FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996 COMMISSION FILE
NUMBER: 0-7235
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ................ TO ................
FEDERATED PURCHASER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 22-1589344
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
268 CLIFFWOOD AVENUE
CLIFFWOOD, NEW JERSEY 07721
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (908) 290-2900
_________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS:
Common Stock, $.10 par value
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 ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the 1,158,240 shares of the common stock of
the Registrant held by non-affiliates on January 7, 1997 based upon the average
of the bid and asked prices was approximately $335,093. The number of shares
of the registrant's common stock outstanding as of January 7, 1997 was
1,611,317 shares, par value $.10 per share.
DOCUMENTS INCORPORATED BY REFERENCE
PART III: Certain portions of the Proxy Statement for the Annual
Meeting of Shareholders to be held on March 30, 1997.
FEDERATED PURCHASER, INC.
Cross Reference Sheet
Form 10-K Heading(s) in Proxy Statement for
ITEM NO. THE ANNUAL MEETING OF SHAREHOLDERS
10. Directors and Election of Directors
Executive Executive Officers
Officers of the
Registrant
11. Executive Compensation of Directors
Compensation and Executive Officers
12. Security Voting Securities and Principal
Ownership of Holders
Certain Bene-
ficial Owners
and Management
13. Certain Relation- Compensation Committee Interlocks
ships and Related and Insider Participation
Transactions
The balance of this page is intentionally blank.
TABLE OF CONTENTS
ITEM PAGE
PART I. 1. Business 3
2. Properties 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of
Security Holders 6
PART II. 5. Market for Company's Common
Equity and Related Stockholder
Matters 7
6. Selected Financial Data 8
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operation 9
8. Financial Statements and Supplementary
Data 15
9. Disagreements on Accounting and
Financial Disclosure 28
PART III. 10. Directors and Executive Officers of
the Company 28
11. Executive Compensation 28
12. Security Ownership of Certain
Beneficial Owners and Management 28
13. Certain Relationships and Related
Transactions 28
PART IV. 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
SIGNATURES
PART I
ITEM 1. BUSINESS.
A. GENERAL DEVELOPMENT OF BUSINESS
Federated Purchaser, Inc. ("Federated") was incorporated in the state of
New York in 1928. On November 15, 1994, the Company divested Freedom,
Electronics, Inc. a subsidiary acquired in July 1989 (the "Divestiture"). This
Divestiture was based upon a strategic decision by management to re-focus its
efforts on the Company's traditional core business: the marketing of a broad
range of electronics components and related equipment to industrial customers.
Unless otherwise noted, references herein to the "Company" means
Federated and its subsidiary.
B. SIGNIFICANT FACTORS
1. CONTINUING SIGNIFICANT LOSSES; ACCUMULATED DEFICIT
The Company has experienced significant and continuous operating losses
amounting to $1,832,502 during the past five operating periods. For the years
ended October 31, 1996 ("fiscal 1996"), October 31, 1995 ("fiscal 1995"),
October 31, 1994 ("fiscal 1994"), October 31, 1993 ("fiscal 1993") and October
31, 1992 ("fiscal 1992"), the Company incurred losses of $414,826, $546,062,
$373,849, $315,621 and $182,144, respectively. As of October 31, 1996, the
Company's accumulated deficit was $1,053,333. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations".
2. IMPAIRED LIQUIDITY
The Company's liquidity position has been and continues to be adversely
affected by a variety of factors, including continued losses from operations.
During fiscal 1996, the Company used net cash of $190,456 for operating
activities, primarily as a result of the net loss of $414,826 for the year.
Since 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. 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 finance the Company's operations
during the past two operating periods. At October 31, 1996, the Company's
cash reserves amounted to $95,918, which could be insufficient to finance the
Company's operations throughout the upcoming operating period unless (i) the
Company's results of operations improve significantly, or (ii) management is
able to secure financing from an outside source. To date, management has been
unable to negotiate such financing from any outside source on acceptable terms.
There can be no assurances that the Company's cash reserves will be sufficient
to satisfy the Company's operating or financing 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. See Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
3. AUDIT REPORT - UNCERTAINTY
As a result of the Company's repeated operating losses, impaired
liquidity and current lack of access to any outside source of financing, the
Company's independent accountants have included an explanatory paragraph
raising substantial uncertainty as to the Company's ability to continue as a
going concern in their audit report. See Note 2 of the Company's Consolidated
Financial Statements.
4. NEGATIVE TRENDS IMPACTING SMALL ELECTRONICS DISTRIBUTORS; INTENSE
COMPETITION
The Company's sales levels have been and may continue to be negatively
impacted by a variety of factors, including the slowdown in the electronics
segment of the national economy and the loss of certain customers due to the
departure of key sales personnel to competitors. Management believes that
certain industry trends, such as customers migrating from smaller to larger
distributors and the increase in the relative volume of business conducted
directly between suppliers and manufacturers, have negatively impacted smaller
electronics distributors such as the Company. In addition, the Company faces
intense competition from numerous substantially larger companies having greater
resources, larger staffs, more extensive facilities and equipment, and which
offer a broader range of products, than the Company. In view of these factors,
there can be no assurances that the Company will be able to return to
profitability.
C. NARRATIVE DESCRIPTION OF BUSINESS
PRINCIPAL PRODUCTS AND SERVICES
Federated and its wholly-owned subsidiary are engaged in one segment of
the electronics industry: the assembly and marketing of a broad range of
electronic parts, components and related equipment (including, for example,
such items as semi-conductors, wire, transformers, relay systems, capacitors
and electronic tubes) to industrial customers.
The Company conducts its business through its two locations in Cliffwood,
New Jersey, and Allentown, Pennsylvania, and through the direct solicitation of
certain industrial customers by the Company's own sales personnel.
