PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
April 30, October 31,
1997 1996
(Unaudited)
CURRENT ASSETS:
Cash $ 84,100 $ 95,918
Accounts receivable, less allowance for doubtful
accounts of $29,339 at April 30, 1997 and $22,835
at October 31, 1996, respectively 482,122 493,285
Inventories 289,299 314,447
Prepaid expenses and sundry receivables 15,965 22,925
Note receivable - Freedom Electronics Corporation 20,000 20,000
Restrictive covenant receivable 22,500 24,375
TOTAL CURRENT ASSETS 913,986 970,950
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $121,406 and $115,259 25,882 32,028
OTHER ASSETS:
Note receivable, Freedom Electronics Corporation,
net of current portion 145,000 155,000
Security deposits 10,845 10,845
Restrictive covenant, net of current portion 13,125 24,375
Other 96,399 94,126
TOTAL OTHER ASSETS 265,369 284,346
TOTAL ASSETS $1,205,237 $1,287,324
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,624 $ 10,624
Accounts payable 456,722 375,851
Accrued expenses 41,043 93,861
TOTAL CURRENT LIABILITIES 508,389 480,336
LONG-TERM DEBT, net of current portion 3,019 8,331
DEFERRED INCOME 35,625 48,750
TOTAL LIABILITIES 547,033 537,417
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 (1,145,036) (1,053,333)
Total 719,282 810,985
Less: Treasury stock at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 658,204 749,907
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,205,237 $1,287,324
(1)
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
APRIL 30, APRIL 30,
1997 1996 1997 1996
SALES $ 876,689 $1,058,900 $1,678,386 $1,998,139
COSTS AND EXPENSES (INCOME):
Cost of sales 672,835 817,527 1,282,995 1,544,162
Selling, shipping and general
and administrative 266,710 338,782 498,674 656,748
Interest expense 708 707 1,307 1,414
Depreciation and amortization 3,290 3,172 6,146 6,344
Restrictive covenant (9,375) (5,625) (13,125) (11,250)
Interest income (3,908) (2,917) (6,883) (9,390)
TOTAL COSTS AND EXPENSES (INCOME) 930,260 1,151,646 1,769,114 2,188,028
LOSS BEFORE PROVISION FOR
INCOME TAXES (53,571) (92,746) (90,728) (189,889)
PROVISION FOR INCOME TAXES - - 975 500
NET LOSS $ (53,571) $ (92,746) $ (91,703) $ (190,389)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,611,317 1,611,317 1,611,317 1,611,317
LOSS PER COMMON SHARE $ (.04) $ (.06) $ (.06) $ (.12)
CASH DIVIDEND PER COMMON SHARE $ .00 $ .00 $ .00 $ .00
(2)
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED APRIL 30, 1997 AND 1996
(Unaudited)
Common Stock
Held in
Additional Treasury
Common Stock Paid-in Accumulated At Cost
Shares Amount Captial Deficit Shares Amount
BALANCES - November 1, 1995 1,719,758 $ 171,976 $1,692,342 $ (638,507) 108,441 $61,078
Net loss - - - (190,389) - -
BALANCES - April 30, 1996 1,719,758 $ 171,976 $1,692,342 $ (828,896) 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 - - - (91,703) - -
BALANCES - April 30, 1997 1,719,758 $ 171,976 $1,692,342 $ (1,145,036) 108,441 $61,078
(3)
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (91,703) $(190,389)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 6,146 6,344
Allowance for doubtful accounts 3,000 6,000
(Increase) decrease in operating assets:
Accounts receivable 8,163 (60,294)
Inventories 25,148 (6,283)
Prepaid expenses and sundry receivables 6,960 (8,064)
Increase (decrease) in operating liabilities:
Accounts payable 80,871 100,334
Accrued expenses (52,818) (11,122)
NET CASH USED BY OPERATING ACTIVITIES (14,233) (163,474)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities - 99,744
Collection of note receivable 10,000 25,000
Purchase of property and equipment - (472)
Increase in association membership costs (2,273) (10,200)
NET CASH PROVIDED BY INVESTING ACTIVITIES 7,727 114,072
CASH FLOWS USED BY FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (5,312) (5,312)
NET DECREASE IN CASH (11,818) (54,714)
CASH - beginning 95,918 186,515
CASH - ending $ 84,100 $ 131,801
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,307 $ 1,414
(4)
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 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 April 30, 1997 and the results of operations for the six months
ended April 30, 1997 and 1996.
NOTE 2
The results of operations for the six months ended April 30, 1997 and
1996 are not necessarily indicative of the results to be expected for
the full year.
(5)
Item 2.
FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
RESULTS OF OPERATIONS
The Company recognized a loss of $91,703 for the six months ended April 30,
1997 on net sales of $1,678,386 compared to a loss of $190,389 for the six
months ended April 30, 1996 on net sales of $1,998,139. The loss of $91,703
for the current six month period represents an improvement of $98,686 when
compared to the net loss of $190,389 for the six months ended April 30, 1996.
