UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-KSB
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
PERIOD FROM JULY 1, 1998 TO JUNE 30, 1999
Commission file number 0-18094
UNIVERSAL EXPRESS, INC.
A Nevada Corporation ID.# 11-2781803
20 South Terminal Drive, Plainview, New York 11803
Registrant's telephone number including area code (516) 349-1300
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Class A Common Stock par value $0.005 per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for 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 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. ___
State issuer's revenues for the period $2,626,215.
<PAGE>
State the aggregate market value of the voting and non-voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days: As of October 1, 1999, $2,560,000 (based on 10,050,000 shares
held by non-affiliates and computed by reference to the average closing bid and
asked prices of the Common Stock).
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
--- ---
The registrant had 7,207,857 shares of its $.005 par value Class A Common Stock
issued and outstanding as of June 30, 1999 and 1,280,000 shares of Class B
Common Stock.
Total number of sequentially numbered pages in this document: (25).
Documents Incorporated by Reference: None.
<PAGE>
PART I
ITEM 1
DESCRIPTION OF BUSINESS
HISTORY
The Company was originally incorporated in the state of Nevada on April 6, 1983.
Universal Express (USXP), is an integrated business service company under the
direction of its Chairman and Chief Executive Officer, Mr. Richard A. Altomare.
The Company is engaged primarily in the development of its Private Postal
Network.com ("PPN", formerly called "APAC") and a division of PPN called the
Postal Business Center Network.com ("PBC Network") and expanding the Company's
presence in the private postal and international shipping industries. The PBC
Network is an association with the goal of unifying and organizing independent
and franchised postal stores nationwide. The Company is also active in acquiring
businesses that complement and improve the PBC Network. This multi-faceted
association of packaging centers nationwide is connected through the World Wide
Web.
In the international arena, another division of PPN operates under the name
WorldPost Network.com.
THE BUSINESS OF THE CORPORATION
-------------------------------
The business of Universal Express has undergone major transitions in recent
years.
The Company recently announced the acquisition of SkyWorld International Courier
(SkyNet Miami).
SkyNet Miami is part of an international shipping network specializing in
corporate discount pricing to its customers. Its revenues for its most recent
fiscal year were in excess of $5,000,000.
The Company believes that that acquisition of SkyNet Miami will benefit the PBC
Network by providing PBC store owners with reduced international shipping rates
over their present vendors.
The Company believes that SkyNet Miami has an excellent reputation in
international shipping, and will add growth to both the PBC Network and
Universal Express.
Management has developed other new ancillary businesses to support its core
packaging and shipping businesses.
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In March the Company announced an Internet based strategic alliances with
HouseHold Direct.com and Internet Advisory Corp. ("PUNK") and plans other such
alliances, to expand the PBC Network and Manhattan Concierge.
In July, the Company signed a letter of intent for Imaging Technology Solutions,
L.L.C. ("NetEx") to provide services for the PBC Network. There can be no
assurance that a definitive agreement will be reached. NetEx is a full-featured
software and service combination designed to securely transmit any document,
including paper, graphical images, hand written documents and electronic media
via the Internet. The Company believes that NetEx is the first Internet-based
document delivery service to seamlessly integrate a patented imaging platform,
real-time document linking, telephone notification and tiered digital security
in an easy-to-use Internet-ware graphical user interface. Accordingly, the
Company believes that NetEx provides a secure, expedient, and economical
alternative to faxes, overnight couriers and traditional email. The Company
believes that NetEx provides comparable document delivery services with much
lower fixed costs.
The Company believes its strategy of developing PBCNetwork is unique to the
private postal industry. The Company believes that PBCNetwork has established
itself as a provider of quality products and services that benefit the owners of
private postal businesses. In order for PBCNetwork to continue to provide
high-quality products and services essential to today's market needs, the
Company believes that it is necessary to develop a strategy for the "third wave"
of the industrial revolution - the Internet. While PBCNetwork members do not
currently compete with traditional overnight couriers, NetEx will provide them
with the opportunity to increase revenues through the use of NetEx's technology
for a minimal investment.
Our Web Site is www.usxp.com.
The Company purchased the Entertainment division of U.S. Transportation Systems,
Inc. (USTS) in 1997. The division consisted mainly of: Downtown Theatre Ticket
Agency, Inc., or Advance Entertainment (now known as "Manhattan Concierge"),
which provides theater, sports and special events tickets and concierge
services. The Company intends to incorporate this division into its expanding
list of services to the members of its PBC Network. These services are marketed
through toll-free phone numbers (1-888-NYSHOWS, 1-800-NYSHOWS AND
1-800-THE-SHOW) and Manhattan Conicerge's web site (www.manhattanconcierge.com).
2
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This concierge business is a nationally promoted source for high visibility
venues such as the Olympics, U.S. Open, Super Bowl and the World Series. It has
been serving corporate and individual clients throughout the United States for
over fifty-three years. USXP intends to incorporate this value-added service
into the PBC Network expanding menu of offerings to its member stores while
attempting to increase Manhattan Concierge's own business presence in the
entertainment industry. The Company's two (2) year contract with MBNA credit
card holders supports that direction.
In 1994, the Company acquired an advertising agency, Images Design & Marketing
(Images). This agency is the in-house marketing and promotional department of
the Company. The service of Images is primarily utilized to maximize the
Universal Express and the PBC Network's names and trademarks. Images is also
expected to reduce advertising costs for the PBC Network members by eliminating
the "agency commissions" paid to advertising agencies by printers and other
sources of media.
Management is now concentrating on raising new capital and focusing on new
ventures, including the PBC Network and SkyNet Miami.
On September 15, 1999, the the Company's Office Quick store in California was
sold.
Management views this fiscal year as a period of transition and anticipates
growth based upon its decision to concentrate on core business development
through the PBC Network and SkyNet Miami.
USXP's principal subsidiaries and divisions include:
- -- Private Postal Network.com
- -- The Postal Business Center Network.com
- -- Manhattan Concierge
- -- SkyNet Miami
- -- WorldPost Network.com
- -- Images Design and Marketing
- -- UniqueNet, Inc.
- -- Packaging Plus Services, Inc.
Private Postal Network.com
--------------------------
On May 15, 1999, the name of the Association of Packagers and Carriers, APAC was
changed to the Private Postal Network.com (PPN), with two divisions, Postal
Business Center Network.com (PBC network.com) and an international shipping
division, WorldPost Network.com. In future reports, the names of these new
entities will be used to cover and describe the present functions and programs
of these networks as well as future programs and functions of this electronic
network of retail, mail, parcel, and business centers, which the Company
believes are positioned to provide goods and services needed to support
E-commerce, as well as the international shipping division, including support
from SkyNet Miami.
3
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Private postal and business service centers form a highly fragmented cottage
industry. The Company believes that this industry generates over $5 billion in
sales and consists of more than 15,000 independent operators. The Company
believes there is a market opportunity for the development of an association
with the goal of unifying and organizing independent and franchised postal
stores nationwide. PBC Network members are connected to other members and the
PBC Network Headquarters via the PBC Web Site (PBCNetwork.com) or by telephone
at "1-888-873-2722". The PBC Web Site is utilized not only by members but also
will be used by the general public. Only one PBC Network store per Zip Code will
be accepted, thus creating internal quality control standards.
