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, 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 December , 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]
Supermail International, Inc.
Table of Contents
Pages
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet at
September 30, 1997 3 - 4
Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30,
1997 and 1996 5
Condensed Consolidated Statements of
Cash Flows Nine Months Ended September 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 - 12
PART II. OTHER INFORMATION 13 -14
SIGNATURES 15
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1997
ASSETS
Current assets:
Cash and equivalents $1,039,646
Trade accounts receivable, less allowance
for doubtful accounts of $414,050 415,142
Officer receivables 18,094
Notes receivable 137,967
Prepaid expenses 135,127
Other current assets 15,375
-----------
Total current assets 1,761,351
Property and equipment, net 1,120,940
-----------
Intangible assets:
Covenants not to compete, net 25,844
Goodwill, net 275,487
Other intangibles, net 231,376
-----------
532,707
-----------
Other 107,207
-----------
$3,522,205
===========
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, Continued
September 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized leases payable $ 47,954
Current maturities of note payable 8,907
Accounts payable 297,645
Advances from officer 8,267
Accrued liabilities:
Accrued payroll, payroll taxes and benefits 86,315
Accrued money order and money transfer
drafts payable 1,310,540
Other 76,941
---------
Total current liabilities 1,836,569
Capitalized leases payable, net of current maturities 232,023
Note payable, net of current maturities 57,985
Deferred income 1,571,898
---------
Total liabilities 3,698,475
---------
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 (16,813,894)
----------
2,849,292
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' deficit (176,270)
---------
$3,522,205
=========
See accompanying notes to consolidated financial statements.
<TABLE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and commissions $1,001,986 $1,153,030 $3,260,368 $3,467,181
Operating expenses 1,208,692 1,366,840 3,756,624 4,137,395
--------- --------- --------- ---------
Operating loss (206,706) (213,810) (496,256) (670,214)
--------- --------- --------- ---------
Other income (expense):
Interest income 231 217 675 7,089
Interest expense (74,635) (4,209) (160,154) (23,708)
Other, net (37,927) (9,500) (259,130) (1,600)
--------- --------- --------- ---------
(112,331) (13,492) (418,609) (18,219)
--------- --------- --------- ---------
Loss before income taxes (319,037) (227,302) (914,865) (688,433)
Income taxes (600) 300 300 2,700
--------- --------- --------- ---------
Net loss ($318,437) ($227,602) ($915,165)($ 691,133)
========= ========= ========= =========
Net loss per common share ($0.04) ($0.03) ($0.12) ($0.09)
========= ========= ========= =========
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.
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Period Ended September 30, 1997 and 1996
1997 1996
------- -------
Cash flows from operating activities:
Net cash (used in) provided by
operating activities $ (847,391) $1,142,759
Cash flows from investing activities:
Capital expenditures (47,027) (435,455)
Proceeds from sale of
marketable securities 102,027 -
Proceeds from disposal of assets - 1,700
Advances to officers (8,621) (28,970)
Increase in other long-term assets (16,400) (7,101)
------ ------
Net cash provided by (used in)
investing activities 29,979 (469,826)
------ -------
Cash flows from financing activities:
Proceeds from advances 13,486,000 1,169,500
Payments on advances (13,486,000) (1,169,500)
Advance from officers
and employees 459,000 -
Payments on advances from
officers and employees (455,113) (89,011)
Proceeds from note payable 70,000 -
Principal payments on capital
leases and note payable (35,706) (8,039)
------- -----
Net cash provided by (used in)
financing activities 38,181 (97,050)
------- ------
Net (decrease) increase in cash
and cash equivalents $ (779,231) $ 575,883
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the nine-month period ended
September 30, for:
Interest $160,154 $ 23,708
Income taxes $ 10,300 $ 300
Compensation paid through issuance
of restricted common stock $ - $ 15,000
See accompanying notes to consolidated financial statements
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 nine-month period ended September 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 September 30, 1997, consists of the
following:
Equipment $1,236,036
Construction in progress 14,250
Leasehold improvements 1,224,764
---------
2,475,050
Accumulated depreciation 1,354,110
---------
$1,120,940
=========
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) INTANGIBLE ASSETS
Intangible assets at September 30, 1997, consists of the
following:
Covenants not to compete $573,063
less accumulated amortization 547,219
-------
$ 25,844
=======
Goodwill $461,076
Less accumulated amortization 185,589
-------
$275,487
=======
Other intangibles $363,610
Less accumulated amortization 132,234
-------
$231,376
=======
(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 $779,231 to $1,039,646 for the
nine-month period ended September 30, 1997. Cash was provided
by investing and financing activities of $29,979 and $38,181,
respectively. Cash was used in operating activities
of $847,391.
