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, 1996 TO JUNE 30, 1997
.
Commission file number 0-18094
PACKAGING PLUS SERVICES, 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 $0.06 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: $1,397,744
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State the aggregate market value of the 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 September 30, 1997, $4,306,152 (based on 5,991,168
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 4,251,418 shares of its $.06 par value Class A
Common Stock issued and outstanding as of June 30, 1997 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.
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PART I
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ITEM 1
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DESCRIPTION OF BUSINESS
HISTORY
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The Company was originally incorporated in the state of Nevada on
April 6, 1983.
Packaging Plus Services, Inc. (PKGP) is an integrated business service
conglomerate. Under the direction of Mr. Richard Altomare, PKGP has undergone a
major transition since it emerged from reorganization on May 11, 1994.
Management has developed and acquired ancillary businesses from its former
single core business of franchising.
The Company is focusing on its present acquisition ventures and its
Association of Packagers and Carriers (APAC), and expanding the Company's
presence in the private postal and international shipping industries. APAC 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 APAC.
THE BUSINESS OF THE CORPORATION
PKGP's principal subsidiaries and divisions include the Association of
Packagers and Carriers, Inc., Packaging Plus Services Logistics, Inc., Images
Design and Marketing, UniqueNet, Manhattan Concierge, Office Quick and Rapid
Delivery Services.
Management is continually concentrating on the raising of new capital and
focusing on new acquisition ventures; APAC is a multi-faceted association of
packaging centers nationwide connected through the World Wide Web.
During September of 1997 PKGP agreed to acquire Office Quick, a postal and
service center including copying, access to computers, printing, the Internet
and other related communications. Office Quick President Nick Deleone, was
formerly Mail Box Etc.'s number one franchisee in sales for seven of ten years
from 1984 to 1993, and in 1988 received the "Individual Franchisee of the Year"
award. Mr. Deleone has become APAC's new President and CEO, and will assist APAC
store owners to increase their sales volume and APAC profitability.
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In January of 1997, the Company purchased the Entertainment division of U.S.
Transportation Systems, Inc. The division consisted mainly of: Downtown Theatre
Ticket Agency, Inc., or Advance Entertainment (now known as "Manhattan
Concierge"), which provide 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 APAC. These services are marketed
through toll-free phone numbers (1-888-NYSHOWS, 1-800-NYSHOWS AND
1-800-THE-SHOW).
These concierge agencies are nationally promoted sources for high visibility
venues such as the Olympics, U.S. Open, Super Bowl and the World Series. They
have been serving corporate and individual clients throughout the United States
for over fifty-three years. PKGP will incorporate this value-added service into
APAC's expanding menu of offerings to its members stores while attempting to
increase Manhattan Concierge's own business presence in the entertainment
industry. Its most recent two (2) year contract with MBNA credit card holders
supports that direction.
On April 30, 1997, the Company acquired Rapid Delivery Services of NY, Inc.
("RDS"). RDS offers same-day delivery service for critical shipments within the
Eastern United States and next-day delivery to the rest of the country.
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 while simultaneously serving third party clients. The service of
Images will be primarily utilized to maximize the Packaging Plus and APAC names
and trademarks. Images is also expected to reduce advertising costs for APAC
members by eliminating the "agency commissions" paid to an advertising agency by
printers and other sources of media.
The Company announced in November, 1997, the non-completion and termination of
any further negotiations of the Skynet Holdings transaction previously
publicized. Continued discussions are on-going in the international shipping
industry.
Also in November, 1997, the Company announced the signing of a letter of intent
to purchase Vallerie's Transportation Services, Inc., a $30,000,000 regional
transportation company with 300 employees and in excess of $3,000,000 in assets,
including equipment.
THE ASSOCIATION OF PACKAGERS AND CARRIERS (APAC): Private postal and
business service centers form a highly fragmented cottage industry. This
industry generates over $6 billion in sales and consists of more than 15,000
independent operators. PKGP believes that there is a market opportunity for the
development of an association with the goal of unifying and organizing
independent and franchised postal stores nationwide. APAC members will be
connected to other members and APAC Headquarters via the APAC Web Site
(www.useapac.com) or by telephone at "1-888-USE-APAC". The APAC Web Site will be
utilized not only by members but also by the general public.
Only one APAC store per Zip Code will be accepted, thus creating competition and
internal quality control standards.
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APAC is an association formed to create a long overdue and needed
profitable partnership between packaging store owners and carriers, similar in
theory to FTD. APAC will provide 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. APAC will strive and advertise to
provide consumers nationwide with a feeling of quality assurance when they
frequent an APAC location.
SERVICES OFFERED TO APAC MEMBERS & STRATEGIC GOALS
APAC 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, APAC offers a unique
combination of value-added services. A list of immediate and future benefits for
association members will include:
IMMEDIATE BENEFITS:
Savings on shipping prices through quantity discounts
Centralized billing to lower certain costs
Pre-paid discounts on shipping
Professional theme coordinated advertising programs
APAC Web Site linking all members with outside customers
E-mail customer leads
Scholarship Programs for members' children
Packaging education programs
Organized conventions
APAC health/ dental insurance
APAC 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
Affordable legal representation
National customer service satisfaction department
Political lobbying
Stock option plan
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
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FUTURE BENEFITS should include but not be limited to: mail order contracts for
individual stores, national moving preparation program, direct access to packing
supplies, audio- visual training, electronic car/ truck rental, package x-ray
machines, national television advertising, auto club, video conferencing,
bar-coded luggage national pick-up program, advertising revenues directly from
carriers.
This value-added Association is expected to revitalize the private postal
industry and position itself for additional acquisitions within the
transportation industry that benefit its members' collective strength.
