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, 2000
[ ] 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 St., 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 August 31, 2000, there were outstanding 3,873,738 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, 2000 30, 1999
(Un-audited)
------------ -----------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 88,060 $ 44,536
Restricted cash 74,937 1,880
Accounts receivable, net of allowance
of $105,889 (2000) and $135,716 (1999) 617,131 567,945
Inventories 39,908 101,357
Prepaid expenses and other current assets 72,806 29,274
Deferred income tax benefit - current 347,500 347,500
----------- -----------
Total current assets 1,240,342 1,092,492
----------- -----------
Property and equipment, at cost, net of accumulated depreciation 122,054 179,768
----------- -----------
Other assets:
Notes receivable, net: 463,264 587,368
Deposits and other 170,090 145,902
Deferred franchise costs, net of accumulated amortization of
$86,832 (2000) and $73,062 (1999) 123,817 95,191
Capitalized software costs, net 502,035 850,854
----------- -----------
Total other assets 1,259,206 1,679,315
----------- -----------
$ 2,621,602 $ 2,951,575
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 503,903 $ 315,375
Accrued bonuses & commissions 162,169 157,168
Other accrued expenses 49,307 147,073
Deferred rent 70,532 55,960
Due to advertising fund 74,937 1,880
Preferred dividends payable 99,750 133,000
Notes payable 420,000 120,000
----------- -----------
Total current liabilities 1,380,598 930,456
----------- -----------
Deferred revenue 639,907 663,189
Stockholders' equity:
Series C redeemable preferred stock, $1,000 par value;
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;
3,873,738 shares issued and outstanding 3,874 3,874
Additional paid-in capital 5,113,995 5,113,995
Accumulated deficit (6,733,440) (5,976,607)
----------- -----------
Total stockholders' equity 601,097 1,357,930
----------- -----------
$ 2,621,602 $ 2,951,575
=========== ===========
See notes to consolidated financial statements.
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PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statements of Operations
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
(Un-audited) (Un-audited) (Un-audited) (Un-audited)
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Royalties from franchisees $ 649,228 $ 589,445 $ 2,097,157 $ 1,901,438
Sales of equipment, supplies, and services 176,554 208,277 666,463 555,359
Individual franchise fees 294,550 463,320 653,760 727,770
Area franchise fees, net 10,426 114,000 151,225 294,930
PSS license & maint fees 71,550 0 221,050 0
Interest Income 12,889 0 14,204 3,002
Other 45,626 49,537 70,540 93,541
----------- ----------- ----------- -----------
1,260,823 1,424,579 3,874,399 3,576,040
----------- ----------- ----------- -----------
Costs and expenses
Selling, general, and administrative 501,556 506,951 1,832,282 1,455,721
Cost of sales of equipment, supplies and services 170,143 180,367 694,350 482,086
Commissions on franchise sales 102,210 248,118 231,440 376,788
Royalties paid to area franchises 252,613 208,097 946,657 754,870
Advertising 29,748 39,348 145,565 111,960
Depreciation and amortization 21,000 24,698 63,000 68,798
Amortization - miscellaneous 7,299 0 21,807 0
Impairment of capitalized software costs 0 0 557,854 0
Interest 28,420 457 38,527 457
----------- ----------- ----------- -----------
1,112,989 1,208,036 4,531,482 3,250,680
----------- ----------- ----------- -----------
Net income (loss) 147,834 216,543 (657,083) 325,360
Preferred stock dividend 33,250 33,250 99,750 99,750
----------- ----------- ----------- -----------
Net income (loss) attributable to common shares $ 114,584 $ 183,293 $ (756,833) $ 225,610
=========== =========== =========== ===========
Basic income (loss) per common share $ 0.03 $ .05 $ (0.20) $ 0.07
Weighted average number of common shares outstanding 3,873,738 3,873,738 3,873,738 3,451,435
See notes to consolidated financial statements.
