U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
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: (916) 483-1131
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenue for the year ended December 31, 1997: $4,171,745
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 19, 1998: $1,529,370
The total number of shares outstanding of each of the Issuers's classes
of common stock as of March 19, 1998, was 7,646,853 of a single class of
$.06 par value per share common stock.
Documents Incorporated by Reference:
None
Transitional Small Business Disclosure Format: Yes ; No X<PAGE>
Supermail International, Inc.
Table of Contents
PART I
ITEM 1 Description of Business 3
ITEM 2 Description of Properties 5
ITEM 3 Legal Proceedings 7
ITEM 4 Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters 8
ITEM 6 Management's Discussion and Analysis or
Plan of Operation 8-12
ITEM 7 Consolidated Financial Statements and Report
of Independent Certified Public Accountants 13-28
ITEM 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 29
PART III
ITEM 9 Directors and Executive Officers of the Registrant 30
ITEM 10 Executive Compensation 31
ITEM 11 Security Ownership of Certain Beneficial Owners and
Management 32
ITEM 12 Certain Relationships and Related Transactions 33
ITEM 13 Exhibits and Reports on Form 8-K 34-36
SIGNATURES 37
<PAGE>
PART I
ITEM 1 Description of Business
General Description of Business
Supermail International, Inc. (the "Company") was incorporated in Utah on
October 12, 1979. as World Wholesalers, Inc. The operations of the Company
are carried out through its wholly-owned subsidiary, Supermail International
of Utah, Inc. (the "Utah subsidiary").
The Company offers a wide range of non-banking financial and communication
services through its 20 retail service centers. These services include check
cashing, money transfer and money orders through MoneyGram and Integrated
Payment Systems, food stamp distribution, and utility payments. Other
services and products offered through the Company's retail outlets include
telegrams, Mailgrams, telex, facsimile transmissions, overnight courier and
delivery services, California lottery and lotto sales, postal services,
packaging and shipping services, peso exchange, and transit ticketssales.
While some services and products are not offered at every retail center, all
stores provide check cashing, money transfer, money orders, utility payment
collection, and electronic mail services including telegrams, Mailgrams, and
facsimile. Check cashing and money transfer revenues accounted for 48% and
36%, respectively of the Company's total revenues during 1997.
The Company commenced operations with the opening of its first retail outlet
in San Francisco,California, during October 1985. By the end of 1986 the
Company operated eleven retail centers throughout California and in Reno,
Nevada. These centers were acquired by purchasing them from existing operators
and taking over Western Union turnkey locations. The Company's business
during 1986 consisted primarily of electronic mail and Western Union money
transfer services.
During 1987, the Company determined that the best way to increase revenues
was a combination of acquisitions and additional services offered at existing
retail outlets. Electronic mail and money transfer accounted for approxi-
mately 90% of total revenues during 1987, thus, the Company decided it would
be prudent to expand its revenues with other products and services. The
Company determined that check cashing was a good complement to the existing
revenue base because check cashing was similar in nature and the Company
would be servicing the same customer base and utilizing existing plant and
equipment. The Company started check cashing in December. 1987 at its
Sacramento, California, retail outlet. As of January 1992, the Company
began offering money transfer service through MoneyGram (formerly American
Express). On September 12, 1995, the Company entered into a license
agreement with a retail department store chain on the east coast to install
kiosks in some of their stores (a kiosk is a secured portable booth). The
Company opened one kiosk in February and March 1996. These kiosks provide
services similar to those currently offered by the Company.
The Company continues to look for opportunities to increase its existing
revenue base. The Company intends to continue its expansion in 1998 through
opening or acquiring additional check cashing locations. The actual number
and estimated cost of these centers depends upon the cash flow generated
from operations and available financing. Locations for future centers are
expected to be in high traffic suburban areas such as malls, regional
shopping centers, and commercial business districts.
Description of Store Operations
As of December 31, 1997, the Company operated 20 retail service centers, 18
in California, one in Virginia and one in Maryland.
The typical service center requires about 1,200 square feet and employs an
average of three people. The stores' hours are coordinated with those of
other stores and shops in the vicinity. Generally, the hours are from 8 a.m.
to 9 p.m., six days a week with many outlets open on Sundays from 8 a.m. to
6 p.m. The Company has five Mega-stores which are larger than the typical
service center. A Mega store occupies approximately 2,000 square feet and has
up to 12 teller windows. All the centers consist of a public lobby separated
from the work area by a counter and a bulletproof barrier. The Company offers
a variety of payment methods depending on the type of service selected by the
customer. Check cashing revenues are collected by deducting the amount due
from the customer's check. The Company requires money transfers,
money orders, transit tickets, lottery and lotto sales, and postal service to
be paid for in cash. Other products and services may be paid for using cash
or credit cards.
Each of the Company's retail centers is equipped with Company leased computer
hardware and software, MoneyGram (money transfer) leased computers and
software, Integrated Payment Systems automatic money order dispensers,
facsimile, photocopier and telex equipment.
Management and Business Conditions
The majority of the Company's senior management have all been employed by
the Company since its inception and have extensive background and experience
in financial and business management. The Company's district supervisors and
store managers have an average of five years management experience. The
Company has an extensive training program for both managers and retail store
personnel. The Company makes every effort to retain and promote employees
from within the organization. The Company is current with its banking permits
for all store locations. No other special professional licenses or franchises
are necessary to carry on the Company's current business operations. The
Company is in compliance with all state and federal laws which regulate its
business. The Company is not aware of any pending legislation which would
materially affect the Company's business or operations.
The Company's customers consist primarily of individuals and businesses who
do not regularly use banks, savings and loans, or credit unions. This market
is estimated to be in excess of 25% of the United States adult population,
according to the American Bankers Association. The Company does not compete
with traditional financial institutions but instead competes with other
check cashing companies. The Company cashes primarily payroll checks, social
security checks and other government entitlement checks. The Company charges
between 1.0% and 3.5% to cash a check. The average fee is less than 1.5%,
which is lower than most of the Company's competition. The Company's policy
is to offer its services through convenient retail locations, with fast
friendly service and competitive pricing. The Company believes this positions
it to effectively meet competition whenever it occurs.
The Company offers Western Union telegrams, international messages, telex and
Mailgram messages on a non-contractual basis. These services are offered in
accordance with tariffs filed with the Federal Communications Commission by
Western Union and other Western Union policies and procedures in existence
from time to time.
On December 22, 1995, the Company amended its contract with MoneyGram to
offer money transfer service for an additional seven-years. This agreement
provided an up-front signing bonus of $2,000,000, future incentives for
opening new MoneyGram Service locations and certain other payments to the
Company over the seven-year period. MoneyGram currently makes monthly
payments to the Company for earned commissions on services provided to
customers based upon the type of transaction performed, on a per transaction
or percentage of customer fee basis as specified in the agency agreement. The
agreement also provides for guaranteed minimum payments, which are paid
quarterly when earned commissions do not meet the guaranteed amounts.
