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 June 30, 1996
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 May 14, 1996, was 7,646,853 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, 1995, 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
June 30, 1996 3 - 4
Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 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
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1996
ASSETS
Current assets:
Cash and equivalents $2,538,453
Trade accounts receivable, less allowance for
doubtful accounts of $423,779 348,368
Officer receivables 21,894
Notes receivable 154,000
Investment in marketable securities 199,999
Prepaid expenses 183,143
Other current assets 192,869
---------
Total current assets 3,638,726
---------
Property and equipment, net 1,295,834
---------
Intangible assets:
Covenants not to compete, net 65,911
Goodwill, net 302,775
Other intangibles, net 329,952
---------
698,638
---------
Other 107,731
---------
$5,740,929
=========
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, Continued
June 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized leases payable $ 12,816
Accounts payable 325,576
Advances from officer 31,513
Accrued liabilities:
Accrued payroll, payroll taxes and benefits 104,417
Accrued money order and money transfer drafts payable 1,465,307
Other 167,969
----------
Total current liabilities 2,107,598
Capitalized leases payable, net of current maturities 14,405
Deferred income 2,063,373
----------
Total liabilities 4,185,376
----------
Commitments
Stockholders' equity:
Preferred stock - no par value; authorized 50,000 shares;
none issued and outstanding
Common stock - par value $.06 per share; authorized
15,000,000, issued and outstanding 7,646,853 458,811
Additional paid-in capital 19,204,375
Accumulated deficit (15,082,071)
----------
4,581,115
Less receivables from officers, directors and others
related to issuance of common stock - 1,107,666 shares
held under notes receivable (3,025,562)
----------
Total stockholders' equity 1,555,553
----------
$ 5,740,929
==========
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and commissions $1,193,880 $1,202,293 $2,314,151 $2,400,098
Operating expenses 1,485,899 1,334,722 2,770,555 2,605,965
--------- --------- --------- ---------
Operating loss (292,019) (132,429) (456,404) (205,867)
--------- --------- --------- ---------
Other income (expense):
Interest income 2,779 917 6,872 1,769
Interest expense (4,224) (1,870) (19,499) (3,605)
Other, net 3,300 (57,230) 7,900 (59,515)
--------- --------- --------- ---------
1,855 (58,184) (4,727) (61,351)
--------- --------- --------- ---------
Loss before income taxes (290,164) (190,613) (461,131) (267,218)
Income taxes - - (2,400) (2,400)
--------- --------- --------- ---------
Net loss ($290,164) ($190,613) $(463,531) $(269,618)
========= ========= ========= =========
Net loss per common share ($0.04) ($0.02) ($.06) ($0.03)
========= ========= ========= =========
Weighted average common shares outstanding 7,646,853 9,782,177 7,646,853 9,782,177
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Month Period Ended June 30, 1996 and 1995
1996 1995
---------- ----------
Cash flows from operating activities:
Net cash provided by (used in)
operating activities $ 848,906 ($793,082)
--------- --------
Cash flows from investing activities:
Capital expenditures (393,564) (51,310)
Proceeds from disposal of assets - 15,000
Advances to officers (21,615) -
Increase in other long-term assets (16,213) (2,550)
--------- --------
Net cash used in investing activities (431,392) (38,860)
--------- --------
Cash flows from financing activities:
Proceeds from advances 969,500 -
Payments on advances (969,500) -
Advances from officer - 234,400
Payments on advances from officer (89,011) (135,312)
Principal payments on debt (5,359) (4,643)
--------- --------
Net cash used in financing activities (94,370) 94,445
--------- --------
Net increase (decrease) in cash and
cash equivalents $ 323,144 ($737,497)
========= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six-month period
ended June 30, for:
Interest $19,499 $3,605
Compensation paid through issuance of
restricted common stock $15,000 $ -
See accompanying notes to consolidated financial statements
<PAGE>
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 six-month period ended June 30,
1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
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, 1995, 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 1996 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 June 30, 1996, consists of the following:
Equipment $1,075,003
Vehicles 16,427
Construction in progress 92,263
Leasehold improvements 1,207,051
---------
2,390,744
Accumulated depreciation 1,094,910
---------
$1,295,834
=========
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) INTANGIBLE ASSETS
Intangible assets at June 30, 1996, consists of the following:
Covenants not to compete $573,063
less accumulated amortization 507,152
-------
$ 65,911
=======
Goodwill $461,076
Less accumulated amortization 158,301
-------
$302,775
=======
Other intangibles $413,158
Less accumulated amortization 83,206
-------
$329,952
=======
(4) DEFERRED INCOME
On December 22, 1995, the Company amended its agreement with American
Express to offer MoneyGram services. This amendment extended the term of
the agreement for seven years beginning in 1996. As consideration for
signing this amendment, the Company received an up-front signing bonus of
$2,000,000 and future incentives for opening new MoneyGram service
locations. During the second quarter of 1996, the Company accrued $150,000
in new store bonuses. The signing and new store bonuses will be deferred
and amortized over the seven year life of the agreement.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents increased $323,144 to $2,538,453 for the
six-month period ended June 30, 1996. Cash was provided by operating
activities of $848,906. Cash was used in investing and financing
activities of $431,392 and $94,370, respectively.
