U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to____________
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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3033 S. Parker Road, Suite 1200, Aurora, Colorado 80014
(Address of principal executive offices) (zip code)
Issuer's telephone number: 303-752-3500
Former name, former address and former fiscal year,
if changed since last report: N/A
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of
the Exchange Act 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 July 21, 1997, 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>
MAY NOVEMBER
31, 1997 30, 1996
(Unaudited)
------------ ----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 179,231 152,472
Accounts receivable, net of allowance
of $146,671 (1997) and $143,400 (1996) 263,828 264,879
Inventories 31,544 33,769
Prepaid expenses and other current assets 49,734 38,448
------------ ----------
Total current assets 524,337 489,568
------------ ----------
Property and equipment, at cost,
net of accumulated depreciation 54,091 35,692
------------ ----------
Other assets:
Notes receivable, net: 578,178 618,771
Investment in assets held for sale 9,800 20,000
Deposits and other 61,911 52,185
Deferred franchise costs, net of accumulated
amortization of $17,190(1997) and
$13,367(1996) 224,439 146,955
------------ ----------
874,328 837,911
------------ ----------
1,452,756 1,363,171
============ ==========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt 16,662 15,276
Trade accounts payable 268,680 249,723
Accrued commissions 22,423 22,149
Other accrued expenses 18,727 45,376
Due to advertising fund 90,102 60,343
------------ ----------
Total current liabilities 416,594 392,867
------------ ----------
Deferred revenue 687,817 460,367
Long-term debt 100,000 100,000
Stockholders' equity:
Series A redeemable preferred stock,
$1000 par value; 8% cumulative;
1,500 shares authorized; 1,216.668
shares issued and outstanding
(liquidation preference $1,723,600 - 1996) 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
(liquidation preference $1,200,000 - 1996) 1,000,000 1,000,000
Common stock, $.001 par value;
200,000,000 shares authorized;
2,989,482 shares
issued and outstanding 2,990 2,990
Additional paid-in capital 5,026,453 5,026,453
Accumulated deficit -6,997,766 -6,836,174
------------ ----------
Total stockholders' equity 248,345 409,937
------------ ----------
1,452,756 1,363,171
============ ==========
<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 SIX MONTHS ENDED
MAY MAY
31, 31, 31, 31,
(Unaudited) (Unaudited)
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE
Royalties from franchisees 422,001 397,932 1,026,444 963,422
Sales of equipment, supplies
and services 202,604 116,253 312,568 237,655
Individual franchise fees 345,970 81,800 411,820 203,728
Area franchise fees 22,500 59,498 27,500 67,498
Interest income 2,683 1,377 4,272 6,195
Other 15,073 3,422 26,098 18,607
--------- --------- --------- ---------
1,010,831 660,282 1,808,702 1,497,105
--------- --------- --------- ---------
COST AND EXPENSES
Selling, general and administrative 528,660 427,614 960,763 918,129
Royalties paid to area franchisees 152,058 140,756 365,826 298,995
Cost of sales of equipment,
supplies and services 175,120 102,628 279,217 207,732
Commissions on franchise sales 184,022 46,040 219,442 120,560
Advertising 53,794 54,049 107,693 104,148
Depreciation and amortization 11,692 12,684 24,516 23,895
Loss on Investment in assets
held for resale 5,351 2,982 10,451 8,927
Interest 693 693 2,386 1,934
--------- --------- --------- ---------
1,111,390 787,446 1,970,294 1,684,320
--------- --------- --------- ---------
Net (loss) -100,559 -127,164 -161,592 -187,215
========= ========= ========= =========
Net (loss) per common share -.03 -.04 -.05 -.06
========= ========= ========= =========
Weighted average number of common
shares outstanding 2,989,483 2,989,483 2,989,483 2,989,483
========= ========= ========= =========
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
<CAPTION>
SIX MONTHS ENDED
MAY MAY
31, 31,
1997 1996
(Unaudited)
--------- -----------
<S> <C> <C>
Cash flows from operating activities
Net (loss) $ -161,592 $ -187,215
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 24,516 23,895
Amortization of discount on note payable 693 693
Deferred revenue 227,450 28,182
