1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995, or
/ / 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 ______________.
Commission file number 0-3839
BOOK CENTERS, INC.
(Exact Name of Registrant as Specified in its Charter)
Oregon 93-0508266
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(State of Incorporation) (I.R.S. Employer Identification No.)
5600 N.E. Hassalo Street, Portland, Oregon 97213
- ------------------------------------------ ---------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (503) 287-6657
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
------------
(Title of Class)
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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Parts III of this Form 10-K or any amendment to
this Form 10-K. _____
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
----- -----
The Registrant's voting stock is not actively traded and the aggregate market
value is therefore not available.
The number of shares of Registrant's common stock outstanding on June 30, 1995,
was 636,889.
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2
PART I
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ITEM 1: BUSINESS
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(a) General Development of Business.
-------------------------------
Book Centers, Inc. (formerly known as Industrial Investment Corporation) (the
"Company" or the "Registrant") is an Oregon corporation organized in 1961. Its
principal continuing business is the distribution of books on a wholesale basis
worldwide to college, university, industrial, and other research libraries
either for their own use or for resale. It conducts this business through a
wholly-owned subsidiary corporation, Academic Book Center, Inc., an Oregon
corporation("Academic").
Academic is located in Portland, Oregon, at the same mailing address as the
Company. Academic also operates a separate division under a different name.
Academic, under the assumed business name Professional Book Center, Inc.
("Professional"), sells medical, technical, scientific, and business books.
Academic previously provided marketing, promotional, warehousing order
fulfillment, accounting, and consulting services to publishers of books and
periodicals under the assumed business name International Specialized Book
Services, Inc. ("International"). Academic sold its assets comprising this
division on September 11, 1992, to Chvatel Corporation, and on and after that
date, it no longer provides those services.
The Company also formerly conducted a part of its business through another
wholly-owned subsidiary, Scholarly Book Center, Inc., an Oregon corporation
("Scholarly"). Scholarly, located in New York, New York, distributed books
throughout the Eastern United States, Canada, and Europe. In June, 1991, the
Company's Board of Directors decided to close Scholarly's operations and to
transfer them to Academic, including fulfilling all of the orders of
Scholarly's former customers out of Academic's offices in Portland, Oregon.
The Company completed the transfer of Scholarly's operations to Academic on
October 31, 1991.
The Company, after it was incorporated, engaged principally in the businesses
of agriculture and ownership of real property. It now engages solely in the
business of marketing, warehousing, and distributing books.
(b) Financial Information about Industry Segments.
---------------------------------------------
The Company, through its subsidiaries, markets, warehouses, and distributes
books on a wholesale basis to college, university, industrial, and other
research libraries and to libraries and others (e.g., bookstores) for resale.
Book wholesaling is the only industry segment material to its operations. See
Note 7 to the consolidated financial statements, Item 8 of this Report.
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(c) Narrative Description of Business.
---------------------------------
(i) Principal Products and Services.
-------------------------------
The Company's principal business is to market, warehouse, and distribute books
on a wholesale basis to college, university, industrial, and other research
libraries either for their own use or for resale. It also sells medical,
technical, scientific, and business books. The Company hires sales
representatives to solicit such sales. Such employees solicit these sales from
libraries, government agencies, and the purchasing departments of other
prospective purchasers either in person or by telephone. The Company sells its
products to its customers on credit. Its customers are required to pay for the
products sold within 60 days of the date of the invoice. The Company also
attends all significant trade shows, including trade shows sponsored by the
American Library Association and the American Book Sellers Association.
(ii) New Products.
------------
The Company has nothing to report under this caption.
(iii) Raw Materials.
-------------
Not applicable.
(iv) Patents, Trademarks, Licenses, Franchises, and Concessions.
----------------------------------------------------------
Not applicable.
(v) Seasonality of Business.
-----------------------
The Company's business is not seasonal except that its sales decrease during
the summer months.
(vi) Working Capital Practices.
-------------------------
The Company purchases its inventory on the basis of its customers' projected
requirements. If it does not sell the inventory purchased within a reasonable
time, it returns it to the publisher for credit. It purchases its inventory
from over 50,000 sources. The terms of the Company's purchase of its inventory
varies from publisher to publisher. The Company considers its working capital
practices similar to other wholesale distributors of books.
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(vii) Major Customers.
---------------
The Company and its subsidiaries provide services to more than 2,000 academic
and research libraries worldwide. No one customer accounts for more than 10
percent of consolidated revenues. Sales to customers outside the United States
constitute approximately 41 percent of the total volume for the 12 months ended
June 30, 1995 (see Note 7 to the consolidated financial statements, Item 8 of
this Report).
(viii) Backlog.
-------
The Company does not have any backlog. Customers generally place orders on an
"as needed basis" and expect delivery within a short period of time.
(ix) Renegotiation or Termination of Contracts or Subcontracts at Government's
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Election.
- --------
Not applicable.
(x) Competitive Conditions.
----------------------
The Company is in a highly competitive business. Competition is principally
through customer contacts, price, and service. Adequate service generally
requires delivery of a book 30 to 60 days after receipt of an order.
Publishers also compete against the Company by selling books directly to
consumers. There are approximately 25 significant competitors in this market,
some of whom have resources substantially greater than those of the Company.
(xi) Research and Development.
------------------------
The Company has not spent any material amounts during the last three fiscal
years for company-sponsored research and development or for customer-sponsored
research activities with respect to the development of new products.
(xii) Environment.
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The Company has nothing to report under this caption.
(xiii) Number of Persons Employed.
--------------------------
As of June 30, 1995, the Company (including its subsidiaries) employed
approximately 96 persons. Labor unions do not represent any of the Company's
employees. The Company considers its relationships with its employees
satisfactory.
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(d) Financial Information About Foreign and Domestic Operations and Export
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Sales.
- -----
See Note 7 to the consolidated financial statements, Item 8 of this Report for
information with respect to foreign and domestic operations and export sales.
ITEM 2: PROPERTIES
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The Company and its subsidiaries lease offices and warehouses in Portland,
Oregon, and offices in New York, New York. See Note 3 to the consolidated
financial statements, Item 8 of this Report, for obligations under these
leases. The Company considers its facilities suitable and adequate for its
business purposes. The offices and warehouses provide sufficient additional
space for growth.
ITEM 3: LEGAL PROCEEDINGS
- --------------------------
There are no pending legal proceedings to which the Company or any of its
subsidiaries is a party or to which any of their property is subject.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company did not submit any matters to a vote of its shareholders during the
quarter ended June 30, 1995.
