PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FEDERATED PURCHASER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997 AND 1996
FEDERATED PURCHASER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, October 31,
1997 1996
(Unaudited)
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CURRENT ASSETS:
Cash $ 102,341 $ 95,918
Accounts receivable, less allowance for
doubtful accounts of $30,839 at July 31,
1997 and $26,339 at October 31, 1996,
respectively 403,464 493,285
Inventories 279,350 314,447
Prepaid expenses and sundry receivables 22,613 22,925
Note receivable - Freedom Electronics 25,000 20,000
Corporation Restrictive covenant receivable 22,500 24,375
TOTAL CURRENT ASSETS 855,268 970,950
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $124,696 and $115,259,
respectively 22,592 32,028
OTHER ASSETS:
Note receivable - Freedom Electronics
Corportion - net of current portion 135,000 155,000
Security deposits 10,845 10,845
Restrictive covenant receivable - net of
current portion 7,500 24,375
Other 95,826 94,126
TOTAL OTHER ASSETS 249,171 284,346
TOTAL ASSETS $1,127,031 $1,287,324
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 11,510 $ 10,624
Accounts payable 435,181 375,851
Accrued expenses 64,448 93,861
TOTAL CURRENT LIABILITIES 511,139 480,336
LONG-TERM DEBT, net of current portion - 8,331
DEFERRED INCOME 30,000 48,750
TOTAL LIABILITIES 541,139 537,417
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 (1,217,348) (1,053,333)
Total 646,970 810,985
Less: Treasury stock at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 585,892 749,907
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,127,031 $1,287,324
(1)
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
JULY 31, JULY 31,
1997 1996 1997 1996
SALES $ 836,668 $1,009,865 $2,515,054 $3,008,004
COSTS AND EXPENSES (INCOME):
Cost of sales 636,828 789,204 1,919,823 2,333,366
Selling, shipping and general
and administrative 275,579 304,259 774,253 961,007
Interest expense 706 707 2,013 2,121
Depreciation and amortization 3,290 3,172 9,436 9,516
Restrictive covenant (1,838) (3,750) (8,721) (15,000)
Interest income (5,625) (4,440) (18,750) (13,830)
TOTAL COSTS AND EXPENSES (INCOME) 908,940 1,089,152 2,678,054 3,277,180
LOSS BEFORE PROVISION FOR
INCOME TAXES (72,272) (79,287) (163,000) (269,176)
PROVISION FOR INCOME TAXES 40 500 1,015 1,000
NET LOSS $ (72,312) $ (79,787) $ (164,015) $ (270,176)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,611,317 1,611,317 1,611,317 1,611,317
LOSS PER COMMON SHARE $ (.04) $ (.05) $ (.10) $ (.17)
CASH DIVIDEND PER COMMON SHARE $ .00 $ .00 $ .00 $ .00
(2)
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JULY 31, 1997 AND 1996
(Unaudited)
Common Stock
Held in
Additional Treasury
COMMON STOCK Paid-in Accumulated AT COST
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
<C<
BALANCES - November 1, 1995 1,719,758 $171,976 $1,692,342 $ (638,507) 108,441 $61,078
Net loss - - - (270,176) - -
BALANCES - July 31, 1996 1,719,758 $171,976 $1,692,342 $ (908,683) 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 - - - (164,015) - -
BALANCES - July 31, 1997 1,719,758 $171,976 $1,692,342 $(1,217,348) 108,441 $61,078
(3)
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (164,015) $ (270,176)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 9,436 9,516
Allowance for doubtful accounts 4,500 9,000
(Increase) decrease in operating assets:
Accounts receivable 85,321 37,654
Inventories 35,097 (6,432)
Prepaid expenses and sundry receivables 312 13,037
Increase (decrease) in operating liabilities:
Accounts payable 59,330 36,168
Accrued expenses (29,413) 7,339
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES 568 (163,894)
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of marketable securities - 99,744
Purchase of property and equipment - (471)
Proceeds on note receivable 15,000 30,000
Increase in association membership costs (1,700) (15,300)
NET CASH PROVIDED BY INVESTING ACTIVITIES 13,300 113,973
CASH FLOWS USED BY FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (7,445) (7,968)
NET INCREASE (DECREASE) IN CASH 6,423 (57,889)
CASH - beginning 95,918 186,515
CASH - ending $ 102,341 $ 128,626
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,013 $ 2,121
Income taxes $ - $ -
(4)
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997 AND 1996
(Unaudited)
NOTE 1
The accompanying unaudited consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position as of July 31, 1997 and the
results of operations for the nine months ended July 31, 1997 and 1996.