The PBC Network, with the help of other media outlets, found that the emergence
of E-Commerce is being overlooked by the big retail outlets. The Company
believes these firms have not at this point moved well to address the online
focus that is gaining momentum. As the online population becomes more frequent
and E-Commerce gains speed, the Company believes that the PBC Network will have
laid the foundation that will be needed to provide the necessary adaptations for
future commerce.
The Company believes that business-to-consumer e-commerce will benefit from
consumers seeking the lowest possible price, convenience and public acceptance
over fears of insecure transactions and the difficult task of converting these
"eyeballs" into transactions.
The Company believes that E-commerce success factors such as quality domain
name, first mover advantage, capital to build a brand name, convergence with an
established brick and mortar player and the emergence of a leader in most
categories will determine the survival of the fittest.
Universal Express is bullish on the Internet's future as a vehicle for
consumers' spending, as it projects that the average U.S. household will spend
$900 online this year, and $3,000 in 2003 and break the 10% barrier in certain
categories. At the same time, e-merchants must distinguish themselves from their
competitors in ways other than price in orders to flourish in an online
environment.
The Company believes that industries will turn to the Internet to improve their
existing business models or introduce an innovative one.
As e-commerce grows, someone must deliver the purchased goods to the consumer.
The Company believes that companies such as FedEx, UPS and the U. S Postal
Service are well positioned. The opportunity in this market has drawn lots of
attention, as "Others" are quickly developing to snatch-away business from these
companies. Although traditional shipping companies have been handling most
online purchases, the Company believes that residential delivery is not their
forte. The Company believes that UPS delivers about 2.4 million packages to
homes each day, while Fedex delivers around 320,000. The Company believes that
startups will eventually need a distribution system to deliver nearly anything
that customers purchase on-line.
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A particular trend that the Company feels will further revolutionize the
e-commerce space surrounds strategic alliances between virtual companies and
traditional brick and mortar companies. The Company believes leverage can be
created being both online and off-line. The Company believes that distribution
issue present a problem for many e-commerce companies. And that traditional
companies, with their existing infrastructure, can be invaluable in fulfilling,
packaging and shipping orders. There are also benefits of offering customers
multiple sales and service channels.
The PBC Network is an association formed to create a long overdue and needed
profitable partnership between packaging store owners and carriers, similar in
theory to FTD. The PBC Network provides store owners with a variety of
cost-effective services and products to increase their profitability, while they
still maintain their local identities or franchise loyalties. The PBC Network's
goal it to provide consumers nationwide with a feeling of quality assurance when
they frequent a PBC Network location.
Services Offered To PBC Network Members & Strategic Goals
---------------------------------------------------------
The PBC Network has been formed to create a value-added association among
packaging and shipping centers as well as the actual carriers of freight
worldwide.
In return for a low monthly membership fee, the PBC Network offers a unique
combination of value-added services on the e-commerce horizon. A list of
immediate and future benefits for association members includes:
Immediate Benefits:
E-Commerce representation and a highly structured plan for these
outlets
Discounts for Web Utilization
Savings on shipping prices through quantity discounts
Centralized billing to lower certain costs
Pre-paid discounts on shipping
Professional theme coordinated advertising programs
PBC Network Web Site linking all members with outside customers
E-mail customer leads
Scholarship Programs for members' children
Packaging education programs
Organized conventions
PBC Network health/ dental insurance
PBC Network shipping insurance
Computer software/ hardware, Sales and consulting
Shipping hot line and tracking for customers
Continual development of new profit centers
Quality control for member and customer benefits
5
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Affordable legal representation
National customer service satisfaction department
Political lobbying
Vacation of the month program
Discounted air cargo/ next day worldwide rates
Discounted copier and/or fax, postal meter leasing programs
Discounted long distance rates Discounted printing programs
Discounted van and equipment leasing program
Prepaid phone card
Centralized purchasing
Monthly Newsletter
Brand recognition of
PBC Network Logo PBC Network advisory council
Store (design/modernization) program
This value-added Network is expected to revitalize and re-define the private
postal industry and position itself for additional acquisitions within the
transportation industry that may benefit its members' collective strength.
The Company announced in 1998 that the PBC Network had formed an Advisory
Council. This council consists of PBC members from 7 regions of the United
States as well as PBC President, Nick DeLeone. The goal of the Council is to
obtain a more specific regional view of the CMRA industry through the
cooperative efforts of the PBC members.
In 1998 the Company announced that the PBC Network had formed a strategic
alliance with Kodak to make available the Kodak Image Magic Picture Maker to the
PBC Network member stores nationwide.
During the year, the PBC Network also announced relationships with other leading
vendors, for use of its members, including the following:
-- 3M - Heat free, non-electric laminating system and various office
supplies.
-- American Airlines Advantages Frequent Flyer Miles
-- Reslinx Incentive Travel Program
-- Century Marking/Stamper 2000 - Discounted rates on custom rubber
stamps for resale.
-- Discounts on planning and scheduling products available through
Wescosa-Florida.
-- GBC - Discounts on laminating/binding/finishing equipment and
supplies.
-- Keena - Discounts on tape and sealing products.
-- Kittrich - Discounts on licensed mailing supplies.
-- MBNA Bank - Co-Marketing/Corporate Credit Card program.
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-- Nova Information Services - Discounts on credit card processing with
most monthly fees waived.
-- Paychex - Discounts on payroll services.
-- Rediform - Discounts on business forms and other office products and
services.
-- Risk Management - Business Insurance Services.
-- Hertz - Co-Marketing/Car Rental Referral program.
-- Ti-Mail - Discounts on decorated Tyvek mailing products.
-- Wescosa-Florida - End-column discounts on office supplies.
-- X-Stamper - Discounts on stock rubber stamps.
Future PBC Network benefits should include but not be limited to e-commerce,
mail order contract for individual stores, Internet document delivery systems,
national moving preparation program, direct access to packing supplies, audio
visual training, electronic car/truck rental, national television advertising,
auto club, video conferencing, bar-coded luggage national pick-up program,
advertising revenues directly from carriers.
This value-added Network with the goal of revitalizing the private postal
industry and positioning itself for additional acquisitions within the
transportation industry that benefit its members' collective strength.
Images Design and Marketing: In 1994, management acquired an advertising agency,
Images Design & Marketing. This agency is the in-house marketing and promotional
department of the Company. Images occupies space in the same building that the
Company leases. By utilizing this arrangement, management expects to achieve
substantial cost savings on its promotional programs and marketing support of
its other subsidiaries. Management expects to reduce the cost of development of
marketing and promotional programs for the Business Centers, thereby
inexpensively maximizing promotion of the Universal Express and the PBC names
and trademarks.
Management expects to reduce advertising expenditures for PBC Network Members
through group buying discounts and eliminating the "agency commissions" paid to
an ad agency by printers and sources of media. Typically, printers of
promotional material and media outlets such as newspapers, magazines and radio
escalate costs more for infrequent users.