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PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
(Un-audited)
2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net (loss) income $(756,833) $ 225,610
Adjustments to reconcile net (loss)income to net cash from operating
activities:
Allowance for Doubtful Accounts (29,827) 0
Depreciation 63,000 82,561
Amortization - Miscellaneous 21,807 0
Impairment of Capitalized Software 557,854 0
Deferred Rent 14,572 15,952
Deferred revenue, net (23,282) (288,961)
Change in operating assets and liabilities-
Restricted cash (73,057) 0
Accounts receivable (19,359) (104,731)
Inventories 61,449 (98,652)
Prepaids and deferred franchise costs (85,928) 51,902
Notes receivable 124,104 93,006
Deposits and other (26,636) (62,097)
Trade accounts payable 188,528 229,979
Accrued expenses (92,765) (89,359)
Due to Ad Fund 73,057 (3,880)
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Net cash (used in)provided by operating activities (3,316) 51,330
--------- ---------
Cash flows from investing activities
Capital expenditures (5,286) (134,636)
Capitalized trademark expenditures (5,589) 0
Capitalized software costs (209,035) (260,276)
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Net cash used by investing activities (219,910) (394,912)
--------- ---------
Cash flows from financing activities
Short-term debt - Borrowing 300,000 220,000
Payment of declared dividends 0 (133,000)
Preferred stock dividends payable (33,250) 99,750
Issuance of Common Stock 0 88,425
--------- ---------
Net cash provided by financing activities 266,750 275,175
--------- ---------
Net increase/(decrease) in cash and cash equivalents 43,524 (68,407)
Cash and cash equivalents, beginning of year 44,536 234,844
--------- ---------
Cash and cash equivalents, end of period $ 88,060 $ 166,437
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 38,527 $ 457
See notes to consolidated financial statements.
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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 June 1, 2000 through
August 31, 2000, the Company awarded 10 individual franchises. As of August
31, 2000, the Company had 340 domestic and 35 international individual
stores operating, and 23 domestic and 7 international area franchises in
existence. In addition 22 domestic franchise agreements have been issued
for stores not yet operating.
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
inter-company transactions and balances have been eliminated in
consolidation.
Note 2 BASIS OF PRESENTATION
----------------------------
The Company has prepared the accompanying consolidated financial
statements. 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, 2000 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 un-audited
consolidated financial statements included herein. See Item 1.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company used cash of $3,316 in operations and $219,910 was used in
investing activities during the nine months ended August 31, 2000. $266,750
in cash was provided by financing activities during the nine months ended
August 31, 2000 with the primary source of these funds being $300,000
borrowed from D.P Kelly & Associates, a significant shareholder. The
$300,000 borrowing was combined with the $100,000 borrowed from D.P Kelly &
Associates last year into a $400,000 demand note with interest calculated
at Bank One of Chicago's prime rate, payable monthly.
The company also has a $300,000 line of credit with Key Bank. As of August
31, 2000, $20,000 was drawn on the line. Interest on the line is payable
monthly at Key Bank's Prime Rate plus 1.5%. The note matures on March 30,
2001 and is renewable.
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Deferred revenue decreased $23,281 to $639,907 as a result of recognizing
the sale of new franchises as training was completed. Twenty One new
franchisees completed training or opened their store during the period and
revenue of $653,760 was recognized on these sales. The Company anticipates
that eleven of the fifteen currently deferred individual franchise fees and
commissions will be recognized in fiscal 2000.
RESULTS OF OPERATIONS
---------------------
Three months ended August 31, 2000, compared to three months ended
August 31, 1999
------------------------------------------------------------------
Revenues
--------
Total revenues decreased $163,756 (11.50%) from $1,424,579 for the three
months ended August 31, 1999, to $1,260,823 for the three months ended
August 31, 2000. The decrease is primarily attributable to decreases in
individual franchise fees (down 36.43% from $463,320 to $294,550), and area
franchise fees (down 90.85% from $114,000 to $10,426
The $59,783 increase in royalties for the three months ended August 31,
2000 as compared to the three months ended August 31, 1999, is due to an
increase in average store volume.
