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, 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 (I.R.S. Employer Identification No.)
of 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
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 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]
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
MAY NOVEMBER
31, 1999 30, 1998
(Unaudited)
----------- -----------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 23,906 $ 230,964
Restricted cash -- 3,880
Accounts receivable, net of allowance
of $64,526 (1999) and $69,681 (1998) 392,222 365,277
Inventories 56,465 56,237
Prepaid expenses and other current assets 49,657 37,500
Deferred income tax benefit - current 275,000 275,000
----------- -----------
Total current assets 797,250 968,858
----------- -----------
Property and equipment, at cost, net of accumulated depreciation 139,682 110,169
----------- -----------
Other assets:
Notes receivable, net: 600,314 666,408
Deposits and other 128,992 95,253
Deferred franchise costs, net of accumulated amortization of
$63,886 (1999) and $54,711 (1998) 228,570 197,732
Capitalized software costs, net 524,483 351,207
----------- -----------
Total other assets 1,482,359 1,310,600
----------- -----------
$ 2,419,291 $ 2,389,627
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 401,667 $ 189,754
Preferred dividends payable 66,500 133,000
Accrued commissions 16,715 31,085
Other accrued expenses -- 153,330
Due to advertising fund -- 3,880
----------- -----------
Total current liabilities 484,882 511,049
----------- -----------
Deferred revenue 629,224 704,135
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 $2,283,168) 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 05/31/99 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 (6,029,351) (6,071,668)
----------- -----------
Total stockholders' equity 1,305,185 1,174,443
----------- -----------
$ 2,419,291 $ 2,389,627
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Operations
THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, MAY 31,
(Unaudited) (Unaudited)
-------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenue
<S> <C> <C> <C> <C>
Royalties from franchisees $ 570,093 $ 499,930 $ 1,311,993 $ 1,191,764
Sales of equipment, supplies, and services 196,568 136,814 347,082 269,658
Individual franchise fees 193,600 139,700 264,450 226,910
Area franchise fees, net 49,930 518,773 180,930 532,773
Interest Income 3,002 5,511 3,002 11,923
Other 29,879 23,719 44,004 45,746
----------- ----------- ----------- -----------
1,043,072 1,324,447 2,151,461 2,278,774
Costs and expenses
Selling, general, and administrative 459,574 502,816 948,770 952,063
Cost of sales of equipment, supplies and services 166,256 121,828 301,719 235,007
Commissions on franchise sales 89,720 230,140 128,670 262,890
Royalties paid to area franchises 267,548 219,250 546,773 448,704
Advertising 32,596 46,445 72,612 81,297
Loss on investment in assets held for resale -- -- -- --
Depreciation and amortization 23,100 18,176 44,100 33,835
Interest -- -- -- --
----------- ----------- ----------- -----------
1,038,794 1,138,655 2,042,644 2,013,796
----------- ----------- ----------- -----------
Net income 4,278 185,792 108,817 264,978
Preferred stock dividend 33,250 -- 66,500 --
----------- ----------- ----------- -----------
Net income attributable to common shares $ (28,972) $ 185,792 $ 42,317 $ 264,978
=========== =========== =========== ===========
Basic income (loss) per common share $ (0.01) $ 0.06 $ 0.01 $ 0.09
=========== =========== =========== ===========
Weighted average number of common shares outstanding 3,523,928 2,989,483 3,258,182 2,989,483
=========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
SIX MONTHS ENDED
MAY 31,
(Unaudited)
----------------------
1999 1998
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income $ 42,317 $ 264,978
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 53,275 33,835
Deferred revenue, net (74,911) 48,976
Change in operating assets and liabilities-
Accounts receivable (26,945) (56,905)
Inventories (228) 2,534
Prepaids and deferred franchise costs (52,170) (38,417)
Notes receivable 66,094 67,996
Deposits and other (33,739) 24,724
Trade accounts payable 211,913 (57,150)
Accrued expenses (167,700) (50,814)
Due to Ad Fund (3,880) (15,409)
--------- ---------
Net cash provided by operating activities 14,026 224,348
Cash flows from investing activities
Capital expenditures (73,613) (67,138)
Capitalized software costs (173,276) (139,392)
--------- ---------
Net cash used by investing activities (246,889) (206,530)
Cash flows from financing activities
Payment of short-term debt -- (100,000)
Payment of declared dividends (133,000)
Preferred stock dividends payable 66,500
Issuance of Common Stock 88,425
--------- ---------
Net cash provided by (used in) financing activities 21,925 (100,000)
Net decrease in cash and cash equivalents (210,938) (82,182)
Cash and cash equivalents, beginning of year 234,844 111,185
--------- ---------
Cash and cash equivalents, end of period $ 23,906 $ 29,003
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ -- $ --
--------- ---------
See notes to consolidated 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, 1998
through July 15, 1999, the Company awarded 23 individual franchises and 4
new area franchises and as of July 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 six months ended May 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 $210,938 ($14,026 provided by operating activities
offset by $246,889 used by investing activities and $21,925 provided by
financing activities) during the six months ended May 31, 1999. Of the
$246,889 used by investing activities, $173,276 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 funds to pay for the software came from operating
activities and the $88,425 generated from the exercise of warrants for
common stock.