ADDITIONAL SUPPORT AND SERVICES OFFERED TO APAC MEMBERS
The Company provides valuable services to the APAC member to help
ensure its success. These include:
BUSINESS DEVELOPMENT SEMINARS: The Company organizes business development
seminars for its members. These seminars cover the latest trends and products in
the industry and to assist members in the development of new products and
services. Through the APAC Web Site, members are able to take educational
courses during down time or after store hours. Initial courses are Running Your
APAC Store, APAC Customer Relations, How To Get Customers and Maximizing Your
Profit Center. Complete training manuals are also available on their APAC Web
Site.
MARKETING SUPPORT: The members benefit from a multifaceted marketing program.
Starting with the training program, Service Center owners are continually
educated in a variety of ways to aggressively promote their business. Ongoing
support programs take many forms. Professionally designed advertising materials
are produced by the in-house advertising agency, IMAGES DESIGN AND MARKETING,
and are supplied to the Service Centers. Additionally, members may have their
own advertising material prepared by the Agency at considerably less cost than
would otherwise be available to them. The advertising agency is also available
to advise individual Service Centers regarding their choice of media. Periodic
company-wide and regional marketing seminars are held to facilitate the free
flow of marketing ideas from one center to another as well as advancing new and
different marketing techniques. Through the use of a public relations firm,
Centers are aided in achieving local unpaid media coverage. Periodic matching
advertising programs are employed to assist the Service Center's ability to
secure advertising, particularly during off peak periods.
TECHNICAL ASSISTANCE: The Company maintains a toll-free "Help Line" that members
can utilize to solve operational problems. Most Corporate information will be
sent via E-Mail and members can use this as a primary means of communication,
although traditional means are available. The APAC Web Site will be cost saving
and time efficient.
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PACKAGE INSURANCE: Management is in negotiation with a major industry insurer
and expects to begin offering members the ability to insure packages sent by
common carrier rather than utilize the common carrier's insurance exclusively.
Currently, shipping charges include insurance for the first $100 in value of a
shipped item. Insurance over this value is purchased at the rate of $.30 per
$100 of value. The Company intends to create a self insurance reserve and offer
package insurance to the members at a discount to common carrier rates.
HEALTH INSURANCE: The Company is in continued discussions with several major
insurance companies regarding the initiation of group policy coverage for the
health insurance needs of members and their employees. The Company is currently
waiting for formal proposals from these carriers. The Company expects to offer
this coverage industry wide. Management believes that this will be the first
inclusive program of its type offered in its industry.
GENERATION OF BUSINESS: Management is in the process of developing businesses
that will channel packaging and distribution business to the members. If
successful in this effort, the Company will have the ability to provide the
member with a minimum level of new business each month.
INDUSTRY CONSOLIDATION: Management believes that the private postal and business
service center industry is highly fragmented with an excess of 15,000
independent operators. Management believes that there is a significant growth
opportunity in pursuing these independent operators. The Company's strategy for
attracting these independent or franchise operators would focus on the national
name recognition and campaign for the APAC organization. The benefits of being a
member and utilizing discounts on supplies and services available through APAC
affiliation is critical for the stores' growth.
APAC APPAREL PROGRAM: Members can choose from a variety of garments embroidered
with the APAC logo. Individual store owners will be encouraged to wear the APAC
logo. The industry needs a consistent symbol that customers perceive as
trustworthy, honest, and friendly, with excellent service. The Association would
like all members to exceed customer and industry expectations!
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CUSTOM CORRUGATED BUSINESS:
An exciting opportunity has presented itself to the newly formed Custom
Corrugated Business. This opportunity is the creation of a complete, full
service corrugated box manufacturing operation. This core business will lend
itself to expand our customer base and "trim out" a new and enhanced market.
Equipment has been identified and poised for its conception.
APAC stores use basic corrugated, and buy individually paying above market
prices. Through the Association of Packagers and Carriers and Rapid Delivery
Service, cost to these stores may be cut by volume purchasing, and a new market
created for customized box making for smaller orders. APAC stores provide an
additional benefit to our corporation by each becoming a potential salesperson.
With minimal training, APAC store owners can enhance their earnings by selling
customized corrugated to their customers, creating a huge network sales force
with small sales overhead to Custom Corrugated.
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 while simultaneously serving
third party clients. 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 Service Centers, thereby inexpensively
maximizing promotion of the Packaging Plus and APAC names and trademarks.
Management expects to reduce advertising expenditures for APAC 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.
RAPID DELIVERY SERVICES: The acquired Rapid Delivery Services (RDS)
offers same day delivery service for critical shipments within the eastern
United States and next day delivery to the rest of the country.
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. The line of products will be expanding
rapidly as new products are introduced. A retail partner is presently being
examined.
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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 APAC, it now works to assist
its previous "competitors". Although these "competitors" do not provide the full
breadth of services that APAC Membership provides, they all offer services that
APAC stores sell to the public.
The Company further believes that the maturation of APAC 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 APAC 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 a private postal stores. As the
world moves towards a Global Economy and trade tariffs begin to break down, 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.
The transportation industry has already developed the necessary
infrastructure and continues to grow. The missing ingredients needed to make
this industry improve are packaging, logistics and 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 consumer outlets.
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 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
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and stations will increase substantially in the foreseeable future. APAC 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 APAC provide the public with a
complement to U.S. Post Offices for many retail postal services. In addition,
Service Centers offer individuals and business customers a variety of personal,
business and communications services and merchandise.
FUTURE PROJECTS:
----------------
WAREHOUSE DISTRIBUTION
APAC stores control their individual ZIP CODE. Direct
marketers and product suppliers such as Home Shopping Network presently operate
their own fulfillment centers. APAC then offers individual warehouses for EACH
ZIP CODE in United States for catalogue and Internet shoppers. This futuristic
expectation is one of APAC's longer term goals.
SUITCASE MOVEMENT
APAC stores could provide bar-coded suitcase movement in the
same manner as we routinely now overnight small packages today.
APAC GLOBAL EXPRESS (TM)
APAC Global Express is an international delivery system
planned for the exclusive use of APAC members and APAC Internet customers. This
international discounted service will be, on average, 30% less expensive than
traditional carriers. This program is scheduled for December of 1998.