MoneyGram furnishes the Company, at MoneyGram's expense, equipment, signage,
and forms necessary for providing their services.
The Company believes that termination of this agency agreement with MoneyGram
could have a material adverse effect on the Company's operations. MoneyGram
money transfer service currently accounts for 36% of the Company's total
revenues. MoneyGram may terminate its contract with the Company for the
following reasons: if the Company fails to remit monies' due MoneyGram under
the trust agreement; if there is a material adverse change in the financial
condition of the Company; if the Company does not obtain MoneyGram's prior
consent to any sale, merger, or transfer of ownership of the Company; or if
the Company fails to comply with state or federal laws regulating the
Company's business.
The Company markets its services by means of advertisements in local
newspapers, Yellow Pages, bus benches, flyers, direct mail, radio,
television, personal contact with large organizations which may use the
Company's services, and through high-visibility signage strategically located
in each center's servicing area. The Company has received trademark
protection for the words "Supermail International."
Employees
At December 31, 1997, the Company had 77 employees. Of these, 12 were
full-time salaried, 60 were full-time hourly, and 5 were part-time hourly
employees. Corporate headquarters employs 10 full-time salaried employees who
devote all of their time to the management of the Company.
The remaining 67 employees provide financial and other related services in
the Company's retail service centers. The Company plans to hire additional
personnel as needed to accommodate planned growth. The employees of the
Company are not subject to collective bargaining and the Company does
not have a pension or other retirement plan. The Company considers its
relations with its employees to be excellent.
ITEM 2 Description of Properties
The Company occupies a 4,600-square foot office at 2201 Park Towne Circle in
Sacramento, California, which serves as corporate headquarters. The Company
leases these premises through June 1999 at a monthly lease amount of $3,684.
The Company also holds leases for 21 service centers. The Company cannot
guarantee that the lessors will renew these leases. However, it has no
reason to believe that the leases will not be renewed. The Company also
believes that it can find alternative locations at comparable rents Set
forth below is information concerning Company locations as of
December 31, 1997:
Location Type Sq. Ft Expiration
5803 N. Figueroa Street
Los Angeles, CA 90042 Leased 900 Monthly
2430 Broadway
Oakland, CA 94612 Leased 2,018 10/31/98
161 W. San Fernando Street
San Jose, CA 95113 Leased 1,500 04/30/98
110 S. El Camino Real
San Mateo, CA 94401 Leased 1,000 Monthly
2400 E. Florence Ave
Huntington Park, CA 90255 Leased 1,850 01/31/99
11009 Burbank Blvd., #123
No. Hollywood, CA 91601 Leased 808 Monthly
6371 Selma Avenue
Hollywood, CA 90028 Leased 1,203 08/01/98
6219 Van Nuys Blvd.
Van Nuys, CA 91401 Leased 1,200 Monthly
3970 University Avenue
Riverside, CA 92501 Leased 1,210 Monthly
11849 Braddock Drive
Culver City, CA 90230 Leased 736 Monthly
6740 Reseda Blvd., #A
Reseda, CA 91335 Leased 2,365 09/10/00
6320 S. Compton Avenue
Los Angeles, CA 90001 Leased 600 Monthly
2688 E. Florence Avenue
Huntington Park, CA 90255 Leased 1,750 09/15/98
231 East 17th Street
Santa Ana, CA 92706 Leased 1,246 02/01/00
1706 Long Beach Blvd.
Long Beach, CA 90813 Leased (1) 1,306 12/14/98
260 S. Normandie Avenue
Los Angeles, CA 90004 Leased 982 04/30/99
7201 S. Pacific Blvd.
Huntington Park, CA 90004 Leased 1,600 01/31/01
10167 Folsom Blvd.
Rancho Cordova, CA 95670 Leased 1,200 Monthly
111 W. Pacific Coast Hwy., #D
Wilmington, CA 90744 Leased 1,154 11/18/98
6751 Wilson Blvd.
Falls Church, VA 22042 Leased 400 Monthly
9033 Central Avenue
Capitol Hts., MD 20784 Leased 400 Monthly
(1) Closed store still under lease.
ITEM 3 Legal Proceedings
None.
ITEM 4 Submission of Matters to a Vote of Security Holders
None.<PAGE>
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters
Market Information
The Company's common stock trades on The NASDAQ OTC Bulletin Board under the
symbol SPML. The following table sets forth by quarter the high and the low
prices reported by the "real-time" sales and price information system of the
NASDAQ Small-Cap Market and NASDAQ Trading and Market Services of the
Company's common stock for 1997 and 1996.
MARKET INFORMATION
Price per Share
1997 High Low
First Quarter $0.35 $0.20
Second Quarter 0.45 0.16
Third Quarter 0.95 0.31
Fourth Quarter 0.84 0.32
1996 High Low
First Quarter $1.05 $0.14
Second Quarter 0.57 0.28
Third Quarter 0.73 0.40
Fourth Quarter 0.45 0.18
Holders
As of December 31, 1997, there were 2,923 stockholders of record. However,
based upon information supplied by the Company's transfer records, brokers
and nominees with respect to shares held in street name, the Company
calculates it has approximately 5,000 total shareholders.
Dividends
The Company has not declared or paid any dividends on its common stock. The
Company plans to reinvest any earnings toward continued expansion efforts at
this time.
ITEM 6 Management's Discussion and Analysis
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents decreased $843,607 to $975,270 as of December 31, 1997
compared to $1,818,877 for the same period in 1996. Cash was used in
operating activities of $1,249,426 and provided by investing and financing
activities of $59,713 and $346,106, respectively.<PAGE>
Cash provided by investing activities is the result of selling marketable
equity securities for net proceeds of $102,027 offset by capital expenditures
of $50,038 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 $18,696,146 and $18,346,002, respectively, in borrowings
from outside parties during the year ended December 31, 1997. In addition,
the Company received and repaid advances to officers and employees of $471,000
and $458,097, respectively.
During 1997 and early 1998, 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 centers in 1997 and one in early 1998. In addition, the
Company has reduced expenses. All expense categories are being evaluated and
the Company has already taken steps to reduce its major expenses such as
payroll for 1998. Other expenses will be evaluated on an ongoing basis to make
cuts as deemed feasible in order to achieve positive cash flow and profit in
1998.
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
currently evaluating various financing arrangements including: 1) a $1,050,000
note payable, $300,000 revolving line of credit and $1,650,000 in preferred
stock, and 2) $1,500,000 equity and $2,000,000 convertible debenture offering.
Subsequent to December 31, 1997 the Company received net proceeds of $308,000
from 10% Series A Senior Subordinated Convertible Redeemable Debentures with a
face amount of $437,500 due December 31, 1999. Proceeds from this and future
debt and equity financing will be used for working capital and planned
expansion.
RESULTS OF OPERATIONS (1997 AS COMPARED TO 1996)
Revenues
Revenues decreased $373,263 or 8.2% to $4,171,745 for the year ended December
31, 1997, compared to revenues of $4,545,008 for the year ended December 31,
1996. This decrease was the result of decreases in check cashing, lobby phone
and money transfer revenues of $293,355, $67,882 and $64,558, respectively,
offset by an increase in phone card revenues of $70,424.
