01)
3. REDUCING REVOLVING CREDIT FACILITY
Concurrent with the Company's registered direct placement of 300,000 shares
of Common Stock in January 1995 (the "Offering"), the Company entered into a $2
million reducing revolving credit facility (the "Reducing Revolving Credit
Agreement") with Chase Bank. Upon consummation of the Company's Offering, the
Company borrowed $2 million under the Reducing Revolving Credit Agreement which,
when added to the net proceeds of the Company's Offering, enabled the Company to
repay an outstanding subordinated note. Amounts outstanding under the Reducing
Revolving Credit Agreement bear interest at the highest rate determined with
reference to one of several fluctuating rate bases. The current interest rate
under the credit facility is approximately 10%.
Borrowings under the Reducing Revolving Credit Agreement are secured by (a)
all of the assets of the Company's operating subsidiaries, (b) a pledge of all
shares of capital stock of the Company's operating subsidiaries held by the
Company, 8 a pledge of all shares of the Company's capital stock held by Messrs.
Lois and Veru, and (d) an assignment in favor of Chase Bank of the key man life
insurance policies on Mr. Lois (in an amount not less than $2 million) and Mr.
Veru (in an amount not less than $1 million).
As of December 31, 1995, the loans under the Reducing Revolving Credit
Agreement were scheduled to mature on December 31, 1997, subject to required
amortization payments which were to reduce the principal balance and the amount
available to be borrowed by approximately $166,000 each quarter commencing in
the second quarter of 1995. Concurrent with the acquisition of EJL in February
1996 as discussed in Note 2, Chase Bank entered into an amended and restated
credit agreement (the "Amended and Restated Credit Agreement") whereby Chase
Bank agrees to increase the amount available under the Reducing Revolving Credit
Agreement by an additional $2,500,000 and extended the maturity date of the
facility through March 31, 1999. Required amortization is $250,000 per quarter
commencing with the quarter ending March 31, 1996. The Company will be required
to prepay amounts outstanding under the Amended and Restated Credit Agreement
equal to 100% of Excess Cash Flow (as defined in the Reducing Revolving Credit
Agreement) up to $300,000 for any year and 50% of Excess Cash Flow above
$300,000 for any year. For the year ended December 31, 1995, this requirement
was waived. Excess Cash Flow is defined as actual cash flow of the Company less
110% of debt amortization.
The Company expects to be able to satisfy its future debt service
obligations with cash flows from operations. However, there can be no assurance
that future cash flows of the Company will be sufficient to meet such
obligations. The Amended and Restated Credit Agreement also contains certain
affirmative and negative covenants customary in an agreement of this nature. The
terms of the Amended and Restated Credit Agreement prohibit the Company from
paying dividends on its Common Stock.
In December 1994, the Company also increased its existing credit facility
from $1 million to $2 million under substantially identical terms. Of this
facility, $150,000 has been set aside for a contingent letter of credit in favor
of the landlord of the office space leased in New York which would be payable in
an event of default. Amounts borrowed will bear interest at a rate to be
negotiated upon borrowing.
There were approximately $268,000 in fees and expenses incurred in
connection with the facility. These amounts are being amortized over the initial
three-year period of the loan. Costs to extend the facility of approximately
$175,000 will be amortized over the period from 1996 through 1999.
LOIS/USA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operation
Nine Months Ended September 30, 1996 Compared
to Nine Months Ended September 30, 1995
As a result of the acquisition of Eisaman, Johns and Laws, Advertising Inc.
("EJL") on February 12, 1996, the amounts reported for the nine months ended
September 30, 1996 include consolidated amounts of the two entities. Cost
savings from the combination of the two agencies are being implemented,
especially in the areas of real estate leasing and agency administrative costs.
Since the acquisition took place in the middle of the first quarter, these cost
reductions began in the second quarter of 1996 and will continue throughout the
remainder of the year.
For the nine months ended September 30, 1996, the combined agency businesses
generated commissions and fees of $21,630,000 as compared to Lois/USA's revenues
of $12,128,000 for the comparable period in 1995. EJL's historical revenues were
$10,303,000 for the comparable period in 1995. The decrease in combined revenues
is a result of EJL's smaller revenue base, reflecting several account losses in
the fourth quarter of 1995. These losses were offset by account gains by the new
combined entity, principally in the Chicago and New York offices.
Operating expenses, excluding non-cash depreciation and amortization
charges, as a percent of sales for the nine month period in 1996 was 91.7%. This
contrasts to Lois/USA's 89.6% for the comparable period in 1995 and EJL's 105.7%
for the same period. The decrease resulted from cost reductions implemented by
management after the acquisition of EJL and reflects the synergies that resulted
from combining the two agencies.
Reported operating income increased from $1,080,000 in the nine months
ended September 30, 1995 to $1,176,000 in the comparable period in 1996. This
increase reflects the benefit of synergies but is offset by an increase in
depreciation and amortization from $183,000 in 1995 to $612,000 in 1996 as a
result of the acquisition of EJL in February.
Non-operating expenses which primarily includes financing related costs net
of interest earned on investable funds increased from $145,000 in the nine month
period in 1995 to $177,000 in the same period in 1996. The nominal growth in
these net costs reflects improved cash management and the impact of the EJL
acquisition and the financing structure used to complete the acquisition.