MANAGEMENT
Mr. Richard A. Altomare has been President and CEO of PACKAGING PLUS
SERVICES since May 1992. Mr. Altomare, a reorganization specialist and investor,
took control of PACKAGING PLUS SERVICES 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 is responsible for the vision to lead
the Company's advancement beyond the simple franchise organization concept to
involve all packaging and postal centers into one worldwide organization.
His future acquisitions and vision continually redefine the industry.
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TRADE MARKS AND SERVICE MARKS
The Company is the owner of trademarks and service marks for the names
PACKAGING PLUS, ASSOCIATION OF PACKAGERS AND CARRIERS (APAC) AND UNIQUENET.
EMPLOYEES
As of June 30, 1997, the Company employed 40 individuals. The Company
has not experienced any work stoppages and considers its relations with its
employees to be excellent. To facilitiate its APAC and expansion plans,
management expects to engage in significant hiring of management, sales,
operational and support personnel during 1997 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.
WORK FORCE EXPANSION
To facilitate its APAC expansion plans, management expects to engage in
significant hiring of management, sales, operational, and support personnel
during 1997-8 as it relates to its acquisitions and mergers.
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ITEM 2
DESCRIPTION OF PROPERTIES
PKGP headquarters is approximately 15,000 square feet in Plainview, NY.
The Company believes that this office space will adequately serve its
foreseeable needs through the end of calendar 1998-99 and plans to purchase the
entire building of 21,000 square feet for future expansion. The Company also
maintains 6,000 sq. ft of office space in Manhattan for its Entertainment
businesses.
ITEM 3
LEGAL PROCEEDINGS
The Company has commenced litigation against seventeen former
franchisees for non-payment of royalties over a number of years and for failure
to file monthly reports upon which royalties were based. It is anticipated that
a portion of the total amount claimed will be eventually recovered. The total
amount sought in the suits exceeds $400,000.
The Company settled in April, a litigation involving the business of a
former subsidiary. The settlement calls for monthly payments by the Company
totaling $270,000, of which $150,000 has been paid, with four monthly payments
remaining totaling $120,000.
A claim for legal fees in the amount of $250,000 has been made by a law
firm. This claim is fully disputed by the Company.
The Company is also involved in a few small lawsuits with vendors and
suppliers and claims for fees of certain professionals. 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.
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ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No meeting of shareholders was held during the year.
PART II
ITEM 5
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock has been trading under the symbol
"PKGP" on the automated quotation system maintained by the National Quotation
Bureau, Inc., (the "Bulletin Board") since May 11, 1994. Prior to this date, the
Company's common stock traded under the symbol "PPSSQ" 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. The
quotations also reflect the 1:12 reverse stock split which was effected in
November 1996.
Bid
Quarter Ended Low High
9/30/96 $ 0.24 $ 0.45
12/31/96 $ 0.75 $ 3.00
3/31/97 $ 0.907 $ 2.625
6/30/97 $ 1.125 $ 2.00
As of June 30, 1997, there were over 750 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.
No dividends have been declared in respect of the Company's Common
Stock in the Current Period or in any of the prior two fiscal years. Although
the Company is not prohibited from issuing dividends, the Company does not
anticipate issuing any dividends in the foreseeable future.
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ITEM 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
OVERVIEW:
- --------
The business of Packaging Plus has undergone a major transition since
its emergence from reorganization on May 14, 1994.
Management has developed new ancillary businesses to support its former
core business of franchising.
Management is now concentrating on the raising of new capital and
focusing on new ventures, including APAC, its multi-faceted association of
packaging centers nationwide connected through the World Wide Web.
Management views this year as a period of transition and anticipates
growth based upon its decision to concentrate on core business development
through APAC in particular.
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RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997:
- -------------------------------------------------------
TWELVE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
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REVENUES:
- ---------
Merchandise & service sales 1,212,022 93,520
Royalty 5,977 13,036
Advertising -- 1,450
Other income 179,745 486,727
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$ 1,397,744 $ 594,733
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COSTS & EXPENSES:
- -----------------
Cost of Goods Sold 834,766 76,725
Selling, General & Admin 4,023,278 2,230,420
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$ 4,858,044 $ 2,307,145
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Loss from Continuing Operations
before Interest (3,460,300) (1,712,412)
Interest Expense - Net (34,244) (169,440)
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Loss from Continuing Operations $(3,494,544) $(1,881,852)
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TWELVE MONTH ANALYSIS
- ---------------------
During the year ended June 30, 1997, the Company's continuing
operations generated revenues of $1,397,744, compared to $594,733 in 1996, an
increase of approximately $803,000. Gross income for 1997 increased to
approximately $560,000, an increase of approximately $41,000 when compared to
1996.
Selling, general and administrative expenses for continuing operations
were approximately $4,023,000. Included in this amount is a write-down of the
value of stock previously received for services in 1996, and which, pursuant to
SAS 115, had been accounted for in a special reserve component of stockholders'
equity, resulting in a charge of $425,000. Also included is approximately
$100,000 of increased allowances for uncollectable accounts. Overall expenses
also increased as a result of initially integrating the operations of acquired
companies, and thereafter modernizing and streamlining them. This is an ongoing
exercise.
For the year ended June 30, 1997, the Company had overall operating
losses of approximately $3,152,000.
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LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the twelve month period ended June 30, 1997, the Company's cash
position decreased by approximately $440,000 to $98,000. The Company's financing
activities provided $1,650,000, while $2,090,000 was used in its operating and
investing activities.
Until APAC is fully operational, the Company faces a situation whereby
it needs to raise additional cash. 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 convertible
subordinated debt and additional equity infusions as well as purchasing
operating subsidiaries.
ITEM 7
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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PACKAGING PLUS SERVICES, INC.