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 $205,567. This decrease was offset by a $228,631 increase
in check cashing revenues at four service locations opened in 1996. In June
1997, the County of Los Angeles began issuing Aid for Families with Dependent
Children checks through existing food stamp outlets. This change has impacted
our service locations which have experienced an average decrease of 25% in
check cashing revenue for the period June through December 1997. The Company
has three food stamp location as of December 31, 1997 and opened two more in
January 1998. The Company anticipates increases in check cashing revenues at
these new food stamp locations which will offset decreases experienced by the
other stores. The Company is going to launch an aggressive marketing campaign
based on customer demands in an effort to increase its customer base.
Lobby phone revenues have been declining due to the increased sale of prepaid
phone cards.
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.
The increase in phone card revenue was the result of offering phone cards for
a full year in 1997 versus three months in 1996.
Operating Expenses
Operating expenses consist of costs of providing services (cost of sales) and
general and administrative expenses. Total operating expenses decreased
$567,869 or 10.3% for the year ended December 31, 1997, compared to 1996.
This decrease was primarily the result of decreases in rent, shareholder
relations, telephone, payroll, amortization, advertising, office expense,
contract services and bad debt expense of $163,111, $77,891, $67,662, $49,350,
$47,129, $46,563, $34,121, $31,299 and $31,114, respectively.
The decrease in rent expense resulted from the closure of eight service
locations in 1996 and early 1997 and the reduction of rent at the corporate
office. This decrease is offset by an increasein rent at new stores opened
in 1996.
Shareholder relations expense decreased as a result of discontinuing the use
of outside public relation consultants in 1996.
Telephone expense decreased as a result of changing the service provider in
the latter part of 1996.
The decrease in payroll expense of $49,350 was the result of a decrease of
$147,004 related to the closure of eight service locations in 1996 and early
1997. This decrease was offset by an increase of $119,564 in payroll at the
four service locations opened in 1996. The remainder of the decrease is a
result of staffing changes and reduced overtime.
Amortization expense decreased due to certain intangible assets becoming fully
amortized in 1996.
Advertising costs have decreased as a result of the Company reducing their
ad space in all local phone books. This reduction stemmed from MoneyGram
changing its co-op advertising program.
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.
Bad debt expense has decreased as a direct result of the decrease in checks
cashed.
Other Income (Expenses)
Overall, other net expenses increased $1,016,757 for the year ended December
31, 1997 as compared to 1996. This increase is the result of increases in
interest expense, loss on sale of marketable securities, write-off of
intangible assets, write-off of notes receivable, robbery and nonoperating
legal expense.
Interest expense increased $208,263 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.
The Company wrote-off $460,731 in organization costs and goodwill associated
to projects and acquisitions which have had their future viability impaired.
The Company wrote-off two notes receivable totaling $137,967 as they were
deemed uncollectible.
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. The timing, amount and probability of insurance
recovery payments, if any, is uncertain.
The Company incurred $191,935 in nonoperating legal expense associated with
the settlement of three lawsuits.
YEAR 2000
During 1997, the Company installed a Point-of-Sale System at all of its service
locations. This system is Year 2000 compliant. The Company's accounting
System will be replaced in 1998 to be Year 2000 compliant at a minimal cost.
<PAGE>
ITEM 7 Consolidated Financial Statements and Report of Independent
Certified Public Accountants<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Supermail International, Inc.
We have audited the accompanying consolidated balance sheet of Supermail
International, Inc. and subsidiary as of December 31, 1997, and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Supermail
International, Inc. and subsidiary as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $2,090,740 during the
year ended December 31, 1997, and, as of that date, the Company's current
liabilities exceeded its current assets by $778,661 and its total liabilities
exceeded its total assets by $1,321,845. These factors, among others, as
discussed in Note 1 to the consolidated financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 6, 1998
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS
Current assets:
Cash and equivalents $ 975,270
Trade accounts receivable, less allowance for
doubtful accounts of $508,914 253,250
Prepaid expenses 220,935
Other current assets 24,442
----------
Total current assets 1,473,897
----------
Property and equipment, net 1,013,974
----------
Intangible assets:
Covenants not to compete, net 22,969
Other intangibles, net 28,515
----------
51,484
----------
Other 186,429
----------
$ 2,725,784
==========
See accompanying notes to consolidated financial statements.<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET, continued
December 31, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of capitalized leases payable $ 64,055
Current maturities of notes payable, including
significant portion to related party 78,933
Accounts payable 622,325
Advances from officer 37,283
Advances from others 350,144
Accrued liabilities:
Accrued payroll, payroll taxes and benefits 99,325
Accrued money order and money transfer drafts payable 936,457
Other 64,036
---------
Total current liabilities 2,252,558
Capitalized leases payable, net of current maturities 201,509
Notes payable, net of current maturities, including
significant portion to related party 98,625
Deferred income 1,494,937
---------
Total liabilities 4,047,629
Commitments (Notes 7 and 11)
Stockholders' deficit:
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 19,234,375
Accumulated deficit (17,989,469)
-----------
1,703,717
Less receivables from officers, directors and others
related to issuance of common stock - 1,107,660 shares
held under notes receivable (3,025,562)
----------
Total stockholders' deficit (1,321,845)
----------
Total liabilities and stockholders' deficit $ 2,725,784
==========
See accompanying notes to consolidated financial statements.<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
1997 1996
------ ------
Sales and commissions $ 4,171,745 $ 4,545,008
Operating expenses 4,933,216 5,501,085
--------- ----------
Operating loss (761,471) (956,077)
--------- ----------
Other income (expense)
Interest income 918 7,307
Interest expense, including interest
to related parties of $46,323 and
$3,282 for 1997 and 1996, respectively. (249,081) (40,818)
Loss on disposal of assets (605,469) (251,961)
Other, net (474,537) (25,940)
--------- ----------
(1,328,169) (311,412)
--------- ----------
Loss before income taxes (2,089,640) (1,267,489)
--------- ----------
Income taxes (1,100) (12,700)
--------- ----------
Net loss $(2,090,740) $(1,280,189)
========= ==========
Basic loss per share $ (0.27) $ (0.17)
========= ==========
Diluted loss per share $ (0.27) $ (0.17)
========= ==========
Weighted average common shares outstanding 7,646,853 7,646,853
========= ==========
See accompanying notes to consolidated financial statements<PAGE>
<TABLE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years ended December 31, 1996 and 1997
<CAPTION>
Common Stock
Number of Additional Accumulated Notes
Shares Par Value Paid-in Capital Deficit Receivable Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 7,607,177 $456,430 $19,191,756 $(14,618,540) $(3,025,562) $2,004,084
Stock issued in lieu
of cash compensation 39,676 2,381 12,619 15,000
Net loss (1,280,189) (1,280,189)
--------- -------- ---------- ------------ ----------- ----------
Balance at
December 31, 1996 7,646,853 458,811 19,204,375 (15,898,729) (3,025,562) 738,895
Stock options in lieu
of cash compensation 30,000 30,000
Net loss (2,090,740) (2,090,740)
--------- -------- ---------- ----------- ----------- -----------
Balance at