Change in operating assets and liabilities-
Accounts receivable 1,051 89,531
Inventories 2,225 10,347
Prepaids and deferred franchise costs -96,416 -25,057
Notes receivable 40,593 110,871
Deposits and other -9,726 -1,583
Trade accounts payable 18,957 -73,617
Accrued expenses -26,375 -17,717
Due to ad fund 29,759 14,847
--------- ---------
Net cash used by operating activities 51,135 -26,823
--------- ---------
Cash used from investing activities
Capital expenditures -35,269 -21,960
Proceeds from(purchase of) assets held for sale 10,200 -4,386
--------- ---------
Net cash used by investing activities -25,069 -26,346
--------- ---------
Cash flows from financing activities
Issuance of long-term debt 0 100,000
Payments on long-term debt 693 -18,805
--------- ---------
Net cash provided (used) by financing activities 693 81,195
--------- ---------
Net increase in cash and cash equivalents 26,759 28,026
Cash and cash equivalents at beginning of year 152,472 54,299
--------- ----------
Cash and cash equivalents at end of period 179,231 $ 82,325
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 2,386 $ 1,934
========= =========
<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,
1996 through July 21, 1997, the Company awarded 36 individual
franchises and one new area franchise. As of July 21, 1997, the Company
had 318 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 consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. In
the opinion of the Company's management, the interim consolidated financial
statements include all adjustments necessary in order to make the interim
consolidated financial statements not misleading.
The results of operations for the six months ended May 31, 1997 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 $26,759 ($51,135 cash
provided from operating activities and $693 from financing activities, offset
by cash used of $25,069 from investing activities) during the six months
ended May 31, 1997.
Deferred revenue increased $227,450 to $687,817 and deferred franchise
costs increased $77,484 to $224,439 at May 31, 1997. The increases
were primarily a result of deferring the recognition of revenue and the
expensing of commissions on 14 of the 31 new individual franchises
awarded during the six months ending May 31, 1997. The Company
anticipates that all of the deferred individual franchise fees and
commissions will be recognized in fiscal 1997.
RESULTS OF OPERATIONS
Three months ended May 31, 1997, compared to three months ended May
31, 1996
Total revenues increased $350,549 (53.1%) to $1,010,831 for the three
months ended May 31, 1997. The increase is primarily attributable to
increases in Individual franchise fees (up 322.9% from $81,800 to
$345,970, Sales of equipment, supplies and services (up 74.3% from
$116,253 to $202,604) and Royalties from franchisees (up 6.0% from
$397,932 to $422,001) partially offset by a decrease in Area franchise fees
(down 62.2% from $59,498 to $22,500).
The $264,170 increase in Individual franchise fees represents 11 more
awards recognized during the three months ending May 31, 1997
compared to the same period in 1996 and a differing mix of per franchise
revenue recognition. The Company recognized 16 and 5 individual
franchise awards respectively during the three months ended May 31, 1997
and 1996.
The $86,351 increase in Sales of equipment, supplies and services is
primarily due to the increased number of new franchisees that purchased
equipment during the three months ending May 31, 1997 compared to the
same prior year period.
The $24,069 increase in royalties is due to increases in the average store
volumes and number of stores open.
The $36,998 decrease in revenue from Area franchise fees is primarily due
to the lack of awards recognized during the three months ending May 31, 1997.
During the three months ended May 31, 1996 the Company recognized a
portion of the Area franchise fees that were deferred as of November 30,
1995.
Total expenses increased $323,944 (41.1%) to $1,111,390 for the three
months ended May 31, 1997. The increase is primarily attributable to an
increase in Commissions on franchise sales (up 299.7% from $46,040 to
$184,022), Cost of sales of equipment, supplies and services (up 70.6%
from $102,628 to $175,120) and Other selling, general and administrative
(up 23.6% from $427,614 to $528,660).