AND SUBSIDIARIES
REPORT ON AUDITS OF FINANCIAL
STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
<PAGE>
PACKAGING PLUS SERVICES, 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-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY..........................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
Packaging Plus Services, Inc. And Subsidiaries
We have audited the accompanying consolidated balance sheets of Packaging Plus
Services, Inc. and Subsidiaries as of June 30, 1997 and June 30, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. 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
Packaging Plus Services, Inc. and Subsidiaries as of June 30, 1997 and June 30,
1996 and the results of their operations and their cash flows for the years then
ended 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's significant recurring operating
losses 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 Radin & Co., P.C.
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
October 31, 1997
F-1
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<TABLE>
<CAPTION>
PACKAGING PLUS SERVICES, INC.AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
JUNE 30,
1997 1996
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash $ 97,738 $ 538,942
Restricted cash -- 54,000
Accounts receivable, net of allowance
for doubtful accounts of $190,000 and $67,500
respectively 307,229 261,042
Inventory 30,740 22,700
Loan to officer 328,730 150,095
Notes receivable, net of allowance for
uncollectible notes of $161,000 67,743 59,743
Prepaid expenses and other current assets 143,957 212,058*
---------- ----------
Total current assets 976,137 1,298,580
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 308,334 270,622
---------- ----------
OTHER ASSETS:
Reorganization value of assets in excess of
identifiable assets, net of accumulated
amortization of $387,630 and $251,916 562,370 698,084
Goodwill, net 913,276 --
Deferred financing costs and other 180,418 1
---------- ----------
1,656,064 698,085
---------- ----------
$2,940,535 $2,267,287
========== ==========
<FN>
* reclassified to conform to current years presentation
</FN>
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
PACKAGING PLUS SERVICES, INC.AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITES AND STOCKHOLDERS' EQUITY
-----------------------------------
JUNE 30,
--------
1997 1996
---- ----
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 1,350,463 $ 760,650
Payroll taxes payable 11,890 32,288
Other 26,395 41,985
Notes payable 611,199 30,000
Convertible debentures 690,000 --
Current maturities of long-term liabilities 118,183 386,395
Net liabilities of discontinued operations -- 327,964
------------ -----------
Total current liabilities 2,808,130 1,579,282
------------ -----------
LONG-TERM LIABILITIES 8,900 27,083
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock, $.06 par value; authorized 47,000,000
shares, 4,251,418 and 1,654,956 shares issued and
outstanding, respectively 255,085 99,297
Class B Common stock, $.005 par value; authorized 3,000,000
shares, 1,280,000 and 1,500,000 shares issued and
outstanding, respectively 6,400 7,500
Additional paid-in capital 10,578,498 8,057,744
Valuation allowance-equity securities -- (425,000)
Accumulated deficit (9,662,478) (6,510,619)
Deferred compensation related to stock isued for services (1,054,000) (568,000)*
------------ -----------
Total stockholders' equity 123,505 660,922
------------ -----------
$ 2,940,535 $ 2,267,287
============ ===========
<FN>
*reclassified to conform to current years presentation
</FN>
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
YEARS ENDED JUNE 30,
--------------------
1997 1996
---- ----
INCOME:
Ticket sales $ 1,026,987 $ --
Merchandise and service sales income 66,391 93,250
Delivery services 118,644 --
Royalty income 5,977 13,036
Advertising income -- 1,450
Other income 179,745 486,727
----------- -----------
1,397,744 594,733
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 834,766 76,725
Selling, general and administrative 4,023,278 2,230,420
----------- -----------
4,858,044 2,307,145
----------- -----------
LOSS FROM CONTINUING OPERATIONS (3,460,300) (1,712,412)
INTEREST EXPENSE - NET (34,244) (169,440)
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS (3,494,544) (1,881,852)
INCOME FROM DISCONTINUED OPERATIONS 342,685 115,041
NET LOSS $(3,151,859) $(1,766,811)
=========== ===========
(LOSS)/INCOME /PER COMMON SHARE*
Loss from continuing operations $ (1.29) $ (1.85)*
Income from discontinued operations 0.13 0.11 *
----------- -----------
Net loss $ (1.16) $ (1.74)*
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 2,710,918 1,018,542*
=========== ===========
* adjusted retroactively for 1:12 reverse stock split in 1997
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
COMMON STOCK CLASS B STOCK
------------ ------------- PAID-IN ACCUMULATED
# OF SHARES AMOUNT # OF SHARES AMOUNT CAPITAL DEFICIT
----------- ------ ----------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JULY 1, 1995 6,915,829 $ 34,579 1,500,000 $ 7,500 $ 4,942,273 $(4,743,808)
Common shares issued
for compensation and other
expenses 1,200,000 6,000 -- -- 380,000 --
Common shares issued for
interest on promissory
note 110,000 550 -- -- 26,950 --
Common shares issued for 3,749,945 18,750 -- -- 1,458,523 --
debt retirement
Repurchase of common
shares (1,877,746) (9,389) -- -- (576,611) --
Common shares issued 9,761,439 48,807 -- -- 1,826,609 --
Amortization of deferred
compensation -- -- -- -- -- --
Valuation allowance - equity
securities -- -- -- -- -- --
Net loss -- -- -- -- -- (1,766,811)
BALANCE - JUNE 30, 1996 19,859,467 99,297 1,500,000 7,500 8,057,744 (6,510,619)
Class B shares converted
to common shares 220,000 1,100 (220,000) (1,100)
Common shares issued for
compensation and other
expenses, prior to reverse
stock split 1,575,316 7,877 289,350
Other common shares issued,
prior to reverse stock split 14,000 70 4,248
Reverse stock split
of 1:12 (19,863,033)
Common shares issued for
compensation and other
expenses 1,246,405 74,785 1,068,156
Other common shares issued 87,583 5,255 169,834
Amortization of
deferred compensation --
Reversal of valuation allowance -
equity securities --
Shares issued for acquisition
of subsidiaries 1,111,680 66,701 989,166 1,055,867
Net loss -- -- -- -- -- (3,151,859)
BALANCE - JUNE 30, 1997 4,251,418 $ 255,085 1,280,000 $ 6,400 $ 10,578,498 $(9,662,478)