PART II
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ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
----------------------------------------------------------------
MATTERS
- -------
The Company's common stock is not traded on any exchange. An established
public trading market for the stock has not existed for the past ten years.
Carr Securities in New York, New York, serves as the "market maker" for the
Company. It has served in such position since 1985. Carr Securities effected
only two purchases and sales of common stock for the fiscal year ended June 30,
1995 for the purchase and sale of 500 shares in the aggregate at 25 cents per
share. Prospective purchasers and sellers have engaged Carr Securities only
sporadically since 1985 with the stock price ranging from a low bid of 1/8 to a
high bid of 1/2. Information on stock prices on a quarterly basis and for
years prior to 1985 is not available due to the absence of an established
market.
The Company also established an employee stock ownership plan (ESOP) in 1985 to
facilitate the purchase and sale of stock in an inactive market. The ESOP may
purchase stock in the open market or directly from the Company. Purchases from
the Company increase the number of shares outstanding and the Company's equity,
but, depending on the sales price, dilute the interests of existing
shareholders. The ESOP is designated as a retirement program for all qualified
Company employees. At June 30, 1995, the ESOP owned 65,167 shares of the
Company's common stock.
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At June 30, 1995, there were 816 shareholders. The Company has not declared
any dividends since its incorporation. Under Oregon law, the Company may not
pay any dividends if, after the payment of such dividend, the Company would not
be able to pay its debts in the usual course of business or the Company's total
assets would be less than the sum of its total liabilities. At June 30, 1995,
the Company had an accumulated deficit of $1,938,819 and, accordingly, could
not pay dividends. The payment of dividends in the future, if the existing
deficit is eliminated, is subject to the discretion of the Board of Directors.
The Company does not plan to pay dividends in the foreseeable future.
ITEM 6: SELECTED FINANCIAL DATA
-----------------------
Year Ended June 30,
-----------------------------------------
1995 1994 1993
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Sales $22,994,555 $21,496,122 $21,906,756
Costs of goods sold $19,380,974 $17,930,209 $18,475,858
Operating and administrative $ 3,417,258 $ 3,443,153 $ 3,501,887
expenses
Reversal of restructuring charge $ -- $ (200,366) $ --
accrual
Interest expense $ 179,577 $ 168,998 $ 173,378
Income (loss) before income taxes $ 47,168 $ 220,900 $ (91,036)
and extraordinary item
Income taxes $ -- $ -- $ --
Net income (loss) $ 47,168 $ 220,900 $ (91,036)
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Year Ended June 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Income (loss) per share: <F1>
<F2> <F3> <F4>
Net income (loss) per share $ .07 $ .35 $ (.14)
Weighted average number of shares 636,889 636,889 636,889
outstanding
Total assets $ 4,949,235 $ 4,853,868 $ 4,775,929
Long-term debt, less current $ 43,201 $ 60,698 $ 0
portion
Cash dividends <F5> $ 0 $ 0 $ 0
Notes:
- -----
<FN>
<F1>
1. Net income (loss) per common share was computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during each period.
<F2>
2. The net loss in 1993 is due principally to a reduction in products sold
which, in turn, was caused by loss of several of Scholarly's customers and
the reduction in sales of a large corporate customer.
<F3>
3. The net income in 1994 is primarily a result of a reduction the Company's
operating expenses, including a reversal of a part of certain restructuring
charges incurred in 1991 in connection with the closing of Scholarly.
<F4>
4. The net income in 1995 is a result of an increase in the Company's revenues
in the amount of $1,462,083 and a decrease in its operating and
administrative expenses in the amount of $25,895.
<F5>
5. The Company has not declared any dividends since its incorporation.
</FN>
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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(a) Results of Operations.
---------------------
1995 Compared to 1994
- ---------------------
The Company's sales increased in the fiscal year ended June 30, 1995, in the
amount of $1,498,433, from $21,496,122 to $22,994,555, a 6.5 percent increase.
Sales increased because of an eight percent increase in units sold. Margins
continued to decrease as a percentage of sales because of lower discounts from
publishers and increased competition requiring higher discounts to customers.
Management cannot determine if these trends will continue.
Operating and administrative costs declined by $25,895 from $3,443,153 for the
fiscal year ended June 30, 1994, to $3,417,258 for the fiscal year ended June
30, 1995. Efficiencies of the Company's new Firm Order computer system and
continuous analysis of how various functions are performed caused this
decrease. The Company will continue its efforts to improve the productivity of
its employees through education and training.
Negative pressures on the Company include increased competition from large
competitors, information being produced in electronic formats, increased use of
library materials budgets to purchase journals, and budgetary constraints of
state-supported educational institutions.
1994 Compared to 1993
- ---------------------
The Company experienced a decline in sales in 1994 in the amount of $497,193
due to a reduction in products sold. There were two primary reasons for this
reduction. One was the lower sales to several commercial customers. The other
was in 1993 the Company sold about $125,000 worth of an expensive reference
work to libraries. There were no comparable sales in 1994. The cost of goods
sold declined for the first time, because of efforts to work with major
suppliers to get better terms. It is impossible to tell if this trend will
continue.
Operating and administrative costs declined by $58,734, although as a
percentage of sales they increased by 1/10 of 1 percent. The Company will
continue efforts to improve the productivity of employees and to negotiate
better terms with suppliers of goods and services in an effort to reduce
operating and administrative costs. The Company introduced new software for
its Firm Order operations in June, 1994. It is impossible to predict the
effect on increased sales or lower costs.
As noted in previous years, there are several negative factors affecting the
Company. Libraries continue to spend larger portions of the budgets on non-
book materials such as journals, audio-visual material, and data base access.
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1993 Compared to 1992
- ---------------------
The Company experienced a decline in sales in 1993 in the amount of $1,865,602
due to a reduction in products sold. This was primarily caused by the loss of
several former Scholarly customers and the reduction in sales to a large
corporate customer. The cost of goods sold continued to increase for several
reasons. Publishers continue to lower discounts to the Company in order to
prevent the list price of their material from increasing. Publishers also
switch the mix of trade, technical, and text discounts such that their overall
discounts decline even though their price structure remains the same. The
Company is also actively soliciting orders from its customers for audio-visual
material that carries little, if any, discount. It is impossible to predict
what the future cost of goods will be.
Operating and administrative expenses declined by $221,058 in the fiscal year
ended June 30, 1993. They continue to decline for two reasons: decreasing
volume and attention to all expenditures.