The $137,982 increase in Commissions is due primarily to the increased
number of individual franchise awards made during the three months
ending May 31, 1997 compared to the same prior year period and the
differing mix of commissions per franchise.
The $72,492 increase in Cost of sales of equipment, supplies and services
is primarily due to the increased number of new franchisees that purchased
equipment during the three months ending May 31, 1997 compared to the
same prior year period.
The $101,046 increase in Other selling, general and administrative relates
primarily to increases in auditing, consulting and convention expenses.
The Company did not hold a convention in fiscal year 1996.
Six months ended May 31, 1997, compared to six months ended May 31,
1996
Total revenues increased $311,597 (20.8%) to $1,808,702 for the six
months ended May 31, 1997. The increase is primarily attributable to
increases in Individual franchise fees (up 102.1% from $203,728 to
$411,820, Sales of equipment, supplies and services (up 31.5% from
$237,655 to $312,568) and Royalties from franchisees (up 6.5% from
$963,422 to $1,026,444) partially offset by a decrease in Area franchise
fees (down 59.3% from $67,498 to $27,500).
The $208,092 increase in Individual franchise fees represents 8 more
awards recognized during the six months ending May 31, 1997 compared
to the same period in 1996 and a differing mix of per franchise revenue
recognition. The Company recognized 19 and 11 individual franchise
awards respectively during the six months ended May 31, 1997 and 1996.
The $74,913 increase in Sales of equipment, supplies and services is
primarily due to the increased number of new franchisees that purchased
equipment during the six months ending May 31, 1997 compared to the
same prior year period.
The $63,022 increase in royalties is due to increases in the average store
volumes and number of stores open.
The $39,998 decrease in revenue from Area franchise fees is primarily due
to no awards recognized during the six months ending May 31, 1997.
During the six months ended May 31, 1996 the Company recognized a
portion of the Area franchise fees that were deferred as of November 30,
1995.
Total expenses increased $285,974 (17.0%) to $1,970,294 for the six
months ended May 31, 1997. The increase is primarily attributable to a
increases in Commissions on franchise sales (up 82.0% from $120,560 to
$219,442), Cost of sales of equipment, supplies and services (up 34.4%
from $207,732 to $279,217), Other selling, general and administrative (up
4.6% from $918,129 to $960,763) and Royalties paid to area franchisees
(up 22.4% from $298,995 to $365,826).
The $98,882 increase in Commissions is due primarily to the increased
number of individual franchise awards made during the six months ending
May 31, 1997 compared to the same prior year period and the differing mix
of commissions per franchise.
The $71,485 increase in Cost of sales of equipment, supplies and services
is primarily due to the increased number of new franchisees that purchased
equipment during the six months ending May 31, 1997 compared to the
same prior year period.
The $42,634 increase in Other selling, general and administrative relates
primarily to an increase in convention expenses. The Company did not
hold a convention in fiscal year 1996.
The $66,831 increase in royalty rebates relates to the increase in
percentage of stores that operate within area marketer regions and an
increase in the average store volumes.
The foregoing discussion contains certain forward looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934, which are intended to be covered by the safe harbors
created thereby. These statements include the plans and
objectives of management for future operations, including plans
and objectives relating to the development. The forward looking
statements included herein are based on current expectations that
involve numerous risks and uncertainties. Assumptions relating
to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the
assumptions underlying the forward looking statements are
reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward looking
statements included in this Form 10-QSB will prove to be
accurate. In light of the significant uncertainties inherent in
the forward looking statements included herein, the inclusion of
such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of
the Company will be achieved.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Manelle Enterprises, Inc. v. Pak Mail Centers of America, Inc., Civil Action
No. 96013471, Seventeenth Judicial Circuit Court, Broward County,
Florida. On September 30, 1996, Manelle Enterprises, Inc. ("Manelle"), a
franchisee, filed a complaint 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 the
Company's obligations under the franchise agreement. Manelle also
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's motion to dismiss the
statutory claims of Manelle was granted on February 7, 1997.
