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, 1998
[ ] 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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3033 S. Parker Road, Suite 1200, Aurora, Colorado 80014
(Address of principal executive offices) (zip code)
Issuer's telephone number: 303-752-3500
Former name, former address and former fiscal year,
if changed since lastreport:
N/A
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]
As of July 15, 1998, there were outstanding 2,989,483 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, 1998 30, 1997
(Unaudited)
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 29,003 $ 87,405
Restricted cash 23,780
Accounts receivable, net of allowance
of $90,507 (1998) and $101,039 (1997) 319,696 262,791
Inventories 31,980 34,514
Prepaid expenses and other current assets 50,182 31,805
Deferred income tax benefit - current 136,100 136,100
----------- -----------
Total current assets 566,961 576,395
----------- -----------
Property and equipment, at cost, net of accumulated depreciation 104,370 61,892
----------- -----------
Other assets:
Notes receivable, net: 654,482 722,478
Deposits and other 65,406 90,130
Deferred franchise costs, net of accumulated amortization of
$45,535 (1998) and $36,360 (1997) 186,808 175,943
Capitalized software costs, net 263,594 124,202
----------- -----------
Total other assets 1,170,290 1,112,753
----------- -----------
$ 1,841,621 $ 1,751,040
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 0 $ 100,000
Trade accounts payable 227,205 284,355
Accrued commissions 16,715 52,950
Other accrued expenses 4,001 18,580
Due to advertising fund 8,371 23,780
----------- -----------
Total current liabilities 256,292 479,665
----------- -----------
Deferred revenue 582,494 533,518
Stockholders' equity:
Series C redeemable preferred stock, $1,000 par value; 6% cumulative;
2,500 shares authorized; 2,216.668 shares issued and outstanding
(liquidation preference $2,216,668) 2,216,668 2,216,668
Common stock, $.001 par value; 200,000,000 shares authorized;
2,989,483 shares issued and outstanding 2,990 2,990
Additional paid-in capital 5,026,453 5,026,453
Accumulated deficit (6,243,276) (6,508,254)
----------- -----------
Total stockholders' equity 1,002,835 737,857
----------- -----------
$ 1,841,621 $ 1,751,040
=========== ===========
See notes to consolidated financial statements.
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Operations
THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, MAY 31,
(Unaudited) (Unaudited)
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenue
Royalties from franchisees $ 499,930 $ 422,001 $ 1,191,764 $ 1,026,444
Sales of equipment, supplies, and services 136,814 202,604 269,658 312,568
Individual franchise fees 139,700 345,970 226,910 411,820
Area franchise fees, net 518,773 22,500 532,773 27,500
Interest Income 5,511 2,683 11,923 4,272
Other 23,719 15,073 45,746 26,098
----------- ----------- ----------- -----------
1,324,447 1,010,831 2,278,774 1,808,702
----------- ----------- ----------- -----------
Costs and expenses
Selling, general, and administrative 502,816 528,660 952,063 960,763
Cost of sales of equipment, supplies and services 121,828 175,120 235,007 279,217
Commissions on franchise sales 230,140 184,022 262,890 219,442
Royalties paid to area franchises 219,250 152,058 448,704 365,826
Advertising 46,445 53,794 81,297 107,693
Loss on investment in assets held for resale 0 5,351 0 10,451
Depreciation and amortization 18,176 11,692 33,835 24,516
Interest 0 693 0 2,386
----------- ----------- ----------- -----------
1,138,655 1,111,390 2,013,796 1,970,294
----------- ----------- ----------- -----------
Net income (loss) $ 185,792 $ (100,559) $ 264,978 $ (161,592)
=========== =========== =========== ===========
Basic income (loss) per common share $ 0.06 $ (0.03) $ 0.09 $ (0.05)
=========== =========== =========== ===========
Weighted average number of common shares outstanding 2,989,483 2,989,483 2,989,483 2,989,483
=========== =========== =========== ===========
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)
-------------------------------
1998 1997
--------- ---------
Cash flows from operating activities
Net income(loss) $ 264,978 $(161,592)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 33,835 24,516
Deferred revenue, net 48,976 227,450
Change in operating assets and liabilities-
Accounts receivable (56,905) 1,051
Inventories 2,534 2,225
Prepaids and deferred franchise costs (38,417) (96,416)
Notes receivable 67,996 40,593
Deposits and other 24,724 (9,726)
Trade accounts payable (57,150) 18,957
Accrued expenses (50,814) (26,375)
Due to Ad Fund (15,409) 31,145
--------- ---------
Net cash provided by operating activities 224,348 51,828
--------- ---------
Cash flows from investing activities
Capital expenditures (67,138) (35,269)
Capitalized software costs (139,392) 0
Purchase/additions of assets held for sale 0 10,200
--------- ---------
Net cash used by investing activities (206,530) (25,069)
--------- ---------
Cash flows from financing activities
Payment of debt (100,000) 0
--------- ---------
Net cash used by financing activities (100,000) 0
--------- ---------
Net (decrease) increase in cash and cash equivalents (82,182) 26,759
Cash and cash equivalents, beginning of year 111,185 152,472
--------- ---------
Cash and cash equivalents, end of period $ 29,003 $ 179,231
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 0 $ 2,386
========= =========
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
December 1, 1997 through July 15, 1998, the Company awarded 22
individual franchises and 1 new area franchise and as of July 15,
1998, the Company had 342 domestic and international individual
franchise agreements in existence and 26 area franchises in existence.
