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, 1997
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 August 14, 1997, 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, 1996, 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, 1997 3 - 4
Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
PART II. OTHER INFORMATION 12
SIGNATURES 14
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
Current assets:
Cash and equivalents $1,840,097
Trade accounts receivable, less allowance for
doubtful accounts of $361,519 291,903
Officer receivables 12,828
Notes receivable 137,967
Prepaid expenses 162,332
Other current assets 50,111
---------
Total current assets 2,495,238
---------
Property and equipment, net 1,154,363
---------
Intangible assets:
Covenants not to compete, net 28,719
Goodwill, net 280,945
Other intangibles, net 243,534
---------
553,198
---------
Other 87,207
---------
$4,290,006
=========
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, Continued
June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized leases payable $ 47,954
Current maturities of note payable 8,373
Accounts payable 358,350
Advances from officer 13,267
Accrued liabilities:
Accrued payroll, payroll taxes and benefits 85,239
Accrued money order and money transfer drafts payable 1,615,072
Other 66,344
----------
Total current liabilities 2,194,599
Capitalized leases payable, net of current maturities 243,960
Note payable, net of current maturities 60,422
Deferred income 1,648,859
----------
Total liabilities 4,147,840
----------
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 (16,495,458)
----------
3,167,728
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 142,166
----------
$ 4,290,006
==========
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,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and commissions $1,104,534 $1,193,880 $2,258,381 $2,314,151
Operating expenses 1,261,831 1,485,899 2,547,933 2,770,555
--------- --------- --------- ---------
Operating loss (157,297) (292,019) (289,552) (456,404)
--------- --------- --------- ---------
Other income (expense):
Interest income 226 2,779 445 6,872
Interest expense (50,956) (4,224) (85,519) (19,499)
Other, net (224,592) 3,300 (221,203) 7,900
--------- --------- --------- ---------
(275,322) 1,855 (306,277) (4,727)
--------- --------- --------- ---------
Loss before income taxes (432,619) (290,164) (595,829) (461,131)
Income taxes - - (900) (2,400)
--------- --------- --------- ---------
Net loss ($432,619) ($290,164) $(596,729) $(463,531)
========= ========= ========= =========
Net loss per common share ($0.06) ($0.02) ($.08) ($0.06)
========= ========= ========= =========
Weighted average common shares outstanding 7,646,853 7,646,853 7,646,853 7,646,853
========= ========= ========= =========
</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, 1997 and 1996
1997 1996
---------- ----------
Cash flows from operating activities:
Net cash provided by (used in)
operating activities $ (106,548) $848,906
--------- --------
Cash flows from investing activities:
Capital expenditures (11,525) (393,564)
Proceeds from sale of marketable securities 102,027 -
Advances to officers (3,355) (21,615)
(Decrease) increase in other long-term assets 3,600 (16,213)
--------- --------
Net cash provided by
(used in) investing activities 90,747 (431,392)
--------- --------
Cash flows from financing activities:
Proceeds from advances 6,611,000 969,500
Payments on advances (6,611,000 (969,500)
Advances from officers and employees 409,000 -
Payments on advances
from officers and employees (420,113) (89,011)
Proceeds from note payable 70,000 -
Principal payments on
capital leases and note payable (21,866) (5,359)
--------- --------
Net cash provided by
(used in) financing activities 37,021 (94,370)
--------- --------
Net increase in cash and cash equivalents $ 21,220 $ 323,144
========= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six-month period
ended June 30, for:
Interest $85,519 $ 3,605
Income taxes $10,100 $ 2,400
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,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
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, 1996, 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 1997 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, 1997, consists of the following:
Equipment $1,221,262
Construction in progress 14,250
Leasehold improvements 1,203,784
---------
2,439,296
Accumulated depreciation 1,284,933
---------
$1,154,363
=========
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) INTANGIBLE ASSETS
Intangible assets at June 30, 1997, consists of the following:
Covenants not to compete $573,063
less accumulated amortization 544,344
-------
$ 28,719
=======
Goodwill $461,076
Less accumulated amortization 180,131
-------
$280,945
=======
Other intangibles $363,610
Less accumulated amortization 120,076
-------
$243,534
=======
(4) NOTE PAYABLE
In April 1997, the Company obtained a loan for $70,000. This loan bears
interest at 25% per annum and is payable in monthly installments of
principal and interest of $2,055 through April 2002.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents increased $21,220 to $1,840,097 for the six-month
period ended June 30, 1997. Cash was provided by investing and financing
activities of $90,747 and $37,021, respectively. Cash was used in
operating activities of $106,548.