The Company assembles and markets a broad range of products, none of
which accounted for 15% or more of the Company's consolidated revenues during
fiscal 1996, fiscal 1995 or fiscal 1994.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The products marketed and distributed by the Company are obtained either
through distributorship agreements or are otherwise normally available to the
Company from a number of commercial sources on a competitive basis. While the
Company has not generally experienced difficulties in obtaining such products,
a supplier of electronic parts to Federated terminated the Company's
appointment as a distributor in 1993. There can be no assurances that the
Company will not be terminated by any of its other suppliers or that any such
termination will not have a material adverse impact on the Company's results of
operations. See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PATENTS, TRADEMARKS AND LICENSES
The Company does not hold any patents, trademarks, licenses, franchises
or concessions with respect to its continuing operations.
SEASONAL BUSINESS
The Company's business is generally not affected by seasonal factors.
WORKING CAPITAL ITEMS
Management believes that the Company's inventory practices and other
practices which impact working capital are similar to those employed by other
similarly sized distributors doing business in this segment of the electronics
industry. See Item 1 "Business - Significant Factors" and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MATERIAL CUSTOMERS
During fiscal 1996, net sales by the Company to its largest customer
comprised approximately 4% of the Company's consolidated net sales. Given the
Company's current liquidity situation and the Company's need to significantly
improve its sales revenues, there can be no assurances that the loss of this or
any other customer would not have a material adverse effect on the Company.
All but a nominal amount of the Company's sales are made to industrial
customers within the continental United States.
BACKLOG
As of October 31, 1996, the Company had a firm backlog of approximately
$666,687 compared to a firm backlog at October 31, 1995 of approximately
$693,000.
GOVERNMENT CONTRACTS
No portion of the Company's business is subject to renegotiation of
profits or to termination of contracts or subcontracts at the election of the
Government.
COMPETITIVE CONDITIONS
The Company faces intense competition from numerous companies assembling
and marketing products similar to those sold by the Company. Many of the
Company's competitors are substantially larger than the Company, have greater
resources, larger staffs, more extensive facilities and equipment, and offer a
broader range of products than the Company. Competition is generally based
upon price, service and breadth of product lines offered. In addition, the
Company believes that the industry is moving towards a reduction in the number
of distributors which service each customer, a trend which management believes
favors the larger distributors and negatively impacts the Company. As a result
of these factors, there can be no assurances that the Company will be able to
reverse its negative operating results and return to profitability.
RESEARCH AND DEVELOPMENT
During fiscal 1996, the Company did not spend any amount on research and
development activities.
ENVIRONMENTAL MATTERS
Management believes that the Company's capital expenditures, earnings and
competitive position have not been affected by compliance with Federal, State
and local laws relating to the protection of the environment.
NUMBER OF EMPLOYEES
As of October 31, 1996, the Company had 17 employees, 2 of whom were
engaged in administration, 9 in clerical and shipping positions, and 6 in
sales. This represents a reduction of 4 employees from the prior operating
period, all of whom were laid off in February, 1996 as part of management's
plan to reduce overhead expenses. The Company is not a party to any collective
bargaining agreement and considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES.
The Company currently operates its principal administrative, sales and
warehousing facilities from a 11,600 square foot facility located in Cliffwood,
New Jersey. The annual rental during the current term under the terms of a 6-
year net lease (i.e., the annual rental is exclusive of property taxes and all
other property-connected charges payable by the Company) is $58,000. The
Company also leases approximately 2,800 square feet in a building in Allentown,
Pennsylvania, on a month-by-month basis for a minimum annual rental of $10,800.
Management believes that the present facilities are adequate to meet the
Company's current and reasonably foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings, other than ordinary routine litigation
incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of its shareholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since July 14, 1992, the Company's stock has been quoted on the "pink
sheets" by the National Quotation Bureau, Inc. These quotations represent
prices between dealers and do not include retail mark-up, mark-down or
commissions and may not represent actual transactions.
BID PRICES ASKED PRICES
Quarter ended: HIGH LOW HIGH LOW
January 31, 1995 5/16 1/4 3/4 9/16
April 30, 1995 5/16 1/16 3/4 5/16
July 31, 1995 1/4 1/8 3/4 7/16
October 31, 1995 1/4 1/8 3/4 1/2
January 31, 1996 1/4 1/4 1/2 7/16
April 30, 1996 1/4 1/8 7/16 3/8
July 31, 1996 7/32 7/32 3/8 3/8
October 31, 1996 7/32 7/32 3/8 11/32
At January 7, 1997, there were approximately 725 shareholders of record
of the Company's Common Stock.
Given the Company's repeated operating losses, accumulated deficit, and
impaired liquidity position, management intends to retain all remaining
available cash for the operation of the Company's business and does not
anticipate paying cash dividends on its common stock in the foreseeable future.
Any future determination as to the payment of dividends on the common stock
will depend upon future earnings, capital requirements, the financial condition
of the Company and any other factors the Board of Directors may consider.
ITEM 6. SELECTED FINANCIAL DATA.
The consolidated selected financial data as of and for each of the five
years in the period ended October 31, 1996 have been derived from the audited
financial statements of the Company. This data should be read in conjunction
with, and is qualified in its entirety by reference to the related financial
statements and notes included elsewhere in this Report.