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 intercompany transactions and balances have been
eliminated in consolidation.
Note 2 BASIS OF PRESENTATION
---------------------
The accompanying consolidated financial statements have been prepared
by the Company. 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, 1998 are
not necessarily indicative of the results to be expected for the full
year.
Note 3 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), which
established standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SGAS 130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Currently the Company's only component, which would comprise
comprehensive income, is its results of operations.
Also, in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131), which supersedes Statement of
Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 establishes standards for
the way that public companies report information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and
major customers. SFAS 131 defines operating segments as components of
a company about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Management believes that SFAS 131 will not have a significant impact
on the Company's disclosure of segment information in the future.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and requires comparative
information for earlier periods to be restated.
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
The following information should be read in conjunction with the
unaudited consolidated financial statements included herein. See Item
1.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company used cash of $82,182 ($224,348 provided from operating
activities offset by $206,530 used by investing activities and by
$100,000 used in financing activities) during the six months ended May
31, 1998. The $100,000 cash used by financing activities was used to
pay off the note payable to D. P. Kelly & Associates L.P., a
shareholder and an affiliate of the Company's majority shareholder.
Deferred revenue increased $48,976 to $582,494 and deferred franchise
costs increased $10,865 to $186,808 at May 31, 1998. The increases
were primarily a result of deferring the recognition of revenue and
the expensing of commissions on 9 of the 18 new individual franchises
awarded during the six months ended May 31, 1998. Two of the
individual franchise fees that were deferred as of November 30, 1997
were recognized as revenue during the six months ended May 31, 1998.
RESULTS OF OPERATIONS
---------------------
Three months ended May 31, 1998, compared to three months ended
---------------------------------------------------------------
May 31, 1997
------------
Total revenues increased $313,616 (31.0%) from $1,010,831 for the
three months ended May 31, 1997, to $1,324,447 for the three months
ended May 31, 1998. The increase is primarily attributable to
increases in royalties from franchisees (up 18.5% from $422,001 to
$499,930) and area franchise fees (up from $22,500 to $518,773) offset
by decreases in sales of equipment, supplies and services (down 32.5%
from $202,604 to $136,814) and individual franchise fees (down 59.6%
from $345,970 to $139,700).
The $77,929 increase in royalties for the three months ended May 31,
1998 as compared to the three months ended May 31, 1997 is due to
increases in the average store volumes and number of stores open.
The $496,273 increase in area franchise fees was due to selling one
area franchise in the country of Japan. There were no area franchise
sales during the three months ended May 31, 1997.
The $65,790 decrease in sales of equipment, supplies and services is
primarily due to the decreased number of new franchisees that
purchased equipment during the three months ended May 31, 1998 as
compared to the same prior year period.
The $206,270 decrease in individual franchise fees represents the
recognition of revenue from ten less franchises during the three
months ended May 31, 1998 as compared to the same prior year period
and a differing mix of per franchise revenue recognition. The Company
recognized revenue on 6 and 16 individual franchises during the three
months ended May 31, 1998 and May 31, 1997, respectively.
Total expenses increased $27,265 (2.5%) from $1,111,390 for the three
months ended May 31, 1997, to $1,138,655 for the three months ended
May 31, 1998. The increase is primarily attributable to increases in
royalties paid to area franchisees (up 44.2% from $152,058 to
$219,250) and commissions on franchise sales (up 25.1% from $184,022
to $230,140) offset by a decrease in cost of sales of equipment,
supplies and services (down 30.4% from $175,120 to $121,828).
The $67,192 increase in royalty rebates relates to the increase in
percentage of stores that operate within area marketer regions and an
increase in the average store volumes.