December 31, 1997 7,646,853 $458,811 $19,234,375 $(17,989,469) $(3,025,562) $(1,321,845)
========= ======== ========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
1997 1996
-------- --------
Cash flows from operating activities:
Net loss $ (2,090,740) $ (1,280,189)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 331,398 344,596
Loss on disposal of assets 605,469 234,772
Loss on write-off of notes receivable 137,967 --
Issuance of stock options or common stock
for services rendered 30,000 15,000
Change in assets and liabilities:
Decrease in trade accounts receivable 38,007 14,789
Decrease (increase) in prepaid expenses 25,837 (79,203)
Decrease (increase) in other current assets 2,711 (7,108)
Increase (decrease) in accounts payable 415,010 (4,949)
Increase in accrued payroll, payroll
taxes and benefits 1,688 6,436
Decrease in accrued drafts payable (428,556) (724,819)
(Decrease) increase in other accrued liabilities (371) 2,116
(Decrease) increase in income taxes payable (10,000) 10,000
(Decrease) increase in deferred income (307,846) 1,680,683
------- ---------
Net cash (used in) provided by
operating activities (1,249,426) 212,124
--------- ---------
Cash flows from investing activities:
Proceeds on sale of marketable
securities and assets 102,027 1,700
Collection on note receivable 16,033 --
Capital expenditures (50,038) (463,889)
Advances collected from (made to) officers
and directors, net 9,473 (9,194)
Increase in other long-term assets (17,782) (5,172)
--------- --------
Net cash provided by (used in)
investing activities 59,713 (476,555)
--------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings 18,696,146 2,519,500
Repayment of short-term borrowings (18,346,002) (2,519,500)
Proceeds from advances from officers and employee 471,000 --
Payments on advances from officers and employee (458,097) (96,144)
Proceeds from note payable 70,000 --
Principal payments on debt (86,941) (35,857)
---------- ---------
Net cash provided by (used in)
financing activities 346,106 (132,001)
---------- ---------
Net decrease in cash and equivalents (843,607) (396,432)
Cash and equivalents at beginning of year 1,818,877 2,215,309
---------- ---------
Cash and equivalents at end of year $ 975,270 $ 1,818,877
========== =========
See accompanying notes to consolidated financial statements<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Line of Business
The consolidated financial statements include the accounts of Supermail
International, Inc. (the Company), and its wholly-owned subsidiary, Supermail
International of Utah, Inc. The Company offers a wide range of non-banking
financial and communication services through its retail service centers. These
services include check cashing, money transfer and money orders through
MoneyGram and Integrated Payment Systems and food stamp distribution. The
Company's concentration of customers is in the states of California, Virginia
and Maryland.
(b) Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. As shown in the accompanying
consolidated financial statements, the Company incurred a net loss of
$2,090,740 during the year ended December 31, 1997, and, as of the date, the
Company's current liabilities exceeded its current assets by $778,661, its total
liabilities exceeded its total assets by $1,321,845, and it had an accumulated
deficit of $17,989,469. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to continue to
meet its financing requirements and to succeed in its future operations. The
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Management plans to take the following steps that it believes will be
sufficient to provide the Company with the ability to continue in existence:
* The Company has closed three unprofitable stores in 1997 and the beginning
of 1998,
* The Company has reduced salaries in 1998, and
* The Company is currently negotiating with investors to obtain additional
debt and equity capital.
(c) Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(d) Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized as income for the period. The cost of maintenance and repairs is
charged to expense as incurred; significant renewals and betterments are
capitalized.
Leasehold improvements are amortized over the lesser of the lease term or the
estimated useful life of the asset.
(e) Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
(f) Net Loss Per Share
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares
were dilutive. Earnings per share for 1996 has been restated using the meth-
odologies of SFAS No. 128. Since the Company had a net loss for 1997 and 1996,
any stock options, warrants, or other common stock equivalents outstanding were
antidilutive. Accordingly, basic earnings per share and diluted earnings per
share are the same.
(g) Reclassifications
Certain reclassifications have been made to the 1996 financial statements in
order to conform with the 1997 presentation.
(h) Cash and Equivalents
Cash and equivalents include cash on hand and cash in banks. Cash equivalents
are considered to be all highly liquid debt instruments purchased with a
maturity of three months or less at the date of purchase.<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(i) Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's
financial instruments, including cash and equivalents, accounts receivable,
accounts payable, and accrued liabilities, the carrying amounts approximate fair
value due to their short maturities. The amounts shown for notes payable and
capitalized lease obligations also approximate fair value because current
interest rates offered to the Company for similar debt and leases are
substantially the same.
(j) Recently Issued Accounting Pronouncement
SFAS No. 130, "Reporting Comprehensive Income," is effective for financial
statements with fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The Company
does not believe the adoption of SFAS No. 130 will have a material impact on
its financial position or results of operations.
(2) RELATED PARTY TRANSACTIONS
During 1997, the Company received and repaid advances from officers and
employees totaling $471,000 and $458,097, respectively. These advances have
no specific repayment terms and carry interest rates at 25% per annum. Of the
$37,283 balance owed at December 31, 1997, an officer has the option to
convert $33,283 into restricted common stock at $0.03 per share. In addition,
advances to officers decreased $9,473 in 1997. Interest expense to related
parties for the year ended December 31, 1997 and 1996 totaled $46,323 and
$3,282, respectively. As more fully described in Note 8, the Company is
obligated under a note payable totaling $64,867 to the parents of officers of
the Company.
(3) SIGNIFICANT SUPPLIER
The Company's money transfer services have been provided through one supplier
during 1997 and 1996. Services provided through this supplier resulted in
commissions of approximately $1,515,000 and $1,579,000 for 1997 and 1996,
respectively, and a corresponding receivable of approximately $215,000 at
December 31, 1997.
Money transfer revenues constituted 36% and 35% of total revenues during 1997
and 1996, respectively. Under the terms of the agreement, the Company's money
transfer supplier may terminate the agency agreement for the following
reasons: if the Company fails to remit monies due under the trust agreement;
if there is a material adverse change in the financial condition of
the Company; if the Company does not obtain the supplier's prior consent to any
sale, merger, or transfer of ownership of the Company; or if the Company fails
to comply with state or federal laws which regulate the Company's business.
Termination of this agreement could have a material adverse effect on the
Company's operations. As permitted by the agreement, the Company commingles
trust funds held for the money transfer supplier with its own funds. As a
result, a substantial portion of the cash balance is held in trust for payment
of amounts due the money transfer supplier at December 31, 1997. In the ordinary
course of business, this amount is settled within a few business days.<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consisted of the following:
Estimated
Useful Life
-----------
Equipment $ 1,237,928 3 - 10 years
Leasehold improvements 1,151,265 5 - 12 years
Construction in progress 14,250
---------
2,403,443
Less accumulated depreciation
and amortization 1,389,469
---------
$ 1,013,974
=========
Depreciation expense in 1997 and 1996 was $249,688 and $215,504, respectively.