Subsequently, the Company has answered, denying all material allegations
and has also filed counterclaims for unpaid royalties and unpaid equipment
and supply charges. The Company intends to continue to defend itself
vigorously against the remaining claims and has also served the
guarantors to the franchise agreement between Manelle and the Company
with a lawsuit entitled Pak Mail Centers of America, inc. v. Hilary Tobin and
Mark Tobin, that was filed on March 1, 1997 in Arapahoe County Colorado
Civil Action No. 97CV559, seeking damages for past and future royalties
and unpaid equipment. On March 11, 1997, a lawsuit was filed in Arapahoe
County District Court by PMCA against Hilary Tobin and Mark Tobin entitled Pak
Mail Centers of America, Inc. v. Mark A. Tobin and Hilary Tobin for breach of
contract in connection with the franchise agreement executed by Manelle
Enterprises on or about February 27, 1996. PMCA sought an award in an amount
to be proved at trial for, among other things, revenues and lost profits for
royalties that Manelle would have earned for PMCA. Both cases have now settled.
Plaintiff, Manelle Enterprises, and Hilary Tobin, individually, and as
President of Manelle Enterprises, and Mark Tobin, individually, executed a
Release on June 23, 1997 relaeasing Defendants PMCA, SFRI, Jerald Cohn and
Jerry Nestos for all matters arising out of, in connection with, or in any way
related to those certain actions entitled Manelle Enterprises, Inc. Pak Mail
Centers of America, Inc., et al., Case No. 96-13471 CACE (04) and Pak Mail
Centers of America, Inc. v. Mark A. Tobin, et al., Case No. 97-CV-599.
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. On January 22, 1997, the plaintiff filed
an arbitration realleging his claims and seeking a
total of $50,000 plus costs and expenses. The
plaintiff has also filed a motion with the United
States District Court to lift the stay on those
proceedings. The Company has thus far vigorously
contested both the arbitration and the motion to
lift the stay. On or about January 22, 1997, Irwin Jacobs filed
a Demand for Arbitration against SFRP and PMCA with the American
Arbitration Association ("AAA") in Denver, Colorado. The arbitration
hearing was held on June 10 and 11, 1997. An arbitration award was
entered on July 8, 1997 in favor of Claimant Irwin Jacobs and against
Respondent PMCA in the sum of $28,303.00, with interest thereon, in
full settlement of all claims submitted to the AAA.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held on
June 17, 1997, at which directors were elected and the Company's
appointment of Ehrhardt Keefe Steiner & Hottman PC as the Company's
independent certified public accountants for the year ending November 30,
1997 was ratified (the "Auditor Ratification").
The tally for the election of directors was as follows:
DIRECTOR FOR AGAINST
J. S. Corcoran 1,848,716 1,727
John W. Grant 1,848,816 1,627
F. Edward Gustafson 1,848,916 1,527
John E. Kelly 1,848,766 1,627
William F. White 1,848,716 1,727
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant 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
July 21, 1997 Raymond S. Goshorn
Secretary and Treasurer
Date: By: /s/John E. Kelly
July 21, 1997 John E. Kelly
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> May-31-1997
<CASH> 179,231
<SECURITIES> 0
<RECEIVABLES> 410,499
<ALLOWANCES> 146,671
<INVENTORY> 31,544
<CURRENT-ASSETS> 524,337
<PP&E> 424,849
<DEPRECIATION> 370,758
<TOTAL-ASSETS> 1,452,756
<CURRENT-LIABILITIES> 416,594
<BONDS> 0
<COMMON> 2,990
0
2,216,668
<OTHER-SE> (1,971,313)
<TOTAL-LIABILITY-AND-EQUITY> 1,452,756
<SALES> 312,568
<TOTAL-REVENUES> 1,808,702
<CGS> 279,217
<TOTAL-COSTS> 864,485
<OTHER-EXPENSES> 1,105,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,693
<INCOME-PRETAX> (161,592)
<INCOME-TAX> 0
<INCOME-CONTINUING> (161,592)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161,592)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