Two negative factors facing the Company are the continued upward spiral in the
cost of serials (the library term for magazines) and the pressure on
governmental agencies and departments at all levels to decrease costs. Serials
are bought from the same materials budget that a library uses to buy books. As
serials absorb a larger portion of the budget, the number of books purchased by
many institutions declines. This trend will not be reversed until the national
economy improves.
The Company continues to work against these trends by reducing staff,
introducing labor-saving technologies, and working with the suppliers of its
goods and services to improve prices and the quality of service provided. The
Company will introduce a newly programmed Firm Order system in late 1993. It
is hoped that this will improve and enhance the quality of the services the
Company provides to its customers. It is impossible, at this point, to predict
the effect on increased sales or lower costs.
(b) Inflation, Market Trends, and Business Factors Beyond Company Control.
---------------------------------------------------------------------
Inflation is not considered to be a factor in the Company's business at this
time.
Negative pressures on the Company, as previously stated, include increased
competition from large competitors, information being produced in electronic
formats, increased use of library materials budgets to purchase journals, and
budgetary constraints of state-supported educational institutions.
(c) Liquidity and Capital Resources.
-------------------------------
It is anticipated that cash flows from financing and operating activities will
be sufficient to meet the Company's liquidity need over the next twelve months
and thereafter. The Company entered into a new line of credit in June 1995
with a bank. The new line of credit, which expires September 1996, permits the
Company to borrow up to $1,400,000 (subject to certain limitations) and bears
interest at a rate of two and one-half percent to four percent above the bank's
reference rate (the "Index"). The Index equaled nine percent at June 30, 1995.
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The new line of credit is secured by all of the Company's assets and is
guaranteed by the present officers of the Company who are also stockholders.
The Company, at the time it entered into the new line of credit with the bank,
terminated its existing line of credit with another lending institution. This
line of credit, which the Company entered into in June 1993, permitted the
Company to borrow up to $1,250,000 and bore interest at the rate of six percent
above the prime rate (15 percent, 13.25 percent, and 12 percent at June 30,
1995, 1994, and 1993, respectively). It was secured by the Company's accounts
receivable, inventory, and equipment and was guaranteed by the present officers
of the Company who are also stockholders. The weighted average interest rate
under this line of credit in 1995 and 1994 was 14.33 and 12.27 percent,
respectively.
The Company does not have any other unused sources of liquid assets. The
Company will continue to improve its working capital situation through
profitable operations.
The Company did not make any material capital expenditures during the fiscal
year ended June 30, 1995.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements and schedules listed on the Index to Consolidated
Financial Statements and Schedules on page 23 are incorporated herein by
reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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FINANCIAL DISCLOSURE
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The Company has nothing to report under this item.
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PART III
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ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
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(a) Directors.
---------
The following table shows, as to each director and executive officer of the
Company, the identified information as of September 22, 1995:
Director Term as
and/or Director
Name and Executive and/or
Position Principal Occupation During Officer Executive
with Company Age Past Five Years Since Officer Ends
- --------------- --- -------------------------------- --------- ------------
Daniel P. 48 President, Chairman of the Board 1985 1995
Halloran of Directors, Chief Financial
Officer, Secretary/Treasurer,
President, and Director of Book Centers,
Chief Financial Inc., and Scholarly Book Center,
Officer, Inc.; previously Executive Vice
Controller, President and Director of
Secretary, Industrial Investment
Treasurer, Corporation and Vice President,
Chairman of the Treasurer, and General Manager
Board of of Scholarly Book Center, Inc.,
Directors, and and Academic Book Center, Inc.
Director
Barry E. Fast 52 Vice President and Director of 1986 1995
Book Centers, Inc., Academic
Vice President Book Center, Inc., and
and Director Scholarly Book Center, Inc.;
President of Taylor Carlisle's
Bookstore, Inc. (book seller);
previously Vice President of
East Woods Press (publisher)
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Frank L. Ford 45 Registered Representative for 1988 1995
Minnesota Mutual and owner of
Director Certified Bookkeeping Services;
Director of S. I. Ford Designs,
Inc.; previously owner of Frank
Ford & Associates (management
consultants)
Directors are elected to hold office until their successors are elected and
qualified, subject to prior death, resignation, or removal.
(b) Executive Officers.
------------------
Certain of the directors also serve as the executive officers of the Company.
Under the Corporation's Bylaws, executive officers are elected by the Board of
Directors and serve until their successors are elected and qualified, subject
to prior death, resignation, or removal. Those officers are:
Name Position
- ---- --------
Daniel P. Halloran President, Chief Financial Officer, Controller,
Secretary/Treasurer, and Chairman of the Board of
Directors
Barry E. Fast Vice President
(c) Significant Employees.
---------------------
John F. Knapp serves as the manager of systems development for the Company. He
has served in that capacity since January 1, 1987. His responsibilities
include computer systems development for the Company.
Catherine J. Labsch serves as a controller for the Company. She has served in
that position since September, 1989. Prior to working for the Company, she
worked as the assistant controller for Pihas Schmidt Westerdahl, an advertising
agency in Portland, Oregon.
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Robert Schatz is the sales manager for the Company. He has served in that
position since May, 1979. He manages all of the sales for the Company,
including serving as a sales representative himself.
(d) Compliance With Section 16(a) of the Securities Exchange Act of 1934.
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For a company with a class of equity securities registered under Section 12 of
the Securities Exchange Act of 1934 (the "1934 Act"), Section 16(a) of the 1934
Act requires the officers, directors, and persons who hold more than 10 percent
of a registered class of such company's equity securities (the "10 Percent
Holders") to file reports of ownership and changes of ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors, and 10
Percent Holders are required by the regulations the SEC has promulgated under
Section 16 of the 1934 Act to furnish such company with copies of all forms
they file pursuant to Section 16(a).
Based solely on the Company's review of Forms 3 and 4 and amendments thereto
furnished to the Company during the fiscal year ended June 30, 1995, Forms 5
and amendments thereto furnished to the Company with respect to such fiscal
year, and the written representations from certain of the reporting persons
that no Forms 5 were required to be filed also with respect to such fiscal
year, all required forms were timely filed, except a Form 5 for the fiscal year
ended June 30, 1995, filed by Barry E. Fast on September 5, 1995, was 21 days
late.
ITEM 11: EXECUTIVE COMPENSATION
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(a) Cash Compensation.