UniqueNet: In 1996, the Company launched its venture called UniqueNet. UniqueNet
is an interactive, specialty gifts Web Site on the Internet's WorldWide Web
(UniqueNet.Com). The Web Site will showcase the Company's line of distinctive
and "trendy" gifts. On-line visitors to the Web Site will be able to view,
select and purchase products through their personal computer using an on-line
order form or regular mail. A retail partner is presently being examined and
auction E-Commerce fulfillment may be originated from this site.
7
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Packaging Plus Services
-----------------------
Packaging Plus Services, Inc. is the corrugated box subsidiary of USXP. A
manufacturing facility is being sought relatively close to the main office. The
Company intends to be a full service corrugated box manufacturer. Additionally,
other equipment has been identified and readied for purchase. The Company
believes that this core business will lend itself to expanding the customer base
and "trim-out" a new and enhanced market. The Company believes that the
additional equipment and marketing effort will enable Packaging Plus Services,
Inc. to become a significant player in the corrugated market.
PBC Network Stores use basic corrugated and because of their non-centralized
purchasing, they are forced to pay above market prices. Through the PBC Network,
the stores will be able to purchase through a centralized purchasing, thus
lowering their costs and making their overall operations more competitive. This
would enable the Member to create a new market for customized boxes the Company
believes will help to expand their customer base and increase their market
share.
Competition
-----------
The Company, when it only franchised, previously viewed its competition to be
chains of neighborhood packaging and business service centers, the U. S. Postal
Service and even at times, carriers such as United Parcel Service and Federal
Express; however, with the establishment of the PBC Network, the Company
believes that it now works to assist its previous "competitors". Although these
"competitors" do not provide the full breadth of services that the PBC Network
Membership provides, they all offer services that PBC Network stores sell to the
public.
The Company further believes that the maturation of the PBC Network will
strengthen the profitable atmosphere in the cottage private postal industry.
Lack of financial strength and market penetration have prevented some excellent
franchisors and independents from properly promoting their services. Individual
store failures are far too great in this industry without a cohesive trade
association. The ability of the PBC Network to create a nationally accepted
private postal industry that the American public will embrace and trust should
make this a viable industry. The Company feels it can convince the independent
and nationwide franchisors that they must self-regulate for consumer acceptance
and seize this opportunity to become part of this new cooperative partnership.
Industry Background
-------------------
The future of the industry lies predominately in the international business
community and domestic acceptance of private postal stores as a natural cohesive
industry. As the world moves towards a Global Economy and trade tariffs begin to
break down, the Company believes that new shipping markets and opportunities
will be developed and the key ingredients underlying these developments will be
transportation and outlets for carriers as well as fulfillment for direct
marketing products.
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The transportation industry has already developed the necessary infrastructure
and continues to grow. The Company believes that the missing ingredients needed
to make this industry improve are packaging, logistics and inexpensive
residential locations. United Parcel Service, Federal Express, American Airlines
Cargo and all other carriers, are primarily in the shipping business, not
concentrating on packaging, business support services, and affordable consumer
outlets.
The Company believes that a nationwide organized packaging network can become a
key player in the Global Economy. The Company has positioned itself to be that
public player in this lucrative market. Control of the outlets' shipping choices
and residential pick-up capability increases company presence and future
importance.
From 1980 to 1996, U.S. Postal Service mail volume increased over 40%. During
the same period, the U.S. Postmaster General reports that the number of U.S.
Post Offices, branches and stations registered a decline from 30,326 to 26,210.
Due to high labor costs of staffing additional facilities and the continuing
pressure on the U.S. Congress to reduce government subsidies, such as those
provided to the U.S. Postal Service, the Company believes it is unlikely that
the number of U.S. Post Offices, branches and stations will increase
substantially in the foreseeable future. PBC Network stores could contract their
services to the Post Office or any International carrier. The Company believes
that long waiting lines and limited shipping options are commonplace in most
U.S. Post Offices, and that in many areas there is a shortage of post office
boxes. Members of PBC Network provide the public with a complement to U.S. Post
Offices for many retail postal services. In addition, our Service Centers offer
individuals and business customers a variety of personal, business and
communications services and merchandise.
Management
----------
Mr. Richard A. Altomare has been President and CEO of Universal Express since
May 1992. Mr. Altomare, a reorganization specialist and investor, took control
of Universal Express in December 1991. He directs the Company, and has built
(and is continuing to build) a multi-faceted Company foundation for future
growth in the global marketplace. He envisions a synergistic company capable of
creating a profitable partnership between packaging store owners and carriers.
He believes that the Company's advancement beyond the simple franchise
organization concept to involve all packaging and postal centers into one
worldwide organization whose time has come.
Trade Marks and Service Marks
-----------------------------
The Company is the owner of trademarks and service marks for the names Universal
Express(R) and Manhattan Concierge(R), Uniquenet(R), PBC(TM) and Buyer
WeCare(TM).
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Employees
---------
As of June 30, 1999, the Company employed 140 individuals. The Company has not
experienced any work stoppages and considers its relations with its employees to
be excellent. To facilitate its PBC Network and expansion plans, management
expects to engage in significant hiring of management, sales, operational and
support personnel during 1999 and beyond. The Company's Stock Option Plan
provides for the issuance of up to 1.25 million shares of the Company's class A
common stock.
ITEM 2
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DESCRIPTION OF PROPERTIES
USXP's present corporate headquarters is approximately 15,000 square feet in
Plainview, NY. Also, additional space will be needed for its customized
corrugated business. The Company maintains 6,000 square feet of office space in
Manhattan for its Entertainment businesses. The Company also has offices in
California and Florida. The Company has recently announced its intention to move
its corporate headquarters to Manhattan.
ITEM 3
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LEGAL PROCEEDINGS
The Company is involved in several old lawsuits with vendors and suppliers.
These claims are all disputed by the Company. The Company believes that the
disposition of these matters will not have a material adverse effect on the
Company's financial position.
The Company filed a suit in Florida in April against Select Capital, Ronald G.
Williams and others connected with Select Capital for compensatory and punitive
damages and a return of fees and a commissions for failing to honor previous
funding commitments and promises, for an amount in excess of $68 million
dollars.
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ITEM 4
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SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No meeting of shareholders was held during the year.
PART II
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ITEM 5
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock has been trading under the symbol "USXP" on
the automated quotation system maintained by the National Quotation Bureau,
Inc., (the "Bulletin Board") since June 30, 1998. Prior to this date, the
Company's common stock traded under the symbol "PKGP" on the Bulletin Board.
The following table sets forth the range of high and low bid quotations on the
Bulletin Board for the Common Stock during the quarterly periods of the Current
Period. The source of these quotations is the National Quotations Bureau. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
Bid
Quarter Ended Low High
9/30/98 $0.39 $2.125
12/31/98 $0.13 $0.375
3/31/99 $0.175 $0.90
6/30/99 $0.40 $1.313
As of June 30, 1998, there were over 3,500 holders of record of the Company's
Common Stock.
The Transfer Agent and Registrar of the Company's Common Stock is OTC Corporate
Transfer Service Co.
A 4% stock dividend was declared in this fiscal year.
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ITEM 6
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Included in this report are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations reflected in such forward-looking
statements will prove to be correct. The Company's actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors, including sales levels, distribution and competition trends
and other market factors.