Net working capital decreased $584,809 to $275,661 as of June 30,
1997 compared to $860,470 as of December 31, 1996. This decrease was
the result of funding the net loss for the six-month period ended June 30,
1997.
Cash provided by investing activities is the result of selling marketable
equity securities for net proceeds of $102,027.
Cash provided by financing activities is the result of borrowing money on
a short-term basis to support its check cashing volume. The Company
received and repaid $6,611,000 in borrowings from outside parties during
the six-month period ended June 30, 1997. In April 1997, the Company
obtained a $70,000 loan. This note payable is payable in monthly
installments of principal and interest of $2,055 through April 2002. In
addition, the Company received and repaid advances to officers and
employees of $409,000 and $420,113, respectively.
During 1997, the Company has taken a stringent look at all aspects of the
business in an effort to reduce its losses and achieve a positive cash flow
position. These efforts have resulted in closing two unprofitable service
locations during the six-month period ended June 30, 1997. In addition,
all expense categories are evaluated on an ongoing basis and cuts made as
deemed feasible.
Based on its existing working capital and ability to borrow monies on a
short-term basis, the Company believes it will have sufficient resources
to finance its operating requirements. In addition, the Company is
evaluating various financing sources including working lines of credit,
loans and equity investments to finance the Company's planned expansion.
RESULTS OF OPERATIONS
Six Month Period Ended June 30, 1997 compared to Six Month Period ended
June 30, 1996
Revenues:
Revenues decreased $55,770 or 2.4% to $2,258,381 for the six-month
period ended June 30, 1997 compared to revenues of $2,314,151 for the
same period in 1996. This decline was primarily the result of a
decrease in check cashing revenues of $118,251 which was offset by an
increase in prepaid phone card sales of $60,131.
<PAGE>
The decrease in check cashing revenues was influenced by several factors
including the closure of service locations, opening of new service
locations, automation of county checks, competition and employee turnover.
During 1996 and early 1997, the Company closed eight service locations
which resulted in a decrease in check cashing revenues of $143,977. This
decrease was offset by a $148,137 increase in check cashing revenues at
four service locations opened in 1996. In June 1997, the County of Los
Angeles began issuing AFDC checks through existing food stamp outlets.
This change impacted our service locations which had an approximate $30,000
decrease in check cashing revenue for the month of June. The Company has
one food stamp location and expects to open four more during the third and
fourth quarters of 1997. The Company is going to launch an aggressive
marketing campaign based on customer demands in an effort to attract new
and lost customers. In addition, the Company has an ongoing hiring practice
that is designed to hire and train employees who can operate a service
location and provide quality customer service.
The increase in phone card revenue is the result of offering phone cards in
the latter part of 1996. No revenues were earned during the six-month
period ended June 30, 1996.
Operating expenses:
Operating expenses consist of costs of providing services (cost of
sales) and general and administrative expenses. Total operating
expenses decreased $222,622 or 8.0% for the six-month period ended
June 30, 1997, compared to the same period for 1996.
This decrease is primarily the result of decreases in rent, advertising,
telephone and amortization expense of $90,798, $29,295, $27,558 and $21,298,
respectively.
The decrease in rente expense resulted from the closure of eight service
locations in 1996 and early 1997.
Advertising expense decreased as a result of reviewing the Company's
existing ads and making cuts where appropriate. In addition, the Company
incurred expenses associated with the grand opening of four service
locations in 1996.
Telephone expense decreased as a result of changing the service provider
in the latter part of 1996.
Amortization expense decreased due to certain intangible assets becoming
fully amortized in 1996.
Other income (expenses)
Overall, other net expense increased $301,550 for the six-month period
ended June 30, 1997 as compared to the same period in 1996. This
increase is the result of increases in interest expense, loss on sale of
marketable securities, robbery and nonoperating legal expense.