-----------------
The following table sets forth information concerning the compensation for
services to the Company in all capacities, for each of the fiscal years ended
June 30, 1995, June 30, 1994, and June 30, 1993, of the person who was, at June
30, 1995, the Chief Executive Officer of the Company and each other executive
officer of the Company at June 30, 1995 whose compensation for such fiscal year
exceeded $100,000.
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SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
-------------------
(a) (b) (c)<F1> (d) (e)<F2> (f)<F3>
Name and Other Annual All Other
Principal Compensation Compensation
Position Year Salary ($) Bonus $ ($) ($)
- --------- ---- ---------- ------- ------------ ------------
Daniel P. Halloran, 1995 109,200 -- 22,381 240
Chief Executive 1994 101,600 -- 21,336 224
Officer 1993 99,450 -- 10,014 219
- -------------------------
<FN>
<F1>
1 For the fiscal year ended June 30, 1993, Mr. Halloran elected to defer the
amount of $4,376 of his salary pursuant to the plan the Company established
under Section 401(k) of the Internal Revenue Code, for the fiscal year ended
June 30, 1994, he elected to defer $4,470 of his salary for that fiscal
year, and for the fiscal year ended June 30, 1995, he elected to defer
$4,805 of his salary for that fiscal year. For the fiscal year ended June
30, 1993, Mr. Fast elected to defer the amount of $2,652 of his salary
pursuant to the plan the Company established under Section 401(k) of the
Internal Revenue Code, for the fiscal year ended June 30, 1994, he elected
to defer $2,678 of his salary for that fiscal year, and for the fiscal year
ended June 30, 1995, he elected to defer $2,858 of his salary for that
fiscal year.
<F2>
2 For the fiscal year ended June 30, 1993, the Company paid on behalf of Mr.
Halloran the amount of $5,442 for premiums for life, disability, and medical
insurance and $4,572 for an automobile it provided to him, for the fiscal
year ended June 30, 1994, it paid premiums for such insurance in the amount
of $16,022 and the amount of $5,315 for such automobile, and for the fiscal
year ended June 30, 1995, the Company paid $17,066 in premiums for such
insurance and the amount of $5,315 for such automobile. For the fiscal year
ended June 30, 1993, the Company paid on behalf of Mr. Fast the amount of
$5,442 for premiums for life, disability, and medical insurance and $4,808
for an automobile it provided to him, for the fiscal year ended June 30,
1994, it paid premiums for such insurance in the amount of $12,277 and the
amount of $5,396 for such automobile, and for the fiscal year ended June 30,
1995, the Company paid $13,273 in premiums for such insurance and the amount
of $5,396 for such automobile.
<F3>
3 For fiscal year ended June 30, 1993, the Company contributed to the plan it
established under Section 401(k) of the Internal Revenue Code the amount of
(continued on next page)
</FN>
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Barry E. Fast, 1995 95,256 -- 18,669 143
Vice President 1994 89,280 -- 17,673 134
1993 88,400 -- 10,250 133
(b) Compensation of Directors.
-------------------------
In the fiscal year ending June 30, 1995, the Company did not pay any director's
fees.
(c) Employment Contracts and Termination of Employment and Change-in-Control
------------------------------------------------------------------------
Arrangements.
- ------------
Effective January 1, 1992, Messrs. Halloran and Fast each entered into a four-
year employment agreement with the Company. Each agreement expires on December
31, 1996, and thereafter is automatically extended for additional one-year
terms, unless terminated according to each such employment agreement.
Each employment agreement provides that, upon termination other than for cause,
voluntary termination, permanent disability, death, or retirement, the Company
will pay to the employee as severance compensation his then fixed salary for a
period of 12 months. Each employment agreement also provides that, if within
one year after a change in control (as defined under each such employment
agreement), (a) the Company terminates the employee without cause or (b)(i) if
the employee voluntarily terminates his employment because the Company assigns
to him duties of a nonexecutive nature or for which his skills and experience
do not reasonably equip him, (ii) the Company fails to pay any salary due under
the employment agreement within ten days after written notice from the employee
that it is due, or (iii) the Company defaults in its obligations under certain
security agreements the Company executed and delivered to certain of its
lenders, then the Company will pay to such employee a cash payment equal to one
year's salary at the greater of such employee's salary rate in effect on the
date of the change in control or his salary rate in effect on the date of his
termination of employment. The employee will also, in that event, for one year
following his termination of employment continue to participate in any benefit
plans of the Company which provide health (including medical and dental), life,
or disability insurance or other similar coverage.
- -------------------------
<FN>
(continued from previous page)
$219 on behalf of Mr. Halloran, for the fiscal year ended June 30, 1994, it
contributed the amount of $224 and for the fiscal year ended June 30, 1995,
it contributed the amount of $240. For fiscal year ended June 30, 1993, the
Company contributed to the plan it established under Section 401(k) of the
Internal Revenue Code the amount of $133 on behalf of Mr. Fast, for the
fiscal year ended June 30, 1994, it contributed the amount of $134 and for
the fiscal year ended June 30, 1995, it contributed the amount of $143.
</FN>
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For purposes of each employment agreement, a change of control is deemed to
occur if a person becomes the beneficial owner of securities of the Company
representing 20 percent or more of the combined voting power of the Company's
then outstanding securities, the persons who at the beginning of any period of
24 consecutive months constitute the Board of Directors of the Company cease
for any reason to constitute a majority thereof (unless the election of each
director who is not a director of the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period),
the Company is merged or consolidated with another corporation and, as a result
of such merger or consolidation, less than 75 percent of the outstanding voted
securities of the surviving or resulting corporation is owned in the aggregate
by the former shareholders of the Company, or the Company sells all or
substantially all of its assets to another corporation which is not a wholly-
owned subsidiary.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners.
-----------------------------------------------
The following table sets forth information as of September 22, 1995, with
respect to persons known to the Company to be beneficial owners of more than 5
percent of the Company's outstanding shares of common stock. Unless otherwise
indicated, the beneficial ownership of securities includes sole investment and
voting power with respect to such securities.
Amount and
Nature of
Name and Address Beneficial Percent of
Title of Class of Beneficial Owner Ownership Class<F1>
- -------------- ------------------- ------------ ----------------
Common Stock Daniel P. Halloran 118,858.815<F2> 18.66%
2538 N.E. 32nd Avenue
Portland, Oregon 97212
- -------------------------
<FN>
<F1>
1 Percentages are calculated based upon the number of total shares outstanding
(636,889).