OCTOBER 31,
1996 1995 1994 1993 1992
Net sales $3,980,560 $4,118,799 $6,281,006 $6,245,276 $6,794,007
Net loss from
continuing operations (414,826) ( 546,062) (373,849) (315,621) (182,144)
Net loss per share
from continuing operations (.26) (.34) (.22) (.19) (.11)
Cash dividends paid - - - - -
Cash dividends paid per share .00 00 .00 .00 .00
Total assets 1,287,324 1,605,604 2,768,863 2,788,001 2,995,410
Working capital 490,614 871,875 1,452,970 1,852,245 2,210,571
Current ratio 2.0:1 3.5:1 2.5:1 4.0:1 5.0:1
Long-term debt 18,955 29,697 44,989 69,613 -
Stockholders' equity 749,907 1,164,733 1,755,240 2,129,089 2,444,997
Stockholders' equity per share $ .47 $ .72 $ 1.03 $ 1.25 $ 1.44
See accompanying notes to consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company has experienced significant operating losses throughout
the past five operating periods. For fiscal 1996, fiscal 1995, fiscal 1994,
fiscal 1993 and fiscal 1992, the Company incurred losses of $414,826, $546,062,
$373,849, $315,621 and $182,144, respectively. As a result of negative cash
flows associated with these losses, as of October 31, 1996, working capital had
decreased 79.5% to $490,614 from $2,389,580 at October 31, 1991 and the Company
had an accumulated deficit of $1,053,333. While management is seeking to
address these problems by increasing sales and reducing operating costs, there
can be no assurances that the Company will be successful in its efforts to
improve either its liquidity position or operating results. In addition,
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. 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.
In November 1994, the Company divested its subsidiary, Freedom. In
accordance with generally accepted accounting principles, the divestiture of
the operations of Freedom has not been accounted for as a discontinued
operation because Freedom was not a separate business entity. As a result,
management's discussion compares (i) the Company's results of operations for
fiscal 1996 (which do not include Freedom) to the Company's results of
operations for fiscal 1995 (which do not include Freedom), (ii) the Company's
results of operations for fiscal 1995 (which do not include Freedom) to the
Company's results of operations for fiscal 1994 (which include Freedom) and
(iii) Federated's results of operations for fiscal 1995 to Federated's Pro
Forma results for fiscal 1994 (which include Freedom). Management believes this
approach more accurately reflects the Company's recent financial performance.
RESULTS OF OPERATIONS
The Company recognized losses of $414,826 for fiscal 1996, $546,062
for fiscal 1995, and $373,849 for fiscal 1994 on net sales of $3,980,560 in
fiscal 1996, $4,118,799 in fiscal 1995 and $6,281,006 in fiscal 1994. The loss
of $414,826 for fiscal 1996 represents a decrease of $131,234, or 24.0%, when
compared to the loss for fiscal 1995, but represents an increase of $51,557 or
14.2% when allowing for the one-time charge of $182,791 attributable to the
Divestiture. The loss of $546,062 for fiscal 1995 represents an increase of
$172,213, or 46.1%, when compared to the loss for fiscal 1994, such increase
attributable to the loss realized on the Divestiture.
Net sales for the Company were $3,980,560 for fiscal 1996 as compared
to $4,118,799 for fiscal 1995, representing a 3.4% decrease. Net sales for the
Company were $4,118,799 for fiscal 1995 (after giving effect to the
Divestiture) as compared to $6,281,006 for fiscal 1994, representing a 34.4%
decrease. This decrease is attributable to the effects of the Divestiture,
partially offset by a 20.2% increase in Federated's net sales from $3,427,049
in fiscal 1994 (without consideration of Freedom).
The decrease in Federated's net sales for fiscal 1996 represents a
reversal of the modest sales increase achieved by Federated in fiscal 1995
(after giving effect to the Divestiture). Management expects that significant
further improvement in the Company's sales along with a reduction in operating
costs will be required to sustain operations during the upcoming operating
period ("fiscal 1997") and in the future. There can be no assurances that the
Company will be successful in its efforts to increase sales, reduce costs or
improve profitability. Moreover, the likelihood of achieving the necessary
sales increase is diminished by a variety of factors, including the slowdown in
the electronics segment of the national economy, the loss of certain customers
due to the departure of key sales personnel to competitors and certain other
industry trends. See Item 1 "Business - Significant Factors". In addition,
prior gains in sales revenue by the Company have necessarily been achieved at
lower gross margins, which has mitigated the impact of such sales gains on the
Company's results of operations. As a result, there can be no assurances that
any increase in sales activity can be maintained, (as evidenced by the decline
in sales for fiscal 1996), or that such sales increases will be achieved at
gross profit margins sufficient to return the Company to profitability. As a
result of these uncertainties, the Company's independent auditors have included
a paragraph which raises substantial doubt regarding the Company's ability to
continue as a going concern. Moreover, if the Company does not generate
sufficient cash flow to sustain operations in fiscal 1997, the Company may have
to seek protection under the United States Bankruptcy Code. See, "Item 1 -
Significant Factors - Audit Report - Uncertainty" and Note 2 of the Company's
consolidated Financial Statements.
Cost of sales for the Company were $3,128,019 for fiscal 1996 as
compared to $3,172,060 for fiscal 1995, (after giving effect to the
Divestiture) representing a decrease of $44,041. This decrease is solely
attributable to lower sales volume. For fiscal 1995, cost of sales decreased
35.4% from $4,907,644 (including Freedom) to $3,172,060, as a result of the
Divestiture. Cost of sales for Federated were $3,172,060 in fiscal 1995 as
compared to $2,591,436 in fiscal 1994 (without consideration of Freedom),
representing an increase of $580,624, or 22.4%. The increase in cost of sales
for Federated in fiscal 1995 is primarily attributable to the increase in
Federated's sales volume for that period as well as price increases imposed on
the Company by its suppliers.
As a percentage of sales, the Company's cost of sales were 78.6%,
77.0% and 75.6%, for fiscal 1996, fiscal 1995 and fiscal 1994, respectively.
The increase in cost of sales as a percentage of sales and corresponding lower
gross margins is attributable to management's decision to rebuild the Company's
sales base by reducing prices to remain competitive with the larger
distributors. While Federated's sales levels for fiscal 1996 remain higher
than sales for fiscal 1994 (without consideration of Freedom), the resulting
decrease in gross margins has negatively impacted the Company's results of
operations. Moreover, gross margins have been further reduced by price
increases imposed by the Company's suppliers, most of which the Company is
unable to pass along to its customers. The Company's gross profit percentage
for fiscal 1996 was 22.0% as compared to 23.0% for fiscal 1995 and 24.4% for
fiscal 1994. There can be no assurances that the Company's gross margins will
not be further reduced in the future by intense price competition, price
increases imposed by the Company's suppliers, or a combination of these
factors.