=========== ========= ========== =========== ============ ===========
</TABLE>
VALUATION DEFERRED
ALLOWANCE COMPENSATION TOTALS
--------- ------------ ------
BALANCE - JULY 1, 1995 -- $ (400,000) $ (159,456)
Common shares issued
for compensation and other
expenses -- (372,000) 14,000
Common shares issued for
interest on promissory
note -- 27,500
Common shares issued for -- 1,477,273
debt retirement
Repurchase of common
shares -- (586,000)
Common shares issued -- 1,875,416
Amortization of deferred
compensation -- 204,000 204,000
Valuation allowance - equity
securities (425,000) -- (425,000)
Net loss -- -- (1,766,811)
BALANCE - JUNE 30, 1996 (425,000) (568,000) 660,922
Class B shares converted
to common shares --
Common shares issued for
compensation and other
expenses, prior to reverse
stock split (140,000) 157,227
Other common shares issued,
prior to reverse stock split 4,318
Reverse stock split
of 1:12 --
Common shares issued for
compensation and other
expenses (1,062,000) 80,941
Other common shares issued 175,089
Amortization of
deferred compensation 716,000 716,000
Reversal of valuation allowance -
equity securities 425,000 425,000
Shares issued for acquisition
of subsidiaries
Net loss -- -- (3,151,859)
BALANCE - JUNE 30, 1997 $ -- $(1,054,000) $ 123,505
========= =========== ===========
See notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
JUNE 30,
--------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(3,151,859) $(1,766,811)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 263,948 323,928
Common shares issued for services rendered 119,045 399,500
Write down of net liabilities of discontinued operations (327,964) --
Increase (decrease) in cash attributable to changes in assets and
liabilities as follows:
Decrease in accounts receivable 3,611 300,678
(Increase) in inventory (8,040) (10,200)
(Increase) decrease in notes receivable (8,000) 12,279
(Increase) in loan to officer (178,635) (112,595)
Decrease (increase) in other, primarily prepaid expenses 708,975 (987,555)
Decrease in other assets -- 630,754
Increase(decrease) in accounts payable and accrued expenses 589,813 (355,479)
(Decrease) in payroll taxes payable (20,398) (169,963)
(Decrease) increase in other liabilities (15,593) 143,445
----------- -----------
Total adjustments 1,126,762 174,792
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,025,097) (1,592,019)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (65,946) (18,086)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (65,946) (18,086)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible debt 509,584 --
(Increase) decrease in restricted cash 54,000 (54,000)
Proceeds from notes and loans payable 611,199 1,500,000
(Increase) decrease in valuation allowance 425,000 (425,000)
Repayments of notes and loans payable (129,353) (141,216)
Repurchase of common stock -- (586,000)
Issuance of common stock 179,409 1,852,689
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,649,839 2,146,473
----------- -----------
NET (DECREASE) INCREASE IN CASH (441,204) 536,368
CASH - BEGINNING OF YEAR 538,942 2,574
CASH - END OF YEAR $ 97,738 $ 538,942
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest - $ 35,594 $ 171,843
Non Cash Activity-See note 14 with respect to issuance of the
company shares of common and class B common shares as compensation for
services rendered
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PACKAGING PLUS SERVICES, INC AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED JUNE 30, 1997 AND 1996
----------------------------------
1. DESCRIPTION OF THE BUSINESS
---------------------------
Packaging Plus Services, Inc. ("PKGP"), is an integrated business service
conglomerate. Its' principal subsidiaries and divisions include the Association
of Packagers and Carriers, Inc. (APAC), Rapid Delivery Systems, Inc. (RDS) and
PKGP's entertainment division which consists of Downtown Theatre Ticket Agency,
Inc. (DTTA) and its subsidiaries. PKGP's primary focus is on the development of
the Association of Packagers and Carriers (APAC) and new acquisitions which will
strengthen its market position.
On December 31, 1996, PKGP purchased all the outstanding shares of DTTA and
its related entertainment subsidiaries and divisions in exchange for 850,000
shares of PKGP common stock. This transaction was completed pursuant to a Stock
Purchase Agreement dated December 31, 1996 between U.S. Transportation Systems,
Inc. (USTS) and PKGP. This acquisition was accounted for as a purchase. DTTA is
in the entertainment services industry and resells tickets for theatre,
sporting, music and other events.
The following table summarizes the acquisition:
Purchase price $ 760,000
Net fair value of assets acquired 60,000
------
Cost in excess of net book value of assets acquired $ 700,000
========
On April 30, 1997, PKGP purchased all the outstanding shares of RDS and
Worldwide Logistics Services, Inc. (WLS) in exchange for 239,000 shares of PKGP
common stock. This transaction was completed pursuant to a Stock Purchase
Agreement dated April 22, 1997 between RDS, WLS and PKGP. This acquisition was
accounted for as a purchase. RDS and WLS provide package delivery services.
Hereafter, PKGP, RDS, WLS, and DTTA are collectively referred to as the Company
The following table summarizes the acquisition:
Purchase price $ 295,867
Net fair value of assets acquired 49,767
--------
Cost in excess of net book value of assets acquired $ 246,100
=========
Financial information of the acquired companies for periods prior to the date of
acquisition are not
F-7
<PAGE>
available and henceforth the Company is unable to disclose the pro-forma
operations of the Company as if the acquisitions had been consummated as of July
1, 1996 and July 1, 1995, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
--------------------------------------------
a. BASIS OF PRESENTATION - The American Institute of Certified Public
Accountants (AICPA) has issued Statement of Position 90-7 ("SOP 90-7") entitled
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".
Pursuant to SOP 90-7, an entity whose plan of reorganization has been confirmed
by the Bankruptcy Court and has thereby emerged from Chapter 11, should apply
for a "fresh-start" reporting as of the confirmation date or as of a later date
when all material conditions precedent to the plan of reorganization becoming
binding are resolved.
