UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended September 30, 1995 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
________________________ to _______________________
Commission File Number 0-16894
SUPERMAIL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0423053
(State of Incorporation) (IRS Employer Identification No.)
2201 Park Towne Circle, Suite 200, Sacramento, California 95825
(address of principal executive offices)
Issuer's telephone number, including area code: (916) 483-1131
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check mark the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or 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 [ ]
The total number of shares outstanding of each of the issuer's classes of
common stock as of September 30, 1995, was 9,782,177 of a single class of $.06
par value per share common stock.
Documents Incorporated by reference:
1. Portions of the Report on Form 10-KSB(SEC File No. 0-16894) dated December
31, 1994, are incorporated by reference in Part I.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]<PAGE>
Supermail International, Inc.
Table of Contents
Pages
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet at
September 30, 1995 3 - 4
Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
PART II. OTHER INFORMATION 13
SIGNATURES 14
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SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995
ASSETS
Current assets:
Cash and equivalents $2,286,079
Trade accounts receivables, less allowance
for doubtful accounts of $187,808 363,780
Officer receivables 25,805
Notes receivable 323,999
Prepaid expenses 222,771
Other current assets 196,040
---------
Total current assets 3,418,474
---------
Property and equipment, net 1,053,144
Intangible assets:
Covenants not to compete, net 116,720
Goodwill, net 319,147
Other intangibles, net 248,673
---------
Total intangible assets 684,540
---------
Other 84,757
----------
$5,240,915
==========
See accompanying notes to condensed consolidated financial statements.
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SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
September 30, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances from officer $162,207
Advances - other 200,000
Current maturities of capitalized leases 10,866
Accounts payable 128,328
Accrued liabilities:
Accrued payroll, payroll taxes, and benefits 79,278
Accrued money order and money transfer drafts
payable 1,711,141
Other 187,816
Income taxes payable 36,845
---------
Total current liabilities 2,516,481
Capitalized lease payable, net of current maturities 25,111
Deferred income 152,625
---------
Total liabilities 2,694,217
Stockholders' equity:
Common stock - par value $.06 per share; authorized
15,000,000, issued and outstanding 9,782,177 586,930
Additional paid in capital 21,359,720
Accumulated deficit (14,075,926)
------------
7,870,724
Less receivables from officers, directors and
others related to issuance of common stock (5,324,026)
----------
Total stockholders' equity 2,546,698
----------
$5,240,915
==========
See accompanying notes to condensed consolidated financial statements.
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SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Sales and commissions $1,060,536 $1,154,375 $3,460,634 $3,407,067
Operating expenses 1,324,049 1,139,120 3,930,014 3,290,421
---------- ---------- ---------- ----------
Operating (loss) profit (263,513) 15,255 (469,380) 116,646
Other income (expenses):
Interest income 742 1,676 2,511 103,284
Interest expense (8,000) - (11,605) -
Other income (expense), net (52,700) (27,635) (112,215) (32,263)
Gain on sale of marketable
securities - 937,500 - 1,174,999
------- ------- -------- ---------
(59,958) 911,541 (121,309) 1,246,020
(Loss) income before
income taxes (323,471) 926,796 (590,689) 1,362,666
Income taxes (300) - (2,700) (3,415)
-------- ------- -------- ---------
Net income ($323,771) $926,796 ($593,389) $1,359,251
======== ======== ======== ==========
Net (loss) income per
common share: ($0.03) $0.10 ($0.06) $0.17
======== ======== ======== ==========
Average shares and dilutive
equivalents outstanding,
if applicable 9,782,177 9,705,339 9,782,177 7,814,945
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Period Ended September 30
Increase (Decrease) in Cash and Cash Equivalents
1995 1994
---- ----
Cash flows from operating activities:
Net cash flows used in operating activities ($427,102) ($633,876)
-------- --------
Cash flows from investing activities:
Capital expenditures (62,207) (671,927)
Proceeds from disposal of assets 15,000 -
Advances made to related parties - (22,375)
Redemption of time deposit 10,000 -
Long-term deposits (acquired) disposed 4,794 4,174
------ -------
Net cash used in investing activities (32,413) (690,128)
Cash flows from financing activities:
Proceeds from sale of common stock, net - 932,461
Proceeds from the collection of notes receivable - 851,973
Proceeds from other advances and issuance of debt 200,000 122,315
Advances from officers & employees 304,600 -
Principal payments on long-term debt - (47,050)
Payments on advances from officers & employees (142,393) -
Payments on capital leases (7,322) -
------- ---------
Net cash provided by financing activities 354,885 1,859,699
------- ---------
Net (decrease) increase in cash and cash equivalents ($104,630) $535,695
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the nine-month period ended September 30, for:
Interest $11,605 $ -
====== =======
Income taxes $ 300 $ -
====== =======
See accompanying notes to condensed consolidated financial statements.
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SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of the Company, such
financial statements reflect all normal recurring accruals and entries necessary
for a fair presentation of the results of operations and financial position for
the interim periods presented. Operating results for the three- and nine-month
periods ended September 30, 1995 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's financial statements in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994, which is incorporated herein by reference.