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1997 consisted of the following:
Amortization
Period
------------
Covenants not to compete $ 573,063 5 - 10 years
Less accumulated amortization 550,094
-------
$ 22,969
=======
Food stamp contract $ 50,000 14 years
Beneficial leases 37,525 9 - 13 years
-------
Subtotal 87,525
Less accumulated amortization 59,010
-------
$ 28,515
=======
Amortization charged to expense in 1997 and 1996 was $81,710 and $129,092,
respectively.
Covenants not to compete, food stamp contract, and beneficial leases are
being amortized over the term of the contracts using the straight-line
method.
During 1997, the Company wrote-off goodwill and organization cost totaling
$270,030 and $190,702, respectively. These write-offs occurred as the
Company determined the acquisitions or projects associated with these costs
had been impaired to the extent that future recovery was in doubt.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) INCOME TAXES
As of December 31, 1997, the Company had federal and state net operating loss
carry forwards of approximately $8,000,000 and $3,300,000, respectively, which
expire at various amounts through 2012 and 2002, respectively.
The income tax effect of temporary timing differences between financial and
income tax reporting that gives rise to a significant portion of the deferred
income tax assets and liabilities at December 31, 1997, under the provisions
of SFAS 109, are as follows:
Deferred Income Taxes
Assets (Liabilities)
-------- -----------
Net operating loss carry forwards $ 2,847,000
Deferred income 640,000
Difference between book and tax
basis of fixed assets 119,000
Difference between book and tax
basis of intangible assets $ (31,000)
Allowance for doubtful accounts 218,000
--------- --------
3,824,000 $ (41,000)
Less valuation allowance 3,793,000
--------- --------
Net long-term deferred $ 31,000 $ (31,000)
========= ========
The net change in the valuation allowance for the year ended December 31,
1997 was a decrease of $1,464,000.
Income tax expense consists of:
1997 1996
------ ------
Federal $ -- $(10,000)
State (1,100) (2,700)
------ ------
$ (1,100) $(12,700)
====== ======
The Company's state tax expense for 1997 and 1996 consisted of minimum
California and Utah tax and the Company's federal tax expense for 1996
consisted of amounts due under the alternative minimum tax.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) LEASES
The Company is obligated under capital leases that expire at various dates
during the next five years. Equipment under capital leases was $366,439 and
related amortization was $74,314 as of December 31, 1997.
The Company also leases certain real estate for its corporate office and
service center operations, as well as certain equipment under long-term lease
agreements ranging from one to five years.
Future minimum lease payments under non-cancelable operating leases and the
present value of future minimum capital lease payments as of December 31,
1997 are:
Capital Operating
Leases Leases
------- --------
1998 $ 105,457 $ 417,375
1999 99,811 214,114
2000 77,273 123,344
2001 71,041 6,078
2002 7,991 --
------- -------
Total minimum lease payments 361,573 $ 760,911
=======
Less: Amount representing interest
(at 16% - 18%) 96,009
-------
Present value of net minimum
capital lease payments 265,564
Less current maturities 64,055
-------
$ 201,509
=======
Rent expense under operating leases in 1997 and 1996 amounted to $610,001
and $773,112, respectively. <PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) NOTES PAYABLE
Notes payable at December 31, 1997 consisted of the following:
Note payable, due July 1999, bearing interest at 8.25%,
payable in monthly installments of $6,347, without collateral. $ 112,691
Note payable, to related party due April 2002, bearing
interest at 25%, payable in monthly installments of $2,055,
without collateral. 64,867
-------
177,558
Less current maturities 78,933
-------
$ 98,625
=======
Annual maturities of notes payable for 1998, 1999, 2000, 2001 and 2002 total
$100,822, $69,086, $24,655, $24,655, and $8,218, respectively.
(9) STOCKHOLDERS' EQUITY
(a) Common Stock Transactions
On March 17, 1994, the Company entered into an agreement to issue 1,000,000
shares of the Company's common stock in exchange for 2,500,000 shares of a
privately held, start-up corporation. The privately held corporation sold the
Company's stock pursuant to Regulation S in exchange for notes receivable and
expects to collect $1,000,000 on these notes which has been used as the basis
for valuing this transaction in the Company's financial statements. The
Company's investment in the privately held corporation has been netted against
stockholders' equity until the notes receivable are collected in full.
In September 1994, the Company sold 1,000,000 shares of the privately held
corporation discussed above for $2.00 per share. Consideration for this sale
was a $2,000,000 note receivable, bearing interest at 8% per annum; due on
August 31, 1995. These notes are in default and the Company is determining its
course of action. This transaction has not been accounted for in the financial
statements due to the uncertainty of collection.
During 1994, the Company received $2,623,688 in cash and notes receivable,
net of selling costs of $208,408 from the issuance of 1,594,250 shares of
common stock valued at $ 1.75 to $2.00 per share in connection with restricted
stock private placements and a Regulation S offering. Notes receivable from
the Regulation S offering of $1,775,456 bearing interest at 8% per annum;
due in June 1995, are outstanding at December 31, 1997 and are shown as a
reduction of Stockholders' Equity. These notes are in default and the Company
is the process of canceling the shares not paid for and held by the Company's
former legal counsel.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On February 16, 1996, the Board of Directors authorized the cancellation of
2,175,000 shares of restricted common stock along with the related notes
receivable and accumulated interest to certain officers, directors and
employees of the Company. This transaction was reported as of November 20,
1995, the date new options were granted and cancellation of these shares was
contemplated.
(b) Incentive Compensation Plan
The 1987 Incentive Compensation Plan (the Plan) provides for granting up to
416,667 shares of common stock to key employees at an exercise price of at
least the fair market value at the time of grant. Options granted expire five
years from date of grant. The Plan has 11,667 shares which are reserved and
ungranted as of December 31, 1997. All stock options outstanding are exercis-
able at December 31, 1997.
(c) Other Options
On November 20, 1995, the Company's Board of Directors approved the grant of
a two-year option to purchase 2,820,000 shares of common stock to certain
officers, directors and employees at $0.13 per share, the bid price on the
date of grant. Said options, when exercised will be subject to nonrecourse
promissory notes, and the related shares will be registered under an S-3
registration statement or other registration as recommended by legal counsel.
As of December 31, 1997, no options were exercised.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
restricted stock and options issued to outside third parties. The Company did
not issue any options to employees in 1997 or 1996, and the options issued in
1995 vested immediately, therefore, the proforma disclosure that is required
to be presented in accordance with SFAS No. 123 is not applicable for the years
ended December 31, 1997 and 1996.