Deferred revenue decreased $74,911 to $629,224 and deferred franchise costs
increased $30,838 during the six months ended May 31, 1999. The decrease in
deferred revenue was primarily a result of recognizing the revenue on 2
area franchises and 7 individual franchises that were deferred as of
November 30, 1998 offset by deferring the recognition of revenue or
deposits on 17 new individual franchises awarded during the six months
ending May 31, 1999. The increase in deferred franchise costs is primarily
the result of capitalizing the commissions paid on the individual
franchises awarded but not yet recognized. The Company anticipates that all
of the deferred individual franchise fees and related commissions will be
recognized in fiscal 1999.
<PAGE>
The decrease in other accrued expenses is primarily due to the payment of
bonuses, $121,000 was accrued at November 30, 1998 and paid during the six
months ended May 31, 1999.
RESULTS OF OPERATIONS
---------------------
Three months ended May 31, 1999, compared to three months ended May 31,
1998
---------------------------------------------------------------------------
Total revenues decreased $281,375 (21.2%) from $1,324,447 for the three
months ended May 31, 1998, to $1,043,072 for the three months ended May 31,
1999. The decrease is primarily attributable to a decrease in area
franchise fees (down 90.4% from $518,773 to $49,930) offset by increases in
royalties from franchisees (up 14.0% from $499,930 to $570,093), individual
franchise fees (up 38.6% from $139,700 to $193,600) and sales of equipment,
supplies and services (up 43.7% from $136,814 to $196,568).
The $468,843 decrease in area franchise fees is primarily due to the
selling of an area franchise for the country of Japan during the quarter
ended May 31, 1998. No area franchises were sold during the quarter ended
May 31, 1999, however there was some amortization of existing area
franchise fees that were deferred as of November 30, 1998.
The $70,163 increase in royalties for the three months ended May 31, 1999
as compared to the three months ended May 31, 1998 is due to increases in
the average store volumes.
The $53,900 increase in individual franchise fees represents the
recognition of revenue from two additional franchises during the three
months ended May 31, 1999 as compared to the same prior year period. The
Company recognized revenue on 8 and 6 individual franchises during the
three months ended May 31, 1999 and May 31, 1998, respectively.
The $59,754 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 May 31, 1999 as compared to the
same prior year period.
Total expenses decreased $99,861 (8.8%) from $1,138,655 for the three
months ended May 31, 1998 to $1,038,794 for the three months ended May 31,
1999. The decrease is primarily attributable to decreases in selling,
general and administrative (down 8.6% from $502,816 to $459,574) and
commissions on franchise sales (down 61.0% from $230,140 to $89,720) offset
by increases in royalties paid to area franchises (up 22.0% from $219,250
to $267,548) and cost of sales of equipment, supplies and services (up
36.5% from $121,828 to $166,256).
The $43,242 decrease in selling, general and administrative for the three
months ended May 31, 1999 as compared to the same prior year period relates
primarily to decreases in seminar, travel and entertainment and
miscellaneous expenses.
The $48,298 increase in royalties paid to area franchisees over the same
periods relates to the increase in percentage of stores that operate within
area marketer regions and an increase in the average store volumes.
The $44,428 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 May 31, 1999 compared to the same
prior year period.