Loss per share is computed using the weighted average number of shares
outstanding, including common stock equivalents (stock options outstanding
during the period), except where the inclusions of these common stock
equivalents are anti-dilutive. In 1995 common stock equivalents have not been
used in computing the weighted average number of shares because they are
anti-dilutive. Fully diluted (loss)earnings per share does not differ
materially from primary earnings per share.
(2) PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995, consists of the following:
Equipment $1,042,124
Vehicles 13,427
Leasehold improvements 973,553
---------
2,029,104
Accumulated depreciation 975,960
---------
$1,053,144
==========
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SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) INTANGIBLE ASSETS
Intangible assets at September 30, 1995, consists of the following:
Covenants not to compete $683,063
less accumulated amortization 566,343
--------
$116,720
========
Goodwill $487,487
Less accumulated amortization 168,340
--------
$319,147
========
Other intangibles $309,069
Less accumulated amortization 60,396
--------
$248,673
========
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents decreased $104,630 to $2,390,709 for the nine-month period
ended September 30, 1995 as compared to 1994. Cash flow used in operating and
investing activities totaled $427,102 and $32,413, respectively. Cash flow
provided by financing activities totaled $354,885.
During the second and third quarters, the Company closed six marginal or
unprofitable locations which have had a material effect on operating results
since 1994. In addition, four of the five service centers opened on the Navajo
Nation have reported losses from operations in 1994. Based on 1994 operating
results, eliminating these service centers would improve operating profits and
cash flows on an annual basis in excess of $160,000 (after annualizing losses at
the Navajo Nation centers). The primary reason for the losses on the Navajo
Nation is the slow growth in check cashing revenues, which is attributable to a
retail grocery chain on the reservation cashing checks free next door to the
Company's service centers. The Company has presented several business options
to this grocery chain and has asked that this issue be resolved no later than
November 30, 1995. If a profitable solution cannot be reached, they will be
closed. Also contributing to the lower operating results is an adjustment made
to the Company's money transfer guarantee for a location in San Francisco. This
adjustment reduced the Company's guaranteed commissions by $8,000 per month or
$72,000 for the nine-month period ended September 30, 1995. Money transfer
commissions have increased significantly in spite of this adjustment.
After experiencing reoccurring losses, the liquidity position of the Company
has declined significantly. This situation has resulted in a decline in the
check cashing revenue growth experienced during the first and second quarters
of 1995. To help mitigate this concern, management has obtained approval from
American Express to close certain stores guaranteed under the Company's
national contract as well as other marginal stores. These closures should
improve the Company's cash flow over the remainder of the year. In addition,
the Company has been able to borrow money on the first of each month to help
meet check cashing demands and is currently working to obtain debt or equity
financing. The proceeds from the financing, if received, would be used to meet
working capital needs and expand operations by opening new service centers and
financing acquisitions.
Management will continue to review the business operations to determine areas
to enhance operating results. The Company has various notes receivable
totaling $2,200,000 that matured or mature during the third and fourth quarter
of 1995 and is currently working with the makers of these notes to collect
them.
Cash used in operating activities:
Cash was used in operating activities of $427,102 compared to cash used of
$633,876 for the same period during 1994.
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<PAGE>
Cash of $271,916 was used in connection with the Company's net loss of $593,389
for the nine-month period ended September 30, 1995. The cash used can be
calculated by adding $321,473 back to the Company's loss of $593,391, the net
amount of non-cash items. The non-cash items include: depreciation and
amortization of $266,740; $146,308 allowance for bad debt; and $91,575 of
deferred income recognized during 1995, related to amortization of a signing
bonus.
Increases in accounts receivable of $135,488 and other current assets of
$131,402 also used cash for the nine-month period ended September 30, 1995.
These uses of cash were offset by cash provided by an increase in the amount due
the money transfer supplier of approximately $239,244.
Cash used in investing activities:
Net cash of $32,413 was used in investing activities for the nine-month period
ended September 30, 1995 compared to cash used of $690,128 for the same period
during 1994. Capital expenditures, which accounted for most of this change,
included new and replacement equipment and start-up cost related to the
development of new markets.
Cash provided by financing activities:
Net cash of $354,885 was provided by financing activities for the six-month
period ended September 30, 1995 compared to cash provided of $1,859,699 for the
same period during 1994. During 1995, the Company received advances of $504,600
and made repayments of $142,393 to an officer, employee and outside party. In
addition, cash of $7,322 was used to make payments on capital leases.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1994
Revenues:
Revenues increased $53,567 or 1.6% for the nine-month period ended September 30,
1995 compared to the same period for 1994. This increase was primarily the
result of an increase in money transfer revenues of $161,763 which was offset by
a $60,151 decrease in electronic mail and an approximate $60,000 lotto bonus
received in 1994.