Selling, shipping, general and administrative ("SSG&A") expenses for
the Company were $1,286,444, or 32.3%, of net sales for fiscal 1996 as compared
to $1,353,609, or 32.9% of net sales, for fiscal 1995 and $1,687,016, or 26.9%
of net sales for fiscal 1994. The decrease of $67,165 for fiscal 1996 when
compared to fiscal 1995 is the result of a reduction in costs attributable to
warehouse salaries, office salaries, insurance costs and bad debt expenses,
partially offset by an increase in sales salaries and non-recurring severance
payments to certain employees resulting from management's decision to downsize
the Company's labor force. See Item 1 "Business - Number of Employees".
Management anticipates that further reductions in SSG&A expenses will be
necessary to reverse the Company's negative results of operations. The
decrease of $333,407 in SSG&A expenses for fiscal 1995 when compared to fiscal
1994 is attributable to the effects of the Divestiture. SSG&A expenses for
Federated for fiscal 1995 were $1,353,609, or 32.9% of net sales, as compared
to $1,268,985, or 37.0% of net sales for fiscal 1994 (without consideration of
Freedom). The increase of $84,624 for fiscal 1995 is attributable to the
increase in sales, purchasing and office salaries and expenses, while the
decrease as a percentage of sales is attributable to the 20.2% increase in
Federated's sales volume.
Depreciation and amortization expenses were $11,575 for fiscal 1996,
$11,260 for fiscal 1995 and $47,337 for fiscal 1994. The substantial reduction
in fiscal 1996 and fiscal 1995 when compared to fiscal 1994 is attributable to
the effects of the Divestiture.
Interest earned on the Company's cash reserves and marketable
securities was $14,830 for fiscal 1996 as compared to $32,530 for fiscal 1995
and $1,637 for fiscal 1994. The decrease of $17,700 for fiscal 1996 when
compared to fiscal 1995 was attributable to lower cash balances which continue
to deteriorate as a result of the Company's recurring operating losses. The
increase of $30,893 for fiscal 1995 when compared to fiscal 1994 was the result
of higher cash balances and marketable securities purchased with proceeds
received from the Divestiture, all of which have been used to sustain
operations during the past two operating periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $90,597, $38,500, $40,540 for
fiscal 1996, fiscal 1995 and fiscal 1994, respectively. During fiscal 1996,
the Company used net cash of $190,456 from operating activities, primarily from
the $414,826 net loss for the year, partially offset by a decrease of $77,835
in inventory and an increase of $127,913 in accounts payable and accrued
expenses. The Company generated cash of $110,601 from investing activities for
fiscal 1996, primarily through the receipt of $99,744 on the redemption of
marketable securities and the collection of $35,000 in notes receivable,
partially offset by a $23,672 increase in association membership costs. The
collection of $35,000 in notes receivable is due to the renegotiation by
Federated of certain terms relating to debt owed by Freedom to Federated as a
result of the Divestiture. During fiscal 1996, the Company used cash of
$10,742 for payments on long-term debt.
The Company's liquidity position has been and continues to be
adversely affected by a variety of factors, including the $414,826 loss for
fiscal 1996, the loss of $546,062 for fiscal 1995 and the loss of $373,849 for
fiscal 1994. 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 during the past two operating periods. 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 have raised substantial doubt regarding the Company's
ability to continue as a going concern. See "Item 1 - Significant Factors -
Audit Report - Uncertainty" and Note 2 to the Company's Consolidated Financial
Statements. If the Company is not successful in achieving any or all of these
strategic objectives, it may have to seek protection under the United States
Bankruptcy Code.
During fiscal 1995, the Company used net cash of $602,848 from
operating activities, primarily as a result of the $546,062 net loss for the
year, a $117,488 increase in accounts receivable, a $52,354 decrease in
accounts payable and a $45,540 decrease in accrued expenses, partially offset
by the effects of the Divestiture, a $51,385 decrease in prepaid expenses and a
$18,546 decrease in inventories. The Company generated cash from investing
activities of $638,972 for fiscal 1995, primarily from the $755,845 proceeds on
the Divestiture, used cash of $286,224 to purchase marketable securities, and
redeemed marketable securities of $192,439. During fiscal 1995, the Company
used cash of $74,624 to pay off a note payable in the amount of $63,999 and
long-term debt in the amount of $10,625.
The Company currently has no access to any outside source of capital,
except for approximately $19,000 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 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 $95,918 at October 31, 1996, 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.
In fiscal 1994, the Company received notification from its lender that
its credit line had been withdrawn and that monies borrowed in the amount of
$63,999 were due and payable. This obligation was paid in full in November
1994. Prior to the Divestiture, the Company also maintained a separate
agreement with another lender under which Freedom could borrow up to $250,000,
such borrowings secured by Freedom's eligible inventories and accounts
receivable. As of October 31, 1994, Freedom had borrowed $250,000 against this
line of credit. As part of the Divestiture, the Company no longer has access
to, nor obligation to repay debt incurred under, this line of credit.
During fiscal 1994, the Company used $294,765 from operating
activities, primarily as a result of the $373,849 net operating loss for the
year, a $42,624 increase in inventories, a $30,001 increase in prepaid expenses
and a $17,906 increase in accrued expenses. The Company used $35,150 in
investing activities for equipment purchased and additional association
membership costs. During fiscal 1994, the Company borrowed $400,000 on
available lines-of-credit, partially offset by payments of $86,001 against the
lines-of-credit and $24,624 against outstanding long-term debt.
