<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
Commission File Number 000-21657
SKYMALL, INC.
(Exact name of Registrant as specified in its charter)
Nevada 86-0651100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1520 East Pima Street, Phoenix, Arizona 85034
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 254-9777
Indicate by check mark whether the Registrant (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 [ ]
The number of shares outstanding of the issuer's common shares, as of
November 13, 1997
COMMON SHARES, $.001 PAR VALUE: 8,534,000 SHARES
<PAGE> 2
SKYMALL, INC.
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets -
September 30, 1997 and December 31, 1996.......................... 3
Condensed Statements of Income -
Three and nine months ended September 30, 1997 and 1996........... 4
Condensed Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996..................... 5
Notes to Condensed Financial Statements............................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 7
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................. 9
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................... 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 9
ITEM 5. OTHER INFORMATION................................................. 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 9
SIGNATURES................................................................. 10
EXHIBITS
Exhibit Index......................................................... 11
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SKYMALL, INC.
CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including escrow accounts $ 7,102 $11,491
Accounts receivable, net 2,793 4,150
Prepaid catalog costs and other 1,936 1,914
Deferred income taxes 127 59
------- -------
Total current assets 11,958 17,614
PROPERTY AND EQUIPMENT, net 3,319 1,949
OTHER ASSETS, net 172 158
------- -------
Total assets $15,449 $19,721
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,223 $ 8,623
Accrued liabilities 621 792
Income taxes -- 280
Reserve for restructure charges -- 165
Line of credit 138 --
Current portion of notes payable and capital leases 302 942
Notes payable to shareholders -- 120
------- -------
Total current liabilities 6,284 10,922
DEFERRED INCOME TAXES 27 59
NOTES PAYABLE AND CAPITAL LEASES, net of
current portion 77 139
------- -------
Total liabilities 6,388 11,120
------- -------
SHAREHOLDERS' EQUITY 9,061 8,601
------- -------
Total liabilities and shareholders' equity $15,449 $19,721
======= =======
</TABLE>
See accompanying notes.
3
<PAGE> 4
SKYMALL, INC.
CONDENSED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Merchandise sales, net $ 9,175 $ 6,474 $ 25,855 $ 18,906
Placement fees and other 3,793 2,838 11,003 8,631
----------- ----------- ----------- -----------
Total revenues 12,968 9,312 36,858 27,537
COST OF GOODS SOLD 7,707 5,172 21,270 14,725
----------- ----------- ----------- -----------
Gross margin 5,261 4,140 15,588 12,812
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Catalog expenses 2,004 1,726 5,926 5,705
Selling expenses 736 531 2,108 1,665
Customer service and fulfillment expenses 912 538 2,886 1,511
General and administrative expenses 1,394 842 3,929 2,290
----------- ----------- ----------- -----------
Total operating expenses 5,046 3,637 14,849 11,171
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 215 503 739 1,641
Interest income (expense), net 108 (182) 332 (550)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 323 321 1,071 1,091
Income taxes -- -- -- --
----------- ----------- ----------- -----------
NET INCOME $ 323 $ 321 $ 1,071 $ 1,091
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .04 $ .06 $ .12 $ .21
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,647,182 5,191,279 8,711,658 5,191,279
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SKYMALL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,071 $ 1,091
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 417 212
Changes in operating assets and liabilities (2,821) (161)
-------- --------
Net cash provided by (used in) operating activities (1,333) 1,142
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,761) (210)
-------- --------
Net cash used in investing activities (1,761) (210)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit, net 138 --
Payments on notes payable and capital leases, net (702) (1,317)
Repurchase of common shares (611) --
Proceeds from (payments on) notes payable to shareholders (120) 623
-------- --------
Net cash used in financing activities (1,295) (694)
-------- --------
Decrease in cash and cash equivalents (4,389) 238
CASH AND CASH EQUIVALENTS,
beginning of period 11,491 775
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 7,102 $ 1,013
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SKYMALL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in
accordance with generally accepted accounting principles, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. The results of operations for the three and
nine month periods ended September 30, 1997 are not necessarily indicative of
the results to be expected for the full year.
