SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
Commission File No. 0-18686
PAK MAIL CENTERS OF AMERICA, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-0934575
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3033 S. Parker Road, Suite 1200, Aurora, Colorado 80014
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code
(303) 752-3500
Check whether the issuer (1) 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 [ ]
As of August 15, 1996, there were outstanding 2,989,482 shares of the
issuer's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<CAPTION>
AUGUST NOVEMBER
31, 1996 30, 1995
(Unaudited)
------------ ----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 130,124 54,299
Accounts receivable, net of allowance
of $182,241 (1996) and $161,000 (1995) 242,736 335,377
Inventories 33,683 46,438
Prepaid expenses and other current assets 42,950 40,918
------------ ----------
Total current assets 449,493 477,032
------------ ----------
Property and equipment, at cost,
net of accumulated depreciation 42,721 53,542
------------ ----------
Other assets:
Notes receivable, net: 679,415 805,585
Investment in assets held for sale 33,507 33,921
Deposits and other 53,140 54,116
Deferred franchise costs, net of
accumulated amortization of
$11,363 (1996) and $5,347 (1995) 157,042 141,258
------------ ----------
923,104 1,034,880
------------ ----------
1,415,318 1,565,454
============ ==========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt 16,004 31,242
Trade accounts payable 230,658 360,990
Accrued commissions 22,450 30,021
Other accrued expenses 182,046 89,791
Due to advertising fund 43,493 32,317
------------ ----------
Total current liabilities 494,651 544,361
------------ ----------
Deferred revenue 664,032 649,351
Long-term debt 11,581 13,762
Stockholders' equity:
Series A redeemable preferred stock,
$1000 par value; 8% cumulative;
1,500 shares authorized; 1,216.668
shares issued and outstanding 1,216,668 1,216,668
Series B redeemable preferred stock,
$1000 par value; 8% cumulative;
1,000 shares authorized; 1,000
shares issued and outstanding 1,000,000 1,000,000
Common stock, $.001 par value;
200,000,000 shares authorized;
2,989,482 and 2,989,482 shares
issued and outstanding 2,990 2,990
Additional paid-in capital 5,026,453 5,026,453
Accumulated deficit -7,001,057 -6,888,131
------------ ----------
Total stockholders' equity 245,054 357,980
------------ ----------
1,415,318 1,565,454
============ ==========
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Operations
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
(Unaudited) (Unaudited)
------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
REVENUE
Individual franchise fees 221,000 322,240 424,728 675,340
Area franchise fees 103,848 11,578 171,346 277,360
Royalties from franchisees 397,844 348,671 1,361,266 1,138,372
Sales of equipment, supplies
and services 188,269 262,856 425,924 728,188
Interest income 9,664 2,259 15,859 8,066
Other 14,761 22,193 33,368 63,894
--------- --------- --------- ----------
935,386 969,797 2,432,491 2,891,220
--------- --------- --------- ----------
COST AND EXPENSES
Royalties paid to area franchisees 123,147 78,284 422,142 253,111
Commissions on franchise sales 129,224 162,999 249,784 346,411
Cost of sales of equipment,
supplies and services 170,604 235,547 378,336 628,967
Advertising 37,658 34,034 141,806 131,474
Other selling, general
and administrative 380,941 450,931 1,299,070 1,493,395
Depreciation and amortization 12,034 11,703 35,929 34,625
Loss on investment in assets held
for resale 5,904 0 14,831 0
Interest 1,585 3,720 3,519 6,200
--------- --------- --------- ----------
861,097 977,218 2,545,417 2,894,183
--------- --------- --------- ----------
Net income (loss) 74,289 -7,421 -112,926 -2,963
========= ========= ========= ==========
Net income (loss) per common share .02 * -.04 *
========= ========= ========= ==========
Weighted average number of common
shares outstanding 2,989,483 2,989,483 2,989,483 2,989,483
========= ========= ========= ==========
* Amount less than $.01
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
<CAPTION>
NINE MONTHS ENDED
AUGUST 31
(Unaudited)
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income(loss) $ -112,926 $ -2,963
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 35,929 34,625
Amortization of discount on note payable 2,079 2,079
Deferred revenue 14,681 -219,246
Deferred rent 0 -4,928
Change in operating assets and liabilities-
Accounts receivable 92,641 38,996
Inventories 12,755 -11,677
Prepaids and deferred franchise costs -17,816 7,965
Notes receivable 126,170 -16,933