Cash provided by investing activities is the result of selling
marketable equity securities for net proceeds of $102,027 offset
by capital expenditures of $47,027 which relate primarily to the
improvements made to four new food stamp outlets.
Cash provided by financing activities is the result of the
Company borrowing money on a short-term basis to support its
check cashing volume. The Company received and repaid
$13,486,000 in borrowings from outside parties during the
nine-month period ended September 30, 1997. In addition,
the Company received and repaid advances to officers and
employees of $459,000 and $455,113, 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 nine-month period ended September 30, 1997. In addition,
all expense categories are evaluated on an ongoing basis and
cuts made as deemed feasible.
Based on its ability to borrow monies on a short-term basis, the
Company believes it will have sufficient resources to operate.
However, to maintain and grow the business, additional capital
is necessary. The Company is negotiating a $600,000 to $1,000,000
loan or line of credit and is working on a $2,000,000 preferred
stock offering. Subsequent to September 30, the Company has
obtained short-term loans totaling $500,000 which are to repaid
from proceeds of the permanent financing once received. Proceeds
from this debt and equity financing will be used for working
capital and planned expansion.
RESULTS OF OPERATIONS
Nine-Month Period Ended September 30, 1997 compared to Nine-
Month Period ended September 30, 1996
Revenues:
Revenues decreased $206,813 or 5.9% to $3,260,368 for the
nine-month period ended September 30, 1997 compared to revenues
of $2,467,181 for the same period in 1996. This decline was
primarily the result of a decrease in check cashing, money
transfer and lobby phone revenue of $192,618, $53,110, and
$39,432, respectively, which was offset by an increase in
prepaid phone card sales of $87,220.
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,
and competition. During 1996 and early 1997, the Company closed
eight service locations which resulted in a decrease in check
cashing revenues of $185,085. This decrease was offset by a
$208,042 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 have experienced
a 20 -30% decrease in check cashing revenue for the period June
through September 1997. The Company has three food stamp locations
and expects to open two more during the fourth quarter of 1997.
The Company is going to launch an aggressive marketing campaign based
on customer demands in an effort to increase its customer base.
Money transfer revenues have decreased due to a decrease in
deferred income amortization. In 1996, the Company was
amortizing the old and new MoneyGram contracts, whereas in 1997,
only the new contract was being amortized.
Lobby phone revenues have been declining due to the increased
sale of prepaid phonecards.
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 nine-month period ended
September 30, 1996.
Operating expenses:
Operating expenses consist of costs of providing services (cost
of sales) and general and administrative expenses. Total
operating expenses decreased $380,771 or 9.0% for the nine-month
eriod ended September 30, 1997, compared to the same period for
1996.
This decrease is primarily the result of decreases in rent,
telephone, payroll, amortization, bad debts, shareholder
relations, office expense, bank charges and contract services
expense of $136,826, $48,616 $38,023, $34,716, $24,494, $21,750,
$20,549, $20,136 and $20,091, respectively.
The decrease in rent expense resulted from the closure of eight
service locations in 1996 and early 1997.
Telephone expense decreased as a result of changing the service
provider in the latter part of 1996.
