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, 1999
[ ] 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 of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7173 S. Havana Street, Suite 600, Englewood, Colorado 80112
- ----------------------------------------------------- -----
(Address of principal executive offices) (zip code)
Issuer's telephone number: 303-957-1000
Former name, former address and former fiscal year,
if changed since last report: N/A
As of October 15, 1999, there were outstanding 3,873,747 shares of the issuer's
Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
AUGUST NOVEMBER
31, 1999 30, 1998
(Unaudited)
----------- -----------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 166,437 $ 230,964
Restricted cash -- 3,880
Accounts receivable, net of allowance
of $62,557 (1999) and $69,681 (1998) 470,008 365,277
Inventories 154,889 56,237
Prepaid expenses and other current assets 43,785 37,500
Deferred income tax benefit - current 275,000 275,000
----------- -----------
Total current assets 1,110,119 968,858
----------- -----------
Property and equipment, at cost, net of accumulated depreciation 176,007 110,169
----------- -----------
Other assets:
Notes receivable, net: 573,402 666,408
Deposits and other 157,350 95,253
Deferred franchise costs, net of accumulated amortization of
$68,474 (1999) and $54,711 (1998) 125,782 197,732
Capitalized software costs, net 611,483 351,207
----------- -----------
Total other assets 1,468,017 1,310,600
----------- -----------
$ 2,754,143 $ 2,389,627
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 419,733 $ 189,754
Notes payable - related party 100,000 --
Line of credit 120,000 --
Preferred dividends payable 99,750 133,000
Accrued commissions 16,715 31,085
Other accrued expenses 78,341 153,330
Due to advertising fund -- 3,880
----------- -----------
Total current liabilities 834,539 511,049
----------- -----------
Deferred rent 15,952 --
Deferred revenue 415,174 704,135
Stockholders' equity:
Series C redeemable preferred stock, $1,000 par value; 6% cumulative
2,500 shares authorized; 2,216.668 shares issued and outstanding
(liquidation preference $2,216,668) 2,216,668 2,216,668
Common stock, $.001 par value; 200,000,000 shares authorized;
3,873,747 shares issued and outstanding as of 08/31/99 and
2,989,483 shares issued and outstanding as of 11/30/98 3,873 2,990
Additional paid-in capital 5,113,995 5,026,453
Accumulated deficit (5,846,058) (6,071,668)
----------- -----------
Total stockholders' equity 1,488,478 1,174,443
----------- -----------
$ 2,754,143 $ 2,389,627
=========== ===========
See notes to consolidated financial statements.
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PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Operations
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
(Unaudited) (Unaudited)
----------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenue
<S> <C> <C> <C> <C>
Royalties from franchisees $ 589,445 $ 520,671 $1,901,438 $1,712,435
Sales of equipment, supplies, and services 208,277 168,479 555,359 438,137
Individual franchise fees 463,320 270,640 727,770 497,550
Area franchise fees, net 114,000 49,930 294,930 582,703
Interest Income -- 4,722 3,002 16,645
Other 49,537 29,370 93,541 75,116
---------- ---------- ---------- ----------
1,424,579 1,043,812 3,576,040 3,322,586
---------- ---------- ---------- ----------
Costs and expenses
Selling, general, and administrative 506,951 463,538 1,455,721 1,415,601
Cost of sales of equipment, supplies and services 180,367 154,935 482,086 389,942
Commissions on franchise sales 248,118 136,582 376,788 399,472
Royalties paid to area franchises 208,097 197,209 754,870 645,913
Advertising 39,348 44,259 111,960 125,556
Depreciation and amortization 24,698 19,040 68,798 52,875
Interest 457 876 457 876
---------- ---------- ---------- ----------
1,208,036 1,016,439 3,250,680 3,030,235
---------- ---------- ---------- ----------
Net income 216,543 * 27,373 * 325,360 * 292,351
Preferred stock dividend 33,250 -- 99,750 --
---------- ---------- ---------- ----------
Net income attributable to common shares $ 183,293 $ 27,373 $ 225,610 $ 292,351
========== ========== ========== ==========
Basic and diluted income per common share $ 0.05 $ 0.01 $ 0.07 $ 0.10
========== ========== ========== ==========
Weighted average number of common shares outstanding 3,873,747 2,989,483 3,451,435 2,989,483
========== ========== ========== ==========
* No provision for income tax expense is included as the
Company has approximately $6,000,000 in net operating
loss carryforwards to offset future taxable income.
See notes to consolidated financial statements.