<F2>
2 The number listed includes 7,584.815 shares held by the Book Centers, Inc.
Employee Stock Ownership Plan ("ESOP") which are allocated to the account of
Mr. Halloran as of December 31, 1994, all of which are vested to Mr.
Halloran's account as of such date. Mr. Halloran has voting and investment
power with respect to such shares in the manner set forth in footnote 4.
</FN>
- 16 -
17
Common Stock Barry E. Fast 113,655.027<F3> 17.85%
11 Orlando Avenue
Ardsley, New York 10502
Common Stock Book Centers, Inc. 65,167.00<F4> 10.22%
Employee Stock
Ownership Plan
5600 N.E. Hassalo Street
Portland, Oregon 97213
- -------------------------
<FN>
<F3>
3 The number listed includes 1,581.027 shares held by the ESOP which are
allocated to the account of Mr. Fast as of December 31, 1994, all of which
are vested for Mr. Fast's account as of such date. Mr. Fast has voting and
investment power with respect to such shares in the manner set forth in
footnote 4.
<F4>
4 All of the shares of common stock held by the ESOP are generally voted by
the trustee of the ESOP, as directed by the administrator of the ESOP. Each
participant in the ESOP is entitled to direct the trustee as to the exercise
of any and all voting rights attributable to the shares of common stock then
allocated to his or her account. If a participant directs the trustee as to
the voting of the shares of common stock allocated to his or her account,
all allocated shares of common stock as to which such instructions have been
received are voted in accordance with such instructions. The trustee votes
any unallocated shares of common stock held by the ESOP or any allocated
shares of common stock as to which no voting instructions have been
received, in such a manner as directed by the administrator. A participant
may not sell or otherwise transfer any shares of common stock allocated to
his or her account until the ESOP distributes such shares to him or her,
subject to the Company's right of first refusal to purchase any shares the
ESOP distributes to a participant in the manner and subject to the
conditions set forth in the ESOP. At June 30, 1995, all of the shares held
by the ESOP are allocated among the accounts of the participants.
</FN>
- 17 -
18
(b) Security Ownership of Management.
--------------------------------
The following table shows the shares of the Company's common stock owned by all
directors and by all executive officers and directors as a group as of
September 22, 1995. Unless otherwise indicated, beneficial ownership included
sole voting and investment power as to the shares.
Amount and
Nature of
Name and Address Beneficial Percent of
Title of Class of Beneficial Owner Ownership Class<F1>
- -------------- ------------------- ------------ ----------------
Common Stock Daniel P. Halloran 118,858.815<F2> 18.66%
Common Stock Barry E. Fast 113,655.027<F3> 17.85%
Common Stock Frank L. Ford 10,000.00 1.57%
Common Stock All executive officers
and directors as a
group (3 persons) 242,513.842 38.08%
- ----------------------------
<FN>
<F1>
1 Percentages are calculated based upon the number of total shares outstanding
(636,889).
<F2>
2 The number listed includes 7,584.815 shares held by the ESOP which are
allocated to the account of Mr. Halloran as of December 31, 1994, all of
which are vested to Mr. Halloran's account as of such date. Mr. Halloran
has voting and investment power with respect to such shares in the manner
set forth in footnote 4 on page 17.
<F3>
3 The number listed includes 1,581.027 shares held by the ESOP which are
allocated to the account of Mr. Fast as of December 31, 1994, all of which
are vested for Mr. Fast's account as of such date. Mr. Fast has voting and
investment power with respect to such shares in the manner set forth in
footnote 4 on page 17.
</FN>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company has nothing to report under this item.
- 18 -
19
PART IV
-------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules.
------------------------------------------------------
The financial statements and schedules listed in the accompanying Index to
Consolidated Financial Statements and Schedules are filed as part of this
Report.
(b) Reports on Form 8-K.
-------------------
The Company did not file any Reports on Form 8-K during the last quarter of the
fiscal year ended June 30, 1995.
(c) Exhibits.
--------
2. Plan of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession: None.
3. Articles of Incorporation and Bylaws:
(a) Restated Articles of Incorporation and Restated Bylaws
(incorporated herein by reference to Appendices I and II of the
Company's Proxy Statement filed May 24, 1988).
(b) Articles of Amendment to Restated Articles filed with the
Corporation Division of the State of Oregon on October 4, 1990
(incorporated herein by reference to Exhibit "I" to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990).
4. Instruments defining the rights of security holders, including
indentures: None.
9. Voting trust agreements: None.
10. Material contracts:
10.1 Split Dollar Agreement dated May 1, 1993, between Daniel P. Halloran
and Book Centers, Inc. (incorporated herein by reference to Exhibit
10 to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993).
10.2 Amended and Restated Split Dollar Agreement dated May 1, 1993,
between Daniel P. Halloran and Book Centers, Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1994).
- 19 -
20
10.3 Second Amended and Restated Split Dollar Agreement dated May 1,
1994, between Daniel P. Halloran and Book Centers, Inc.(incorporated
by reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994).
10.4 Book Centers, Inc. Employee Stock Ownership Plan and Trust
(incorporated by reference to Exhibit 10.4 to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1995).
10.5 Loan Agreement dated June 28, 1995, between Academic Book Center,
Inc. and Centennial Bank.
10.6 Promissory Note dated June 28, 1995, in the principal amount of
$750,000, the maker of which is Academic Book Center, Inc. and the
payee of which is Centennial Bank.
10.7 Commercial Security Agreement dated June 28, 1995, between Academic
Book Center, Inc. and Centennial Bank.
10.8 Commercial Security Agreement dated June 28, 1995, among Book
Centers, Inc., Academic Book Center, Inc., and Centennial Bank.
10.9 Commercial Pledge Agreement dated June 28, 1995, between Academic
Book Center, Inc., Centennial Bank, and Daniel P. and Karen M.
Halloran.
10.10 Agreement to Provide Insurance dated June 28, 1995, between Academic
Book Center, Inc. and Centennial Bank.
10.11 Loan Agreement dated June 28, 1995, between Academic Book Center,
Inc. and Centennial Bank.
10.12 Note dated June 28, 1995, in the principal amount of $650,000 the
maker of which is Academic Book Center, Inc. and the payee of which
is Centennial Bank.
10.13 Commercial Security Agreement dated June 28, 1995, between Academic
Book Center, Inc. and Centennial Bank.
10.14 Commercial Security Agreement dated June 28, 1995, between Academic
Book Center, Inc. and Centennial Bank.