Federated's ratio of current assets to current liabilities at
October 31, 1996 declined to 2.0:1 from 3.5:1 at October 31, 1995 (after giving
effect to the Divestiture). The decrease is primarily attributable to the
impact of the $414,826 operating loss on the Company's cash position. The
Company had working capital of $490,614 at October 31, 1996 down $381,261, or
43.7%, from $871,875 at October 31, 1995, primarily as a result of the
operating loss for that period. Working capital for Federated at October 31,
1995 declined $344,467, or 28.3% as compared to $1,216,342 for Federated at
October 31, 1994 (without consideration of Freedom) and $581,095, or 40.0%, at
October 31, 1994 (including Freedom).
The future aggregate minimum commitment of the Company under its lease
on its principal operating facilities is as follows:
YEARS ENDED OCTOBER 31, AMOUNT
1997 $58,000
1998 58,000
Due thereafter 9,667
$125,667
The Company's stockholders' equity in fiscal 1996 amounted to $749,907
which is equivalent to a book value per common share of $.47. In fiscal 1995
and fiscal 1994, comparable figures for stockholder's equity were $1,164,733,
or $.72 per common share and $1,755,240, or $1.03 per common share.
The Company maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when incurred. The
Company accounting policies with respect to customer right of returns are
governed upon written authorization by Federated except for special order
items.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements and Financial Statement
Schedules
PAGE
FINANCIAL STATEMENTS
Independent Auditor's Report 15
Consolidated Balance Sheets as of October 31, 1996, 1995 and 1994 16
Consolidated Statements of Operations for the years ended
October 31, 1996, 1995 and 1994 18
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 1996, 1995 and 1994 19
Consolidated Statements of Cash Flows for the years ended
October 31, 1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 22
SCHEDULES
Schedule V - Valuation and Qualifying Accounts 34
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Federated Purchaser, Inc.
Cliffwood, New Jersey
We have audited the consolidated balance sheets of Federated Purchaser, Inc.
and its subsidiaries as of October 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended October 31, 1996, 1995 and 1994. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Federated
Purchaser, Inc. and its subsidiaries as of October 31, 1996 and 1995, and the
results of its operations and its cash flows for the years ended October 31,
1996, 1995 and 1994 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BEDERSON & COMPANY LLP
FEDERATED PURCHASER, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash $ 95,918 $ 186,515
Marketable securities - 99,744
Accounts receivable, less allowance for doubtful
accounts of $26,339 and $22,835, respectively 493,285 486,389
Inventories 314,447 392,282
Prepaid expenses and sundry receivables 22,925 36,868
Note receivable - Freedom Electronics Corporation 20,000 -
Restrictive covenant receivable 24,375 22,500
TOTAL CURRENT ASSETS 970,950 1,224,298
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 32,028 43,132
OTHER ASSETS:
Note receivable - Freedom Electronics Corporation,
net of current portion 155,000 210,000
Restrictive covenant receivable, net of
current portion 24,375 46,875
Security deposits 10,845 10,845
Association membership 94,126 70,454
TOTAL OTHER ASSETS 284,346 338,174
TOTAL ASSETS $1,287,324 $1,605,604
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,624 $ 10,624
Accounts payable 375,851 283,325
Accrued expenses 93,861 58,474
TOTAL CURRENT LIABILITIES 480,336 352,423
LONG-TERM DEBT, less current portion 8,331 19,073
DEFERRED INCOME 48,750 69,375
TOTAL LIABILITIES 537,417 440,871
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 (1,053,333) (638,507)
Total 810,985 1,225,811
Less: Treasury stock, at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 749,907 1,164,733
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,287,324 $1,605,604
The accompanying notes are an
integral part of these financial statements.
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994
REVENUES:
Sales, net $3,980,560 $4,118,799 $6,281,006
COSTS AND EXPENSES (INCOME):
Cost of sales 3,128,019 3,172,060 4,907,644
Selling, shipping, and general
and administrative 1,286,444 1,353,609 1,687,016
Loss on sale of subsidiary - 182,791 -
Depreciation and amortization 11,575 11,260 47,332
Interest expense 2,828 3,811 24,340
Interest income (14,830) (32,530) (1,637)
Restrictive covenant (20,625) (20,625) -
Other income - (9,878) (2,505)
TOTAL COSTS AND EXPENSES (INCOME) 4,393,411 4,660,498 6,662,190
LOSS BEFORE PROVISION FOR INCOME TAXES (412,851) (541,699) (381,184)
PROVISION (BENEFIT) FOR INCOME TAXES 1,975 4,363 (7,335)
NET LOSS $ (414,826) $ (546,062) $ (373,849)
LOSS PER SHARE $ (.26) $ (.34) $ (.22)
The accompanying notes are an
integral part of these financial statements.
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
Common Stock
Retained Held in
Additional Earnings Treasury
COMMON STOCK Paid-in Accumulated AT COST
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
BALANCES - October 31, 1993 1,719,758 $171,976 $1,692,342 $ 281,404 19,552 $16,633
Net loss - - - (373,849) - -
BALANCES - October 31, 1994 1,719,758 171,976 1,692,342 (92,445) 19,552 16,633
Purchase of treasury stock - - - - 88,889 44,445
Net loss - - - (546,062) - -
BALANCES - October 31, 1995 1,719,758 171,976 1,692,342 (638,507) 108,441 61,078
Net loss - - - (414,826) - -
BALANCES - October 31, 1996 1,719,758 $171,976 $1,692,342 $(1,053,333) 108,441 $61,078
The accompanying notes are an
integral part of these financial statements.