Payroll decreased $132,922 as a result of closing eight service
locations in 1996 and early 1997.
This decrease was offset by an increase of $113,377 in payroll
at the four service locations opened in 1996. The remainder of
the decrease is a result of staffing changes which has reduced
overtime.
Amortization expense decreased due to certain intangible assets
becoming fully amortized in 1996.
Bad debt and bank charges have decreased due to the decrease in
checks cashed. In addition, in 1996, the Company changed its
banking relations and has experienced an overall decrease in
bank charges relative to the prior bank.
Shareholder relations expense decreased as a result of
discontinuing the use of outside public relation consultants
in 1996.
Office expense has decreased as a result of monitoring expenses
by store and controlling purchases at the corporate headquarters.
Contract services decreased as a result of discontinuing the use
of two outside computer consultants.
Other income (expenses)
Overall, other net expenses increased $400,390 for the
nine-month period ended September 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 $136,446 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.
In April 1997, the Company was robbed of $90,000 while the
monies were in-transit to a service location. This robbery is
still under investigation and may be recoverable from the Company's
insurance carrier if employee dishonesty is ascertained.
During the nine-month period ended September 30, 1997, the
Company incurred approximately $70,000 in nonoperating legal
expense associated with three lawsuits.
Third Quarter Ended September 30, 1997 Compared to Third Quarter
Ended September 30, 1996
Revenues:
Revenues decreased $151,044 or 13.1% for the third quarter ended
September 30, 1997 compared to the same period in 1996. This
decrease was primarily the result of decreases in check cashing,
money transfer and lobby phone revenues of $74,368, $68,326 and
$21,468, respectively.
See nine month-results for discussion of the change in revenue.
Operating expenses:
Total operating expenses decreased $158,148 or 11.6% for the
third quarter ended September 30, 1997, compared to the same
period for 1996.
This decrease was primarily the result of decreases in payroll,
rent, telephone and amortization expense of $46,603, $46,028,
$21,058 and $13,418, respectively. See nine-month results for
discussion of decreases in rent, telephone and amortization
expense.
Payroll decreased $33,390 as a result of closing eight service
locations in 1996 and early 1997 and $28,758 from the reduction
of administrative staff. These decrease was offset by an
increase of $23,530 in payroll at the four service locations
opened in 1996.
Other income (expenses)
Overall, net other expenses increased $98,839 for the third
quarter ended September 30, 1997 as compared to the same period
in 1996. See discussion of increases related to interest and
legal expense under the nine-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
employees' 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 parties have settled the case and have obtained oral
approval of a settlement agreement by the Court. Following
written court approval of the settlement agreement, the
Company shall make payments to the plaintiffs in an amount
which will not materially affect the Company.
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
plaintiffs 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.
The parties have settled the case and pursuant to the settlement,
the Company shall make payments to the plaintiffs in an amount
which will not materially affect the Company.
The Franklin-Lord legal proceeding described in the 1996 Form
10-KSB was settled and paid.
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 December 19, 1997
K.Lee
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,039,646
<SECURITIES> 0
<RECEIVABLES> 829,192
<ALLOWANCES> 414,050
<INVENTORY> 0
<CURRENT-ASSETS> 1,761,351
<PP&E> 2,475,050
<DEPRECIATION> 1,354,110
<TOTAL-ASSETS> 1,120,940
<CURRENT-LIABILITIES> 1,836,569
<BONDS> 0
<COMMON> 458,811
0
0
<OTHER-SE> (635,081)
<TOTAL-LIABILITY-AND-EQUITY> 3,522,205
<SALES> 3,260,368
<TOTAL-REVENUES> 3,260,368
<CGS> 0
<TOTAL-COSTS> 3,756,624
<OTHER-EXPENSES> 258,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,154
<INCOME-PRETAX> (914,865)
<INCOME-TAX> 300
<INCOME-CONTINUING> (915,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (915,165)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
