PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
January 31, October 31,
1997 1996
(Unaudited)
CURRENT ASSETS:
Cash $ 97,507 $ 95,918
Accounts receivable, less allowance for doubtful
accounts of $27,839 at January 31, 1997 and
$26,339 at October 31, 1996, respectively 411,652 493,285
Inventories 255,275 314,447
Prepaid expenses and sundry receivables 14,328 22,925
Note receivable - Freedom Electronics Corporation 20,000 20,000
Restrictive covenant receivable 24,375 24,375
TOTAL CURRENT ASSETS 823,137 970,950
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $118,115 and $115,259 29,172 32,098
OTHER ASSETS:
Note receivable - over one year 150,000 155,000
Security deposits 10,845 10,845
Restrictive covenant - over one year 20,625 24,375
Other 94,126 94,126
TOTAL OTHER ASSETS 275,596 284,346
TOTAL ASSETS $1,127,905 $1,287,324
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,624 $ 10,624
Accounts payable 271,490 375,851
Accrued expenses 83,340 93,861
TOTAL CURRENT LIABILITIES 365,454 480,336
LONG-TERM DEBT, net of current portion 5,676 8,331
DEFERRED INCOME 45,000 48,750
TOTAL LIABILITIES 416,130 537,417
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
Authorized, 5,000,000 shares,
Issued and outstanding, 1,719,758 shares 171,976 171,976
Additional paid-in capital 1,692,342 1,692,342
Accumulated deficit (1,091,465) (1,053,333)
Total 772,853 810,985
Less: Treasury stock at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 711,775 749,907
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,127,905 $1,287,324
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
(Unaudited)
1997 1996
SALES $ 801,697 $ 939,239
COSTS AND EXPENSES (INCOME):
Cost of sales 610,160 726,635
Selling, shipping and general and administrative 231,964 317,966
Interest expense 599 707
Depreciation and amortization 2,856 3,172
Restrictive covenant (3,750) (5,625)
Interest income (2,975) (6,473)
TOTAL COSTS AND EXPENSES (INCOME) 838,854 1,036,382
LOSS BEFORE PROVISION FOR INCOME TAXES (37,157) (97,143)
PROVISION FOR INCOME TAXES 975 500
NET LOSS $ (38,132) $ (97,643)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 1,611,317 1,611,317
LOSS PER COMMON SHARE $ (.02) $ (.06)
CASH DIVIDEND PER COMMON SHARE $ .00 $ .00
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
(Unaudited)
Common Stock
Additional Retained Held in
COMMON STOCK Paid-in Earnings TREASURY AT COST
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
BALANCES - November 1, 1995 1,719,758 $171,976 $1,692,342 $ (638,507) 108,441 $61,078
Net loss - - - (97,643) - -
BALANCES - January 31, 1996 1,719,758 $171,976 $1,692,342$ (736,150) 108,441 $61,078
BALANCES - November 1, 1996 1,719,758 $171,976 $1,692,342 $(1,053,333) 108,441 $61,078
Net loss - - - (38,132) - -
BALANCES - January 31, 1997 1,719,758 $171,976 $1,692,342 $(1,091,465) 108,441 $61,078
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
(Unaudited)
[CAPTION]
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (38,132) $ (97,643)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 2,856 3,172
Allowance for doubtful accounts 1,500 3,000
(Increase) decrease in operating assets:
Accounts receivable 80,133 6,303
Inventories 59,172 (30,019)
Prepaid expenses and sundry receivables 8,597 (8,929)
Increase (decrease) in operating liabilities:
Accounts payable (104,361) 60,416
Accrued expenses (10,521) 17,779
NET CASH USED BY OPERATING ACTIVITIES (756) (45,921)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities - 99,744
Purchase of equipment - (472)
Increase in association membership costs - (5,100)
NET CASH PROVIDED BY INVESTING ACTIVITIES - 94,172
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection on note receivable 5,000 -
Payments on notes payable and long-term debt (2,655) (2,655)
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES 2,345 (2,655)
NET INCREASE IN CASH 1,589 45,596
CASH - beginning 95,918 186,515
CASH - end $ 97,507 $ 232,111
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 599 $ 707
Income taxes $ - $ -
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(Unaudited)
NOTE 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
as of January 31, 1997 and the results of operations for the three
months ended January 31, 1997 and 1996.