The $46,118 increase in commissions on franchise sales is primarily
due to the commission paid on the international area franchise sale
that was recognized during the three months ended May 31, 1998.
The $53,292 decrease in cost of sales of equipment, supplies and
services is primarily due to the decreased number of new franchisees
that purchased equipment during the three months ended May 31, 1998
compared to the same prior year period.
Six months ended May 31, 1998, compared to six months ended
-----------------------------------------------------------
May 31, 1997
------------
Total revenues increased $470,072 (26.0%) from $1,808,702 for the six
months ended May 31, 1997, to $2,278,774 for the six months ended May
31, 1998. The increase is primarily attributable to increases in
royalties from franchisees (up 16.1% from $1,026,444 to $1,191,764)
and area franchise fees (up from $27,500 to $532,773) offset by
decreases in sales of equipment, supplies and services (down 13.7%
from $312,568 to $269,658) and individual franchise fees (down 44.9%
from $411,820 to $226,910).
The $165,320 increase in royalties for the six months ended May 31,
1998 as compared to the six months ended May 31, 1997 is due to
increases in the average store volumes and number of stores open.
The $505,273 increase in area franchise fees was due to selling one
area franchise in the country of Japan. There were no area franchise
sales during the six months ended May 31, 1997.
The $42,910 decrease in sales of equipment, supplies and services is
primarily due to the decreased number of new franchisees that
purchased equipment during the six months ended May 31, 1998 as
compared to the same prior year period.
The $184,910 decrease in individual franchise fees represents the
recognition of revenue from eight less franchises during the six
months ended May 31, 1998 as compared to the same prior year period
and a differing mix of per franchise revenue recognition. The Company
recognized revenue on 11 and 19 individual franchises during the six
months ended May 31, 1998 and May 31, 1997, respectively.
Total expenses increased $43,502 (2.2%) from $1,970,294 for the six
months ended May 31, 1997, to $2,013,796 for the six months ended May
31, 1998. The increase is primarily attributable to increases in
royalties paid to area franchisees (up 22.7% from $365,826 to
$448,704) and commissions on franchise sales (up 19.8% from $219,442
to $262,890) offset by a decrease in cost of sales of equipment,
supplies and services (down 15.8% from $279,217 to $235,007) and
advertising (down 24.5% from $107,693 to $81,297).
The $82,878 increase in royalty rebates relates to the increase in
percentage of stores that operate within area marketer regions and an
increase in the average store volumes.
The $43,448 increase in commissions on franchise sales is primarily
due to the commission paid on the international area franchise sale
that was recognized during the six months ended May 31, 1998.
The $44,210 decrease in cost of sales of equipment, supplies and
services is primarily due to the decreased number of new franchisees
that purchased equipment during the six months ended May 31, 1998
compared to the same prior year period.
The $26,396 decrease in advertising is primarily related to reduced
advertising in national media during the six months ended May 31, 1998
compared to the same prior year period.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
(a) Refer to the amendments to the Company's Articles of Incorporation in
Item 4 below.
(b) (c) (d) None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held on June 19, 1998, at which
the following items were voted on.
(1) The election of directors. The tally for the election of directors was
as follows:
DIRECTOR FOR WITHHELD
J. S. Corcoran 2,599,377 5,431
John W. Grant 2,599,477 5,331
F. Edward Gustafson 2,599,377 5,431
John E. Kelly 2,598,397 6,411
William F. White 2,599,277 5,531
(2) The motion to approve an amendment to Article IX of the Company's
Articles of Incorporation to increase the number of votes necessary to
establish a quorum at shareholder meetings to one-third of the votes
entitled to be cast on a matter by a voting group. The tally for
approval of the amendment was as follows:
IN FAVOR AGAINST ABSTAINED
2,134,804 3,923 186,871
(3) The motion to approve an amendment to the Company's Articles of
Incorporation to amend Article X to revise the votes necessary to
amend the Company's Articles of Incorporation to a majority of a
quorum, and to delete Articles XI and XII. The tally for approval of
the amendment was as follows:
IN FAVOR AGAINST ABSTAINED
2,130,805 6,715 188,078
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(a) Articles of Amendment to the Articles of Incorporation filed with
the Colorado Secretary of State on July 13, 1998.
3(b) Bylaws adopted July 13, 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 15, 1998
By: /s/ John E. Kelly
-------------------------------------
John E. Kelly
President
By: /s/ Raymond S. Goshorn
-------------------------------------
Raymond S. Goshorn
Secretary and Treasurer