Interest expense increased $66,020 due to increased short-term borrowings
and interest associated with capital leases entered into in the latter part
of 1996.
During the second quarter of 1997, the Company sold its investment in
marketable securities at a loss of $97,972.
<PAGE>
In April 1997, the Company was robbed of $90,000 while the monies were in-
transit to a service location.
During the six-month period ended June 30, 1997, the Company incurred
approximately $51,000 in nonoperating legal expense.
Second Quarter Ended June 30, 1997 Compared to Second Quarter Ended
June 30, 1996
Revenues:
Revenues decreased $89,346 or 7.5% for the second quarter ended June 30,
1997 compared to the same period in 1996. This decrease was primarily
the result of a decrease in check cashing revenue of $97,312 offset by
an increase in prepaid phone card sales of $32,930.
See six-month results for discussion of the change in revenue.
Operating expenses:
Total operating expenses decreased $224,068 or 15.1% for the second
quarter ended June 30, 1997, compared to the same period for 1996.
This decrease was primarily the result of decreases in payroll, rent,
advertising, amortization and small equipment expense of $33,124,
$60,536, $18,555, $14,390 and $12,323, respectively. See six-month
results for discussion of decreases in rent, advertising and
amortization expense.
Payroll decreased $60,752 as a result of closing eight service locations
in 1996 and early 1997. This decrease was offset by an increase of $23,312
in payroll at the four service locations opened in 1996.
Small equipment expense was higher in 1996 as a result of purchasing
equipment for the new service locations opened in 1996 that were below the
Company's capitalized level of $200.
Other income (expenses)
Overall, net other expenses increased $277,177 for the second quarter
ended June 30, 1997 as compared to the same period in 1996. See discussion
of increases under the six-month results.
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.
The Company is the defendant in a class action lawsuit filed in the United
States District Court, Eastern District of California. The plaintiff in
this case alleges the Company failed to pay regular and overtime wages to
certain California employees in compliance with the Fair Labor Standards
Act and California Industrial Welfare Commission Order 4-89. The plaintiff
further alleges that the Company failed to pay employee's accrued vacation
pay, regular and overtime pay timely upon termination. Plaintiff seeks
unspecified general damages, accrued interest, penalties, liquidated damages,
attorneys' fees and costs on behalf of the class. The District Court has not
certified a class nor is it likely that a motion for class certification will
occur in the upcoming fiscal quarter.
The Company is vigorously defending itself in this case and has commenced
settlement negotiations with the plaintiff.
The Company is a party to a lawsuit filed by the Company's former Chief
Executive Officer and other former shareholders in the Superior Court of
California, Sacramento County. The plaitiffs in this case allege the
Company failed to convert preferred stock into common stock in a timely
manner. During this conversion period, the common stock price per share
fell and the plaintiffs are claiming damages caused by this delay. At this
point, the plaintiff's have asserted damages in the amount of $500,000 for
emotional distress and $1,500,000 in punitive damages.
The Company is vigorously defending itself in this case. The litigation is
in the early stages and at this stage, it appears as though the rendering of
a judgement against the Company for significant monetary damages is unlikely.
See legal proceeding described in the 1996 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, 1997
----------------------- ----------------------
K.Lee
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
June 30, 1997 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,840,097
<SECURITIES> 0
<RECEIVABLES> 653,422
<ALLOWANCES> 361,519
<INVENTORY> 0
<CURRENT-ASSETS> 2,495,238
<PP&E> 2,439,296
<DEPRECIATION> 1,284,933
<TOTAL-ASSETS> 4,290,006
<CURRENT-LIABILITIES> 2,194,599
<BONDS> 0
<COMMON> 458,811
0
0
<OTHER-SE> (316,645)
<TOTAL-LIABILITY-AND-EQUITY> 4,290,006
<SALES> 2,258,381
<TOTAL-REVENUES> 2,258,381
<CGS> 0
<TOTAL-COSTS> 2,547,933
<OTHER-EXPENSES> (220,758)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,519
<INCOME-PRETAX> (595,829)
<INCOME-TAX> (900)
<INCOME-CONTINUING> (596,729)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (596,729)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