NOTE 2
The results of operations for the three months ended January 31, 1997
and 1996 are not necessarily indicative of the results to be expected
for the full year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company recognized a loss of $38,132 on net sales of $801,697 for the three
months ended January 31, 1997, compared to a loss of $97,143 on net sales of
$939,239 for the three months ended January 31, 1996. This loss represents an
improvement of $59,511 versus the prior comparable period and is primarily
attributable to lower costs of sales associated with lower sales volume, the
effects of which were partially offset by a minor improvement in operating
margins and a reduction in salary and other expenses. Despite the relative
improvement in the magnitude of the loss when contrasted with the three months
ended January 31, 1996, the loss represents a continuation of repeated
significant operating losses experienced by the Company since prior to 1992.
As a result of negative cash flows associated with these losses, as of January
31, 1997, working capital had decreased to $458,683 and the Company had an
accumulated deficit of $1,091,465. Because the Company currently has no access
to any outside source of capital (except for an existing equipment financing
arrangement), management must meet its short-term capital requirements solely
from cash from operations (if any) and existing cash reserves. At January 31,
1997, the Company's cash reserves were $97,507. There can be no assurances
that the Company's cash reserves will be sufficient to satisfy the Company's
capital requirements or that the Company's inability to obtain capital from
outside sources will not force the Company to seek protection under the United
States Bankruptcy Code.
Net sales for the three months ended January 31, 1997 decreased by $137,542, or
14.6%, from the prior comparable period. This decrease in net sales is a
result of intense competition from larger competitors, as well as certain other
industry trends which negatively impact smaller electronics distributors such
as the Company. These competitive circumstances have continued to reduce the
Company's sales volume, which, along with gross margins, must improve in the
short-term for the Company to reverse its negative results of operations. The
likelihood of achieving the necessary increases in both sales volume and gross
margins continues to be compromised by several factors, including the loss of
certain customers due to the departure of key sales personnel, intense industry
competition which has resulted in management seeking additional sales volume
through price reductions, and certain other industry trends which adversely
impact smaller electronics distributors. While management continues its
efforts to improve sales volume while preserving the Company's current customer
base, there can be no assurances that management will succeed in achieving the
sales increases, improved margins and cost reductions which are necessary to
reverse the Company's negative results of operations.
Cost of sales for the three months ended January 31, 1997 decreased $116,475,
or 16.4%, to $610,160 from $726,635 for the three months ended January 31,
1996. This decrease is primarily attributable to the 14.6% reduction in sales
volume for the three month period ended January 31, 1997. The gross profit
percentage for the three months ended January 31, 1997 improved to 23.8%, as
compared to 22.7% for the three months ended January 31, 1996. However,
because of the 14.6% reduction in sales volume, actual gross profit for the
three month period ended January 31, 1997 fell to $191,537 from $212,604 for
the three month period ended January 31, 1996. There can be no assurances that
the minor improvement in the Company's gross margins can be sustained, or that
lower gross profits associated with the reduction in sales volume will not
force the Company to seek protection under the United States Bankruptcy Code.