(2) NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128),
which is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly held
common stock. The Company will adopt SFAS No. 128 for the year ended December
31, 1997. The adoption of SFAS No. 128 will not have a significant impact on the
accompanying condensed financial statements.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
attached condensed financial statements and notes, the Company's audited
financial statements and notes, and Management's Discussion and Analysis of
Financial Condition and Results of Operations relating thereto included or
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
Certain statements herein, in future filings by the Company with the
Securities and Exchange Commission and in the Company's written and oral
statements made by or with the approval of an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
and the Company intends that such forward-looking statements be subject to the
safe harbors created thereby. The words and phrases "should be," "will be,"
"believes," "expects," "anticipates," "plans," "intends" and similar expressions
identify forward-looking statements. These forward-looking statements reflect
the Company's current views with respect to future events and financial
performance, but are subject to many uncertainties and factors relating to the
Company's operations and business environment, which may cause the actual
results of the Company to be materially different from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties include, but are not limited to, the Company's dependence on its
relationships with its airline partners, fluctuations in paper prices and
airline fuel costs, customer credit risks, competition from other catalog
companies and retailers and the Company's reliance on information and
telecommunications systems, all of which are discussed more fully in the
Company's other filings with the Securities and Exchange Commission. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
Revenue and Gross Margin. Net merchandise sales for the three and nine
months ended September 30, 1997 were $9,175,000 and $25,855,000, respectively,
representing an increase of 42% and 37% over the same periods in 1996. The
increases are primarily due to increases over the prior year in catalog
distribution of 12% and 11% and in net merchandise revenue per page of 16% and
17% for the three and nine month periods. Placement fees and other revenues for
the three and nine months ended September 30, 1997 were $3,793,000 and
$11,003,000, respectively, representing an increase of 34% and 27%,
respectively, over the same periods in 1996. Gross margin increased $1,121,000
or 27% and $2,776,000 or 22% for the three and nine months ended September 30,
1997, but declined as a percentage of revenues to 41% from 44% and to 42% from
47% for the three and nine month periods. The decrease in gross margin
percentage was primarily due to a change in the mix of agreements with
merchants, which resulted in higher placement fees but retention of a lower
percentage of net merchandise sales for the first nine months of 1997 compared
to the same periods in 1996.
Operating Expenses. Total operating expenses for the three and nine
months ended September 30, 1997 were $5,046,000 or 39% of total revenue and
$14,849,000 or 40% of total revenue, respectively, compared to $3,637,000 or 39%
of total revenue and $11,171,000 or 41% of total revenue for the same periods in
1996. The increase in operating expenses is primarily due to added
administrative and call center personnel and other infrastructure investments
made to support business growth. This increase is offset, in part, by a decrease
in catalog expenses as a result of lower paper costs compared to 1996.
Income from Operations. Income from operations for the three and nine
months ended September 30, 1997 was $215,000 and $739,000, respectively,
compared to $503,000 and $1,641,000 for the same periods in 1996. The decreases
are a result of the items mentioned above.
Interest income (expense), net. Interest income (expense), net for the
three and nine months ended September 30, 1997 was $108,000 and $332,000,
respectively, compared to ($182,000) and ($550,000) for in the same periods in
1996. The change from expense to income is the result of the recapitalzation of
the Company in 1996, which included retirement of debt and an initial
public offering of the Company's common stock.
7
<PAGE> 8
Income Taxes. Prior to October 21, 1996, the Company had elected to be
taxed under Subchapter S of the Internal Revenue Code and corresponding
provisions of Arizona tax laws. As a result of the election, federal and state
income taxes on the net income of the Company were payable personally by the
shareholders. Accordingly, no provision for income taxes was recorded for the
three and nine months ended September 30, 1996.
Upon conversion from a S Corporation to C Corporation, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes" (SFAS No. 109). In accordance with the provisions
of SFAS No. 109, the Company recorded a valuation allowance against deferred tax
assets due to the uncertainty as to whether the Company would be able to realize
all deferred tax assets. As a result of profitable operations for the three and
nine months ended September 30, 1997, respectively, the Company reduced a
portion of its deferred tax asset valuation allowance, and did not record a
provision for income taxes for the three and nine months ended September 30,
1997. It is the Company's policy to evaluate its ability to reduce the deferred
tax asset valuation allowance on a period-by-period basis.
LIQUIDITY AND CAPITAL RESOURCES
At September 30 1997 the Company had net working capital of $5,674,000
and a current ratio of 1.9 to 1. In addition, the Company maintains a reducing
revolving line of credit from a bank in the amount of $5,000,000. Available
borrowings under the revolving line of credit are reduced by $1,000,000
beginning January 1998 and annually thereafter. As of November 12, 1997, the
entire amount of the revolving line was available to the Company.
Cash used in operating activities was $1,333,000 for the nine months
ended September 30, 1997. The primary use was the reduction of accounts payable
of $3,400,000 offset by a reduction of accounts receivable of $1,400,000. Cash
used in investing activities for the nine months ended September 30, 1997 was
$1,761,000 consisting primarily of capital expenditures for telephone and
computer software and equipment and the build-out of a new call processing
center. Cash used in financing activities was $1,295,000 consisting of debt
payments of $822,000, the repurchase of 100,000 common shares of the Company's
stock for $611,000, and borrowing under the revolving line of credit of
$138,000.
8
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 11, 1996, the Company's Registration Statement on Form S-1
(File No. 333-17609) (the "Form S-1"), was declared effective by the U.S.