Net working capital increased $1,238,005 to $1,531,128 as of June 30,
1996 compared to $293,123 as of December 31, 1995. This increase was
the result of receiving signing and new stores' bonus of $2,000,000
and $150,000, respectively, from American Express for amending the
Company's agreement to offer MoneyGram services for an additional
seven years, and building three new stores during the six-month period
ended June 30, 1996.
Cash used in investing activities is primarily the result of cost
incurred for construction of four new service locations. Two kiosks
under its license agreement with a retail department store chain on
the east coast were opened during the six-month period ended June 30,
1996. One Mega store was opened in April 1996 and another one is
expected to be opened in August 1996.
Cash used in financing activities is primarily the result of repaying
advances from an officer received in 1995. In addition, the Company
received and repaid advances to outside parties during the six-month
period ended June 30, 1996 of $969,500.
Based on receipt of the $2,150,000 signing bonus and review of
existing operations, the Company believes it has sufficient capital
resources to finance its existing operating requirements. The Company
is also in the process of evaluating financing alternatives for
purchase of a point of sale computer system and planned expansion for
the remainder of 1996.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 compared to six-months ended June 30,
1995
Revenues:
Revenues decreased $85,947 or 3.6% to $2,314,151 for the six-month
period ended June 30, 1996 compared to revenues of $2,400,098 for the
same period in 1995. This decline was primarily the result of a
decrease in check cashing revenues of $203,614 which was offset by
increase in money transfer and other revenues of $76,160 and $48,791,
respectively.
The decrease in check cashing revenues was primarily the result of
discontinuing the service to one of the Company's corporate accounts,
closure of six locations in 1995 and reduction of check cashing
revenues on the Navajo Nation. Check cashing revenues at the location
servicing the corporate account has decreased approximately $90,000.
The Company decided to discontinue the service to the corporate account
due to the high exposure to bad checks. The six locations closed in
1995 represented revenues of $111,114 for the six-months ended
June 30, 1995 and there was a $27,879 decrease in check cashing revenues
on the Navajo Nation.
<PAGE>
Even though there has been a decrease in check cashing revenues for
the period ended June 30, 1996 as compared to 1995, it should be noted
that there has been a significant increase in the monthly check
cashing revenues since the beginning of the year. This increase was
due in part to the increase in working capital. In addition, the
Company closed its locations on the Navajo Nation in July 1996.
Over the past year, the Company has redefined its target market niche
and will concentrate on building Mega stores in metropolitan areas
catering to the immigrant population during 1996. These stores are
larger, more visible stores offering a wider range of services.
Currently, the Company operates four Mega stores, one of which was
opened in April 1996 and expects to open one in August 1996. The
store opened in April 1996 has achieved expected results in check
cashing revenues. These Mega stores should have a significant impact
on the check cashing revenues for the remainder of the year.
The increase in money transfer revenues is the result of an increase
in the amortization of deferred income and an overall increase in
earnings at the service locations offset by a decrease in the minimum
guaranteed revenues from American Express.
Due to the receipt of the $2,150,000 bonus, the amortization of
deferred income increased approximately $148,000 in 1996.
Overall earnings at the service locations are up approximately $40,000
after accounting for a $36,411 decrease for stores closed in 1995.
This increased performance by the stores in 1996 had a direct impact
on the minimum guaranteed revenues. As a component of the American
Express agreement, American Express has guaranteed the Company minimum
quarterly revenue. Since the stores earnings are up, American
Express's contribution to the guarantee has decreased approximately
$75,000.
Operating expenses:
Operating expenses consist of costs of providing services (cost of
sales) and general and administrative expenses. Total operating
expenses increased $164,590 or 6.3% for the six-month period ended
June 30, 1996, compared to the same period for 1995.
This increase is primarily the result of increases in payroll, bad
debt and advertising expense of $83,425, $52,242 and $44,397,
respectively.