Selling, shipping and general and administrative ("SSG&A") expenses were
$231,964 for the three months ended January 31, 1997, as compared to $317,966
for the three months ended January 31, 1996, representing a decrease of
$86,002, or 27.0%, versus the prior comparable period. The decrease is a
result of lower sales salaries, warehouse salaries, administrative salaries,
advertising expenses, telephone expenses and office expenses. The decreases in
salaries are the result of management's decision to downsize the Company's
labor force. Management anticipates that further reduction in SSG&A expenses
will be necessary to reverse the Company's negative results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has been and continues to be adversely
affected by a variety of factors, including the operating loss of $414,826 for
the year ended October 31, 1996, and the operating loss of $38,132 for the
three months ended January 31, 1997. Moreover, the Company's liquidity
position may be further negatively impacted to the extent that certain trends,
including intense competition from larger competitors in the electronics
industry and the migration of certain customers from smaller to larger
distributors, continue to decrease the Company's sales levels, gross profit
margins, or both. While the Company enhanced its short-term liquidity position
through the one-time receipt of $755,845 in cash from the Divestiture, those
proceeds have been used to sustain operations since that time. Thus, the
Company's ability to satisfy its fixed costs of operations in the future will
depend upon management's success in increasing sales, improving gross margins,
reducing operating costs, securing additional lines of credit from outside
lenders or entering into other strategic alliances. Due to the Company's
impaired liquidity position, negative financial performance, reliance on cash
from net profits to sustain operations and certain other factors, the Company's
independent auditors raised substantial doubt regarding the Company's ability
to continue as a going concern in the Company's annual report for the year
ended October 31, 1996. If the Company is not successful in achieving any or
all of its strategic objectives, it may have to seek protection under the
United States Bankruptcy Code.
Cash and cash equivalents increased by $1,589 for the three months ended
January 31, 1997 compared to an increase of $45,596 for the three months ended
January 31, 1996. For the three months ended January 31, 1997, the Company
used net cash of $756 from operating activities, primarily as a result of the
operating loss of $38,132 and decreases of $104,361 and $10,521 in accounts
payable and accrued expenses, respectively, which were partially offset by a
decrease of $80,133 in accounts receivable, a decrease of $59,172 in
inventories, and the collection of $5,000 in notes receivable. The increase of
$45,596 for the three months ended January 31, 1996 can be attributed to the
sale of $99,744 in marketable securities, a $60,416 increase in accounts
payable and an increase of $17,779 in accrued expenses, partially offset by the
operating loss of $97,643 for the period and an increase of $30,019 in
inventory levels.
The Company currently has no access to any outside sources of capital, except
for approximately $16,000 outstanding under an existing equipment financing
arrangement. While management has sought and will continue to seek new sources
of financing from other financial institutions, no such arrangement has yet
been established. As a result, management must meet substantially all of its
short-term capital requirements from cash from operations (if any) and existing
cash reserves which continue to deteriorate as a result of the Company's
recurring operating losses. Given the magnitude of the Company's recent
operating losses, there can be no assurances that the Company's current cash
reserves, which were $97,507 at January 31, 1997, will be sufficient to satisfy
the Company's operating and/or financial requirements or that the Company's
inability to obtain capital from outside sources will not force the Company to
seek protection under the United States Bankruptcy Code.
The Company maintains its records on the accrual basis of accounting. Income
is recorded when earned and expenses are recorded when incurred. The Company's
accounting policies with respect to customer right of returns are governed upon
written authorization by Federated except for special order items.
The Company's balance sheet at January 31, 1997 reflects working capital of
$457,683 as compared to $769,177 at January 31, 1996, which represents a
decrease of $311,494.
The Company's stockholders' equity is $711,775 at January 31, 1997, which is
equivalent to a book value per share of $.44.
PART II - OTHER INFORMATION
FEDERATED PURCHASER, INC.
OTHER INFORMATION
JANUARY 31, 1997 AND 1996
(Unaudited)
Item 6 - Exhibits and reports on Form 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
The Company was not required to report any material, unusual charges or credits
to income pursuant to Item 10(a) or a change in independent accountants
pursuant to Item 12 of Form 8-K for the three months ended January 31, 1997
other than which has been reported.
There were no securities of the Company sold by the Company during the three
months ended January 31, 1997, which were not registered under the Securities
Act of 1933, in reliance upon an exemption from registrations provided by
Section 4(2) of the Act.
SIGNATURES
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.
FEDERATED PURCHASER, INC.
--------------------------------
(Registrant)
/S/ HARRY J. FALLON
---------------------------------
Harry J. Fallon, President and
Principal Accounting Officer
Date
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to_______________________
Commission file number 1-4310
FEDERATED PURCHASER, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 22-1589344
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
268 CLIFFWOOD AVENUE, CLIFFWOOD, NEW JERSEY 07721
(Address of principle executive offices)
(Zip Code)
(908) 290-2900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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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 Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of March 5, 1997, there
are 1,719,758 shares of common stock outstanding.