The conditions an entity must meet in order to apply fresh-start reporting are
(1) the reorganization value of the emerging entity immediately before the date
of confirmation must be less than the total of all post petition liabilities and
allowed claims, and (2) the holders of existing voting shares immediately before
confirmation must receive less than 50% of the voting shares of the emerging
entity. Having satisfied both of these conditions, the Company has adopted
fresh-start reporting effective March 31, 1994, which was considered the
effective date of the Reorganization Plan for financial reporting purposes.
Therefore, all assets and liabilities have been restated as of that date to
reflect reorganization values, which approximates the fair value of the assets
and present value of the liabilities as of such date.
b. PRINCIPLES OF CONSOLIDATION - The accompanying financial statements
consolidate the accounts of PKGP and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
c. REVENUE RECOGNITION - Royalty fees and advertising income are calculated
based on a percentage of the franchisees' gross sales.
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.
d. CASH AND CASH EQUIVALENTS - The Company considers cash equivalents to be
those instruments which have initial maturities of three months or less.
e. 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.
F-8
<PAGE>
f. REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS -
Reorganization value in excess of amounts allocable to identifiable assets will
be amortized over a seven-year period using the straight-line method.
g. 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 20 years.
h. 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.
i. INVENTORY - Inventories, consisting of supplies, are stated at the lower of
average cost or market.
j. 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.
k. 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates. A
significant estimate made by management in these financial statements is the
carrying value of the reorganization value of assets in excess of identifiable
assets.
l. 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.
m. STOCKHOLDERS' EQUITY - The shareholders authorized effective November 8, 1996
a one-for-twelve reverse stock split. All references in the consolidated
financial statements referring to shares, share price, per share amounts have
been adjusted retroactively for the one-for-twelve reverse stock split.
n. 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.
o. IMPAIRMENT OF LONG-LIVED ASSETS - The Company has adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". Such adoption
had no material effect on the financial statements of the Company.
F-9
<PAGE>
3. BASIS OF PRESENTATION
---------------------
For the year ended June 30, 1997 the Company experienced a loss from
continuing operations of $3,494,544 and a net loss of $3,151,859. The Company's
continued existence is dependent upon the Company's ability to reach profitable
operations and/or obtain additional equity capital or debt financing. 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.
4. BUSINESS SEGMENTS
-----------------
In 1997 the Company, with the acquisition of its entertainment division,
operates in two business segments, packaging/shipping and entertainment
services.
Summarized financial information of the business segments in 1997 is as follows:
<TABLE>
<CAPTION>
PACKAGING/SHIPPING ENTERTAINMENT TOTAL
------------------ ------------- -----
<S> <C> <C> <C>
Revenue $370,757 $1,026,987 $1,397,744
============ ========== ============
Operating loss $(3,304,399) $(155,901) $(3,460,300)
============ ========== ============
Net loss $(2,995,958) $(155,901) $(3,151,859)
============ ========== ============
Identifiable assets $2,927,634 $12,901 $2,940,535
============ ========== ============
Depreciation and amortization $263,645 $303 $263,948
============ ========== ============
Capital expenditures $49,164 $16,782 $65,946
============ ========== ============
</TABLE>
F-10
<PAGE>
5. OTHER ASSETS
------------
Other assets consist of the following:
June 30,
--------
1997 1996
---- ----
Prepaid consulting 74,026 93,328
Escrow fund - 100,000
Other 69,932 18,730
-------- -------
Total $143,958 $212,058
======== ========
Prepaid consulting fees in 1997 and 1996 relate to consulting fees paid
regarding APAC, a newly formed venture of the Company. Under APAC the Company
hopes to attract other packaging companies to form an association in order to
obtain the benefits, such as purchasing power of a large organization. These
costs will be expensed over the terms of the agreements.
6. 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 $750,000. These loans bear interest at the applicable federal
rate, which is approximately 6.5% for the years ended June 30, 1997 and June 30,
1996, and repayment is due in three yearly installments. As of June 30, 1997 and
1996 the amount of loans outstanding are $328,730 and $150,095, respectively.
7. REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS
-----------------------------------------------------
The ultimate recovery of the reorganization value in excess of identifiable
assets is dependent on the Company's ability to reestablish relations with its
franchisees and/or to effectuate a legal settlement with the franchisees whereby
the Company would accede to assets presently managed by the franchisees.
Management is of the opinion that it has embarked on an appropriate course of
action in order to enable the restoration of good relations with the
franchisees. However, in the event that these efforts are not successful,
management is prepared to fully litigate its claims against the franchisees. In
management's opinion, a cause of action so brought will be won.
F-11
<PAGE>
8. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following:
1997 1996
---- ----
Machinery and equipment $215,502 $187,157
Office equipment 353,990 247,301
Transportation equipment 24,151 24,152
Leasehold improvements 49,978 78,323
Furniture and fixtures 52,905 33,647
------ ------
696,526 570,580
Less accumulated depreciation and amortization 388,192 299,958
------- -------
$308,334 $270,622
======== ========
9. OTHER ASSETS
------------
During fiscal 1996 the Company entered into an agreement to provide
consulting and management services to Dollar Mania, Inc., a company in the
process of reorganization under Chapter 11 of the United States Bankruptcy Code.
As part of this agreement the Company provides consulting services to the
management of Dollar Mania regarding: (1) assumption of management of the
Debtor; (2) obtaining capital; (3) spearheading the Chapter 11 reorganization,
as well as other services. As part of the compensation for providing these
services Packaging Plus Services was granted 200,000 free trading shares and
1,000,000 restricted as to resale shares of the Debtor's parent company. As of
October 1996, Richard Altomare, acting on behalf of the Company, as advisor to
the debtor in possession, Dollar Mania, became aware of difficulties with the
reorganization. These were (1) the bankruptcy court's decision not to afford
additional super priority funding status to the advisor; (2) disputes between
the Parent company's shareholders; (3) the courts lifting of the stay on Dollar
Mania's Hawaiian leases. Accordingly, management wrote down the total of the
shares to $1.
