U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 31, 2001
------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File No. 0-18686
PAK MAIL CENTERS OF AMERICA, INC.
---------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-0934575
------------------------------ ------------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7173 S. Havana St., Englewood, Colorado 80112
- --------------------------------------- --------
(Address of principal executive offices) (zip code)
Issuer's telephone number: 303-957-1000
Former name, former address and former fiscal year, if changed since last
report: N/A
As of May 31, 2001, there were outstanding 3,877,737 shares of the issuer's
Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
May November
31, 2001 30, 2000
Un-Audited Audited
--------------- -----------------
Assets
Current assets
Cash and cash equivalents $ 180,028 $ --
Restricted cash 44,411 11,129
Accounts receivable, net of allowance
of $95,007 (2001) and $127,438 (2000) 459,710 556,437
Inventories 61,116 44,283
Prepaid expenses and other current assets 85,128 22,686
Deferred income tax benefit - current 347,500 347,500
----------- -----------
Total current assets 1,177,893 982,035
----------- -----------
Property and equipment, at cost, net of accumulated depreciation 105,354 136,256
----------- -----------
Other assets:
Notes receivable, net 400,161 456,130
Deposits and other 95,044 157,274
Deferred franchise costs, net of accumulated amortization of
$126,427 (2001) and $117,251 (2000) 29,946 66,862
Capitalized software costs, net 567,695 423,491
----------- -----------
Total other assets 1,092,846 1,103,757
----------- -----------
$ 2,376,093 $ 2,222,048
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 321,835 $ 317,231
Accrued commissions 301,854 165,164
Other accrued expenses 82,080 47,495
Deferred Rent 67,626 70,434
Due to advertising fund 44,411 11,129
Preferred dividends payable 66,500 133,000
Notes payable -- --
Current portion of capital lease obligation 10,520 10,520
----------- -----------
Total current liabilities 894,826 754,973
----------- -----------
Long-term liabilities
Deferred revenue 795,524 607,120
Note payable related party 400,000 400,000
Capita l lease obligation 16,500 21,608
----------- -----------
Total long-term liabilities 1,212,024 1,028,728
----------- -----------
Stockholders' equity:
Series C redeemable preferred stock, $1,000 par value; 2,500 shares
authorized; 2,216.668 shares issued and outstanding
(liquidation preference $2,283,168) 2,216,668 2,216,668
Common stock, $.001 par value; 200,000,000 shares authorized;
3,877,737 shares issued and outstanding as of 05/31/01 and
3,873,737 shares issued and outstanding as of 11/30/00 3,874 3,874
Additional paid-in capital 5,113,995 5,113,995
Accumulated deficit (7,065,294) (6,896,190)
----------- -----------
Total stockholders' equity 269,243 438,347
----------- -----------
$ 2,376,093 $ 2,222,048
=========== ===========
See notes to consolidated financial statements.
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Operations
THREE MONTHS ENDED SIX MONTHS ENDED
31-May 31-May
2001 2000 2001 2000
----------------------------- ------------------------------
(Un-audited) (Un-audited) (Un-audited) (Un-audited)
------------ ------------ ------------ ------------
Revenue
Royalties from franchisees $ 674,422 $ 628,293 $ 1,531,623 $ 1,447,929
Sales of equipment, supplies, and services 129,171 253,689 205,041 489,909
Individual franchise fees 98,930 305,310 282,810 359,210
Area franchise fees, net 35,144 16,979 111,379 140,799
PSS licensing & maintenance fees 51,260 88,150 101,760 149,500
Interest Income 2,388 1,281 6,485 1,315
Other 17,367 (4,899) 50,982 24,914
----------- ----------- ----------- -----------
1,008,682 1,288,803 2,290,080 2,613,576
----------- ----------- ----------- -----------
Costs and expenses
Selling, general, and administrative 545,657 698,310 1,068,595 1,330,726
Cost of sales of equipment, supplies and services 162,709 228,073 252,367 524,207
Commissions on franchise sales 56,658 96,890 153,283 129,230
Royalties paid to area franchises 316,081 267,206 704,272 694,044
Advertising 46,498 49,785 91,659 115,817
Depreciation 5,850 21,000 26,850 42,000
Amortization 35,532 9,732 69,978 14,508
Impairment of capitalized sofware costs -- 360,421 -- 557,854
Interest 10,234 7,914 25,680 10,107
----------- ----------- -----------
1,179,219 1,739,331 2,392,684 3,418,493
----------- ----------- ----------- -----------
Net Loss (170,537)* (450,528)* (102,604)* (804,917)*
Preferred stock dividend 33,250 66,500 66,500 66,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss attributable to common shares $ (203,787) $ (517,028) $ (169,104) $ (871,417)
=========== =========== =========== ===========
Basic loss per common share $ (0.053) $ (0.133) $ (0.044) $ (0.225)
=========== =========== =========== ===========
Weighted average number of common shares outstanding 3,877,737 3,873,737 3,877,737 3,873,737
=========== =========== =========== ===========
* No provision for income tax expense is included as the Company has approximately $2,000,000 in net operating loss carryforwards
to offset future taxable income. See notes to consolidated financial statements.