OVERVIEW:
---------
The business of Universal Express has undergone major transitions since 1994
with the further development and growth of the PBC Network and the acquisition
of Manhattan Concierge and SkyNet Miami.
Management is continually concentrating on raising new capital to further
develop the PBC Network, its multi-faceted national private postal business
centers nationwide connected through the World Wide Web, and for future
acquisitions, requires capital to be developed properly.
Management views this year as a period of continued transition and anticipates
additional growth based upon its decision to concentrate on core business
development through the PBC Network and further acquisitions in the shipping
business to compliment its acquisition of SkyNet Miami.
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Results of Operations for the year ended June 30, 1999:
Twelve Months Ended
June 30, 1999 June 30, 1998
------------- -------------
Revenues:
- ---------
Ticket Sales $ 1,721,129 $ 1,706,939
Merchandise & Service Sales 479,077 506,835
Delivery Services 402,835 293,739
Other income 23,174 1,929
----------- -----------
$ 2,626,215 $ 2,509,442
----------- -----------
Costs & Expenses:
- -----------------
Cost of Goods Sold $ 1,729,182 $ 1,663,051
Selling, General & Admin 4,304,644 5,152,192
Depreciation & Amortization 160,836 446,675
$ 7,042,210 $ 6,414,370
----------- -----------
Loss From Cont. Operations $(4,415,995) $(3,904,928)
Interest Expense (172,744) (2,999,062)
----------- -----------
Net Loss $(4,588,742) $(6,903,990)
----------- -----------
Twelve Month Analysis
- ---------------------
During the year, the Company's operating revenues increased to $2,626,000 from
$2,509,000 for 1998.
Cost of revenues, was $1,729,000 and $1,663,000 respectively.
Selling, general and administrative expenses were $5,034,000 for 1999 compared
with $4,304,000 for 1998.
Generally, increases in revenue and expenses for 1999 over 1998 are the result
of new business development.
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Liquidity and Capital Resources
- -------------------------------
During the twelve month period ended June 30, 1999, the Company's cash position
decreased by approximately $191,000 to $37,000. The Company's financing
activities provided $2,125,257 while $2,315,984 was used in its operating and
investing activities.
Until the PBC Network is fully operational, the Company will continue to rely on
equity and debt raises to fund its operations. Management is continuing efforts
to raise cash by arranging lines of credit, and obtaining additional equity
capital. The Company's future business operations will require additional
capital.
Management is presently exploring methods to increase available credit lines as
well as methods to increase working capital through both traditional and
non-traditional debt services.
ITEM 7
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FINANCIAL STATEMENTS
The Company's audited financial statements for the Current Period are found on
the next succeeding pages of this Report on Form 10-KSB.
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ITEM 8
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Nothing to report.
PART III
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ITEM 9
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MANAGEMENT OF THE COMPANY; COMPLIANCE WITH SECTION 16(a)
A. DIRECTORS
Pursuant the Company's Bylaws, the authorized number of directors of the Board
of Directors of the Company is five (5). Directors are scheduled for election at
each annual meeting. Directors shall be elected by the holders of record of a
plurality of the votes cast at each annual meeting and shall hold office until
the next succeeding annual meeting. The sole Director of the Company at present
is Richard A. Altomare, whose biographical information is set forth below.
B. EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons who
will serve as Executive Officers of the Company or certain of its subsidiaries.
Each such person shall serve at the pleasure of the Board of Directors of the
Company.
NAME AGE POSITION
- ---- --- --------
Richard A. Altomare 51 Chairman and CEO
RICHARD A. ALTOMARE. Mr. Altomare, is the Chairman and Chief Executive Officer
of Universal Express (USXP). Universal, with its wholly owned subsidiary the PBC
Network is a leader of the $7 billion private postal industry. Its other
subsidiaries are engaged in international shipping, advertising and
entertainment concierge services. Prior to Universal Express, Mr. Altomare was
an investment banker specializing in real estate, bankruptcy reorganizations and
equipment transactions. Mr. Altomare also owned and operated four (4)
professional sports teams. He served as a Commander in the U.S. Marine Corps.
and U.S. Army specializing in communications and intelligence. Mr. Altomare
attended Adelphi and Hofstra University and has been a political candidate for
U.S. Congress and serves on numerous Boards.
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C. COMPLIANCE WITH SECTION 16(a)
Based on a review of forms submitted to the Company during and with respect to
the Current Period, the Company is not aware of any Director, Officer, or
Beneficial Owner of more than 10% of any class of equity securities of the
Company that failed to file on a timely basis the reports required by Section
16(a) of the Exchange Act of 1934 during the Current Period.
ITEM 10
-------
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
A. COMPENSATION OF EXECUTIVE OFFICERS.
The following table sets forth information, as required by Section 228.402 of
Regulation S-B, 17 C.F.R. Section 228.402, as currently in effect, concerning
the annual and long-term compensation of the Company's Chief Executive Officer
and other individuals acting in a similar capacity for the past three fiscal
years. References in the foregoing tables to the 1994 fiscal year or the latest
or last fiscal year refer to the Current Period. No other information is
included regarding compensation paid to other Executive Officers during such
three year period because no such Executive Officer earned annual or long-term
compensation in excess of $100,000. Except as set forth in the tables following,
no bonus, other annual compensation, long-term compensation (in the form of
restricted stock awards, options, stock appreciation rights, long-term incentive
plans, or otherwise), or other forms of compensation were paid to the Company's
Chief Executive Officer, any other individuals acting in a similar capacity, or
any other Executive Officer of the Company at any time during such periods as
are reflected in the tables (and accompanying notes) set forth below.
Accordingly, as permitted by Item 402 (a) (5) of Regulation S-B, tables or
columns otherwise required have been omitted from this Registration Statement
where there has been no compensation awarded to, earned by, or paid to any of
the named executives required to be reported in that table or column in any
fiscal period covered by that table.
16
<PAGE>
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term
Annual Compensation
Compensation Awards
(a) (b) (c) (d) (e) (f)
NAME & PRINCIPAL FISCAL ANNUAL ANNUAL OTHER ANNUAL # of
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
Richard A. Altomare 1995 $130,000(2) $0 $0 0
Chmn. & CEO 1996 100,000(2) $0 $0 0
1997 100,000(2) $0 $0 0
1998 300,000(2) $0 $0 0
1999 300,000(2) $0 $0 0
(1) Mr. Altomare received no salary during the Company's Reorganization Case and
continues to draw no salary from the Company. Mr. Altomare's "Other Annual
Compensation" represents a 1.5 million share bonus, issued in the form of Class
B Common Stock, authorized by the Bankruptcy Court as a result of Mr. Altomare's
three year commitment to the Company and his achievement in effecting the
Company's successful reorganization. One million of such shares represented
compensation for services rendered during the Company's Reorganization Case; the
remaining 500,000 represented compensation for services to be rendered, subject
to forfeiture as follows: In the event Mr. Altomare's employment is terminated
for cause or by Mr. Altomare other than for good reason or by reason of a
termination event, as defined in the employment agreement, Mr. Altomare shall
forfeit 8,333 shares of Class B Common Stock for each month remaining under the
employment agreement through its expiration. See financial statements for
additional details.
