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 August 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 October 14, 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>
AUGUST NOVEMBER
31, 1997 30, 1996
(Unaudited)
------------ ----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 19,050 152,472
Accounts receivable, net of allowance
of $127,971 (1997) and $115,572 (1996) 300,655 264,879
Inventories 22,019 33,769
Prepaid expenses and other current assets 66,027 38,448
------------ ----------
Total current assets 407,751 489,568
------------ ----------
Property and equipment, at cost,
net of accumulated depreciation 57,355 35,692
------------ ----------
Other assets:
Notes receivable, net: 679,014 618,771
Investment in assets held for sale 4,700 20,000
Deposits and other 76,362 52,185
Deferred franchise costs, net of accumulated
amortization of $24,836(1997) and
$11,363(1996) 194,006 146,955
------------ ----------
954,082 837,911
------------ ----------
1,419,188 1,363,171
============ ==========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt 16,770 15,276
Trade accounts payable 218,544 249,723
Accrued commissions 26,000 22,149
Other accrued expenses 33,301 45,376
Due to advertising fund 15,669 60,343
------------ ----------
Total current liabilities 310,284 392,867
------------ ----------
Deferred revenue 591,317 460,367
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 -6,828,524 -6,836,174
------------ ----------
Total stockholders' equity 417,587 409,937
------------ ----------
1,419,188 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 NINE MONTHS ENDED
AUGUST AUGUST
31, 31, 31, 31,
(Unaudited) (Unaudited)
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE
Royalties from franchisees 453,533 397,921 1,479,977 1,361,266
Sales of equipment, supplies
and services 247,899 188,269 560,467 425,924
Individual franchise fees 429,050 221,000 840,870 424,728
Area franchise fees 63,294 103,848 90,794 171,346
Interest income 3,867 9,664 8,139 15,859
Other 36,311 14,761 62,409 33,368
--------- --------- --------- ---------
1,233,954 935,386 3,042,656 2,432,491
--------- --------- --------- ---------
COST AND EXPENSES
Selling, general and administrative 400,108 380,941 1,360,871 1,299,070
Cost of sales of equipment,
supplies and services 222,975 170,604 502,192 378,336
Commissions on franchise sales 226,930 129,224 446,372 249,784
Royalties paid to area franchisees 158,730 123,147 524,556 422,142
Advertising 38,248 37,658 145,941 141,806
Loss on Investment in assets
held for resale 5,124 5,904 15,575 14,831
Depreciation and amortization 12,489 12,034 37,005 35,929
Interest 108 1,585 2,494 3,519
--------- --------- --------- ---------
1,064,712 861,097 3,035,006 2,545,417
--------- --------- --------- ---------
Net income (loss) 169,242 74,289 7,650 -112,926
========= ========= ========= =========
Net income (loss) per common share .06 .02 .00 -.04
========= ========= ========= =========
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>
NINE MONTHS ENDED
AUGUST AUGUST
31, 31,
1997 1996
(Unaudited)
--------- -----------
<S> <C> <C>
Cash flows from operating activities
Net (loss) $ 7,650 $ -112,926
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 37,005 35,929
Amortization of discount on note payable 1,494 2,079
Deferred revenue 130,950 14,681
Change in operating assets and liabilities-
Accounts receivable -35,776 92,641
Inventories 11,750 12,755
Prepaids and deferred franchise costs -88,103 -17,816
Notes receivable -60,243 126,170
Deposits and other -24,177 976
Trade accounts payable -31,179 -130,332
Accrued expenses -8,224 -15,316
Due to ad fund -44,674 11,176
--------- ---------
Net cash provided by (used in)
operating activities -103,527 20,017
--------- ---------
Cash used from investing activities
Capital expenditures -45,195 -25,108
Proceeds from assets held for sale 15,300 414
--------- ---------
Net cash provided by (used in)
investing activities -29,895 -24,694
--------- ---------
Cash flows from financing activities
Issuance of long-term debt 0 100,000
Payments on long-term debt 0 -19,498
--------- ---------
Net cash provided by
(used in) financing activities 0 80,502
--------- ---------
Net increase in cash and cash equivalents -133,422 75,825
Cash and cash equivalents at beginning of year 152,472 54,299
--------- ----------
Cash and cash equivalents at end of period 19,050 $ 130,124
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 2,494 $ 3,519
========= =========
<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 October 7, 1997,
the Company awarded 43 individual franchises and as of October
7, 1997, the Company had 323 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 interim financial statements include all
adjustments necessary in order to make the interim financial
statements not misleading.
The results of operations for the nine months ended August 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 negative cash flow of $133,422
($103,527 cash used by operating activities and $29,895 from
investing activities) during the nine months ended August 31,
1997.
Deferred revenue increased $130,950 to $591,317 as of August 31,
1997. The increase was primarily a result of deferring the
recognition of revenue from 8 new individual franchises awarded
through August 31, 1997, offset by the recognition of individual
and area franchise revenue that was deferred as of November 30,
1996. The Company has deferred the recognition of revenue with
respect to 8 of the 43 individual franchises awarded during the nine
months ended August 31, 1997. The Company anticipates that the
majority of the deferred individual franchise fees will be
recognized as revenue in fiscal 1997.