10.15 Small Business Administration (SBA) Guaranty dated June 28, 1995,
between Academic Book Center, Inc. and Centennial Bank.
10.16 Assignment of Life Insurance Policy as Collateral dated June 28,
1995, among Book Centers, Inc., Academic Book Center, Inc., and
Centennial Bank.
10.17 Commercial Guaranty dated June 28, 1995, among Book Centers, Inc.,
Academic Book Center, Inc., and Centennial Bank.
10.18 Commercial Guaranty dated June 28, 1995, between Academic Book
Center, Inc., Centennial Bank, and Daniel P. Halloran.
- 20 -
21
10.19 Landlord's Consent dated June 28, 1995, between Academic Book
Center, Inc. and Centennial Bank.
11. Statement regarding computation of per share earnings: Disclosed in
note 1 to the consolidated financial statements.
12. Statements regarding computation of ratios: Not applicable.
13. Annual report to security holders, Form 10-Q or quarterly report to
security holders: None.
16. Letter regarding change in certifying accountant: None.
18. Letter regarding change in accounting principles: None.
21. Subsidiaries of the registrant: See note 1 to the Consolidated
Financial Statements.
22. Published report regarding matters submitted to vote of security
holders: None.
23. Consents of experts and counsel: None.
24. Power of attorney: None.
27. Financial Data Schedule (filed electronically only).
28. Information from reports to state insurance regulation authorities:
None.
99. Additional Exhibits: None.
(d) Schedules.
---------
The schedules listed in the accompanying Index to Consolidated Financial
Statements and Schedules are filed as part of this Report.
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.
BOOK CENTERS, INC.
Date: September 28, 1995 /s/ Daniel P. Halloran
-------------------------------------
Daniel P. Halloran, President
- 21 -
22
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Date: September 28, 1995 /s/ Daniel P. Halloran
-------------------------------------
Daniel P. Halloran, President,
Controller/Chief Financial Officer,
Secretary/Treasurer, Chairman of the
Board of Directors, and Director
Date: September 28, 1995 /s/ Frank L. Ford
-------------------------------------
Frank L. Ford, Director
- 22 -
23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Report of Independent Certified Public Accountants Relating to
the Consolidated Financial Statements and Notes thereto 24
Financial Statements
Consolidated Balance Sheets as of June 30, 1995 and 1994 25
Consolidated Statements of Operations and Accumulated Deficit for
the years ended June 30, 1995, 1994, and 1993 27
Consolidated Statements of Cash Flows for the years ended June 30,
1995, 1994, and 1993 29
Notes to Financial Statements 31
The schedules, other than those listed above, have been omitted since they are
either not required, not applicable, or the information has been included in
the aforementioned financial statements.
- 23 -
24
INDEPENDENT AUDITORS' REPORT
The Stockholders of Book Centers, Inc.
Portland, Oregon
We have audited the accompanying consolidated balance sheets of Book Centers,
Inc. and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of operations and accumulated deficit and of cash flows
for each of the three years in the period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Book Centers, Inc. and
subsidiaries at June 30, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1995
in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, Book Centers,
Inc. and subsidiaries changed their method of accounting for income taxes
effective June 1, 1993 to conform with Statement of Financial Accounting
Standards No. 109.
DELOITTE & TOUCHE LLP
Portland, Oregon
August 24, 1995
- 24 -
25
BOOK CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
- -------------------------------------------------------------------------------
1995 1994
----------- -----------
ASSETS
CURRENT ASSETS:
Accounts receivable (less allowance for
doubtful accounts of $24,525 and $12,155
in 1995 and 1994, respectively) $ 3,453,628 $ 3,151,717
Book inventories 1,083,856 1,233,136
Prepaid expenses and other 254,381 282,445
---------- ----------
Total current assets 4,791,865 4,667,298
OFFICE FURNISHINGS AND EQUIPMENT (Less
accumulated depreciation and amortization
of $650,667 and $583,515 in 1995 and 1994,
respectively) 157,370 186,570
---------- ----------
TOTAL $ 4,949,235 $ 4,853,868
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 216,421 $ 738,721
Current portion of long-term debt (Note 5) 16,649 25,729
Accounts payable 3,073,561 3,089,979
Notes payable (Note 4) 1,029,136 752,567
Deferred revenue 1,129,164 725,201
Accrued expenses 262,097 329,135
---------- ----------
Total current liabilities 5,727,028 5,661,332
---------- ----------
LONG-TERM DEBT (Note 5) 43,201 60,698
---------- ----------
COMMITMENTS (Note 3) - -
- 25 -
26
1995 1994
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 50,000,000
shares authorized, 636,889 shares issued 688,837 688,837
Paid-in capital 428,988 428,988
Accumulated deficit (1,938,819) (1,985,987)
---------- ----------
Total stockholders' deficit (820,994) (868,162)
---------- ----------
TOTAL $ 4,949,235 $ 4,853,868
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
- 26 -
27
BOOK CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
- -------------------------------------------------------------------------------
1995 1994 1993
----------- ----------- -----------
REVENUES:
Sales $22,994,555 $21,496,122 $21,906,756
Other 30,422 66,772 153,331
---------- ---------- ----------
23,024,977 21,562,894 22,060,087
---------- ---------- ----------
OPERATING EXPENSES:
Cost of goods sold 19,380,974 17,930,209 18,475,858
Operating and administrative 3,417,258 3,443,153 3,501,887
Reversal of restructuring charge
accrual (Note 1) - (200,366) -
Interest 179,577 168,998 173,378
---------- ---------- ----------
22,977,809 21,341,994 22,151,123
---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES 47,168 220,900 (91,036)
INCOME TAXES (Note 6) - - -
---------- ---------- ----------
NET INCOME (LOSS) 47,168 220,900 (91,036)
ACCUMULATED DEFICIT, BEGINNING
OF PERIOD (1,985,987) (2,206,887) (2,115,851)
---------- ---------- ----------
ACCUMULATED DEFICIT, END OF
PERIOD $(1,938,819) $(1,985,987) $(2,206,887)
========== ========== ==========
- 27 -
28
1995 1994 1993
----------- ----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.07 $ 0.35 $ (0.14)
========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 636,889 636,889 636,889
========== ========== ==========
- -------------------------
<FN>
See notes to consolidated financial statements.