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(414,826) $(546,062) $(373,849)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 11,575 11,260 47,332
Allowance for doubtful accounts 4,751 13,235 10,691
Accrued interest income - (5,959) -
Loss on divestiture of Freedom
Electronics, Corp. - 182,791 -
Freedom Electronics, Corp., net assets
and liabilities disposed of - (127,802) -
Noncash operating expenses - 2,154 -
Deferred income taxes - 7,867 5,438
(Increase) decrease in current assets:
Accounts receivable (11,647) (117,488) (8,045)
Inventories 77,835 18,546 (42,624)
Prepaid expenses and sundry receivables 13,943 51,385 (30,001)
Tax refund receivable - 5,119 30,957
Increase (decrease) in current liabilities:
Accounts payable 92,526 (52,354) 83,242
Accrued expenses 35,387 (45,540) (17,906)
NET CASH USED BY OPERATING ACTIVITIES (190,456) (602,848) (294,765)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on divestiture of Freedom
Electronics, Corp. - 755,845 -
Purchase of marketable securities - (286,224) -
Sale of marketable securities 99,744 192,439 -
Purchase of property and equipment (471) (2,688) (8,546)
Collection of note receivable 35,000 - -
Increase in association membership costs (23,672) (20,400) (26,604)
NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES 110,601 638,972 (35,150)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (10,742) (74,624) (110,625)
Proceeds from bank and equipment loans - - 400,000
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES (10,742) (74,624) 289,375
NET DECREASE IN CASH (90,597) (38,500) (40,540)
CASH - beginning of year 186,515 225,015 265,555
CASH - end of year $ 95,918 $ 186,515 $ 225,015
The accompanying notes are an
integral part of these financial statements.
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,826 $ 3,811 $ 24,340
Income taxes $ - $ 421 $ 4,194
NON-CASH INVESTING AND FINANCING ACTIVITY:
Divestiture of Freedom Electronics Corp.,
summarized as follows:
Selling price $ - $1,100,290 $ -
Less: Note receivable - (210,000) -
Restrictive covenant - (90,000) -
Treasury stock - (44,445) -
Cash received $ - $ 755,845 $ -
The accompanying notes are an
integral part of these financial statements.
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Companies are engaged in the assembly and sale of electronic
parts, components and related equipment and contract manufacturing for
the electronics industry.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period.
REVENUE RECOGNITION
Federated Purchaser, Inc. and its subsidiaries, ("the Company" or
"Federated") maintains their 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany items have been eliminated. (See Note 16,
Sale of Subsidiary.)
INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Property and equipment, including significant betterments, are
recorded at cost. Upon retirement or disposal of properties, the cost
and accumulated depreciation are removed from the accounts, and any
gain or loss is included in income. Maintenance and repair costs are
charged to expense as incurred. Provisions for depreciation are made
using the straight-line method over the estimated economic lives of
the assets.
AMORTIZATION
Goodwill is being amortized over a period of forty years by the
straight-line method.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year presentation.
LOSSES PER SHARE
The computations of losses per share are based on the weighted average
number of shares outstanding during the year: 1,611,317 in 1996,
1,614,726 in 1995, 1,700,206 in 1994.
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As shown in the financial statements, the Company has reported net
losses of $414,826, $546,062 and $373,849 for the fiscal years ended
October 31, 1996, 1995 and 1994, respectively and working capital has
continued to decline. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's continued operations will depend on its ability to raise
additional funds through a combination of equity or debt financing,
strategic alliances, increased revenues and reduction of operating
costs.
The Company's long-term liquidity will depend on its ability to raise
substantial additional funds. There can be no assurances that such
funds will be available to the Company on acceptable terms, if at all.
NOTE 3 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH
DEPOSITS IN EXCESS OF INSURED LIMITS
The Company sells its products to various customers primarily in the
Northeast United States. The Company performs ongoing credit
evaluations on its customers and generally does not require
collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
NOTE 4 - MARKETABLE SECURITIES
At October 31, 1995, marketable securities represents treasury bills
with an original maturity in excess of three months and are classified
as available for sale. The current marketable securities are stated
at cost, plus accrued interest which approximates the current market
value of the securities.
NOTE 5 - INVENTORIES
Inventories consist of the following:
1996 1995
Merchandise for resale $314,447 $392,282
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1996 1995 USEFUL LIFE
Leasehold improvements $ 12,522 $ 12,522 5 - 31 years
Furniture, fixtures and
equipment 110,626 110,155 5 - 15 years
Automotive equipment 24,139 24,139 4 years
Total 147,287 146,816
Less: Accumulated depreciation
and amortization 115,259 103,684
Total Property and Equipment $ 32,028 $ 43,132
NOTE 7 - ASSOCIATION MEMBERSHIP
The Company is a member of a cooperative buying group and has been
purchasing stock in such group pursuant to group guidelines. The
total investment as of October 31, 1996 and 1995 was $94,126 and
$70,454, respectively. In the event that the Company were to leave
the group, the group would be obligated to refund all invested amounts
over a five year period. The association membership is valued at
cost, which approximates the current market value.
NOTE 8 - LONG-TERM DEBT
Long-term debt payable consist of the following:
1996 1995
IBM Credit Corporation, payable in monthly
installments of $1,122, including interest
at 11% through July 1998, secured by data
processing equipment. $ 18,955 $ 29,697
Less: Current portion 10,624 10,624
Total Long-Term Debt $ 8,331 $ 19,073
Long-term debt matures as follows:
Year Ended
OCTOBER 31,
1997 $ 10,624
1998 8,331
$ 18,955
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 9 - ACCRUED EXPENSES
Accrued expenses as of October 31, consist of the following:
1996 1995
Payroll $ 17,693 $ 8,290
Professional fees 63,470 34,500
Sundry 12,698 15,684
Total Accrued Expenses $ 93,861 $ 58,474
NOTE 10 - EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with the chief
executive officer effective November 1, 1986, originally terminating
October 31, 1991 and subsequently extended until October 31, 1996.
This agreement also provided for cash awards at 10% of incentive
earnings, as defined. No cash awards were earned during the years
1996, 1995 and 1994.