(2) Accrued but not paid. These amounts remain unpaid.
17
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN CURRENT PERIOD
Individual Grants
- -------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total Options Granted
Options Granted to Employees in Current
Name Period Exercise Price Expiration Date
- ------------------------- ---------------- ---------------------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Richard A. Altomare
Chairman. & CEO 0 0 0 0
AGGREGATED OPTION EXERCISES IN CURRENT PERIOD AND FY-END OPTION VALUES
- ------------------------- ---------------- ---------------------------- ---------------------- --------------------
(a) (b) (c) (d) (e)
value of
unexercised
# of unexercised in-the-money
options at options at
FY-end(#) FY-end($)
Shares
acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ------------------------- ---------------- ---------------------------- ---------------------- --------------------
Richard A. Altomare
Chairman. & CEO 0 0 0/0 0/0
</TABLE>
B. COMPENSATION OF DIRECTORS
In the Company's Current Period, there were no arrangements pursuant to which
any director of the Company was compensated for any service provided as a
Director.
18
<PAGE>
C. EMPLOYMENT CONTRACTS AND RELATED MATTERS
The Company has an employment contract with Mr. Altomare. To date, Mr. Altomare
has deferred receipt of said base salary. To date, $930,000 has been accrued but
not paid. The employment agreement with Mr. Altomare provides that in the event
Mr. Altomare's employment is terminated at any time within nine months following
a "change of control event", as defined therein and generally described below,
(i) his salary benefits for the remaining term of the agreement shall be
accelerated and (ii) he shall receive shares of Class A Common Stock equal to
10% of all outstanding shares of Class A and Class B Common Stock of the
Company, assuming all unexercised and outstanding warrants had been exercised.
For purposes of the employment agreement with Mr. Altomare, a "change of control
event" shall be deemed to have occurred in the event of (A) a merger or
consolidation involving the Company in which the Company is not the surviving
corporation, (B) the sale of all or substantially all of the assets of the
Company, or (C) the acquisition by any individual, entity or group not
affiliated with Mr. Altomare directly or indirectly becoming the beneficial
owner of 20% or more of the combined voting power of the then outstanding voting
securities of the Company. Mr. Altomare's employment agreement further grants to
Mr. Altomare the right under the Court-approved 1994 Stock Option Plan to
purchase not less than 500,000 shares of the Company's Class A Common Stock at
the fair market price of the stock as of the Plan Effective Date. The employment
agreement further provides certain restrictive covenants and nondisclosure
obligations upon Mr. Altomare during the term of the agreement.
19
<PAGE>
ITEM 11
-------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below lists each stockholder known to the Company that beneficially
owns as of June 30, 1999 more than five percent of the Class A Common Stock of
the Company. This information is based on 7,207,857 shares of Class A Common
Stock issued and outstanding as of June 30, 1999. For purposes of this section,
it is assumed that all l.28 million shares of Class B Common Stock, each share
of which is convertible into one share of Class A Common Stock under certain
circumstances as set forth in the Company's Articles of Incorporation, have been
so converted.
NAME AND ADDRESS R AMOUNT AND NATURE % OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK
- ---------------------------------------- ---------------------------------------
Richard A. Altomare
20 S. Terminal Drive
Plainview, NY 11803 1,290,173 shares 15.2%
B. SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth information with respect to the number of shares of
the Company's Class A Common Stock that are beneficially owned by each director
and executive officer of the Company and by all directors and offices of the
Company as a group as of June 30, 1999. This information is based on 7,207,857
shares of Class A Common Stock issued and outstanding as of June 30, 1999. For
purposes of this section, it is assumed that all 1.28 million shares of Class B
Common Stock (par value $.005), which are convertible into Class A Common Stock
under certain circumstances as set forth in the Company's Articles of
Incorporation, have been so converted.
NAME AND ADDRESS R AMOUNT AND NATURE % OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK
- ---------------------------------------- ---------------------------------------
Richard A. Altomare
20 S. Terminal Drive
Plainview, NY 11803 1,290,173 shares 15.2%
20
<PAGE>
ITEM 12
-------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Richard A. Altomare, the Company's Chairman and Chief Executive Officer, served
until July, 1993 as advisor and reorganization consultant to the Company during
the Company's Reorganization case. Thereafter, the Company appointed Mr.
Altomare as Chairman and President, a position he has continually occupied
thereafter. On account of services rendered to the Company during the
Reorganization, the Bankruptcy Court awarded Mr. Altomare a $1 million bonus for
his achievement in successfully reorganizing the Company, payable in the form of
1 million shares of the Company's Class B Common Stock. In addition, the
Bankruptcy Court approved the issuance of 500,000 shares of Class B Common Stock
pursuant to a Court-approved employment agreement that became enforceable on the
Plan Effective Date. The terms of this employment are described above. (See
"Compensation of Officers and Directors-Employment Agreements and Related
Matters").
Mr. Altomare received no cash compensation from the Company during the Chapter
11 case or during the current period, though his employment agreement entitles
him to an annual base salary of at least $300,000. To date, $930,000 of salary
has been accrued and not paid.
21
<PAGE>
ITEM 13
-------
EXHIBITS AND REPORTS ON FORM 8-K
None.
22
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company's report on Form 10-KSB has been signed below by the following person on
behalf of the registrant and in the capacities and on the dates indicated.
UNIVERSAL EXPRESS, INC.
Date: November 24, 1999 /s/ Richard A. Altomare
------------------------------
Richard A. Altomare, President
and Chairman of the Board
23
<PAGE>
UNIVERSAL EXPRESS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS....................... F-1
CONSOLIDATED BALANCE SHEETS................................................. F-2
CONSOLIDATED STATEMENTS OF OPERATIONS....................................... F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............................. F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................. F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and
Board of Directors
Universal Express, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Universal
Express, Inc. and Subsidiaries as of June 30, 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1999 and 1998. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Universal Express, Inc. and Subsidiaries as of June 30, 1999 and the results of
their operations and their cash flows for the years ended June 30, 1999 and 1998
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements the Company has a working capital and
stockholders= deficiency of approximately $2,613,000 and $284,000, respectively
at June 30, 1999, and has incurred significant recurring operating losses which
raise substantial doubt about its ability to continue as a going concern without
the raising of additional debt and/or equity financing to fund operations.
Management=s plans in regard to these matters are described in Note 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Feldman Sherb Horowitz & Co., P.C.
--------------------------------------
New York, New York Feldman Sherb Horowitz & Co., P.C.
November 1, 1999 Certified Public Accountants
<PAGE>
UNIVERSAL EXPRESS, INC.