Securities and Exchange Commission. The Form S-1 was prepared in connection
with an initial public offering by the Company of 2,000,000 shares (the
"Shares") of Common Stock (the "Offering"). The Offering commenced on December
11, 1996 and terminated December 16, 1996, the date on which all of the Shares
were sold. The Offering was underwritten by Josephthal Lyon & Ross Incorporated
and Cruttenden Roth Incorporated on a firm commitment basis. The Shares were
offered to the public at a price of $8.00 per Share, or $16,000,000 in the
aggregate for all 2,000,000 Shares offered, all of which were sold as of the
date the offering terminated.
The Company's actual expenses incurred in connection with the issuance and
distribution of the Shares registered pursuant to the Form S-1 equaled
approximately $2,032,000 in the aggregate, which consisted of the following: (i)
$1,120,000 in aggregate underwriting discounts and commissions, (ii) $148,000
in expenses paid to or for the underwriter and (iii) $764,000 in other
expenses. Of the $764,000 in other expenses, no direct or indirect payments
were made to the Company's officers, directors, holders of at least 10% of any
class of the Company's outstanding securities or other affiliated parties
(collectively "Affiliates").
After deducting the foregoing expenses, the Offering resulted in
approximately $13,968,000 in net proceeds to the Company. For the period from
December 16, 1996 through September 30, 1997, the Company used a portion of the
net proceeds as follows: approximately (i) $850,000 for building improvements to
the corporate offices and the call processing center, (ii) $950,000 for the
purchase and installation of telephone and computer software and equipment,
(iii) $4,000,000 for the reduction of the Company's revolving line of credit,
(iv) $350,000 for marketing and promotional expenses, (v) $200,000 for
development of additional circulation media, (vi) $618,000 for working capital
purposes, and (vii) $7,000,000 for temporary investments consisting of a Merrill
Lynch Money Market Fund. None of the above mentioned amounts consist of direct
or indirect payments to Affiliates. The preceding discussion of the Company's
use of net proceeds is based upon reasonable estimates by management. Except for
capital expenditures discussed in items (i) and (ii) above, the Company's use of
proceeds from the Offering, as described herein, does not represent a material
change from that described in the Prospectus included in the Form S-1. The
Company continues to evaluate the use and allocation of the Offering proceeds
and, as discussed in the Form S-1, may re-allocate or use the Offering proceeds
for different purposes as business conditions warrant.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(11) Statement Re: Computation of Net Income Per Common Share.
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 18, 1997 By: /s/ Robert M. Worsley
------------------- -------------------------------------
Robert M. Worsley
Chairman of the Board,
President (Chief Executive Officer)
Date: November 18, 1997 By: /s/ Allen R. Westergard
------------------- -------------------------------------
Allen R. Westergard
Chief Financial Officer
10
<PAGE> 11
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
11 Statement Re: Computation of Net Income Per Common
Share
27 Financial Data Schedule
11
<PAGE> 1
EXHIBIT 11
SKYMALL, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
For Primary Income Per Common Share (1)(2) 1997 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding 8,647,182 5,150,001
Net dilutive impact of stock options and warrants--based on the treasury stock
method using average market price -- 41,278
---------- ----------
Weighted average number of common and common equivalent shares
outstanding 8,647,182 5,191,279
========== ==========
Net income $ 323,000 $ 321,000
========== ==========
Net income per common share $ .04 $ .06
========== ==========
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
For Primary Income Per Common Share (1)(2) 1997 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding 8,651,720 5,150,001
Net dilutive impact of stock options and warrants--based on the treasury stock
method using average market price 59,938 41,278
---------- ----------
Weighted average number of common and common equivalent shares
outstanding 8,711,658 5,191,279
========== ==========
Net income $1,071,000 $1,091,000
========== ==========
Net income per common share $ .12 $ .21
========== ==========
</TABLE>
- ----------
(1) No calculation of fully diluted income per share has been provided as fully
diluted income per share is equal to primary income per share.
(2) Common and common equivalent shares have been adjusted to reflect a
1,592-for-1 stock exchange upon incorporation in Nevada in October 1996.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE UNAUDITED
CONDENSED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED
IN FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,102
<SECURITIES> 0
<RECEIVABLES> 3,001
<ALLOWANCES> 208
<INVENTORY> 0
<CURRENT-ASSETS> 11,958
<PP&E> 5,696
<DEPRECIATION> 2,377
<TOTAL-ASSETS> 15,449
<CURRENT-LIABILITIES> 6,284
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 9,052
<TOTAL-LIABILITY-AND-EQUITY> 15,449
<SALES> 25,855
<TOTAL-REVENUES> 36,858
<CGS> 21,270
<TOTAL-COSTS> 21,270
<OTHER-EXPENSES> 14,849
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 1,071
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,071
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