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PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
NINE MONTHS ENDED
AUGUST 31,
(Unaudited)
----------------------
1999 1998
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income $ 225,610 $ 292,351
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 82,561 52,875
Deferred revenue, net (288,961) 105,046
Deferred rent 15,952 --
Change in operating assets and liabilities-
Accounts receivable (104,731) (96,853)
Inventories (98,652) (3,612)
Prepaids and deferred franchise costs 51,902 (49,982)
Notes receivable 93,006 48,359
Deposits and other (62,097) 20,452
Trade accounts payable 229,979 7,361
Accrued expenses (89,359) (1,000)
Due to Ad Fund (3,880) (12,460)
--------- ---------
Net cash provided by operating activities 51,330 362,537
--------- ---------
Cash flows from investing activities
Capital expenditures (134,636) (78,874)
Capitalized software costs (260,276) (189,420)
--------- ---------
Net cash used in investing activities (394,912) (268,294)
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Cash flows from financing activities
Payment of short-term debt -- (100,000)
Issuance of short-term debt 220,000
Payment of declared dividends (133,000)
Preferred stock dividends payable 99,750
Issuance of Common Stock 88,425
--------- ---------
Net cash provided by (used in)
financing activities 275,175 (100,000)
--------- ---------
Net decrease in cash and cash equivalents (68,407) (5,757)
Cash and cash equivalents, beginning of year 234,844 111,185
--------- ---------
Cash and cash equivalents, end of period $ 166,437 $ 105,428
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 457 $ 876
========= =========
See notes to consolidated financial statements.
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PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
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, 1998
through October 15, 1999, the Company awarded 32 individual franchises and
4 new area franchises and as of October 15, 1999, the Company had 379
domestic and international individual franchise agreements in existence and
36 area franchises 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. (together, the "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, 1999 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 used cash of $68,407 ($51,330 provided by operating activities,
$394,912 used by investing activities and $275,175 provided by financing
activities) during the nine months ended August 31, 1999. During the nine
months ended August 31, 1999, the Company generated $88, 425 from the
exercise of warrants for common stock, borrowed $120,000 against it's line
of credit and D. P. Kelly & Associates LP, an affiliate of the Company's
majority shareholder, made advances in an aggregate amount of $100,000. Of
the $394,912 used by investing activities, $260,276 was used as software
costs in developing the Company's new software. The software being
developed is a point of sale, packaging and shipping program to be utilized
by every store in the system. The Company also moved during the year and
incurred capital expenditures and leasehold improvement costs. In addition,
the Company purchased 42 notebook computer systems used at the regional
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training seminars held during August and September of this year. These
notebook computers are responsible for the increase in inventory. They are
available for immediate resale and will be sold during the last quarter of
fiscal 1999.
Deferred revenue decreased $288,961 to $415,174 and deferred franchise
costs decreased $71,950 during the nine months ended August 31, 1999. The
decrease in deferred revenue was primarily a result of recognizing the
revenue on 2 area franchises and 10 individual franchises that were
deferred as of November 30, 1998. The decrease in deferred franchise costs
is primarily the result of recognizing the commissions paid on the
individual and area franchises that were capitalized but not yet recognized
as of November 30, 1998. The Company anticipates that the majority of the
deferred individual franchise fees and related commissions will be
recognized in fiscal 1999.
The decrease in other accrued expenses is primarily due to the payment of
bonuses, $133,000, of which was accrued at November 30, 1998, and paid
during the nine months ended August 31, 1999.
RESULTS OF OPERATIONS
---------------------
Three months ended August 31, 1999,
compared to three months ended August 31, 1998
----------------------------------------------
Total revenues increased $380,767 (36.5%) from $1,043,812 for the three
months ended August 31, 1998, to $1,424,579 for the three months ended
August 31, 1999. The increase is primarily attributable to increases in
individual franchise fees (up 71.2% from $270,640 to $463,320), area
franchise fees (up 128.3% from $49,930 to $114,000), royalties from
franchisees (up 13.2% from $520,671 to $589,445) and sales of equipment,
supplies and services (up 23.6% from $168,479 to $208,277).
The $192,680 increase in individual franchise fees represents the
recognition of revenue from six additional franchises during the three
months ended August 31, 1999 as compared to the same prior year period. The
Company recognized revenue on 19 and 13 individual franchises during the
three months ended August 31, 1999 and August 31, 1998, respectively.
The $64,070 increase in area franchise fees is primarily due to the
recognition of one new domestic area sale during the quarter ended August
31, 1999. No area franchises were sold during the quarter ended August 31,
1998. In addition there was amortization of existing area franchise fees
during the quarters ending August 31, 1999 and August 31, 1998.
The $68,774 increase in royalties for the three months ended August 31,
1999 as compared to the three months ended August 31, 1998 is primarily due
to increases in the average store volumes.
The $39,798 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 ended August 31, 1999 as compared to the
same prior year period.