AND SUBSIDIARIES
REPORT ON AUDITS
OF
FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
<PAGE>
UNIVERSAL EXPRESS, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
ASSETS
------
June 30, 1999
-------------
CURRENT ASSETS:
<S> <C>
Cash $ 37,164
Accounts receivable, net of allowance for doubtful
accounts of $182,400 537,134
Inventory 100,162
Loan to officer 783,445
Related party receivables 105,481
------------
Total current assets 1,563,386
------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation 228,222
------------
OTHER ASSETS:
Non-compete agreement, net 140,000
Goodwill, net 2,032,898
Note receivable 550,800
Other assets 155,986
------------
2,879,684
------------
$ 4,671,292
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,604,149
Payroll taxes payable 172,095
Other 130,751
Notes payable 1,080,310
Convertible debentures 189,000
------------
Total current liabilities 4,176,305
------------
LONG-TERM LIABILITIES 579,051
------------
MINORITY INTEREST 200,313
------------
STOCKHOLDERS' EQUITY:
Common stock, $.005 par value; authorized 147,000,000
shares, 7,207,857 shares issued and outstanding 36,039
Class B common stock, $.005 par value; authorized 3,000,000
shares, 1,280,000 shares issued and outstanding 6,400
Additional paid-in capital 20,377,905
Cash received for stock rights 1,770,002
Accumulated deficit (21,155,207)
Deferred compensation related to stock issued for services (1,319,516)
------------
Total stockholders' equity (284,377)
------------
$ 4,671,292
============
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
UNIVERSAL EXPRESS, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1999 1998
---- ----
INCOME:
<S> <C> <C>
Ticket sales $ 1,721,129 $ 1,706,939
Merchandise and service sales income 479,077 506,835
Delivery services 402,835 293,739
Other income 23,174 1,929
----------- -----------
2,626,215 2,509,442
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 1,729,182 1,663,051
Selling, general and administrative 5,152,192 4,304,644
Depreciation and amortization 160,836 446,675
----------- -----------
7,042,210 6,414,370
----------- -----------
LOSS FROM OPERATIONS (4,415,995) (3,904,928)
INTEREST EXPENSE (172,744) (2,999,062)
----------- -----------
NET LOSS $(4,588,739) $(6,903,990)
=========== ===========
Net loss per common share $ (1.29) $ (16.74)*
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 3,561,529 412,453 *
=========== ===========
* adjusted retroactively for 1:70 reverse stock split in 1998
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNIVERSAL EXPRESS, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Common Stock Class B Stock Paid-in
-------------------------- --------------------
# of Shares Amount # of Shares Amount Capital
----------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - JUNE 30, 1997 60,735 $ 304 1,280,000 $ 6,400 $ 10,833,279
Common shares issued for compensation 36,000 180 -- -- 988,815
Amortization of deferred compensation -- -- -- -- --
Common shares issued for interest and penalties 372,710 1,864 -- -- 1,113,032
Common shares issued for upon conversion of notes 1,353,847 6,769 -- -- 4,605,938
Common shares issued as security 7,075 35 -- -- 137,679
Common shares issued for acquisition
of Office Quick 4,714 23 -- -- 319,777
Cash received for stock rights -- -- -- -- --
Net loss -- -- -- -- --
----------- -------- --------- ------- ------------
BALANCE - JUNE 30, 1998 1,835,081 9,175 1,280,000 6,400 17,998,520
Sales of common stock 2,738,833 13,694 -- -- 1,038,306
Common shares cancelled (1,718) (9) -- -- 9
Common shares issued for compensation 1,280,000 6,400 -- -- 791,300
Amortization of deferred compensation -- -- -- -- --
Common shared issued for services 233,500 1,168 -- -- 205,581
Common shares issued for interest and penalties 118,200 591 -- -- 30,209
Common shares issued for upon conversion of notes 315,000 1,575 -- -- 167,425
Common shares issued for upon conversion of
convertible debentures 400,000 2,000 -- -- 98,000
Common shares issued as good faith deposit 50,000 250 -- -- 49,750
Dividends paid 239,028 1,195 -- -- (1,195)
Cash received for stock rights -- -- -- -- --
Net loss -- -- -- -- --
----------- --------- --------- ------- ------------
BALANCE - JUNE 30, 1999 7,207,923 $ 36,039 1,280,000 $ 6,400 $ 20,377,905
=========== ========= ========= ======= ============
Stock Accumulated Deferred
Rights Deficit Compensation Totals
------------ ----------- ------------ -----------
BALANCE - JUNE 30, 1997 $ -- $ (9,662,478) $ (1,054,000) $ 123,505
Common shares issued for compensation -- -- (913,057) 75,938
Amortization of deferred compensation -- -- 791,891 791,891
Common shares issued for interest and penalties -- -- -- 1,114,896
Common shares issued for upon conversion of notes -- -- -- 4,612,707
Common shares issued as security -- -- -- 137,714
Common shares issued for acquisition
of Office Quick -- -- -- 319,800
Cash received for stock rights 640,000 -- -- 640,000
Net loss -- (6,903,990) -- (6,903,990)
------------ ------------ ------------ ------------
BALANCE - JUNE 30, 1998 640,000 (16,566,468) (1,175,166) 912,461
Sales of common stock -- -- -- 1,052,000
Common shares cancelled -- -- -- --
Common shares issued for compensation -- -- (797,700) --
Amortization of deferred compensation -- -- 653,350 653,350
Common shared issued for services -- -- -- 206,749
Common shares issued for interest and penalties -- -- -- 30,800
Common shares issued for upon conversion of notes -- -- -- 169,000
Common shares issued for upon conversion of
convertible debentures -- -- -- 100,000
Common shares issued as good faith deposit -- -- -- 50,000
Dividends paid -- -- -- --
Cash received for stock rights 1,130,002 -- -- 1,130,002
Net loss -- (4,588,739) -- (4,588,739)
------------ ------------ ------------ ------------
BALANCE - JUNE 30, 1999 $ 1,770,002 $(21,155,207) $ (1,319,516) $ (284,377)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
UNIVERSAL EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
June 30,
-----------------------------
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (4,588,739) $(6,903,990)
------------ -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 160,836 446,675
Common shares issued for non-cash expense transactions 890,901 (121,166)
Write down of net fixed assets 196,523 16,684
Write off of net reorganization cost 290,941
Write down of net goodwill 342,664
Amortization of deferred financing costs -- 1,834,467
Increase (decrease) in cash attributable to changes in assets and
liabilities as follows:
Decrease in accounts receivable 134,649 163,362
(Increase) in inventory (28,730) (40,692)
(Increase) in loan to officer (37,661) (417,054)
(Increase) decrease in notes receivable (319,654) 67,743
Decrease in other, primarily prepaid expenses -- 143,957
(Increase) decrease in other assets (16,486) (334,505)
Increase (decrease) in accounts payable and accrued expenses 480,838 (69,359)
Increase in payroll taxes payable 84,232 75,973
Increase in other liabilities 101,635 --
------------ -----------
Total adjustments 2,280,688 1,766,085
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (2,308,051) (5,137,905)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (7,933) (221,411)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (7,933) (221,411)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible debt -- 4,938,645
Repayments of notes and loans payable (56,745) (89,174)
Proceeds from stock rights 1,130,002 640,000
Issuance of common stock 1,052,000 --
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,125,257 5,489,471
------------ -----------
NET INCREASE (DECREASE) IN CASH (190,728) 130,155
CASH - BEGINNING OF YEAR 227,892 97,738
------------ -----------
CASH - END OF YEAR $ 37,164 $ 227,892
============ ===========
Supplemental disclosure of cash
flow information:
Cash paid for interest -- $ 19,301 $ 49,967
============ ===========
Non Cash Activity - See note 14 with
respect to issuance of the company
shares of common shares as compensation
for services rendered
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNIVERSAL EXPRESS, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED JUNE 30, 1999
-------------------------
1. DESCRIPTION OF THE BUSINESS
---------------------------
Universal Express, Inc. (AUSXP@) is an integrated business service
company. Its principal subsidiaries and divisions include USXP=s
entertainment division which consists of Downtown Theater Ticket
Agency, Inc. (DTTA) and its subsidiaries, its recently acquired
subsidiary, Skyworld International Courier (ASkyNet Miami@), and
Private Postal Network.com and its division Postal Business Center
Network.com, an association of independent and franchised nationwide
postal stores. USXP=s primary focus is on the development of its postal
business center networks and new acquisitions which will strengthen its
market position.