Deposits and other 976 25,908
Trade accounts payable -130,332 33,401
Accrued expenses -15,316 8,371
Deposits from Franchisees 0 -5,000
Due to Ad Fund 11,176 -29,095
--------- ----------
Net cash used by operating activities 20,017 -138,497
--------- ----------
Cash flows from investing activities
Capital expenditures -25,108 -24,739
Sale of assets held for sale 0 45,688
Purchase of assets held for sale 414 -11,413
--------- ----------
Net cash used by investing activities -24,694 9,536
--------- ----------
Cash flows from financing activities
Payments on Long-term debt -19,498 -15,069
Advances from affiliate 100,000 0
--------- ----------
Net cash provided (used) by financing activities 80,502 -15,069
--------- ----------
Net (decrease) in cash and cash equivalents 75,825 -144,030
Cash and cash equivalents at beginning of year 54,299 157,832
--------- ----------
Cash and cash equivalents at end of period 130,124 $ 13,802
========= ==========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 3,519 $ 3,720
========= ==========
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
Notes to Consolidated Financial Statements
Note 1 ORGANIZATION AND BUSINESS
Pak Mail Centers of America, Inc. was incorporated in Colorado in 1984
and is engaged in the business of marketing and franchising Pak Mail
service centers and retail stores which specialize in custom packaging and
crating of items to be mailed or shipped. For the period from December
1, 1995 through October 15, 1996, the Company awarded 33 individual
franchises and as of October 15, 1996, the Company had 298 individual
franchise agreements in existence.
The consolidated financial statements include the accounts of Pak Mail
Centers of America, Inc. and its wholly owned subsidiary, Pak Mail
Crating and Freight Service, Inc. (Company). All significant
intercompany transactions and balances have been eliminated in
consolidation.
Note 2 BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
by the Company. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the
opinion of the Company's management, the disclosures made are
adequate to make the information presented not misleading, and the
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of August 31, 1996, results of
operations for the three months and nine months ended August 31, 1995
and 1996 and cash flows for the nine months ended August 31, 1995 and
1996.
The results of operations for the nine months ended August 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the
unaudited consolidated financial statements included herein. See Item 1.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a positive cash flow of $75,825 ($80,502 cash
provided from financing activities and $20,017 from operating activities,
offset by cash used of $24,694 from investing activities) during the nine
months ended August 31, 1996. D. P. Kelly & Associates LP, an affiliate
of the Company's majority shareholder, made advances in an aggregate
amount of $100,000 during the nine months ending August 31, 1996.
Deferred revenue increased $14,681 to $664,032 at August 31, 1996. The
increase is a result of deferring the recognition of revenue from 10 new
individual franchises awarded through August 31, 1996 offset by the
recognition of individual and area franchise revenue that was deferred as
of November 30, 1995. The Company has deferred the recognition of
revenue with respect to 10 of the 27 individual franchises awarded during
the nine months ended August 31, 1996 and has deferred the recognition
of revenue with respect to 12 individual franchise fees as of August 31,
1996. The Company anticipates that the majority of the deferred
individual franchise fees will be recognized as revenue in fiscal 1996.
RESULTS OF OPERATIONS
Three months ended August 31, 1996, compared to three months
ended August 31, 1995
Total revenues decreased $34,411 (3.5%) to $935,386 for the three
months ended August 31, 1996. The decrease is primarily attributable to
decreases in individual franchise fees (down 31.4% from $322,240 to
$221,000) and Sales of equipment, supplies and services (down 28.4%
from $262,856 to $188,269) partially offset by an increase in Royalties
from franchisees (up 14.1% from $348,671 to $397,844) and Area
franchise fees (up from $11,578 to $103,848).
The $101,240 decrease in Individual franchise fees represents 5 less
awards recognized during the three months ending August 31, 1996
compared to the same period in 1995 and a differing mix of per franchise
revenue recognition. The Company recognized 12 and 17 individual
franchise awards respectively during the three months ended August 31,
1996 and 1995.