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
SIX MONTHS ENDED
May 31,
(Unaudited) May 31,
2001 2000
---------------- ----------
Cash flows from operating activities
Net loss $(169,104) $(871,471)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 96,828 614,362
Deferred franchise costs 21,703 --
Change in operating assets and liabilities
Accounts receivable 96,727 (149,262)
Inventories (16,833) (7,295)
Prepaids expenses and other assets (62,442) (296,697)
Trade accounts payable 4,665 302,640
Accrued expenses and deferred rent 168,467 (42,032)
Due to Ad Fund 33,221 120,386
Deferred revenue 188,404 542,102
--------- ---------
Net cash provided by operating activities 361,636 212,733
--------- ---------
Cash flows from investing activities
Capital expenditures -- (5,847)
Capitalized software costs (189,136) --
Collections on notes receivable 55,969 20,748
Deposits & other 56,449 --
--------- ---------
Net cash (used) provided by investing activities (76,718) 14,901
--------- ---------
Cash flows from financing activities
Payments on notes payable and capital lease obligations (5,108) (20,000)
Preferred stock dividends accrued 66,500 66,500
Preferred stock dividends paid (133,000) 133,000
--------- ---------
Net cash (used) provided by financing activities (71,608) 179,500
--------- ---------
Net increase in cash and cash equivalents 213,310 407,134
Cash and cash equivalents, beginning of year 11,129 44,537
--------- ---------
Cash and cash equivalents, end of period $ 224,439 $ 451,671
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 25,680 $ 2,193
See notes to consolidated financial statements.
PAK MAIL CENTERS OF AMERICA, INC.
Notes to Consolidated Financial Statements
Note 1 ORGANIZATION AND BUSINESS
-------------------------
Pak Mail Centers of America, Inc. was incorporated in Colorado in 1984
and is engaged in the business of marketing and franchising Pak Mail
service centers and retail stores which specialize in custom packaging
and crating of items to be mailed or shipped. For the period from
March 1, 2001 through May 31, 2001, the Company awarded 5 individual
franchises. For the period from December 1, 2000 through May 31, 2001,
the Company awarded 12 individual franchises and 1 domestic area
franchise agreement. As of May 31, 2001, the Company had 341 domestic
and 44 international individual stores operating, and 26 domestic and
8 international area franchises in existence. 22 of the domestic
franchise agreements which have been issued, are for stores not yet
operating.
The consolidated financial statements include the accounts of Pak Mail
Centers of America, Inc. and its wholly owned subsidiary, Pak Mail
Crating and Freight Service, Inc. (together, the "Company"). All
significant inter-company transactions and balances have been
eliminated in consolidation.
Note 2 BASIS OF PRESENTATION
---------------------
The Company has prepared the accompanying consolidated financial
statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the
opinion of the Company's management, the interim financial statements
include all adjustments necessary in order to make the interim
financial statements not misleading.
The results of operations for the six months ended May 31, 2001 are
not necessarily indicative of the results to be expected for the full
year.