The $31,723 decrease in sales of equipment, services and supplies for the
three months ended August 31, 2000 as compared to the three months ended
August 31, 1999 is due to the decrease in the number of stores sold and
opened.
There was a $103,574 decrease in area franchise fees for the three months
ended August 31, 2000 as compared to the three months ended August 31, 1999
because no additional areas were sold during the period.
The $168,770 decrease in individual franchise fees supplies for the three
months ended August 31, 2000 as compared to the three months ended August
31, 1999 is due to the decreased number of stores sold.
The $71,550 increase in PSS licensing & maintenance fees for the three
months ended August 31, 2000 as compared to the three months ended August
31, 1999 is a result of developing a software package and selling licenses
and maintenance services to the Company's franchisees.
Costs and Expenses
------------------
Total expenses decreased $95,047 (7.87%) from $1,208,036 for the three
months ended August 31, 1999, to $1,112,989 for the three months ended
August 31, 2000. The decrease is primarily attributable to the decrease in
commissions on franchise sales (down 58.81% from $248,118 to $102,210).
The $145,908 decrease in commissions paid on franchise sales for the three
months ended August 31, 2000 as compared to the three months ended August
31, 1999 is due to the decrease in the number of stores sold.
The $44,516 increase in royalties paid to area franchisees for the three
months ended August 31, 2000 as compared to the three months ended August
31, 1999 is due to the increase in royalties and the area in which they are
earned. At present, the fastest growing area franchise has the highest %
pay-out in royalty rebates and is increasing as a percentage of total
rebates.
The $27,963 increase in interest paid for the three months ended August 31,
2000 as compared to the three months ended August 31, 1999 reflects the
increase in borrowing by the company.
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Nine months ended August 31, 2000 compared to the nine months ended August
31, 1999
--------------------------------------------------------------------------
Revenue
-------
Total revenues increased 8.34% or $289,359 for the nine months ended August
31, 2000 compared to the nine months ended August 31, 1999. The main
increases were in royalties (up 10.29% from $1,901,438 to $2,097,157),
sales of equipment supplies and services (up 20.01% from $555,359 to
$666,463), individual franchise fees (down 10.17% from $727,770 to
$653,760), PSS license & maintenance fees (up from $0 to $221,050).
The $195,719 increase in royalties for the nine months ended August 31,
2000 compared to the nine months ended August 31, 1999 is due to an
increase in average store volume.
The increase of $111,104 in sales of equipment supplies and services for
the nine months ended August 31, 2000 compared to the nine months ended
August 31, 1999 is attributable to the Company's entry into the computer
hardware sales business.
The $74,010 decrease in individual franchise fees for the nine months ended
August 31, 2000 compared to the nine months ended August 31, 1999 is due to
the decrease in number of stores sold.
There was a $143,705 decrease in area franchise fees for the nine months
ended August 31, 2000 compared to the nine months ended August 31, 1999
because no additional areas were sold during the period. The revenue
recognized relates to current year amortization of amounts deferred in
prior years.
The $221,050 increase in PSS license & maintenance fees for the nine months
ended August 31, 2000 compared to the nine months ended August 31, 1999 is
a result of developing a software package and selling licenses and
maintenance services to the Company's franchisees.
Costs and Expenses
------------------
Costs and expenses increased 39.40% or $1,280,802 for the nine months ended
August 31, 2000 compared to the nine months ended August 31, 1999. The main
increases for the nine months ended August 31, 2000 compared to the nine
months ended August 31, 1999 were in selling, general and administrative,
(up 25.87% from $1,455,721 to $1,832,282), cost of sales of equipment and
supplies (up 44.03% from $482,086 to $694,350), royalties paid to area
franchisees (up 25.41% from $754,870 to $946,657) advertising, (up 30.02%
from $111,960 to $145,565) and impairment of capitalized software costs up
$557,854 from $0. Commissions on franchise sales decreased 38.58% from
$376,788 to $231,440.