NOTE 2
The results of operations for the nine months ended July 31, 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 $164,015 for the nine months ended July 31,
1997 on net sales of $2,515,054 compared to a loss of $270,176 for the nine
months ended July 31, 1996 on net sales of $3,008,004. The loss of $164,015
for the nine months ended July 31, 1997 represents an improvement of $106,161
when compared to the loss of $270,176 for the nine months ended July 31, 1996.
Despite the relative improvement in the magnitude of the loss when compared
with the nine months ended July 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
July 31, 1997, working capital had decreased to $344,129 and the Company had an
accumulated deficit of $1,217,348. 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 July 31,
1997, the Company's cash reserves were $102,341. 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 $2,515,054 for the nine months ended July 31, 1997 as compared
to $3,008,004 for the nine months ended July 31, 1996, a decrease of $492,950
or 16.4% under the prior year. Net sales were $836,668 for the three months
ended July 31, 1997 as compared to $1,009,865 for the three months ended July
31, 1996 a decrease of $173,197 or 17.2% under the prior year. 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 $1,919,823 or 76.3% of sales for the nine months ended July
31, 1997 compared to $2,333,366 or 77.6% of sales for the nine months ended
July 31, 1996. Cost of sales were $636,828 or 76.1% of sales for the three
months ended July 31, 1997 compared to $789,204 or 78.1% of sales for the three
months ended July 31, 1996. The decrease in cost of sales for both the nine
months and three months ended July 31, 1997 is the result of the Company's
decrease in sales volume. The gross profit percentage for the nine months
ended July 31, 1997 was 23.7% compared to 22.4% for the nine months ended July
31, 1996. The gross profit percentage for the three months ended July 31, 1997
was 23.9% compared to 21.9% for the three months ended July 31, 1996. There
can be no assurances that the minor improvement in the Company's gross margin
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
$774,253 for the nine months ended July 31, 1997, compared to $961,007 for the
nine months ended July 31, 1996, a decrease of $186,754 or 19.4% as compared to
the prior comparable period. For the three months ended July 31, 1997,
selling, shipping and general and administrative expenses were $275,579 as
compared to $304,259 for the three months ended July 31, 1996, a decrease of
$28,680 or 9.4% as compared to 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 decrease 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 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 $164,015 for the nine
ended July 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 when it received a one-time
cash payment of $755,845 from its November 15, 1994 divestiture of a former
subsidiary, Freedom Electronics, 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 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 $6,423 for the nine months ended July
31, 1997 compared to a decrease of $57,889 for the nine months ended July 31,
1996. For the nine months ended July 31, 1997, the Company provided cash of
$568 from operating activities primarily as a result of a decrease in accounts
receivable of $85,321, a decrease of $35,097 in inventories an increase of
$59,330 in accounts payable offset by the net loss of $164,015 and a decrease
of $29,413 in accrued expenses. The Company generated cash from investing
activities of $13,300 from the collection of $15,000 in notes receivable offset
by $1,700 in association membership costs. During the nine months ended July
31, 1997, the Company used cash of $7,445 for notes payable. The collection of
$15,000 in notes receivable is due to the Company's renegotiation of certain
payment terms relating to debt owed by Freedom in relation to the divestiture
described above.
The Company currently has no access to any outside source of capital, except
for approximately $11,500 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 terminated Federated
Purchaser's franchise agreement as an Industrial Electronic Distributor
effective July 1, 1997. The Company expects to continue to be able to obtain
electronic parts from that supplier through a cooperative purchasing group.
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 July 31, 1997 reflects working capital of
$344,129 as compared to $639,351 at July 31, 1996, which represents a decrease
of $295,222.
The Company's stockholders' equity is $585,392 at July 31, 1997, equivalent to
a book value per share of $.36.
(7)
PART II - OTHER INFORMATION
FEDERATED PURCHASER, INC.
OTHER INFORMATION
JULY 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 nine months ended July 31, 1997 other
than which has been reported.
There were no securities of the Company sold by the Company during the three
months ended July 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
SEPTEMBER 12, 1997
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 JULY 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
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 August 26, 1997,
there are 1,719,758 shares of common stock outstanding.