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
The following information should be read in conjunction with the
un-audited consolidated financial statements included herein. See Item
1.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The company generated $361,636 from operations, used $76,718 in
investing activities and used $71,608 in financing activities during
the six months ended May 31, 2001. Most of the cash and deferred
revenue increase came from the sale of an additional area franchise
for $270,000 net of commissions. In addition, accounts receivable
collection activity has increased substantially causing an increase in
cash and reduction in receivables.
The cash from the area sale was spent primarily on two items. The
first was the annual preferred dividend of $133,000. The second was
development expenses on PSSv2. PSS is a point of sale software program
that the company has been developing for the last 4 years. PSSv1 was
released to the franchisees for use in the stores in February of 2000
and was found to have enough defects to warrant writing a new version
PSSv2 that would incorporate parts of PSSv1.
In June of 2001 an agreement was reached with ReSource Software, Inc.
to continue development of PSSv2 at ReSource's expense and then market
the finished product and split the revenue. ReSource is currently a
software provider to the packing and shipping industry and prior to
adding Pak Mail as a client had 1500 users. It is a small firm and at
present has committed its full capacity to switching the Pak Mail
stores over to the ReSource system (the rollout which, should be
completed by August 1, 2001.
The ReSource software is missing some critical components, which are
in PSS. Most important are the marketing database and the custom
crating module. ReSource on the other hand has an inventory module
which was absent from PSS. Upon completion of the rollout, ReSource
will combine the best aspects of the programs and subsequently market
the finished product. The ReSource product currently sells for $4,000
per license. ReSource is anticipating several months to merger the
programs.
RESULTS OF OPERATIONS
---------------------
Three months ended May 31, 2001, compared to three months ended May
31, 2000
-------------------------------------------------------------------
Revenues
--------
Total revenues decreased $280,121 (down 21.73%) from $1,288,803 to
$1,008,682. The decrease is primarily attributable to decreases in
sales of equipment supplies and services (down 49.08% from 253,689 to
129,171), individual franchise fees (down 67.60% from $305,310 to
$98,930), and PSS license and maintenance fees (down 41.85% from
$88,150 to $51,260)
Royalties increased $46,129 (7.34%) due to an increase in average
store volume.
Sales of equipment services and supplies decreased $124,518 (down
49.08%) due to the decrease in the number of stores sold and opened
and the inability to sell computers due to the delayed release date of
PSSv2. PSSv2 requires a different operating system than other
programs.
Individual franchise fees decreased $206,380 due to the decrease in
the number of sales and fewer stores in the pipeline awaiting
recognition.
Recognized Area Franchise sales increased $18,165 as an additional
area was sold in the first quarter increasing the amortized revenue
recognized.
PSS license and maintenance fees decreased $36,890 due to the pending
release of PSSv2, which was delayed. PSSv2 requires a different
operating system.
Costs and Expenses
------------------
Total expenses decreased $560,112 (down 32.20%) from $1,739,331 to
$1,179,219. The decrease is due to the decrease in selling and general
administrative (down 21.86% from $698,310 to $545,657); Cost of sales
of equipment supplies and services (down 28.66% from $228,073 to
$162,709) commissions on franchise sales (down 41.52% from $96,890 to
$56,658), and impairment of capitalized software costs (down 100% from
360,421 to $0).
Selling and general administrative decreased $152,652 due to the
elimination of duplicate rent, and the need to increase the bad debt
allowance last year.
Cost of sales of equipment and supplies decreased $65,364 due to the
decrease in individual franchise sales and the pending release of
PSSv2 which was delayed.
Commissions on franchise sales decreased $40,232 due to the decrease
in individual franchises sold.
Royalties paid to area franchisees increased $48,875 due the increase
in average store volume and the sale of an additional area causing a
split in the revenue.
Depreciation decreased $15,150 as many of the company's computers were
fully depreciated last year.
Amortization increased $25,800 as PSSv1 was not amortized until after
the impairment last year in the first and second quarters.
Impairment of capitalized software costs was a one-time charge last
year to write-off parts of PSSv1 which were essentially re-written.