Total expenses increased $191,597 (18.9%) from $1,016,439 for the three
months ended August 31, 1998 to $1,208,036 for the three months ended
August 31, 1999. The increase is primarily attributable to increases in
commissions on franchise sales (up 81.7% from $136,582 to $248,118),
selling, general and administrative (up 9.4% from $463,538 to $506,951) and
cost of sales of equipment, supplies and services (up 16.4% from $154,935
to $180,367).
<PAGE>
The $111,536 increase in commissions on franchise sales relates primarily
to the increased number of individual and area franchise sales made during
the first quarter ending August 31, 1999 compared to the same prior year
period.
The $43,413 increase in selling, general and administrative for the three
months ended August 31, 1999 as compared to the same prior year period
relates primarily to increases in regional training expenses, rent and
miscellaneous expenses.
The $25,432 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 ended August 31, 1999 compared to the
same prior year period.
Nine months ended August 31, 1999,
compared to nine months ended August 31, 1998
---------------------------------------------
Total revenues increased $253,454 (7.6%) from $3,322,586 for the nine
months ended August 31, 1998, to $3,576,040 for the nine months ended
August 31, 1999. The increase is primarily attributable to increases in
individual franchise fees (up 46.3% from $497,550 to $727,770), royalties
from franchisees (up 11.0% from $1,712,435 to $1,901,438) and sales of
equipment, supplies and services (up 26.8% from $438,137 to $555,359)
offset by a decrease in area franchise fees (down 49.4% from $582,703 to
$294,930).
The $230,220 increase in individual franchise fees represents the
recognition of revenue from six additional franchises during the nine
months ended August 31, 1999 as compared to the same prior year period and
a differing mix of per franchise revenue recognition. The Company
recognized revenue on 30 and 24 individual franchises during the nine
months ended August 31, 1999 and August 31, 1998, respectively.
The $189,003 increase in royalties for the nine months ended August 31,
1999 as compared to the nine months ended August 31, 1998 is due to
increases in the average store volumes.
The $117,222 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 ended August 31, 1999 as compared to the
same prior year period.
The $287,773 decrease in area franchise fees is primarily due to the
selling of the rights within the country of Japan during the nine months
ended August 31, 1998. Three domestic area franchises were recognized
during the nine months ended August 31, 1999 in addition to some
amortization of existing area franchise fees that were deferred as of
November 30, 1998.
Total expenses increased $220,445 (7.3%) from $3,030,235 for the nine
months ended August 31, 1998 to $3,250,680 for the nine months ended August
31, 1999. The increase is primarily attributable to increases in royalties
paid to area franchises (up 16.9% from $645,913 to $754,870) and cost of
sales of equipment, supplies and services (up 23.6% from $389,942 to
$482,086).
<PAGE>
The $108,957 increase in royalties paid to area franchisees over the same
prior year period relates to the increase in percentage of stores that
operate within area marketer regions and an increase in the average store
volumes.
The $92,144 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 ended August 31, 1999 as compared to the
same prior year period.
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held on June 24,
1999, at which the following items were voted on.
(1) The election of directors. The tally for the election of
directors was as follows:
DIRECTOR FOR WITHHELD
J. S. Corcoran 3,176,488 8,108
John W. Grant 3,172,241 12,355
F. Edward Gustafson 3,177,002 7,594
John E. Kelly 3,176,632 7,964
William F. White 3,171,321 13,275
(2) The motion to approve the 1999 Incentive and Nonstatutory Employee
Stock Option Plan.
IN FAVOR AGAINST ABSTAINED
2,886,626 22,208 10,017
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PAK MAIL CENTERS OF AMERICA, INC.
(Registrant)
Date: October 15, 1999
By: /s/ John E. Kelly
---------------------
John E. Kelly
President
By: /s/ Raymond S. Goshorn
--------------------------
Raymond S. Goshorn
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Aug-31-1999
<CASH> 166,437
<SECURITIES> 0
<RECEIVABLES> 532,565
<ALLOWANCES> 62,557
<INVENTORY> 154,889
<CURRENT-ASSETS> 1,110,119
<PP&E> 660,052
<DEPRECIATION> 484,045
<TOTAL-ASSETS> 2,754,143
<CURRENT-LIABILITIES> 834,539
<BONDS> 0
0
2,216,668
<COMMON> 3,873
<OTHER-SE> (732,063)
<TOTAL-LIABILITY-AND-EQUITY> 2,754,143
<SALES> 555,359
<TOTAL-REVENUES> 3,576,040
<CGS> 482,086
<TOTAL-COSTS> 1,613,744
<OTHER-EXPENSES> 1,636,936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457
<INCOME-PRETAX> 325,360
<INCOME-TAX> 0
<INCOME-CONTINUING> 325,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,360
<EPS-BASIC> .07
<EPS-DILUTED> 0.07
</TABLE>