The $74,587 decrease in Sales of equipment, supplies and services is
primarily due to the decreased number of new franchisees that purchased
equipment during the three months ending August 31, 1996 compared to
the same prior year period.
The $49,173 increase in royalties is due to increases in the average store
volumes and number of stores open.
The $92,270 increase in revenue from Area franchise fees is primarily
due to one domestic award recognized during the three months ending
August 31, 1996 compared to none during the three months ended August
31, 1995
Total expenses decreased $116,121 (11.9%) to $861,097 for the three
months ended August 31, 1996. The decrease is primarily attributable to
a decreases in Cost of sales of equipment, supplies and services (down
27.6% from $235,547 to $170,604), Commissions on franchise sales
(down 20.7% from $162,999 to $129,224) and Other selling, general and
administrative (down 15.5% from $450,931 to $380,941) partially offset
by an increase in Royalties paid to area franchisees (up 57.3% from
$78,284 to $123,147).
The $64,943 decrease in Cost of sales of equipment, supplies and services
is primarily due to the decreased number of new franchisees that
purchased equipment during the three months ending August 31, 1996
compared to the prior year period.
The $33,775 decrease in Commissions is due primarily to the decreased
number of individual and area franchise sales made during the first three
months ending August 31, 1996 compared to the same prior year period
and the differing mix of commissions per franchise.
The $69,990 decrease in Other selling, general and administrative relates
primarily to decreases in salaries, benefits and legal expenses.
The $44,863 increase in Royalties paid to area franchisees relate to the
increase in percentage of stores that operate within area marketer regions
and an increase in the average store volumes of those stores.
Nine months ended August 31, 1996, compared to nine months ended
August 31, 1995
Total revenues decreased $458,729 (15.9%) to $2,432,491 for the nine
months ended August 31, 1996. The decrease is primarily attributable to
decreases in Area franchise fees (down 38.2% from $277,360 to
$171,346), Individual franchise fees (down 37.1% from $675,340 to
$424,728) and Sales of equipment, supplies and services (down 41.5%
from $728,188 to $425,924) partially offset by an increase in Royalties
from franchisees (up 19.6% from $1,138,372 to $1,361,266).
The $106,014 decrease in revenue from Area franchise fees is primarily
due to only one award recognized during the nine months ending August
31, 1996 compared to 3 domestic awards and 2 international awards
recognized during the nine months ended August 31, 1995. During the
nine months ended August 31, 1996 the Company recognized a portion of
the Area franchise fees that were deferred as of November 30, 1995.
The $250,612 decrease in Individual franchise fees represents 12 less
awards recognized during the nine months ending August 31, 1996
compared to the same period in 1995 and a differing mix of per franchise
revenue recognition. The Company recognized 23 and 35 individual
franchise awards respectively during the nine months ended August 31,
1996 and 1995.
The $302,264 decrease in Sales of equipment, supplies and services is
primarily due to the decreased number of new franchisees that purchased
equipment during the nine months ending August 31, 1996 compared to
the same prior year period.
The $222,864 increase in royalties is due to increases in the average store
volumes and number of stores open.
Total expenses decreased $348,766 (12.1%) to $2,545,417 for the nine
months ended August 31, 1996. The decrease is primarily attributable to
a decreases in Cost of sales of equipment, supplies and services (down
39.8% from $628,967 to $378,336), Commissions on franchise sales
(down 27.9% from $346,411 to $249,784) and Other selling, general and
administrative (down 13.0% from $1,493,395 to $1,299,070) partially
offset by an increase in Royalties paid to area franchisees (up 66.8% from
$253,111 to $422,142).
The $250,631 decrease in Cost of sales of equipment, supplies and
services is primarily due to the decreased number of new franchisees that
purchased equipment during the nine months ending August 31, 1996
compared to the prior year period.
The $96,627 decrease in Commissions is due primarily to the decreased
number of individual and area franchise sales made during the first nine
months ending August 31, 1996 compared to the same prior year period
and the differing mix of commissions per franchise.