</FN>
- 28 -
29
BOOK CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
- -------------------------------------------------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 47,168 $ 220,900 $ (91,036)
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization 67,152 78,370 81,186
Gain on sale of division - - (16,047)
Loss on disposal of property - 3,306 -
Restructuring charges - (200,366) (13,118)
Change in assets and
liabilities net of effects of
sale of division:
Accounts receivable (301,911) 221,912 777,944
Book inventories 149,280 (338,909) 80,406
Prepaid expenses and other 28,064 32,924 13,448
Other assets - - 15,000
Bank overdraft (522,300) (284,052) 156,517
Accounts payable (16,418) (108,127) (594,402)
Deferred revenue 403,963 210,874 (447,875)
Accrued expenses (67,038) 43,512 (9,649)
---------- ---------- ----------
Net cash used in operating
activities (212,040) (119,656) (47,626)
---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES -
Capital expenditures (37,952) (8,588) (41,369)
---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in notes payable 276,569 164,394 116,641
Long-term debt:
Borrowings - - 8,100
Repayments (26,577) (36,150) (35,746)
---------- ---------- ----------
- 29 -
30
1995 1994 1993
----------- ----------- -----------
Net cash provided by
financing activities 249,992 128,244 88,995
----------- ----------- -----------
NET INCREASE IN CASH - - -
CASH AT BEGINNING OF YEAR - - -
---------- ---------- ----------
CASH AT END OF YEAR $ - - -
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING ACTIVITIES:
Book value of assets sold $ - $ - $ 32,272
Liabilities assumed by buyer - - 48,319
Capital expenditures financed
by long-term debt - 73,263 -
<FN>
See notes to consolidated financial statements.
</FN>
- 30 -
31
BOOK CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - Book Centers, Inc. is an Oregon corporation organized in
1961. The Company engages in the business of marketing, warehousing and
distributing books worldwide to research and academic libraries.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its 100%-owned subsidiary, Academic Book
Center, Inc. ("Academic"). All significant intercompany accounts and
transactions have been eliminated upon consolidation.
Restructuring - During 1991, the Company closed its one hundred percent
owned subsidiary Scholarly Book Center, Inc. ("Scholarly"), recording
restructuring charges of $600,000. These charges included loss on
equipment disposal, employee severance liability, lease termination costs
and other incremental costs associated with the closure of these
operations. The remaining accrual at June 30, 1993 and 1992, was for lease
termination costs. These leases substantially expired during the year
ended June 30, 1994 and the remaining restructuring accrual of $200,366 was
reversed against operating expenses.
Statements of Cash Flows - For purposes of the statement of cash flows, the
Company considers interest bearing deposits with maturities of 90 days or
less to be cash. Cash paid for interest was $177,581, $169,711, and
$176,346 for the years ended June 30, 1995, 1994, and 1993, respectively.
Accounts Receivable - Trade receivables are recorded at estimated
collectible value.
Book Inventories - Inventories are valued at lower of cost or market value
using the specific identification method.
Income Taxes - Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes, which requires the provision of deferred income taxes based upon an
asset and liability approach and represents the change in deferred income
tax accounts during the year, including the effect of enacted tax rate
changes. A consolidated federal income tax return is filed by the Company
for the consolidated group. Federal tax credits are accounted for, when
applicable, under the flow-through method whereby the credit is reflected
as a reduction of federal income tax expense in the year in which the
credit is used.
Deferred Revenue - The subsidiary companies receive advance payments from
certain customers. These amounts are recognized as revenue when the
related books are shipped.
Office Furnishings and Equipment and Depreciation - Office furnishings and
equipment are stated at cost. Maintenance and repairs are charged to
expenses as incurred, and improvements are capitalized. Depreciation is
computed on a straight-line method over the estimated useful lives
- 31 -
32
(generally three to ten years) of the related assets. Upon disposal of
property subject to depreciation, the accounts are relieved of the related
costs and accumulated depreciation and resulting gains and losses are
reflected in operations.
Net Income (Loss) Per Share - Net income (loss) per share of common stock
is computed based on the weighted average number of shares of common stock
outstanding during each year. The weighted average number of shares for
each of the three years ended June 30, 1995 was 636,889.
Reclassifications - Certain amounts from prior periods have been
reclassified in order to conform to the 1995 presentation.
2. EMPLOYEE STOCK OWNERSHIP PLAN
During 1985, the Company adopted a qualified Employee Stock Ownership Plan.
This Plan was initially funded with a $25,000 contribution and is available
to all eligible personnel who have been employed by the Company for a least
one year. As of June 30, 1995, 65,167 shares of the Company's outstanding
common stock had been acquired by the Plan. There were no contributions to
the Plan for the years ended June 30, 1995, 1994, and 1993.
3. LEASE COMMITMENTS
The Company and one of its subsidiaries are lessees under noncancelable
real property leases through 1996. Other leases shown are for automobiles
and office equipment. In September 1992, the Company sold certain assets
related to an operating division of its wholly-owned subsidiary, Academic.
In addition to the purchase of assets, the buyer assumed responsibility for
certain liabilities, including the lease for the operating division's
primary facility. The sale agreement provided that the Company would
guarantee this lease until the expiration of its original term at
October 31, 1995.
Minimum future rentals under capital and operating leases having initial or
remaining terms of one year or more as of June 30, 1995 are as follows:
Capital Operating
Leases Leases
------- ---------
1996 $12,284 $37,556
1997 12,419 1,776
1998 12,419 888
- 32 -
33
Capital Operating
Leases Leases
------- ---------
1999 4,677 -
2000 - -
------ ------
Total 41,799 $40,220
======
Less amount representing interest 9,227
------
Present value of minimum lease payments $32,572
======
Total rent expense was $129,640, $116,210, and $114,830 for the years ended
June 30, 1995, 1994, and 1993, respectively.
4. NOTES PAYABLE
In June 1991, the Company entered into a new line of credit with a lending
institution. Beginning July 1, 1993, the line renewed annually unless the
Company elected to terminate the agreement. Under this agreement, the
Company could borrow up to a capacity of $1,250,000. The line bore
interest at 6% above the prime rate (15%, 13.25%, and 12% at June 30, 1995,
1994, and 1993, respectively), was secured by accounts receivable,
inventory and equipment and was personally guaranteed by present officers
who are stockholders of the Company. The weighted average interest rate in
1995 and 1994 was 14.33% and 12.27%, respectively. In June 1995, the
Company paid off their line of credit with this lending institution, and
entered into a new line of credit with a bank. This new agreement expires
September 1996, and bears interest at a rate of 2.5% to 4% above the bank's
reference rate (the "Index"). The Index was at 9% at June 30, 1995. The
Company may borrow up to a capacity of $1,400,000 subject to certain
limitations. These borrowings are secured by assets of the Company and are
guaranteed by stockholders of the Company who are also officers.