RESULTS OF OPERATIONS
Three months ended August 31, 1997, compared to three
months ended August 31, 1996
Total revenues increased $298,568 (31.9%) to $1,233,954 for the
three months ended August 31, 1997. The increase is primarily
attributable to increases in individual franchise fees (up 94.1%
from $221,000 to $429,050), Sales of equipment, supplies and
services (up 31.7% from $188,269 to $247,899) and Royalties
from franchisees (up 14.0% from $397,844 to $453,533) partially
offset by an decrease in Area franchise fees (down 39.1% from
$103,848 to $63,294).
The $208,050 increase in Individual franchise fees represents 7
more awards recognized during the three months ending August
31, 1997 compared to the same period in 1996 and a differing mix
of per franchise revenue recognition. The Company recognized 19
and 12 individual franchise awards respectively during the three
months ended August 31, 1997 and 1996.
The $59,630 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 August 31,
1997 compared to the same prior year period.
The $55,689 increase in royalties is due to increases in the average
store volumes and number of stores open.
The $40,554 decrease 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, 1997. During the three months ended
August 31, 1997, the company recognized a portion of the area
franchise fees that were deferred at November 30, 1997.
Total expenses increased $203,615 (23.6%) to $1,064,712 for the
three months ended August 31, 1997. The increase is primarily
attributable to a increases in Cost of sales of equipment, supplies
and services (up 30.7% from $170,604 to $222,975), Commissions
on franchise sales (up 75.6% from $129,224 to $226,930) and
Royalties paid to area franchisees (up 28.9% from $123,147 to
$158,730).
The $52,371 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 August 31, 1997 compared to the prior year period.
The $97,706 increase in Commissions is due primarily to the
increased number of individual and area franchise sales made
during the first three months ending August 31, 1997 compared to
the same prior year period and the differing mix of commissions
per franchise.
The $35,583 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, 1997, compared to nine months
ended August 31, 1996
Total revenues increased $610,165 (25.1%) to $3,042,656 for the
nine months ended August 31, 1997. The increase is primarily
attributable to increases in Individual franchise fees (up 98.0%
from $424,728 to $840,870), Sales of equipment, supplies and
services (up 31.6% from $425,924 to $560,467) and Royalties
from franchisees (up 8.7% from $1,361,266 to $1,479,977)
partially offset by a decrease in Area franchise fees (down 47.0%
from $171,346 to $90,794)
The $416,142 increase in Individual franchise fees represents 15
more awards recognized during the nine months ending August 31,
1997 compared to the same period in 1996 and a differing mix of
per franchise revenue recognition. The Company recognized 38
and 23 individual franchise awards respectively during the nine
months ended August 31, 1997 and 1996.
The $134,543 increase in Sales of equipment, supplies and services
is primarily due to the increased number of new franchisees that
purchased equipment during the nine months ending August 31,
1997 compared to the same prior year period.
The $118,711 increase in royalties is due to increases in the
average store volumes and number of stores open.
The $80,552 decrease in revenue from Area franchise fees is
primarily due to one domestic award recognized during the nine
months ending August 31, 1996 compared to none during the nine
months ended August 31, 1997. During the nine months ended
August 31, 1997 the Company recognized a portion of the Area
franchise fees that were deferred as of November 30, 1996.
Total expenses increased $489,589 (19.2%) to $3,035,006 for the
nine months ended August 31, 1997. The increase is primarily
attributable to increases in Cost of sales of equipment, supplies and
services (up 32.7% from $378,336 to $502,192), Commissions on
franchise sales (up 78.7% from $249,784 to $446,372) and
Royalties paid to area franchisees (up 24.3% from $422,142 to
$524,556).
The $123,856 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 nine months
ending August 31, 1997 compared to the prior year period.
The $196,588 increase in Commissions is due primarily to the
increased number of individual and area franchise sales made
during the first nine months ending August 31, 1997 compared to
the same prior year period and the differing mix of commissions
per franchise.
The $102,414 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.
<PAGE>
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.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
<PAGE>
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.
The tally for the election of directors was as follows:
DIRECTOR FOR WITHHELD
J. S. Corcoran 1,848,716 1,727
John W. Grant 1,848,716 1,727
F. Edward Gustafson 1,848,716 1,727
John E. Kelly 1,848,716 1,727
William F. White 1,848,716 1,727
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>
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: October 14, 1997
By: /s/ John E. Kelly___________________
John E. Kelly
President
By: /s/ Raymond S. Goshorn____________
Raymond S. Goshorn
Chief Financial Officer
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Aug-31-1997
<CASH> 19,050
<SECURITIES> 0
<RECEIVABLES> 428,626
<ALLOWANCES> 127,971
<INVENTORY> 22,019
<CURRENT-ASSETS> 407,751
<PP&E> 435,979
<DEPRECIATION> 378,624
<TOTAL-ASSETS> 1,419,188
<CURRENT-LIABILITIES> 310,284
<BONDS> 0
<COMMON> 2,990
0
2,216,668
<OTHER-SE> (1,802,071)
<TOTAL-LIABILITY-AND-EQUITY> 1,419,188
<SALES> 560,467
<TOTAL-REVENUES> 3,042,656
<CGS> 560,467
<TOTAL-COSTS> 1,473,120
<OTHER-EXPENSES> 1,561,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,494
<INCOME-PRETAX> 7,650
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,650
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