10. DISCONTINUED OPERATIONS
-----------------------
For the years ended June 30, 1997 and 1996, the income from discontinued
operations consists primarily of settlements with creditors.
F-12
<PAGE>
11. NOTES PAYABLE
--------------
Notes payable consist of the following:
June 30,
--------
1997 1996
---- ----
Bank line of credit, renewable monthly,
bearing interest at 2% above the prime rate $140,000 $ 0
Notes payable - individuals, due in twelve months
or less, bearing interest at rates ranging from
8% to 24% per annum 441,199 30,000
Note payable - due in 10 monthly installments,
bearing interest at 10% 30,000 0
-------- -------
$611,199 $30,000
======== =======
12. LONG-TERM LIABILITIES
Long-term liabilities consists of the following:
<TABLE>
June 30,
--------
1997 1996
---- ----
<S> <C> <C>
Note payable - bank, payable in 48 monthly
installments through April 1998 of approximately
$2,700 plus interest at the rate of 8% per annum. (a) $27,083 $59,583
Note payable - individual, bearing interest at the
rate of 12% per annum due July 24, 1995 (b) 250,00
Loan payable - bearing interest at the rate of
10% per annum due July 1998 100,000
Other obligations with varying due dates
and rates of interest 103,895
--------- -------
127,083 413,478
Less: current maturities 118,183 386,395
------- -------
$ 8,900 $ 27,083
========== =========
<FN>
(a) Collateralized by all liens securing the bank's Allowed Class 1A Secured
Claims.
(b) Collateralized by a first and senior lien securing its Allowed Class 1B
Secured Claims consistent with its first and senior pre- petition lien position.
</FN>
</TABLE>
F-13
<PAGE>
13. CONVERTIBLE DEBENTURES
----------------------
On May 2, 1997 the Company issued a convertible debenture in the amount of
$65,000 bearing interest at 10% per annum and due on November 2, 1997. This
debenture is convertible into common shares of the Company. Additional
debentures were issued in June 1997 aggregating $625,000 bearing interest at 12%
per annum and due on June 30, 1998. These debentures are also convertible into
common share of the Company.
14. 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 $5,000 per
month.
The Company's Chief Executive Officer is employed pursuant to a five year
employment agreement providing for an annual base salary of $84,000 in 1994,
subject to annual cost of living adjustments each succeeding January 1st. 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 bankruptcy proceedings. The shares have
been valued at $0.50 per share and compensation of $500,000 was included as a
charge to reorganization expense in the three months ended March 31, 1994.
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 has been recorded in connection
with the 500,000 share issuance. Accumulated amortization was $300,000 at June
30, 1997.
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. In addition,
the Company is involved in a fee dispute with a law firm which claims it is owed
approximately $250,000 for services provided. Management of the Company
disagrees with such claim. The ultimate resolution of such matter cannot be
determined at this time.
15. INCOME TAXES
-------------
At June 30, 1997 the Company had approximately $8,913,000 of net operating
loss carry forwards expiring beginning in 2006. 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
F-14
<PAGE>
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. For financial statement purposes, benefits realized
from the future utilization of such net operating losses, if any, will be
accounted for as a reduction of Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets, with the excess credited to paid-in capital.
Deferred tax debits in the amount of approximately $3,565,000 (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.
16. 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 fiscal year
220,000 shares of the above class B common shares were converted to 220,000 of
common shares.
On November 8, 1996 the Company elected to effect a 1:12 reverse stock
split of its common stock. At such time there were 21,668,783 shares outstanding
and there were 1,805,732 shares outstanding after the split.
During the year ended June 30, 1997 the Company issued 2,596,462 shares of
common stock. Of such shares issued, 2,302,572 were issued in exchange for
services rendered; 205,140 shares were issued in payment of interest and
principal on notes payable. The balance, consisting of 88,750 shares, were
issued to investors for cash.
During the years ended June 30, 1997 and 1996 advisory fees were prepaid to
consultants retained by the Company to provide certain advisory services via the
issuance of 729,167 and 79,167 common shares, respectively. 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.
During the year ended June 30, 1996 the company issued 1,238,532 shares and
repurchased 156,479 shares of common stock. Of such shares issued, 312,500 were
issued in settlement of debt owed by the Company (see paragraph below); 100,000
of such shares were issued in exchange for services rendered; 9,167 shares were
issued in payment of interest on notes payable. The balance, consisting of
813,453 shares, were issued to investors for cash. Of these shares, 378,788 were
issued in one transaction at a price of $1.32 per share, raising $500,000.
The Company's CEO acquired the Company's $1,500,000 convertible promissory
note and acquired 378,788 commonshares from the investor referred to above, in
exchange for the officer's personal promissory note payable in the amount of
$2,034,000, which included accrued interest. The
F-15
<PAGE>
officer's personal note bears interest at 8% per annum and is payable in full in
the year 2000. The Chief Executive Officer converted the $1,500,000 note into
312,500 of the Company's common shares.
17. 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, 1997.
18. ACQUISITION OF SUBSIDIARIES
---------------------------
On September 1, 1997 the company acquired all of the outstanding shares of
Leone, Inc. 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. In addition,
the Company assumed $147,000 of debt. The acquired companies are single source
retailers specializing in business services, providing office supplies, business
imaging, document output and copy services.
19. STATUS OF RELATIONS WITH FRANCHISEES
-------------------------------------
The Company in previous years as a franchisor was to receive under the
terms of its Unit Franchise Agreement, royalty, or monthly service payments as
well as other fees and amounts due from its franchisees. Under the terms of the
Agreement, franchisees are obligated to submit monthly reports of sales and make
their respective required payments for doing business under the name "Packaging
Plus". The Company has the right to audit franchisees' accounts under the
Agreement and franchisees are required to pay interest on any overdue balances
to the Company. While many franchisees have complied with the Agreement over the
years, approximately twenty franchisees have not. Management has determined that
the potential estimated amounts due and owing to the company from its
franchisees, under the terms of the Agreement, exceeds $400,000. In the opinion
of management, including, in house counsel, the Company's claims are well
grounded under the Agreement and the Company has retained outside counsel to
commence litigation against all delinquent franchisees. The amount to be
ultimately realized in future years cannot be reasonably determined.
20. FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
---------------------------------------
Fourth quarter adjustments included a reversal of the $425,000 valuation
allowance of equity securities, the amortization of prepaid advisory fees of
$413,000, $289,000 for the settlement of a litigation, and accounts receivable
reserves of $93,000.
F-16
<PAGE>
ITEM 8
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Nothing to report.
PART III
--------
ITEM 9
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 49 Chmn. and Chief Exec.Officer
RICHARD A. ALTOMARE. Mr. Altomare, an investment and reorganization
specialist has been active as President and Chairman of the Board of Packaging
Plus Services, Inc. since January, 1992. From 1987 to 1991, Mr. Altomare was
President and CEO of R & V International, an investment banking firm. Prior to
that he served as President & CEO of Alta, Ltd., an investment syndicator.
During the years 1982 through 1984 Mr. Altomare served as President of Amerivest
Group, specializing in equipment leasing and syndications. He has been active in
the franchise industry for over 20 years with Food Mart USA, Carvel and
Packaging Plus and was a former CEO of two professional sports franchises. Mr.
Altomare served in the U.S. Marine Corps and Army Reserve from 1969 to 1975,
retiring as a Captain.
17
<PAGE>
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 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.
18
<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 1994 $0 $0 $1,000,000(1) 0
Chmn. & CEO 1995 $130,000(2) $0 $0 0
1996 100,000(2) $0 $0 0
1997 100,000(2) $0 $0 0
(1) Mr. Altomare received no salary during the Company's Reorganization Case and
continues to draw no salary from the Company. Mr. Altomare's "Other Annual
Compensation" represents a 1.5 million share bonus, issued in the form of Class
B Common Stock, authorized by the Bankruptcy Court as a result of Mr. Altomare's
three year commitment to the Company and his achievement in effecting the
Company's successful reorganization. One million of such shares represented
compensation for services rendered during the Company's Reorganization Case; the
remaining 500,000 represented compensation for services to be rendered, subject
to forfeiture as follows: In the event Mr. Altomare's employment is terminated
for cause or by Mr. Altomare other than for good reason or by reason of a
termination event, as defined in the employment agreement, Mr. Altomare shall
forfeit 8,333 shares of Class B Common Stock for each month remaining under the
employment agreement through its expiration. See financial statements for
additional details.
(2) Accrued but not paid. These amounts remain unpaid.
19
<PAGE>
OPTION GRANTS IN CURRENT PERIOD
Individual Grants
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% OF TOTAL OPTIONS
OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN CURRENT PERIOD PRICE DATE
- --------------------------------------------------------------------------------
Richard A.
Altomare,
Chmn. & CEO 0 0 0 0
AGGREGATED OPTION EXERCISES IN CURRENT PERIOD AND FY-END OPTION
VALUES
(a) (b) (c) (d) (e)
# of unexercised value of
options at FY-end unexercised
(#) in-the-money
options at FY-
end ($)
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard A.
Altomare,
Chm. & 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.
20
<PAGE>
C. EMPLOYMENT CONTRACTS AND RELATED MATTERS
The Company has an employment contract with Mr. Altomare that
was approved by the Bankruptcy Court as a part of the Company's Reorganization
Plan. The contract has a five year term, expiring May 11, 1999, at a base
compensation rate of $84,000 annually originally, subject to annual cost of
living adjustment (currently $100,000 p.a.). To date, Mr. Altomare has deferred
receipt of said base salary. To date, $330,000 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.
21
<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, 1996 more than five percent of the Class A
Common Stock of the Company. This information is based on 19,859,418 shares of
Class A Common Stock issued and outstanding as of June 30, 1997. For purposes of
this section, it is assumed that all l.5 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 AMOUNT AND NATURE OF % OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------- -------------------- ------------
Richard A. Altomare
20 S. Terminal Drive
Plainview, NY 11803 1,992,121 shares 46.9%
U.S. Transportation Systems, Inc.
33 W Main Street
Elmsford, NY 10523 900,000 shares 21.2%
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, 1996. This information is
based on 4,251,418 shares of Class A Common Stock issued and outstanding as of
June 30, 1997. 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 AMOUNT AND NATURE OF % OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------- -------------------- ------------
Richard A. Altomare
20 S. Terminal Drive
Plainview, NY 11803 1,992,121 shares 46.9%
22
<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 $100,000. To date, $330,000
of salary has been accrued and not paid.
23
<PAGE>
ITEM 13
EXHIBITS AND REPORTS ON FORM 8-K
Current report filed on Form 8-K dated May 7, 1997.
Current report filed on Form 8-K dated June 3,1997.
24
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of
1934, this amendment to 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.
PACKAGING PLUS SERVICES, INC.
Date: November 20, 1997 By /s/ Richard A. Altomare
Richard A. Altomare
Chairman and CEO
25
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 97,738
<SECURITIES> 0
<RECEIVABLES> 497,229
<ALLOWANCES> 190,000
<INVENTORY> 30,740
<CURRENT-ASSETS> 976,137
<PP&E> 696,526
<DEPRECIATION> 388,192
<TOTAL-ASSETS> 2,940,535
<CURRENT-LIABILITIES> 2,808,130
<BONDS> 8,900
0
0
<COMMON> 261,485
<OTHER-SE> (137,980)
<TOTAL-LIABILITY-AND-EQUITY> 2,940,535
<SALES> 1,397,744
<TOTAL-REVENUES> 1,397,744
<CGS> 834,766
<TOTAL-COSTS> 834,766
<OTHER-EXPENSES> 4,023,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,244
<INCOME-PRETAX> (3,494,544)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,494,544)
<DISCONTINUED> 342,685
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,151,859)
<EPS-PRIMARY> (1.16)
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