- 33 -
34
5. LONG-TERM DEBT
Long-term debt at June 30, 1995 and 1994 consisted of the following:
1995 1994
----------- -----------
Note payable to related parties at 12% interest,
payable monthly through June 1995
collateralized by computer equipment $ - $ 8,483
Note payable to related parties at 12% interest,
payable monthly through November 1998,
collateralized by computer equipment 22,138 27,079
Note payable to a bank, at 8.9% interest,
payable monthly through February 1997,
collateralized by an automobile 5,140 7,879
Capital lease obligations (Note 3) 32,572 42,986
---------- ----------
Total 59,850 86,427
Less current portion 16,649 25,729
---------- ----------
Total long-term debt $ 43,201 $ 60,698
========== ==========
Maturities of long-term debt, including minimum capital lease payments, net
of interest portion, at June 30, 1995 were as follows:
1996 $ 16,649
1997 17,738
1998 17,868
1999 7,595
2000 -
----------
Total $ 59,850
==========
The above notes payable to related parties are to individuals who are
present officers and stockholders of the Company.
6. INCOME TAXES
The Company adopted SFAS No. 109, Accounting for Income Taxes, effective
July 1, 1993. The statement requires the provision of deferred income
taxes based upon an asset and liability approach and represents the change
in deferred income tax accounts during the year, including the effect of
enacted tax rate changes. The statement also provides for the recognition
of net operating loss ("NOL") carryforwards as a deferred tax asset.
- 34 -
35
Income tax expenses attributable to operations consisted of the following:
June 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Current:
Federal $ - $ - $ -
State - - -
Deferred:
Federal - - -
State - - -
---------- ---------- ----------
Total income tax expense $ - - -
========== ========== ==========
Reconciliation between the statutory federal income tax rate and the
effective tax is as follows:
June 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Computed federal income taxes $ 16,000 $ 75,000 $ -
State taxes, net of federal
benefit 2,000 9,000 -
Nondeductible expenses 10,000 13,000 -
Operating loss carryforwards (28,000) (97,000) -
---------- ---------- ----------
Total income tax expense $ - $ - $ -
========== ========== ==========
The tax effort of temporary differences that give rise to significant
deferred tax assets and deferred tax liabilities at June 30, 1995 and 1994
are presented below:
- 35 -
36
June 30, June 30,
1995 1994
----------- -----------
Deferred tax assets:
Depreciation $ 70,000 $ 62,000
Accrued expenses 100,000 90,000
NOL carryforwards 254,000 297,000
Investment tax and jobs credit carryforward 21,000 51,000
---------- ----------
445,000 500,000
Valuation allowance (445,000) (500,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
There were no deferred tax liabilities at June 30, 1995. Deferred tax
assets have been reduced by a valuation allowance as realization of some
portion of these future tax benefits is subject to significant
uncertainties. The net change in the valuation allowance for the year
ended June 30, 1995, was $55,000.
At June 30, 1995, the Company's net operating loss carryforwards totaled
approximately $1,220,000 for financial reporting purposes expiring through
2008. Net operating loss carryforwards totaled approximately $649,000 for
tax purposes and expire as follows:
Amount of
Year of Loss
Expiration Carryforward
---------- ------------
2002 $ 67,000
2003 224,000
2006 65,000
2007 238,000
2008 55,000
-------
Total $649,000
=======
- 36 -
37
Investment tax and new jobs credit carryovers approximate $21,000 at June
30, 1995 and expire at various dates through 2000.
7. BUSINESS SEGMENT INFORMATION
The Company's principal industry segment is book wholesaling. Other
segments and transfers between segments are immaterial. Export sales were
$9,524,537, $8,344,825, and $7,181,519 for the years ended June 30, 1995,
1994, and 1993, respectively, and were made to various countries. In
addition, accounts receivable from export sales were $1,726,442,
$1,418,251, and $1,529,259 at June 30, 1995, 1994, and 1993, respectively.
- 37 -
38
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
EX-10.5 Loan Agreement dated June 28, 1995, between Academic
Book Center, Inc. and Centennial Bank
EX-10.6 Promissory Note dated June 28, 1995, in the principal
amount of $750,000, the maker of which is Academic
Book Center, Inc. and the payee of which is Centennial
Bank
EX-10.7 Commercial Security Agreement dated June 28, 1995,
between Academic Book Center, Inc. and Centennial Bank
EX-10.8 Commercial Security Agreement dated June 28, 1995,
among Book Centers, Inc., Academic Book Center, Inc.,
and Centennial Bank
EX-10.9 Commercial Pledge Agreement dated June 28, 1995,
between Academic Book Center, Inc., Centennial Bank,
and Daniel P. and Karen M. Halloran.
EX-10.10 Agreement to Provide Insurance dated June 28, 1995,
between Academic Book Center, Inc. and Centennial Bank
EX-10.11 Loan Agreement dated June 28, 1995, between Academic
Book Center, Inc. and Centennial Bank
EX-10.12 Note dated June 28, 1995, in the principal amount of
$650,000, the maker of which is Academic Book Center,
Inc. and the payee of which is Centennial Bank
EX-10.13 Commercial Security Agreement dated June 28, 1995,
between Academic Book Center, Inc. and Centennial Bank
EX-10.14 Commercial Security Agreement dated June 28, 1995,
between Academic Book Center, Inc. and Centennial Bank
EX-10.15 Small Business Administration (SBA) Guaranty dated
June 28, 1995, between Academic Book Center, Inc. and
Centennial Bank
EX-10.16 Assignment of Life Insurance Policy as Collateral
dated June 28, 1995, among Book Centers, Inc., Academic
Book Center, Inc., and Centennial Bank
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39
EXHIBIT DESCRIPTION PAGE
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EX-10.17 Commercial Guaranty dated June 28, 1995, among Book
Centers, Inc., Academic Book Center, Inc., and
Centennial
EX-10.18 Commercial Guaranty dated June 28, 1995, between
Academic Book Center, Inc., Centennial Bank, and
Daniel P. Halloran
EX-10.19 Landlord's Consent dated June 28, 1995, between
Academic Book Center, Inc. and Centennial Bank
EX-27 Financial Data Schedule (filing electronically only)
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