During 1997, the Company granted an option to a consultant to purchase 500,000
shares of the Company's common stock at $0.23, the bid price at the close of
business on June 20, 1997. These options have been valued at $30,000 which was
based on the value of the consulting services to be provided<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On April 22, 1994, The Company's Board of Directors approved the grant of an
option to purchase 100,000 shares of restricted common stock to each of the
three new board members at $3.00 per share, the market price on the date of
grant. These options are exercisable for a five-year period commencing
November 22, 1994. As of December 31, 1997, no options were exercised.
(10) DEFERRED INCOME
On December 22, 1995, the Company amended its agreement with MoneyGram to
offer money transfer services. This amendment extended the term of the original
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
certain guaranteed payments and future incentives for opening new MoneyGram
service locations over the term of the agreement. During the third quarter of
1996, the Company received $150,000 in new store bonuses. The signing and new
store bonuses are being amortized over the life of the agreement on a straight-
line basis. The other terms and conditions in the original agreement, as
described in Note 3, remain the same.
(11) COMMITMENTS
(a) Employment Contracts
The Board of Directors approved employment agreements for certain key officers
and employees ranging from one to five years. These proposed agreements
provide for minimum annual compensation of $340,000 and bonuses to be
determined by the compensation committee. The Company is in the process of
finalizing the agreements.
On December 1, 1988, the Company entered into a deferred compensation
agreement with the Company's Chief Executive Officer (CEO). Under terms of the
agreement, upon retirement from active and daily employment following her
sixty-fifth birthday, the Company will pay as deferred compensation for past
services rendered to the Company the amount of $134,508 payable in ten equal
installments. The liability will be funded by a split-dollar life insurance
policy on her life. The yearly premium is withheld from her established salary
and paid by the Company directly. She will be obligated to repay the Company
the guaranteed cash surrender value (CS), and the Company will retain
collateral assignment of the CS. CS of the policy based upon industry annuity
tables will equal the deferred compensation due to the Company's CEO at age
65. Accruals are made currently under the terms of the agreement.
(b) Litigation
The Company is subject to legal proceedings which arise in the ordinary course
of its business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect the
financial position, results of operations or cash flows of the Company.<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) SUPPLEMENTAL CASH FLOW DISCLOSURE
Supplemental disclosures of cash flow information:
Cash paid during the year for:
1997 1996
------ ------
Interest $ 249,081 $ 40,818
Income taxes $ 10,300 $ 2,700
Supplemental schedule of noncash investing and financing activities:
The Company granted stock options to an outside consultant during 1997
valued at $30,000.
The Company financed its 3-year crime insurance policy in 1997. Total amount
financed was $147,488.
The Company acquired equipment under capital leases during 1996 totaling
$315,852.
(13) OTHER, NET
Other, net, for the years ended December 31, 1997 and 1996 consisted
of the following:
1997 1996
------ ------
Nonoperating legal settlements
and costs $ (191,935) $ (13,356)
Loss on robberies (76,085) --
Consulting Costs (91,115) (1,000)
Loss on write-off of notes receivable (137,967) --
Other 22,565 (11,584)
------- -------
$(474,537) $ (25,940)
======= =======
During 1997, the Company incurred a loss on disposal of assets totaling
$605,469. This loss relates to the write-off goodwill, organization costs and
equipment totaling $270,030, $190,702 and $46,765, respectively, and a loss on
sale of marketable securities of $97,972.
(14) CONCENTRATION OF CREDIT RISK
The Company has a large number of customers in each category of revenues.
Returned checks pose the largest credit risk for the Company. In 1997, the
Company cashed approximately 41,000 checks totaling approximately $13,000,000
each month. The Company maintains surplus cash balances in two separate banks.
At December 31, 1997, the Company has balances of approximately $482,000 in
excess of the $100,000 insurance amount provided by the Federal Deposit
Insurance Corporation (FDIC). In order to mitigate credit risk, the majority
of the Company's surplus cash balances are carried in one of California's
largest banks.
(15) SUBSEQUENT EVENT
In the latter part of January and early February 1998, the Company received net
proceeds of $308,000 from 10% Series A Senior Subordinated Convertible Redeem-
able Debentures (Debenture) with a face amount of $437,500 due December 31,
1999. Interest is at a rate of 10% per annum due and payable quarterly commen-
cing March 31, 1998. The Holder of the Debenture is entitled, at its option, at
any time commencing 45 days after the close of the offering to convert 50% of
the principal face amount and after 75 days to convert all or any of the prin-
cipal face amount into shares of common stock of the Company, at a conversion
price for each share of common stock equal to the lower of (a) 80% of the
closing bid price of the common stock for the business day immediately preceding
the date of receipt by the Company of notice of conversion or (b) 80% of the
average of the closing bid price of the common stock for the five (5) business
trading days immediately preceding the closing date as reported by the National
Association of Securities Dealers.
<PAGE>
ITEM 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None<PAGE>
PART III
ITEM 9 Directors and Executive Officers of the Registrant
The following is a list of Company directors who have served during the periods
indicated as provided below:
Director
Name Age Position with the Company Since
Bradley D. Cox 35 Director 1991
John J. Feliz 39 Director 1995
Kurt Lee 37 Chief Financial Officer 1995
Umberto Umbertino 39 Director, President and Chief 1993
Operating Officer
Christine A. Umbertino 42 Director, Chairperson of the Board 1985
and Chief Executive Officer
Mercedes Veiga 45 Director, Senior Vice President 1995
and Secretary
Information About Individual Directors:
BRADLEY D. COX, age 35, has been a Director of the Company since February 1991.
He is currently active as President of MC Consulting Group, a retail spa and
sauna company in San Mateo, California. Mr. Cox is also active as owner of
Paradise Valley Group, an export and trading company conducting business in
the United States and Japan.
JOHN J. FELIZ, age 39, has been a Director of the Company since November 1995.
He has been a Space Planner with the State of California Office of Real Estate
and Design in Sacramento, Ca since 1990 and also the proprietor of Feliz
Interior since 1989. He is a graduate of Interior Architecture from the
University of Oregon in 1983. He taught at the University of Oregon, School of
Architecture and is presently a professor at American River College in
Sacramento, California.
KURT LEE, age 37, has been the Chief Financial Officer of the Company since
December 1, 1995. Prior to joining the Company, he was a senior manager with
a public accounting firm. Mr. Lee is a licensed CPA in the state of California
since 1986 and is a graduate of the University of Southern California in 1983.
UMBERTO UMBERTINO, age 39, was appointed to the Board of Directors effective
September 29, 1993. Mr. Umbertino was appointed President effective December
15, 1993. Mr. Umbertino has been employed by the Company since 1985 and has
been Vice President in charge of Operations since 1987. Mr. Umbertino is the
brother of Christine A. Umbertino.
CHRISTINE A. UMBERTINO, age 42, has been an Officer and Director of the Company
since 1985. She became President and Chief Operating Officer of the Company in
1987, was elected Chief Executive Officer effective April 1, 1988 and was
elected Chairperson of the Board effective September 29, 1992.