Most of the Company's locations showed an increase in money transfer commissions
during 1995 over the same period during 1994. This increase occurred even
though there was a reduction of $72,000 during this period to the Company's
guaranteed commission as previously discussed and an approximate $13,000
decrease in money transfer commissions from six locations closed during the
second and third quarters of 1995 and one store closed at the end of 1994. The
growth in money transfer commission can be attributed to a superior product into
Mexico and a series of promotions by the Company's money transfer provider. In
addition, the two Mega-stores opened in 1994 accounted for approximately
$127,000 of the increase in money transfer commissions.
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<PAGE>
The decrease in electronic mail was the result of major customers bringing these
services in-house rather than going to an outside provider.
Operating expenses:
Total operating expenses consist of costs of providing services (cost of sales)
and general and administrative expenses. Total operating expenses increased
$639,592 or 19.4% for the nine-month period ended September 30, 1995, compared
to the same period for 1994.
General and administrative expenses increased $607,793 or 19.1% for the
nine-month period ended September 30, 1995. The Company has experienced
increases in most expense categories as a result of opening six service centers
during the second quarter of 1994 and increased operating activity. The impact
of closing the six locations in 1995 has had a minimal impact on expenses
through the third quarter as most of the employees were transferred to other
locations and rent and utility expenses were still being incurred until the
premises were vacated. In addition, rent at three locations closed is still
being incurred as the leases are still in force and the premises have not been
subleased. Of the $607,793 increase, payroll, insurance, depreciation and rent
of $112,984, $69,299, $53,389 and $52,580, respectively, represented the most
significant increases.
Payroll expense increased as a result of hiring service center employees for the
six service centers opened during the second quarter of 1994. In addition, the
Company hired or promoted employees to the district manager level and added
corporate staff to oversee the expanded operations in California, Arizona and
New Mexico. These increases were offset by payroll reductions at most of the
other service centers.
Increases in insurance, depreciation, and rent expenses relate to the operations
and build out of the six service centers added in the second quarter of 1994.
In addition, insurance for 10 locations was added in 1995 and made up the
majority of the insurance increase.
Other income (expenses):
Net other income decreased $1,367,331 to a net expense of $121,311 for the nine
months ended September 30, 1995. This decrease was primarily the result of
recognizing a net gain on sale of securities of $1,174,999 and recording
interest income of $103,284 in 1994 which were subsequently reversed during the
fourth quarter. In addition, the Company incurred approximately $108,000 in
non-operating legal expense and recognized a loss of $9,279 on the sale of two
marginal service centers during 1995. The legal expense relates to a case
between the State of Arizona and a business that the Company had dealings with
in a prior year. While the Company is not named in this action, it has incurred
legal expense associated with obtaining legal counsel to represent officers,
directors and employees in the investigation for this case.
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<PAGE>
Third Quarter Ended September 30, 1995 Compared to Third Quarter Ended September
30, 1994
Revenues:
Revenues decreased $93,839 or 8.1% for the third quarter ended September 30,
1995 compared to the same period for 1994. This decrease was primarily the
result of decreases in check cashing and electronic mail revenues of $76,532 and
$21,854, respectively. These decreases were offset by a $38,826 increase in
money transfer revenues.
The decrease in check cashing revenues is the result of a $58,000 decrease in
revenues from the six locations closed in 1995 offset by a $42,000 increase in
revenues at one Mega-store. In addition, three locations have experienced a
combined decrease in revenues of $49,000. The decrease at these locations is
the result of personnel changes, dropping a major corporate account and declines
at a location on the Navajo reservation. In addition, check cashing revenues
were lower than expected due to the decline in the Company's cash position which
inhibited its ability to cash checks. The reasons for changes in electronic
mail and money transfer revenues are the same as previously discussed.
Operating expenses:
Total operating expenses increased $184,929 or 16.2% for the third quarter ended
September 30, 1995, compared to the same period for 1994.
General and administrative expenses increased $161,966 or 14.7% for the third
quarter ended September 30, 1995. This increase was partly the result of an
increase in insurance of $47,564. The increase in insurance was the result of
adding 10 locations to the policy which was charged to operations in the third
quarter. In addition, expenses totaling approximately $125,000 incurred in 1994
were capitalized as Regulation S expenses during the third quarter of 1994.
These capitalized costs along with the increase in insurance, make up the
majority of the increase in general and administrative expenses.
Other income (expenses):
Net other income decreased $971,501 to a net expense of $59,960 for the third
quarter ended September 30, 1995. This decrease is described under the
nine-month results.
Economy:
Management believes that the current economic conditions have not had a
significant impact on continuing operations nor will they have a significant
effect on future operations.
Inflation:
Management believes that inflation has not had a significant effect on
continuing operations nor will it have a significant effect on future
operations.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Items 4. Submission of Matters to a Vote of Security Holders.
None
Items 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) The following are filed as exhibits to the quarterly report.
The numbers refer to the Exhibit Table of Item 601 of Regulation S-K.
2) None
4) None
11) Computation of earnings per share. See Note 1 of Part I, Item 1,
Financial Statements filed with this Form 10-Q at page 6.
15) None
16) None
18) None
19) None
20) None
23) None
24) None
25) None
28) None
(b) None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Supermail International, Inc.
(Registrant)
By /s/ K. Lee Date November 13, 1995
K.Lee
Chief Accounting Officer
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