NOTE 11 - RETIREMENT PLAN
The Company sponsored a profit sharing plan covering substantially
all employees. There was no charge to income for 1996, 1995 and
1994. The Board of Directors adopted a resolution on December 1,
1995 to terminate the Company's sponsored profit sharing plan
covering substantially all employees.
NOTE 12 - INCOME TAXES (BENEFIT) DEFERRED AND PAYABLE
Components of provision (benefit) for income taxes are as follows:
1996 1995 1994
Current:
Federal $ - $ - $ -
State 1,975 4,363 (1,847)
Total 1,975 4,363 (1,847)
Deferred:
Federal - - (5,488)
Total taxes (benefit) $ 1,975 $ 4,363 $ (7,335)
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 12 - INCOME TAXES (BENEFIT) DEFERRED AND PAYABLE (Continued)
In 1992, the Company adopted Statement of Financial Accounting
Standard 109 ("SFAS"). SFAS 109 provides for an asset and liability
approach to accounting for income taxes that require the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
In estimating future consequences, SFAS 109 generally considers all
expected future events other than proposed changes in the tax law or
rates prior to enactment. A valuation allowance is provided when it
is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise to
significant portions of the net deferred tax asset relate to the
following:
1996 1995
Accounts receivable, principally
due to allowance for doubtful
accounts $ 11,326 $ 1,720
Carryforward losses 672,025 512,861
Valuation allowance (683,351) (514,581)
Net deferred tax assets and
liabilities $ - $ -
At October 31, 1996, the Company had net operating loss carryforwards
of approximately $1,500,000 that expire in the years 2008 to 2011.
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 12 - INCOME TAXES (BENEFIT) DEFERRED AND PAYABLE (Continued)
The consolidated income tax (benefit) was different than the amount
computed using the United States statutory income tax rate for the
reasons set forth in the following table:
1996 1995 1994
Expected tax (credit) at U.S.
statutory income tax rate $ - $ - $ -
State income taxes 1,975 4,363 (1,847)
Utilization of loss
carryforwards - - (5,488)
$ 1,975 $ 4,363 $ (7,335)
NOTE 13 - LEASE COMMITMENT
As of September 30, 1992, the Company moved to a new facility under
an operating lease agreement which will expire on December 31, 1998
at a minimum annual lease rental of $106,970. The lease was modified
on June 1, 1995 to remove the premises used by Freedom Electronics
Corporation at a minimum annual lease rental of $58,000. In addition
to minimum rentals, the Company will be responsible for real estate
taxes and a pro-rata share of all common charges. Rent charged to
operations was $80,979, $82,885 and $163,765, respectively, for the
years ended October 31, 1996, 1995 and 1994.
The future aggregate minimum rental payments under this operating
lease agreement are as follows:
Years Ended
OCTOBER 31,
1997 $ 58,000
1998 58,000
1999 9,667
$125,667
NOTE 14 - MAJOR SUPPLIER INFORMATION
The Company had one supplier from whom it purchased approximately
$523,000 or 16% of purchases for the year ended October 31, 1996.
NOTE 15 - RELATED PARTY TRANSACTIONS
Freedom Electronics Corporation, a 100% owned subsidiary of Federated
Purchaser, Inc. leased warehouse facilities from the President of the
Company on a month-to-month basis, at a monthly rental of $3,500 for
a total of $42,000 for the year ended October 31, 1994.
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 16 - SALE OF SUBSIDIARY
On November 15, 1994, by unanimous vote of all non-interested
directors, Federated Purchaser, Inc. (Federated) divested its
subsidiary, Freedom Electronics Corporation (Freedom).
In consideration of the divestiture of 100% of the outstanding shares
of Freedom Electronics Corporation, Federated Purchaser, Inc.
received approximately $354,000, including $100,000 in cash, a
$210,000 7% promissory note due on November 15, 1998 and 88,889
shares of common stock of Federated (representing 4.9% of the class
outstanding) held personally by Freedom's President. In addition,
the parties entered into customary covenants not to compete, pursuant
to which Federated would become entitled to receive $90,000 over a
period of four years. As part of this transaction certain
intercompany indebtedness to Federated was satisfied by payment of an
additional $656,000.
The loss on the divestiture of Freedom amounted to $182,791 or $.11
per share.
The following is a summary of net assets and results of operations of
Freedom Electronics Corporation as of October 31, 1994 and for the
year then ended.
Cash $ 62,155
Receivables 482,559
Inventories 786,574
Other current assets 37,295
Property and equipment (net) 94,210
Other assets 28,032
Total assets 1,490,825
Accounts payable 206,998
Notes payable 254,667
Other current liabilities 668,910
Long-term debt -
Net assets $ 360,250
Sales $2,853,957
Cost and expenses 2,919,342
Loss before income taxes (65,385)
Income taxes (benefit) (5,127)
Net loss $ (60,258)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on March 19, 1997, which the Company will file with the
Securities and Exchange Commission no later than 120 days after October 31,
1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on March 19, 1997, which the Company will file with the
Securities and Exchange Commission no later than 120 days after October 31,
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on March 19, 1997, which the Company will file with the
Securities and Exchange Commission no later than 120 days after October 31,
1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on March 19, 1997, which the Company will file with the
Securities and Exchange Commission no later than 120 days after October 31,
1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
These documents are included in the response to Item 8 of this report.
See the index on page 14.
(3) EXHIBITS
The following exhibits are filed with this report:
SEQUENTIALLY
EXHIBIT NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
22 Subsidiaries of the Company
(C) REPORTS ON FORM 8-K:
During the three months ended October 31, 1996, the Company did not file
any reports on Form 8-K with the Securities and Exchange Commission.
(D) EXHIBITS:
Exhibits are listed above in response to Item 14(a)3.