<PAGE>
The $140,420 decrease in commissions on franchise sales relates primarily
to the commission that was paid on the Japan area franchise sale during the
three months ended May 31, 1998. There were no area franchise commissions
paid during the three months ended May 31, 1999.
Six months ended May 31, 1999, compared to six months ended May 31, 1998
------------------------------------------------------------------------
Total revenues decreased $127,313 (5.6%) from $2,278,774 for the six months
ended May 31, 1998, to $2,151,461 for the six months ended May 31, 1999.
The decrease is primarily attributable to a decrease in area franchise fees
(down 66.0% from $532,773 to $180,930) offset by increases in royalties
from franchisees (up 10.1% from $1,191,764 to $1,311,993), individual
franchise fees (up 16.5% from $226,910 to $264,450) and sales of equipment,
supplies and services (up 28.7% from $269,658 to $347,082).
The $351,843 decrease in area franchise fees is primarily due to the
selling of an area franchise for the country of Japan during the six months
ended May 31, 1998. Two domestic area franchises were sold during the six
months ended May 31, 1999 in addition to some amortization of existing area
franchise fees that were deferred as of November 30, 1998.
The $120,229 increase in royalties for the six months ended May 31, 1999 as
compared to the six months ended May 31, 1998 is due to increases in the
average store volumes.
The $37,540 increase in individual franchise fees represents the
recognition of revenue from one additional franchise during the six months
ended May 31, 1999 as compared to the same prior year period and a
differing mix of per franchise revenue recognition. The Company recognized
revenue on 12 and 11 individual franchises during the three months ended
May 31, 1999 and May 31, 1998, respectively.
The $77,424 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 ended May 31, 1999 as compared to the same
prior year period.
Total expenses increased $28,848 (1.4%) from $2,013,796 for the six months
ended May 31, 1998 to $2,042,644 for the six months ended May 31, 1999. The
increase is primarily attributable to increases in royalties paid to area
franchises (up 21.9% from $448,704 to $546,773) and cost of sales of
equipment, supplies and services (up 28.4% from $235,007 to $301,719)
offset by a decrease in commissions on franchise sales (down 51.1% from
$262,890 to $128,670).
The $98,069 increase in royalties paid to area franchisees over the same
periods relates to the increase in percentage of stores that operate within
area marketer regions and an increase in the average store volumes.
The $134,220 decrease in commissions on franchise sales relates primarily
to the commission that was paid on the Japan area franchise sale during the
six months ended May 31, 1998.
The $66,712 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 ended May 31, 1999 as compared to the same
prior year period.
<PAGE>
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On April 6, 1999, the Company issued 884,264 shares of its $0.001 par value
common stock to the holders of outstanding warrants, which were exercised
at an exercise price of $.10 per share. The warrants exercised represent
all of the outstanding warrants issued in connection with the issuance of
the Series C Preferred Stock of the Company in November 1997. The Company
received $88,426.40 upon exercise of the warrants. The offer and sale of
the warrants, and their exercise, were made in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933,
as amended, and Regulation D adopted thereunder.
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
Item 5. Other information.
Registrant moved the location of its principal executive offices on July
15, 1999. Registrant's new address and phone number are listed on the cover
of this Form 10Q-SB.
Item 6. Exhibits and Reports on Form 8-K.
(a) None
(b) No reports on Form 8-K were filed during the quarter ended May 31,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
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: July 20, 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> 6-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> May-31-1999
<CASH> 23,906
<SECURITIES> 0
<RECEIVABLES> 456,748
<ALLOWANCES> 64,526
<INVENTORY> 56,465
<CURRENT-ASSETS> 797,250
<PP&E> 605,727
<DEPRECIATION> 466,045
<TOTAL-ASSETS> 2,419,291
<CURRENT-LIABILITIES> 484,882
<BONDS> 0
0
2,216,668
<COMMON> 3,873
<OTHER-SE> (243,129)
<TOTAL-LIABILITY-AND-EQUITY> 2,419,291
<SALES> 347,082
<TOTAL-REVENUES> 2,151,461
<CGS> 301,719
<TOTAL-COSTS> 947,162
<OTHER-EXPENSES> 1,095,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,317
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,317
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.00
</TABLE>