On June 30, 1998 USXP elected to effect a 1:70 reverse stock split of
its common stock. The aforementioned financial statements and opening
balances have been restated to reflect such reverse splits.
On September 1, 1997, USXP acquired all of the outstanding shares of
Leone, Inc. d/b/a Office Quick and Etc. Etc. Color and Copy Centers,
Inc. for 330,000 shares of the Companies= stock at a price of $1.00 per
share and $24,000 in cash. On September 15, 1999, USXP sold all of the
assets of Leone, Inc. in consideration for the buyer assuming $127,729
of lease obligations and trade payables of $21,300.
On June 8, 1999 USXP acquired 5202 shares (51%) of SkyNet, MIA and its
60% owned subsidiary SkyNet Venezuela (ASkyNet@) for a note payable of
$450,000 payable in eighteen instalments of $25,000 commencing June 15,
2000. In addition, USXP will provide $500,000 to payoff SkyNet=s loan
from a bank. USXP will also provide SkyNet with $600,000 additional
working capital. USXP recognized goodwill of approximately $1,500,000
from its acquisition of SkyNet.
Hereinafter, all of the aforementioned companies are collectively
referred to as the ACompany@.
The following unaudited pro-forma information reflects the results of
operations of the Company as though the purchase had been consummated
as of July 1, 1997;
Years ended June 30,
--------------------
1999 1998
---- ----
Revenue $ 7,411,055 $ 7,953,359
Net Loss $ (4,493,331) $ (6,849,082)
Net loss per share $ (1.26) $ (16.61)
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a. PRINCIPLES OF CONSOLIDATION - The accompanying financial
statements consolidate the accounts of USXP and its
wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in
consolidation.
b. REVENUE RECOGNITION - Income from sales of supplies and
equipment is recognized when the orders are completed and
shipped.
Entertainment division sales are recognized when the ticket is
delivered to the customer.
Delivery income is recognized upon the completion of the
delivery to its destination.
c. Cash and cash equivalents - The Company considers cash
equivalents to be those instruments which have initial
maturities of three months or less.
d. Property and equipment - Property and equipment are stated at
cost. Depreciation and amortization are provided on a
straight-line basis over the estimated useful life of the
respective assets, ranging from five to ten years.
e. Non-competition agreement - Amortization is provided over the
five year contractual life of the agreement.
f. Goodwill - Goodwill resulting from the acquisition of the
subsidiaries represents the remaining unamortized value of the
excess of the purchase price over the fair market value of the
net assets acquired. Goodwill is amortized on a straight line
basis over a period of 15 years.
g. Deferred compensation - Deferred compensation recorded in
connection with Class B common stock issued to the Company's
Chief Executive Officer is amortized over the five years of
the related employment agreement.
h. Inventory - Inventories, consisting of supplies, are stated at
the lower of average cost or market.
i. Basic net loss per common share - Net loss per common share is
calculated utilizing the weighted average number of common
shares outstanding during the period. Contingently issuable
shares are included in the computation where the effect is
dilutive.
F-7
<PAGE>
j. Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
k. Income taxes - The Company recognizes deferred tax assets and
liabilities based on the difference between the financial
statements carrying amount and the tax basis of assets and
liabilities using the effective tax rates in the years in
which the differences are expected to reverse. A valuation
allowance related to deferred tax assets is also recorded when
it is probable that some or all of the deferred tax assets
will not be realized.
12. Fair value of financial instruments - The carrying amounts
reported in the balance sheet for cash, receivables, accounts
payable, notes payable, convertible debt and accrued expenses
approximate fair value based on the short-term maturity of
these instruments.
13. Impairment of long-lived assets -The Company reviews
long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the
carrying amounts may not be recovered. At June 30, 1999, the
Company believes that there has been no impairment of its
long-lived assets.
3. BASIS OF PRESENTATION
---------------------
The Company has a working capital and stockholders= deficiency of
approximately $2,613,000 and $284,000, respectively at June 30, 1999,
and has incurred significant recurring operating losses which raise
substantial doubt about its ability to continue as a going concern
without the raising of additional debt and/or equity financing to fund
operations. Management is actively pursuing new debt and/or equity
financing and continually evaluating the Company=s profitability,
however any results of their plans and actions cannot be assured. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-8
<PAGE>
4. BUSINESS SEGMENTS
-----------------
The Company operates in three business segments, merchandise and
services sales, shipping and entertainment services.
Summarized financial information of the business segments in 1999 is as
follows:
<TABLE>
<CAPTION>
Merchandise
and Shipping Entertain- Total
services sales ment
-------------- -------- ----------- -----
<S> <C> <C> <C> <C>
Revenue $ 494,040 $ 411,046 $ 1,721,129 $ 2,626,215
Operating (income) loss $ 4,516,369 $ 107,494 $ (35,121) $ 4,588,742
Net (income) loss $ 4,516,369 $ 107,494 $ (35,121) $ 4,588,742
Identifiable assets $ 747,311 $ 1,527,720 $ 223,363 $ 2,498,394
Depreciation and amortization $ 262,189 $ 12,742 $ 3,634 $ 278,565
Capital expenditures $ 7,933 $ -- $ -- $ 7,933
=========== ========== =========== =============
</TABLE>
5. LOAN TO OFFICER
---------------
In accordance with the employment contract of the Company=s Chief
Executive Officer, such officer is entitled to secure loans from the
Company in an amount not to exceed $950,000. These loans bear interest
at the applicable federal rate, which approximated 6.5% during the
years ended June 30, 1999 and June 30, 1998. Repayment of such note is
due June 15, 2000. As of June 30, 1999 the amount owed under such loan
is $783,445. In addition, the Company has accrued unpaid salary to such
officer aggregating $930,000 at June 30, 1999.
6. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following:
Leasehold improvements $ 121,689
Office equipment 726,765
Furniture and fixtures 125,765
-----------
974,219
Less accumulated depreciation and amortization (745,997)
$ 228,222
===========
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7. RELATED PARTY RECEIVABLES
-------------------------
Related party receivables represent receivables from companies
partially owned by the minority shareholder of SkyNet.