FINANCIAL STATEMENT SCHEDULES:
Schedule V - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are either inapplicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
Individual financial statements of the Company are omitted because the
Company is primarily an operating company and the subsidiaries included in the
consolidated financial statements filed herein are wholly-owned subsidiaries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FEDERATED PURCHASER, INC.
By:/S/ HARRY J. FALLON
HARRY J. FALLON, President
January 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
SIGNATURES: TITLE DATE
/S/ HARRY J. FALLON Acting Chairman, President, January 28, 1997
HARRY J. FALLON Principal Executive Officer,
Principal Financial
Officer, Principal
Accounting Officer and
Director
/S/ EDMUND L. HOENER Director January 28, 1997
EDMUND L. HOENER
/S/ EDWIN S. SHORTESS Director January 28, 1997
EDWIN S. SHORTESS
/S/ JANE A. CHRISTY Director, Vice January 28, 1997
JANE A. CHRISTY President Operations
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
3 (a) Articles of Incorporation of Company (incorporated by
reference to the Company's original Registration
Statement).
(b) By-laws of the Company (incorporated by reference to
pp. 26-55 of the Exhibit Volume of Company's Form 10-K
Annual Report for the year ended October 30, 1980).
10 (a) Lease dated September 17, 1982 relating to Company's
administrative, sales, and warehousing facilities
located in Kenilworth, New Jersey (incorporated by
reference to Exhibit 10(a) to Company's Form 10-K
Annual Report for the year ended October 31, 1982).
(b) Lease dated October 31, 1990 relating to Freedom
Electronics' assembly and warehousing facilities
located in Atlantic Highlands, New Jersey (incorporated
by reference to Exhibit 10(b) to Company's Form 10-K
Annual Report for the year ended October 31, 1989).
(c) Employment Agreement between Company and Harry J.
Fallon (incorporated by reference to Exhibit 10(b) to
Company's Form 10-K Annual Report for the year ended
October 31, 1988).
(d) Employment Agreement between Company and Steven J.
Carbone (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K filed July 24,
1990).
(e) Employees' Profit-Sharing Plan and Amendment thereto
(incorporated by reference to pp. 120-162 of the
Exhibit Volume of Form 10-K Annual Report for the year
ended October 31, 1980).
(f) Employees' Profit-Sharing Trust Agreement and Amendment
thereto (incorporated by reference to pp. 163-185 of
the Exhibit Volume of Form 10-K Annual Report for the
year ended October 31, 1980).
(g) Employee Incentive Stock Option Plan (incorporated by
reference to Exhibit 10(e) to Company's Form 10-K
Annual Report for the year ended October 31, 1982).
(h) Employee Incentive Stock Option Plan Amendments
(incorporated by reference to Exhibit 10(h) to
Company's Form 10-K Annual Report for the year ended
October 31, 1989).
(i) Stock Purchase Agreement between Company and Steven J.
Carbone (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed July 24,
1990).
(j) Letter Agreement dated March 28, 1991 Extending the
Employment Agreement between Company and Harry J.
Fallon (incorporated by reference to the Company's Form
10-K Annual Report for the year ended October 31,
1991).
(k) Letter Agreement dated January 20, 1993 Extending the
Employment Agreement between Company and Harry J.
Fallon to October 31, 1993 (incorporated by reference
to the Company's Form 10-K Annual Report for the year
ended October 31, 1992).
(l) Letter Agreement dated June 8, 1992 Extending the
Employment Agreement between Company and Steven J.
Carbone to December 31, 1992 (incorporated by reference
to the Company's Form 10-K Annual Report for the year
ended October 31, 1992).
(m) Letter Agreement dated January 20, 1993 Extending the
Employment Agreement between Company and Steven J.
Carbone to March 31, 1993 (incorporated by reference to
the Company's Form 10-K Annual Report for the year
ended October 31, 1992).
(n) Lease dated September 1, 1992 relating to the Company's
total operations (including Freedom Electronics)
located in Cliffwood, New Jersey (incorporated by
reference to the Company's Form 10-K Annual Report for
the year ended October 31, 1992).
(o) Letter Agreement dated March 29, 1993 extending the
Credit Facility between Constellation Bank, as Lender
and Federated Purchaser, Inc., as borrower
(incorporated by reference to the Company's Form 10-K
Annual Report for the year ended October 31, 1993).
(p) Bank Credit Facility Agreement, dated January 29, 1993
between United Jersey Bank, as Lender, and Freedom
Electronics, as borrower (incorporated by reference to
the Company's Form 10-K Annual Report for the year
ended October 31, 1993).
(q) Stock Purchase Agreement, dated November 2, 1994 among
Federated Purchaser, Freedom Electronics and Steven J.
Carbone (incorporated by reference to the Company's
Form 10-K Annual Report for the year ended October 31,
1994).
(r) Lease Modification, dated
July 18, 1995 between Cliffwood
Avenue Partners and Federated
Purchaser (incorporated by reference
to the Company's Form 10-K Annual Report
for the year ended October 31, 1995)
22 Subsidiaries of the Company (filed as an exhibit
hereto).
EXHIBIT 22
Subsidiaries of the Company
SUBSIDIARIES OF THE COMPANY
Percentage of Voting
Jurisdiction of Securities Owned by
SUBSIDIARY INCORPORATION THE COMPANY
Federated Purchaser, Inc. Pennsylvania 100%
SCHEDULE V
FEDERATED PURCHASER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Balance at Beginning of Additions Charged to
PERIOD Profit and Loss OR Deductions From Balance at Close
CLASSIFICATION INCOME RESERVES OF PERIOD
Year ended October 31, 1996:
Allowance for doubtful accounts $22,835 $4,751 $1,247 $26,339
Year ended October 31, 1995:
Allowance for doubtful accounts $28,682 $13,235 $19,082 $22,835
Year ended October 31, 1994:
Allowance for doubtful accounts $84,224 $10,691 $66,233 $28,682
EXHIBIT 27
Financial Data Schedule