The provision for taxes rose from $374,000 in the period ended September
30, 1995 to $481,000 for the comparable period in 1996 due to higher taxable
income and the impact of non-deductible goodwill from the EJL acquisition in
1996.
Earnings per share for nine months ended September 30, 1996 were $.21 per
share on weighted average shares of 2,522,093. For the same nine month period in
1995, earnings per share were $.26 on 2,175,000 shares.
Three Months Ended September 30, 1996 Compared
to Three Months Ended September 30, 1995
Consolidated revenues from commission and fee income were $7,942,000 in the
third quarter of 1996 as compared to $4,076,000 during the comparable three
month period in 1995. EJL's historical revenues were $4,060,000 for the same
perod in 1995. Operating expenses, including non-cash depreciation and
amortization charges, as a percent of sales for the three month period in 1996
was 87.2%. This contrasts with 92.3% for Lois/USA and 100.1% for EJL for the
comparable period in 1995. On a weighted average basis, this revenue percentage
for the same three month period in 1995 would have been 96.4%, reflecting post
acquisition cost reductions.
Operating income rose during the three month period ending September 30,
1996 to $732,000 from $252,000 for the comparable period in 1995, reflecting the
synergies of the combined entities. In addition, amortization and depreciation
increased from $22,000 during the three month period in 1995 to $288,000 for the
comparable period in 1996, resulting primarily from the increased amortization
on the EJL acquisition.
Non-operating expenses for this period rose from 73,000 in 1995 to $155,000
in 1996 as a result of higher net interest expense.
The provision for taxes was $312,000, up $240,000. The higher provision is
based on higher taxable income.
Liquidity and Capital Resources
On February 12, 1996, the Company acquired all of the outstanding shares of
capital stock of Eisaman, Johns & Laws Advertising, Inc. ("EJL"), a California
corporation, pursuant to a Stock Purchase Agreement between the Company and the
shareholders of EJL. In exchange for 49,512 shares of the common stock of EJL,
the Company issued 333,333 shares of its common stock and made an initial cash
payment of approximately $4 million. The shares of the Common Stock issued were
from the Company's existing authorized capital stock, and the cash was paid out
of working capital and additional bank debt. In addition, the Company has agreed
to pay EJL shareholders 5% of the combined revenue of the combined entity over
the next five years, subject to certain adjustments. The purchase price paid to
EJL stockholders will range from a minimum of $12 million to a maximum of $18
million.
Cash and cash equivalents decreased from $1,729,000 at December 31, 1995 to
$675,000 at September 30, 1996. The decrease was the result of cash used in
financing the EJL acquisition and the timing cash flows from operations.
The Company's working capital deficit increased from ($1,564,000) at
December 31, 1995 to ($1,895,000) at September 30, 1996. This increase was the
result of funds generated from operations and the new bank debt, offset by the
$4,000,000 payment to the former shareholders of EJL.
In the third quarter, the Company lost a significant account serviced by
its Houston office. The Company expects that the loss of such account will be
primarly offset against corresponding cost reductions in that office.
Management believes that cash flows from operations, together with funds
available under the Company's credit facilities with Chase Bank, will be
sufficient to meet the Company's cash needs for its existing business and any
potential acquisitions over the next twelve months. As of September 30, 1996,
the Company had completely used its existing credit facility. It has since been
substantially repaid and is available for future use.
The Company is regularly presented with opportunities to acquire
advertising agencies and intends to consider potential acquisitions which would
be complementary to the Company's current business activities and fit the
Company's acquisition strategy. Although no specific plans or commitments
currently exist, any future acquisitions may require material capital
expenditures or commitments that could place significant constraints on future
working capital. In addition, the Amended and Restated Credit Agreement contains
covenants restricting the Company from making capital expenditures in excess of
$250,000 in any fiscal year and contains certain financial condition ratios that
could place significant constraints on the Company's ability to make
acquisitions. The Company believes that the restrictions will not impair its
ability to make acquisitions for stock or deferred contingent payments in
accordance with its acquisition financing strategy.
The Company's business operations are not seasonal; however, based upon
individual client expenditures and the history of EJL, significant quarter to
quarter fluctuations in billings and net income may occur.
<PAGE>
PART II OTHER INFORMATION
Item 3. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits
(b) Current Reports on Form 8-K: The Company filed a Current
Report on Form 8-K, dated as of February 12, 1996, regarding
the acquisition of Eisaman, Johns & Laws Advertising, Inc.,
which did not include the pro forma financial data pertaining
to the acquisition. The Company is currently delinquent in the
filing of the pro forma financial data due to unforeseen
difficulties in obtaining necessary information from Eisaman,
Johns & Laws Advertising, Inc.
<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.
LOIS/USA INC.
Date: November 14, 1996 By/s/ ROBERT K. STEWART
---------------------
ROBERT K. STEWART
Executive Vice President
Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996, CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 675
<SECURITIES> 150
<RECEIVABLES> 30,057
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,129
<PP&E> 3,098
<DEPRECIATION> 2,000
<TOTAL-ASSETS> 46,715
<CURRENT-LIABILITIES> 34,024
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 1,803
<TOTAL-LIABILITY-AND-EQUITY> 46,715
<SALES> 0
<TOTAL-REVENUES> 21,630
<CGS> 0
<TOTAL-COSTS> 20,454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 999
<INCOME-TAX> 481
<INCOME-CONTINUING> 518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