The net loss for the three months ended April 30, 1997 was $53,571 compared to
a net loss of $92,746 for the six months ended April 30, 1996. Despite the
relative improvement in the magnitude of the current six month loss when
contrasted with the six months ended April 30, 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 repeated losses, as of April 30, 1997, working capital had decreased
to $405,597 and the Company had an accumulated deficit of $1,145,036. 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 April 30, 1997, the Company's cash reserves were
$84,100. There can be no assurance 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 were $1,678,386 for the six months ended April 30, 1997 as compared
to $1,998,139 for the six months ended April 30, 1996, a decrease of $319,753
or 16.0% from the prior comparable period. Net sales were $876,689 for the
three months ended April 30, 1997 as compared to $1,058,900 for the six months
ended April 30, 1996, a decrease of $182,211 or 17.2% 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 effort 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 were $1,282,995 for the six months ended April 30, 1997 compared
to $1,544,162 for the six months ended April 30, 1996. Cost of sales were
$672,835 for the three months ended April 30, 1997 compared to $817,527 for the
three months ended April 30, 1996. The decrease in cost of sales for both the
six months and three months ended April 30, 1997 is directly attributable to
the Company's decrease in sales volume. The gross profit percentage for the
six months ended April 30, 1997 was 23.6% compared to 22.8% for the six months
ended April 30, 1996. The gross profit percentage for the three months ended
April 30, 1997 was 23.3% compared to 22.8% for the three months ended April 30,
1996. While management believes this minor improvement in gross profits is the
result of improved pricing policies, there can be no assurances that such minor
gross profit margins improvement can be sustained, or that lower total 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
$498,674 for the six months ended April 30, 1997, compared to $656,748 for the
six months ended April 30, 1996, a decrease of $158,074 or 24.1%, from the
prior comparable period. For the three months ended April 30, 1997, selling,
shipping and general administrative expenses were $266,710 as compared to
$338,782 for the prior comparable period in 1996, a decrease of $72,072 or
21.3%, 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 reductions in SSG&A expenses will be one
component of a broader effort necessary to reverse the Company's negative
results of operations.
(6)
FEDERATED PURCHASER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
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 $91,703 for the six
months ended April 30, 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 of its subsidiary, Freedom
Electronics, in November 1994. 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 operations costs, securing
additional lines of credit from outside lenders or entering into 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 decreased by $11,818 for the six months ended April
30, 1997 compared to a decrease of $54,714 for the six months ended April 30,
1996. For the six months ended April 30, 1997, the Company used net cash of
$14,233 from operating activities primarily as a result of the operating loss
of $91,703 a decrease of $52,818 in accrued expenses and a $2,273 increase in
association membership costs which were partially offset by decreases in
accounts receivable of $8,613, inventories of $25,148, prepaid expenses of
$6,960 and an increase of $80,871 in accounts payable, as well as, operating
collections of $10,000 from notes receivable and payments of $5,312 for notes
payable. The collection of $10,000 in notes receivable is due to Federated's
renegotiation of certain payment terms relating to debt owed by Freedom to
Federated as a result of the divestiture.
The cash decrease of $54,714 for the six months ended April 30, 1996 was
primarily attributable to the $190,389 operating loss for the period, an
increase of $60,294 in accounts receivable, a $11,122 decrease in accrued
expenses and a $10,200 increase in association membership costs, partially
offset by the sale of $99,744 in marketable securities, the collection of
$25,000 in notes receivable and an increase of $100,334 in accounts payable.
The Company currently has no access to any outside source of capital, except
for approximately $13,000 outstanding under an existing equipment financing
arrangement. While management continues to seek new sources of financing from
other financial institutions, no such arrangements has yet been established.
A supplier of electronic parts to Federated Purchaser has informed the Company
of its decision to terminate Federated Purchaser's franchise agreement as an
Industrial Electronic Distributor effective July 1, 1997. There can be no
assurances that this termination will not have a material adverse impact on the
Company's results of operations and cash flow position.
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 April 30, 1997 reflects a decrease of $315,326
in working capital to $405,597 as compared to $716,846 at April 30, 1996.
The Company's stockholders' equity is $658,204 at April 30, 1997 equivalent to
a book value per share of $.41.
(7)
PART II - OTHER INFORMATION
FEDERATED PURCHASER, INC.
OTHER INFORMATION
APRIL 30, 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 six months ended April 30, 1997 other
than which has been reported.
Form 8-K filed on November 30, 1994 in regard to the divestiture of Freedom
Electronics Corp.
Form 8-K filed on December 20, 1994 in regard to the change in registrant's
certifying accountant.
There were no securities of the Company sold by the Company during the six
months ended April 30, 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
(8)
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 APRIL 30, 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
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
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 June 2, 1997,
there are 1,719,758 shares of common stock outstanding.