MERCEDES VEIGA, age 45, was appointed to the Board in 1995. She has been
Secretary of the Company since 1987. Ms. Veiga was promoted to Senior Vice
President effective December 15, 1993.<PAGE>
ITEM 10 Executive Compensation
Summary Compensation Table
Annual Compensation
Name and Stock (Option) All Other
Principal Position Year Salary ($) Number Compensation (S)(l)
Christine Umbertino 1997 $177,000 -- $5,000
(Chairperson and Chief 1996 $172,625 -- $5,000
Executive Officer) 1995 $162,000 1,400,000 $5,000
(1) On December 1, 1988, the Company entered into a deferred compensation
agreement with the Company's CEO. Under the terms of the agreement, upon
retirement from active and daily employment following her sixty-fifth
(65th) birthday, the Company will pay a deferred compensation for past
services rendered to the company in the amount of $134,508, payable in
ten (10) equal installments. The liability will be funded by a split
dollar life insurance policy on her life. The yearly premium is withheld
from her established salary and paid by the Company directly. She will
be obligated to repay the Company the guaranteed cash surrender value
("CSV") and the Company will retain collateral assignment of the CSV.
CSV of the policy based upon industry annuity tables will equal the
deferred compensation due the president at age 65.
Employment Contracts
The Company has entered into a five-year employment agreement with Christine
A. Umbertino as Chairperson of the Board and Chief Executive Officer of the
Company. The agreement calls for a five-year term commencing as of January 1,
1994, and ending December 31, 1999. The term is, however, extended by one year
for each year completed unless either party terminated upon twenty (20) days
notice before the end of a calendar year. Pursuant to the agreement, Ms.
Umbertino's salary is $150,000, subject to increases as the Board may determine.
In addition, Ms. Umbertino is to receive a bonus in an amount determined by
the Board of Directors. The bonus shall not be less than five (5%) percent of
the increase in consolidated operating income (as such term is defined in the
Agreement) from the prior year but not to exceed 200% of her prior year
compensation.
Options
On November 20, 1995, the Company's Board of Directors approved the grant of
a two-year option to purchase 2,820,000 shares of common stock to certain
officers, directors and employees at $0.13 per share, the bid price on the
date of grant. Said options, when exercised, will be subject to nonrecourse
promissory notes and the related shares will be registered under an S-3
registration statement or other registration as recommended by legal counsel.
As of December 31, 1997, no options were exercised.
Directors' Compensation
The Company's directors currently serve without cash compensation. They are
reimbursed for certain travel related and other out-of-pocket expenses incurred
to attend Board of Directors and stockholder meetings.<PAGE>
ITEM 11 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 31, 1998,
regarding the share ownership of each officer director or each person who is
known to the Company to have been a beneficial owner of more than 5% of any
class of stock of the Company:
Amount and
Nature of
Name and Address of Beneficial Percent of
Title of Class Beneficial Owner Ownership Class
Common Christine A. Umbertino 1,516,667 (1)(2) 14.63%
2201 Park Towne Circle (3)
Sacramento, CA 95825
Common Umberto Umbertino 509,267 (1)(2) 4.91%
Director, President and (3)
Chief Operating Officer
2201 Park Towne Circle
Sacramento, CA 95825
Common Bradley D. Cox 206,904 (1)(3) 1.99%
Director
#12 Dockside Circle
Redwood Shores, CA 94065
Common John J. Feliz 20,000 (1)(3) .19%
Director
400 R Street, #500
Sacramento, CA 95816
Common Kurt Lee 100,000 (1)(3) .96%
Chief Financial Officer
2201 Park Towne Circle
Sacramento, CA 95825
Common Mercedes Veiga 510,959 (1)(2) 4.93%
Secretary and Senior (3)
Vice President
2201 Park Towne Circle
Sacramento, CA 95825
--------- -----
2,863,797 27.61%
========= =====
Footnotes to Tables
(1) Beneficial owner has sole voting power and sole investment power, to
the Company's knowledge.
(2) The Company holds the following number of shares listed in the table for
payment of non-recourse promissory notes used to exercise options for the
following named persons:
Christine A. Umbertino 116,667
Umberto Umbertino 8,333
Mercedes Veiga 8,333
(3) Includes shares which may be acquired by officers and directors by
exercise of options. Total shares' exercisable under options for the
named persons is as follows:
Christine Umbertino 1,000,000
Umberto Umbertino 500,000
Mercedes Veiga 500,000
Brad D. Cox 200,000
Kurt Lee 100,000
John J. Feliz 20,000
The ownership percentages for each person listed in this note are
computed by increasing the shares outstanding by the total number of
such options.
ITEM 12 Certain Relationships and Related Transactions
All transactions with affiliates of the Company are on terms no less favorable
than could be obtained with unaffiliated third parties.<PAGE>
ITEM 13 Exhibits and Reports on Form 8-K
a. List separately all documents filed as part of the report
(a)(1) Financial Statements Pages
Independent Auditors' Report. 13
Consolidated Balance Sheets, December 31, 1997. 14-15
Consolidated Statements of Operations,
Years Ended December 31, 1997 and 1996. 16
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1997 and 1996. 17
Consolidated Statements of Cash Flows,
Years Ended December 31, 1997 and 1996. 18
Notes to Consolidated Financial Statements. 19-28
(a)(3) Exhibits Required by Item 601 of Regulation S-K
The following are filed as Exhibits to this registration form. The numbers
refer to the Exhibit Table of Item 601 of Regulation S-K. The Exhibits are
contained in a separate bound volume of this Form 10-K.
2. Not applicable
3.1-a Revised Articles of Incorporation of Omicron Industries, Inc.
3.2-a Amendment to Articles of Incorporation (changing name to Supermail
International, Inc.)
3.3-a Registrant's Bylaws, as amended
3.4-b Amendment to Articles of Incorporation (effecting 6-for- 1 reverse
stock split and changing par value to $0.06 per share)
4.1 Not applicable
9. Not applicable
10.2-a Registrant's 1987 Incentive Compensation Plan
10.8-a Lease for 4 Embarcadero Center, Lobby Level, San Francisco,
California 94111
10.19-a Lease for 2201 Park Towne Circle, Sacramento, California 95825
10.28-c Incentive Compensation Agreement (including detail schedule)
10.30-d Lease for 719 J Street, Sacramento, California 95814
10.31-d Lease for 161 W. San Fernando St., San Jose, California 95113
10.32-d Lease for 110 S. El Camino Real, San Mateo, California 95501
10.34-d Lease for 4035 Market Street, Riverside, California 92501
10.35-d Lease for 7020 Reseda Blvd., Reseda, California 91335
10.36-d Lease for 6318 S. Compton Ave., Los Angeles, California 90001
10.37-d Lease for 2688 E. Florence Ave., Huntington Park, California 90255
10.38-d Lease for 303 San Fernando Road, Los Angeles, California 90031
10.41-e SSGR, Inc. Purchase Agreement
10.42-e General Check Cashing Co. Limited Partnership Agreement
10.43-c Lease for 6219 Van Nuys Blvd., Van Nuys, California 91401
10.44-c Lease for 5803 N. Figueroa St., Los Angeles, California 90042
10.45-c Lease for 1883 Daly St. #104, Los Angeles, California 90031
10.46-c Lease for 461 Blossom Hill Rd. #H2, San Jose, California 95123
10.47-c Lease extension and amendment for 1777 S. Winchester Blvd.,
Campbell, California 95008
10.48-c Exercise of option to extend lease for 303 San Fernando Road,
Los Angeles, California 90031
10.49-c Lease for 450 Sansome Street, San Francisco, California 94111
10.50-c Lease for 231 East 17th Street, Santa Ana, California 92706
10.51-c Lease for 10167 Folsom Blvd., Rancho Cordova, California 95670
10.52-c Lease for 2800 Broadway #3, Sacramento, California 95817
10.53-c Lease for 5702 Watt Ave., North Highlands, California 95660
10.54-c Lease for 10330 Arlington Ave. #2, Riverside, California 92505
10.55-c MoneyGram Agency and Trust Agreement between Registrant and
American Express Travel Related Services Company, Inc.