The $194,325 decrease in Other selling, general and administrative relates
primarily to an decreases in salaries and related employee benefit costs,
printing, rent and convention expenses.
The $169,031 increase in Royalties paid to area franchisees relate to the
increase in percentage of stores that operate within area marketer regions
and an increase in the average store volumes of those stores.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Irwin Jacobs v. Pak Mail Centers of America, Inc. and South Florida Realprop,
Inc. d/b/a/ Pak Mail Centers of America Southern Region, Civil Action, File
No. 95A4565-4, Cobb County, Georgia. The complaint alleges wrongdoing on
the part of the Company regarding the termination of plaintiff's franchise
agreement by the Company. Additionally, plaintiff alleges that South Florida
Realprop, Inc. (SFRP) provided plaintiff with certain equipment that SFRP
did not have title to, that SFRP and PMCA somehow inappropriately diverted
potential buyers of plaintiff's franchise, that SFRP and the Company somehow
deceived plaintiff into surrendering possession of his franchise and then
inappropriately operated the franchise under his business license, that SFRP
and PMCA wrongfully sold plaintiff's terminated franchise and did not account
to plaintiff or turn over proceeds, and that misrepresentations were made to
the purchaser of the franchise respecting plaintiff's operation of the
franchise. Plaintiff seeks $60,000 of compensatory damages and $150,000 of
punitive damages, as well as costs, interest and attorney's fees. The case
was removed by the Company to the United States District Court for the
Northern District of Georgia on August 29, 1995 and now bears a Civil
Action No. of 1 95-CV-2190-RLV. Contemporaneously with removal of the
action, the Company filed a Motion to Stay the Proceedings Pending
Arbitration, which was granted on January 29, 1996. The Company
intends to contest vigorously any arbitration filed by Jacobs.
Manelle Enterprises, Inc. V. Pak Mail Centers of America, Inc., South Florida
Realprop, Inc., Jerald N. Cohn and Jerry G. Nestos, Civil Action No. 96013471.
On September 30, 1996, Manelle Enterprises, Inc. (Manelle), a franchisee,
filed an action in the Seventeenth Judicial Circuit Court, Broward County,
Florida, alleging that South Florida Realprop, Inc. d/b/a Pak Mail Centers of
America Southern Region (SFRI), Jerald N. Cohn and Jerry G. Nestos
fraudulently induced Manelle to sign a franchise agreement and a lease relating
to a Pak Mail store located in Hollywood, Florida. Manelle also alleges that
the Company failed to fulfill our obligations under the franchise agreement.
Manelle alleges that The Company violated Florida statutes and breached the
implied covenant of good faith and fair dealing. Manelle seeks rescission of
the franchise agreement and an unspecified amount of damages, attorney's fees,
costs and interest. The Company plans to answer or otherwise vigorously
defend by challenging the legal sufficiency of the claims as well as the
truth of Manelle's allegations. The Company may also file counterclaims
against Manelle for, among other things, abandoning its franchise.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
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.
PAK MAIL CENTERS OF AMERICA, INC.
(Registrant)
Date: By: /s/Raymond S. Goshorn
October 15, 1996 Raymond S. Goshorn
Secretary and Treasurer
Date: By: /s/John E. Kelly
October 15, 1996 John E. Kelly
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Aug-31-1996
<CASH> 130,124
<SECURITIES> 0
<RECEIVABLES> 424,977
<ALLOWANCES> 182,241
<INVENTORY> 33,683
<CURRENT-ASSETS> 449,493
<PP&E> 388,196
<DEPRECIATION> 345,475
<TOTAL-ASSETS> 1,415,318
<CURRENT-LIABILITIES> 494,651
<BONDS> 0
<COMMON> 2,990
0
2,216,668
<OTHER-SE> (1,974,604)
<TOTAL-LIABILITY-AND-EQUITY> 1,415,318
<SALES> 425,924
<TOTAL-REVENUES> 2,432,491
<CGS> 378,336
<TOTAL-COSTS> 1,050,262
<OTHER-EXPENSES> 1,495,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,519
<INCOME-PRETAX> (112,926)
<INCOME-TAX> 0
<INCOME-CONTINUING> (112,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,926)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