Payroll expenses increased due to several factors including hiring a
management information systems manager, merit increases, increase in
the minimum store clerk wage from $6.00 to $7.00, significant overtime
pay due to staff shortages and payroll associated to the three new
stores opened in 1996. These increases were offset by a payroll
decrease for the six stores closed in 1995.
<PAGE>
Bad debt expenses increased due to an overall increase in the
percentage of uncollectible checks cashed from approximately 6% at
June 30, 1995 to 11% at June 30, 1996 to check cashing revenues. It
should be noted that the bad debt percentage for the year ended
December 31, 1995 amounted to approximately 10% which is in line with
the percentage experienced during 1996. This increase in bad debt
expense is partially the result of opening the Mega stores, which are
high volume stores with a lower fee structure which starts at 1% of
the face amount of the check. Thus, the Company is experiencing the
same ratio of returned checks, but the impact as a percentage of
revenues are greater due to the lower fee.
Advertising expense increased due to a receivable collected during the
first quarter of 1995 that was credited against the expense rather
than the receivable. This receivable amounted to $38,774 and if
properly accounted for would have resulted in an increase of only
$5,623.
Other income (expenses)
Overall, other net expense decreased $56,624 for the six-month period
ended June 30, 1996 as compared to the same period in 1995. This
decrease is primarily the result of $54,000 in non-operating legal
costs incurred in 1995.
Second Quarter Ended June 30, 1996 Compared to Second Quarter Ended
June 30, 1995
Revenues:
Revenues decreased $8,413 or .7% for the second quarter ended June 30,
1996 compared to the same period in 1995. This decrease was primarily
the result of a decrease in check cashing revenue of $68,844 offset by
an increase in money transfer revenue of $36, 273.
The decrease in check cashing revenues was primarily the result of
discontinuing the service to one of the Company's corporate accounts,
closure of six locations in 1995 and reduction of check cashing
revenues on the Navajo Nation. Check cashing revenues at the location
servicing the corporate account has decreased approximately $45,000.
The six locations closed in 1995 had fees of $49,320 for the second
quarter ended June 30, 1995 and there was a $14,410 decrease in fees
on the Navajo Nation. These decreases were offset by increases in
revenues at one of the mega stores of $32, 098 and new store fees of
$25,529.
The increase in money transfer revenues is the result of an increase
in the amortization of deferred income of $76,000 and new store
revenues of $17,321 offset by decreases in revenues from stores closed
in 1995 of $19,820 and American Express's contribution to the minimum
guarantee of approximately $16,000.
See six month results for further discussion of the change in revenue.
Operating expenses:
Total operating expenses increased $151,177 or 11.3% for the second
quarter ended June 30, 1996, compared to the same period for 1995.
<PAGE>
This increase was primarily the result of increases in payroll, bad
debt expense and small equipment expense of $78,500, $27,703 and
$11,847, respectively. See six-month results for discussion of reason
for increases in payroll and bad debt expense. Small equipment
expense primarily increased as a result of the purchase of equipment
for the new stores that were below the capitalizable cost level of
$200.
Other income (expenses)
Overall, net other expenses decreased $60,039 for the second quarter
ended June 30, 1996 as compared to the same period in 1995. This
decrease is primarily the result of $54,000 in non-operating legal
costs incurred in 1995.
Economy:
Management believes that the current economic conditions have not had
a significant impact on continuing operations nor will it have a
significant effect on future operations.
Inflation:
Management believes that inflation has not had a significant effect on
continuing operation nor will it have a significant effect on future
operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See legal proceeding described in the 1995 Form 10-KSB.
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-QSB at
page 7.
15) None
16) None
18) None
19) None
20) None
23) None
24) None
25) None
28) None
(b) None
<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 August 14, 1996
----------------------- ----------------------
K.Lee
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1996 BALANCE SHEET, STATEMENT OF INCOME AND NOTES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,538,453
<SECURITIES> 199,999
<RECEIVABLES> 772,147
<ALLOWANCES> 423,779
<INVENTORY> 0
<CURRENT-ASSETS> 3,638,726
<PP&E> 2,390,744
<DEPRECIATION> 1,094,910
<TOTAL-ASSETS> 5,740,929
<CURRENT-LIABILITIES> 2,107,598
<BONDS> 0
<COMMON> 458,811
0
0
<OTHER-SE> 1,096,742
<TOTAL-LIABILITY-AND-EQUITY> 5,740,929
<SALES> 2,314,151
<TOTAL-REVENUES> 2,770,555
<CGS> 0
<TOTAL-COSTS> 2,770,555
<OTHER-EXPENSES> (14,772)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,499
<INCOME-PRETAX> (461,131)
<INCOME-TAX> (2,400)
<INCOME-CONTINUING> (463,531)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (463,531)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