8. NOTE RECEIVABLE
---------------
Note receivable represents the principal and accrued interest balance
due from an individual who in December, 1998 purchased 100% of the
stock of one of the Company=s subsidiaries for $545,000. Collection of
the note is over a period of 16 years bearing interest at 6% per annum
payable in weekly installments of $629 over the first 53 weeks and
$1060 weekly thereafter.
9. NON-COMPETITION AGREEMENT
-------------------------
The Company entered into a non-competition agreement for a period of 5
years with a former subsidiary and paid $200,000 as consideration for
such agreement. At June 30, 1999 the unamortized amount of the
agreement is $140,000.
10. NOTES PAYABLE
-------------
Notes payable consist of the following:
Bank line of credit, renewable monthly,
bearing interest at 2% above the prime rate. $ 130,000
Notes payable - individuals, due upon demand,
bearing interest at rates ranging from 8% to
24% per annum 147,000
Note payable, due upon demand, bearing
interest at 10%. 29,000
Loan payable - bearing interest at the rate of
10% per annum, due upon demand. 25,941
Capital lease obligations assumed with varying
monthly payments and interest rates maturing in 2000;
secured by interest in equipment. 85,896
Bank loan due on March 15, 2000, interest payable
at the bank prime rate plus 1.5 points.
Secured by $300,000 letter of credit from the 300,000
former owner of SkyNet.
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<PAGE>
Bank loan due on November 25, 1999, interest
payable at bank's certificate of deposit rate
plus 1.5 points. Secured by $150,000
certificate of deposit from the minority
shareholder of SkyNet. 150,000
Loan from an investor at a fixed interest
amount of $17,500, due December 15, 2000. 82,500
Two notes payable to an individual payable in
weekly payments aggregate $610 including interest.
These notes provide that if the controlling interest
of SkyNet were to change then the notes would be
due on demand. Additionally, the note would bear
interest at 30% per annum until paid. The note holder not
exercised his right for demand payment. 72,294
Bank loan payable in monthly installments
up to March 15, 2000, interest payable at the
bank prime rate plus 2 points. Secured by 33,291
accounts receivable.
Non-interest bearing notes to shareholders
and two investors payable
from July 1, 2000 to December 15, 2000. 153,439
Note payable for purchase of 51% of shares of stock
of SkyNet, payable in eighteen installments of
$25,000 commencing June 15, 2000 450,000
---------
1,659,361
Less: current maturities (1,080,310)
$ 579,051
============
The above long-term loans are maturing on various dates during the year
ending June 30, 2001.
11. CONVERTIBLE DEBENTURES
----------------------
The Company issued a series of convertible debentures in 1997 in the
approximate amount of $5,000,000 which all but $189,000 were converted
into common shares. The remaining portion bears interest ranging 10% to
12% per annum maturing July 31, 1999. Subsequent to the maturity date
the holder of $100,000 of such debentures issued notices of conversion.
The remaining $89,000 is still outstanding.
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<PAGE>
12. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases the space for its administrative offices and
warehouse on a month to month basis and is currently paying
approximately $7,600 per month and two other offices on yearly leases
of approximately $8,100.
The employment agreement with the Company's Chief Executive Officer
provided for an annual base salary of $84,000 in 1994, subject to
annual cost of living adjustments each succeeding January 1st over a
five year period. In connection therewith, the officer was issued
1,000,000 new common shares as compensation for services previously
rendered and expenses previously incurred during the pendency of the
Company's 1994 bankruptcy proceedings. The shares had been valued at
$0.50 per share and compensation of $ 500,000 was included as a charge
to reorganization expense. Additionally, the officer will be issued
500,000 additional shares as additional compensation pursuant to the
employment agreement. If, prior to the termination of the entire
employment period, the officer's employment is terminated for cause (as
defined), the officer will forfeit 8,333 shares for each of the months
of employment that has not been completed over the remaining term of
the agreement. Deferred compensation of $500,000 had been recorded in
connection with the 500,000 share issuance which was fully amortized at
June 30, 1999. In February, 1999 the employment contract of the officer
was renewed for an additional five year period at an annual
compensation of $300,000 per annum.
The Company is obligated under a consulting agreement expiring February
28, 2004 under which the Company is to receive financial and accounting
services for a fee of approximately $116,000 per annum.
The Company is involved in various lawsuits and claims in the normal
course of business. The Company believes that the disposition of these
matters will not have a material adverse effect on the Company=s
financial position.
13. INCOME TAXES
------------
At June 30, 1999 the Company had approximately $21,000,000 of net
operating loss carry forwards expiring beginning in 2007. A substantial
amount of the carry forwards are subject to annual limitations pursuant
to provisions contained in the Internal Revenue Code which become
effective when an "ownership change", such as the ownership change
effected pursuant to the Plan of Reorganization, occurs. To the extent
that such net operating losses are not utilized in a particular year,
such amounts become available to increase the following year's
limitation.
Deferred tax debits in the amount of approximately $8,419,000
(resulting from the benefit of the aforementioned net operating
losses), have been fully offset by a valuation allowance since
realization of the benefit of the net operating losses is not assured.
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<PAGE>
14. STOCKHOLDERS' EQUITY
--------------------
The Company's class B common shares (of which 3,000,000 shares have
been authorized) provide for one and one-third votes per share. If the
Company's current Chief Executive Officer exercises any stock options
pursuant to the Company's stock option plan, or if the officer receives
other shares of common stock pursuant to his employment agreement with
the Company in lieu of stock options, the aggregate number of votes to
which the initial 1,500,000 Class B shares issuable to such officer is
entitled shall be reduced by one vote for each additional share which
is received by the officer.
During the year ended June 30, 1999 the Company issued 5,374,560 shares
of common stock. Of such shares issued, 233,500 were issued in exchange
for services rendered; 433,200 shares were issued in payment of
interest and principal on notes payable, 400,000 shares were issued for
conversion of convertible debentures; 50,000 common shares were issued
as a good faith deposit for acquisition of SkyNet and 239,028 shares
were issued as a dividend. In addition, 2,738,833 shares were issued to
investors for cash.
During the year ended June 30, 1999 advisory fees was prepaid to
consultants retained by the Company to provide certain advisory
services via the issuance of 1,280,000 common shares. The common shares
were valued at their approximate fair market value on the dates of
issuance. The terms of the consulting agreements are from eighteen to
twenty four months, and the amounts recorded for the issuance of the
shares are being amortized over the respective periods.
15. STOCK RIGHTS
------------
Stock rights represent amounts received from investors for their future
rights to purchase shares of stock of the Company at a discount of 20
to 30% of the market value of the stock at the date of exercise subject
to the Company=s right of redemption at a premium not to exceed 20% of
the face amount of the right.
16. STOCK OPTION PLAN
-----------------
The Company's "1994 Stock Option Plan@ provides for the issuance of up
to 104,167 shares of common stock. The purchase price per share of
common stock under each option shall not be less than the fair market
value of the common stock on the date such option is granted. No
options have been granted under the plan as of June 30, 1999.
17. MINORITY INTEREST
-----------------
At June 30, 1999 minority interest represents 750 shares of non-voting
preferred stock of SkyNet issued prior to its acquisition by USXP. The
stock is convertible into 10 shares of common stock of SkyNet at the
option of SkyNet on or before December 31, 2003.
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