The increase of $376,561 in selling, general and administrative for the
nine months ended August 31, 2000 compared to the nine months ended August
31, 1999 is due primarily to Rent expense up $108,000, a result of the
inability to find a sub-lessee for the facilities which were vacated on
Parker Road, an increase in monthly rent at the new facility on Havana
Street and an increase in the allowance for bad debt of $67,648.
The increase of $212,264 in cost of sales of equipment and supplies for the
nine months ended August 31, 2000 compared to the nine months ended August
31, 1999 is due to the company's decision to sell computer hardware to the
franchisees. In the previous 9 month period there were no sales of computer
hardware and no associated computer hardware cost of goods sold.
The increase of $191,787 in royalties paid to area franchisees is due to
the increase in royalties and the area in which they are earned. At
present, the fastest growing area franchise has the highest % payout in
royalty rebates and is increasing as a percentage of total rebates.
The increase of $33,605 in advertising is due primarily to updating the art
work in the sales brochures.
<PAGE>
There is a $557,854 increase in impairment of capitalized software costs
for the nine months ended August 31, 2000 compared to the nine months ended
August 31, 1999. A decision was made to re-write the program using a
different database to increase the modularity of the program and reduce
future maintenance costs. PSS version 1 is currently being used by the
franchisees. Portions of version 1 costing $293,000 will be integrated into
PSS version 2 and will be amortized over a three-year period along with the
PSS version 2 development costs now being incurred. The new PSS version 2
costs are expected to total approximately $250,000 for a combined capital
cost of $543,000. For the nine-month period of December 31, 1999 to August
31, 2000, $557,854 of the original development cost was impaired.
Amortization of the capitalized costs will begin on the release date of PSS
version 2, now estimated as October 31, 2000. This impairment represents a
$557,854 write-off as impaired on a total capitalized expenditure of
$850,854, amounting to a 65.56% write-off.
The decrease of $145,348 in commissions on franchise sales for the nine
months ended August 31, 2000 compared to the nine months ended August 31,
1999 is due to the sale of fewer stores.
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 23, 2000, 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 3,047,588 8,375
John Grant 3,047,588 8,375
F. Edward Gustafson 3,047,988 7,975
John E. Kelly 3,047,588 8,375
Laura K. McGrath 3,047,588 8,375
Item 6. Exhibits and Reports on Form 8-K.
-----------------------------------------
(a) Exhibits
3.1(a) Articles of Incorporation, incorporated by reference to
Exhibit (3)(a) of the Company's Annual Report on Form 10-KSB
for the fiscal year ended November 30, 1995.
3.1(b) Articles of Amendment to the Articles of Incorporation filed
with the Colorado Secretary of State on January 26,1998
incorporated by reference to Exhibit (3)(b) of the Company's
Annual report on Form 10KSB for the fiscal year ended
November 30, 1997.
3.1(c) Articles of Amendment to the Articles of Incorporation filed
with the Colorado Secretary of State on July 13, 1998,
incorporated by reference to Exhibit 3(a) of the Company's
Quarterly Report on Form 10-QSB for the quarter ended May
31, 1998.
3.2 Bylaws incorporated by reference to Exhibit 3(b) of the
Company's Quarterly Report on Form 10-QSB for the quarter
ended May 31, 1998.
(b) Reports on Form 8-K
None.
Item 27 Financial Data Schedule
-------------------------------
Filed herewith.*
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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 11, 2000
By: /s/ John E. Kelly
---------------------
John E. Kelly
President
By: /s/ James Q. Race
---------------------
James Q. Race
Secretary and Treasurer