10.56-c Money Order Trust Agreement between Registrant and American Express
Travel Related Services Company, Inc.
10.57-c Lease for 719 J Street, Sacramento, California 95814
10.58-c Lease for 110 S. El Camino Real, San Mateo, California 94401
10.59-b Amendment to lease for 11849 Braddock Drive, Culver City,
California 90230
10.60-b Letter of agreement with J. R. Bothe & Co. regarding financial
public relations services
10.61-b Amendment to lease for 10167 Folsom Blvd., Rancho Cordova,
California 95670
10.62-f Lease for Hwy. 191 TSEYI' Shopping Center (next to Basha's),
Chinle Arizona 86503
10.63-f Lease for 111 W. Pacific Coast Hwy. # D, Wilmington, California 90744
10.64-f Hamclo Financial Services Inc., Purchase Agreement
10.65-f Lease for 1706 Long Beach Blvd., Long Beach, California 90813
10.66-f Lease extension for 2800 Broadway # 3, Sacramento, California 95817
10.67-f Money Order Trust Agreement between Registrant and American Express
Travel Related Services Company, Inc. for Navajo Check Cashing
10.68-f MoneyGram Agency and Trust Agreement between Registrant and American
Express Travel Related Services Company, Inc. for Navajo Check
Cashing
10.69-f Contract with the Navajo Nation governing Company operations on the
reservation
10.70-g Exchange of stock between Ultra-Male Center, Inc. and the Company
10.71-i Lease for 260 S. Normandie Ave., Los Angeles, California 90004
10.72-i Lease for 2400 E. Florence Ave., Huntington Park, California 90255
10.73-i Lease for 3970 University Ave., Riverside, California 92501
10.74-i Lease for 2688 E. Florence Ave., Huntington Park, California 90255
10.75-i Lease for Junction Hwy 57 & Route 9, Crownpoint, New Mexico 87313
10.76-i Lease for Hwy 666, Shiprock, New Mexico 87420
10.77-i Lease for Junction Hwy 264 & Route 12, Window Rock, Arizona 86515
10.78-i Lease for Hwy 160 & Hwy 163, Kayenta, Arizona 86033
10.79-j Lease for 6740 Reseda Blvd #A&B, Reseda, California 91335
10.80-j Lease for 229 & 231 E. 17th Street, Santa Ana, California 92706
10.81-j Lease extension for 10167 Folsom Blvd, Rancho Cordova, California 95670
10.82-k Lease for 7201 S. Pacific Blvd., Huntington Park, CA 90255
10.83-k Addendum to MoneyGram Agency and Trust Agreement
11.- c Statement re computation of per share earnings for the years
ended 1991, 1990 and 1989. See page 24.
12-18. Not applicable.
21.-h Subsidiaries of the registrant.
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
23-27 Not applicable.
27.1 Financial Data Schedule
28.-h Form 8, dated September 12, 1988 - Item 6. Compensation, pages 30-31.
(b) Reports on FORM 8-K.
None
a Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10 filed May 4, 1988, File No. 0-16894.
h Exhibit is incorporated by reference to the exhibit number 22 in
Registrant's Form 8 dated September 12, 1988, File No. 0-16894.
d Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-K dated March 27, 1990, File No. 0-16894.
e Exhibit is incorporated by reference to Exhibit 30 and Exhibit 31 in
Registrant's Form 10-K dated March 27, 1990, File No. 0-16894.
c Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-K dated March 29, 1991, File No. 0-16894.
b Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-K dated March 30, 1993, File No. 0-16894.
f Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-K dated April 14, 1994, File No. 0-16894.
g Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-K dated May 13, 1994, File No. 0-16894.
i Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-KSB dated June 15, 1995, File No. 0-16894.
j Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-KSB dated March 30, 1996, File No. 0-16894.
k. Exhibit is incorporated by reference to the same exhibit number in
Registrant's Form 10-KSB dated March 28, 1997, File No. 0-16894.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, "hereunto duly authorized.
Supermail International. Inc.
(Registrant)
By /s/ Christine A. Umbertino Date April 15, 1998
Christine A. Umbertino
Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By /s/ Christine A. Umbertino Date April 15, 1998
Christine A. Umbertino
Chief Executive Officer and Director
By /s/ Umberto Umbertino Date April 15, 1998
Umberto Umbertino
President and Director
By /s/ Kurt Lee Date April 15, 1998
Kurt Lee
Chief Financial Officer
By /s/ Mercedes Veiga Date April 15, 1998
Mercedes Veiga
Director
By /s/ John J. Feliz Date April 15, 1998
John J. Feliz
Director
By /s/ Bradley D. Cox Date April 15, 1998
Bradley D. Cox
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 975,270
<SECURITIES> 0
<RECEIVABLES> 762,164
<ALLOWANCES> 508,914
<INVENTORY> 0
<CURRENT-ASSETS> 1,473,897
<PP&E> 2,403,443
<DEPRECIATION> 1,389,469
<TOTAL-ASSETS> 2,725,784
<CURRENT-LIABILITIES> 2,252,558
<BONDS> 0
<COMMON> 458,811
0
0
<OTHER-SE> (1,780,656)
<TOTAL-LIABILITY-AND-EQUITY> 2,725,784
<SALES> 4,171,745
<TOTAL-REVENUES> 4,171,745
<CGS> 0
<TOTAL-COSTS> 4,933,216
<OTHER-EXPENSES> 1,078,288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249,881
<INCOME-PRETAX> (2,089,640)
<INCOME-TAX> 1,100
<INCOME-CONTINUING> (2,090,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,090,740)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 6, 1998 accompanying the consolidated
financial statements included in the Annual Report of Supermail International,
Inc. on Form 10-KSB for the year ended December 31, 1997. We hereby consent
to the incorporation by reference of said report in the Registration
Statements of Supermail International, Inc. on Forms S-8(File No. 333-47195,
filed on March 2, 1998).
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 14, 1998