Six months ended May 31, 2001 compared to the six months ended May
31, 2000
--------------------------------------------------------------------
Revenue
-------
Total revenues decreased 12.38% or $323,496 from $2,613,576 to
2,290,080. Royalties increased (up 5.78% from $1,447,929 to
$1,531,623), sales of equipment supplies and services decreased (down
58.15% from $489,909 to $205,041), individual franchise fees decreased
(down 21.27% from $359,210 to $282,810), PSS license & maintenance
fees decreased (down 31.93% from $149,500 to $101,760).
Royalties increased $83,694 due to an increase in average store
volume.
Sales of equipment supplies and services decreased $284,868 due to the
decrease in individual franchise sales and the delayed release of
PSSv2.
Individual franchise fees decreased $76,400 due to the decrease in
number of stores sold and recognized.
Area franchise fees decreased $29,420 due to fewer area sales
contracts being amortized. One additional Area franchise was sold
during the first quarter of the 2001 and is being recognized over 5
years.
PSS license & maintenance fees decreased $47,740 due to the delayed
release of PSSv2 and fewer individual franchise sales. PSS V2 requires
a different operating system.
Costs and Expenses
------------------
Costs and expenses decreased 30.01% or $1,025,809 from $3,418,493 to
$2,392,684. Selling, general and administrative decreased (down 19.70%
from $1,330,726 to $1,068,595), cost of sales of equipment and
supplies decreased (down 51.86% from $524,207 to $252,367),
commissions on franchise sales increased (up 18.61% from $129,230 to
$153,283) royalties paid to area franchisees increased (up 1.47% from
$694,044 to $704,272) advertising decreased (down 20.86% from $115,817
to $91,659) amortization increased (up 382.34% from 14,508 to $69,978)
and impairment of capitalized software costs, a one-time charge in
2000 decreased (down 100% from $557,854 to $0).
Selling general and administrative decreased $262,131 due to the
elimination of duplicate rent, the need to increase the bad debt
allowance in 2000, and the proper recording of bills on a timely
basis.
Cost of sales of equipment supplies and services decreased $271,840
due to fewer individual franchise sales and the delayed release of
PSSv2 and fewer individual franchise sales. PSSv2 requires a different
operating system.
Commission on franchise sales increased $ 24,053 due to the
recognition of pre-paid commissions as an expense when the franchisees
complete training.
Royalties paid to area franchisees increased $10,228 due the increase
in average store volume and the sale of an additional area causing a
split in the revenue.
Advertising decreased $24,158 as most advertising was eliminated due
to the cash being consumed by the development of PSSv2.
Depreciation decreased $15,150 as many of the computers were fully
depreciated last year.
Amortization increased $55,470 as PSS V1 was not amortized until after
the impairment last year in the first and second quarters.
Impairment of capitalized software cost decreased $557,854 as this was
a one-time charge in 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
4,000 shares of stock were issued to Alexander Boardman in the
second quarter. Alex was an existing shareholder of Pak Mail and
one of the original investors prior to the company going public. He
discovered an additional stock certificate that he had not
surrendered when D. P. Kelly & Associates acquired a controlling
interest in the company. The Board of Directors approved issuance
of the additional shares.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1(a) Articles of Incorporation, incorporated by reference to Exhibit
(3)(a) of the Company's Annual Report on Form 10-KSB for the fiscal
year ended November 30, 1995.
3.1(b) Articles of Amendment to the Articles of Incorporation filed
with the Colorado Secretary of State on January 26,1998 incorporated by
reference to Exhibit (3)(b) of the Company's Annual report on Form
10KSB for the fiscal year ended November 30, 1997.
3.1(c) Articles of Amendment to the Articles of Incorporation filed
with the Colorado Secretary of State on July 13, 1998, incorporated by
reference to Exhibit 3(a) of the Company's Quarterly Report on Form
10-QSB for the quarter ended May 31, 1998.
3.2 Bylaws incorporated by reference to Exhibit 3(b) of the Company's
Quarterly Report on Form 10-QSB for the quarter ended May 31, 1998.
(b) Reports on Form 8-K
None.
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.
PAK MAIL CENTERS OF AMERICA, INC.
(Registrant)
Date: July 12, 2001
By: /s/ John E. Kelly
---------------------------------------
John E. Kelly
President
By: /s/ James Q. Race
---------------------------------------
James Q. Race
Secretary and Treasurer