SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1997
Commission File Number 0-18094
PACKAGING PLUS SERVICES, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 11-2781803
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(State or other jurisdiction of I.R.S. Employer Ident Number)
incorporation or organization)
20 SOUTH TERMINAL DRIVE, PLAINVIEW, NEW YORK 11803
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 349-1300
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Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
State the aggregate market value of the voting stock held by non-affiliates of
the registrant on DECEMBER 31, 1997: $1,473,958.
----------
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT DECEMBER 31, 1997
- ----------------------------- --------------------------------
Common Stock, Class "A" 9,645,282
Class "B" 1,280,000
<PAGE>
PACKAGING PLUS SERVICES, INC.
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INDEX
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PAGE
NUMBER
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet - December 31, 1997 1
Combined Statement of Operations -- Three and six
months ended December 31, 1997. 2
Combined Statement of Cash Flows -- Three and six 3
months ended December 31, 997.
Notes to Combined Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-15
PART II -- OTHER INFORMATION 16
SIGNATURE 17
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PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT DECEMBER 31, 1997
ASSETS
------
CURRENT ASSETS:
Cash $ 96,102
Restricted Cash 102,000
Accounts receivable, net of allowance
for doubtful accounts of $190,000 & $67,500 resp. 334,483
Inventory 94,836
Loans & Notes receivable, net of allowance of $161,000 67,743
Loan to Officer 310,653
Other, primarily prepaid expenses 366,484
---------
TOTAL CURRENT ASSETS 1,372,301
FURNITURE, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net 372,914
REORGANIZATION VALUE, net of amortization 494,513
GOODWILL, Net 1,098,011
Deferred Financing costs & Other 1,331,946
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TOTAL ASSETS $ 4,669,685
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 854,357
Payroll taxes payable 47,289
Other 29,622
Loans / Notes Payable 423,349
Convertible Debentures 1,652,440
Current maturities of long-term liabilities 62,128
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TOTAL CURRENT LIABILITIES 3,069,185
LONG-TERM LIABILITIES 1,617,213
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TOTAL LIABILITIES 4,686,398
STOCKHOLDERS' EQUITY
Common stock, Class "A", $0.06 par value; authorized
47,000,000 shares; 9,645,282 issued and outstanding 578,716
Common stock, Class "B", $0.005 par value; authorized
3,000,000 shares; 1,280,000 issued and outstanding 6,400
Additional paid-in capital 12,546,320
Deferred compensation related to stock issued for services(1,249,820)
Accumulated deficit (11,898,329)
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TOTAL STOCKHOLDER'S EQUITY (16,713)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,669,685
===========
See notes to consolidated financial statements
1
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<TABLE>
<CAPTION>
PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------- --------------------------------
1997 1996 1997 1996
---- ---- ---- ----
INCOME:
<S> <C> <C> <C> <C>
Merchandise and service income $ 195,328 $ 21,950 $ 255,839 $ 43,905
Royalty income 0 285 0 5,627
Ticket Sales 457,918 872,190
Delivery Services 77,251 293,739
Other income 119,745 179,745
------------- ----------- ---------- --------
TOTAL INCOME 730,497 141,980 1,421,768 229,277
-------- ----------- ---------- -------
COSTS AND EXPENSES:
Cost of goods and services 408,139 10,500 782,004 25,239
Selling, General and administrative 1,262,777 326,540 2,630,790 655,983
Depreciation and amortization 79,655 54,411 150,369 108,823
---------- ------------ ---------- -------
1,750,571 391,451 3,563,163 790,045
---------- ------------ ---------- -------
LOSS BEFORE INTEREST AND
REORGANIZATION EXPENSE (1,020,074) (249,471) (2,141,395) (560,768)
----------- ------------ ----------- ---------
INTEREST INCOME 216 1,218
INTEREST EXPENSE 10,423 1,702 94,459 11,560
----------- ------------ ---------- --------
PROFIT (LOSS) FROM CONTINUING OPERATIONS $ (1,030,497) $ (250,957) $ (2,235,854) $ (571,110)
PROFIT (LOSS) FROM DISCONTINUED OPERATIONS 350,557 342,937
------------ -------
NET PROFIT (LOSS) $ (1,030,497) $ 99,600 $ (2,235,854) $ (228,173)
=========== ============ =========== =========
PROFIT (LOSS) PER COMMON SHARE
Profit (Loss) from continuing operations ($0.12) (0.08) ($0.29) ($0.19)
Profit (Loss) from discontinued operations $0.11 $0.11
------------ ------------ ----------- ----------
Net Profit (Loss) Per Common Share ($0.12) $0.03 ($0.29) ($0.08)
------------ ------------ ----------- ----------
Weighted average number of
shares used in calculation 8,425,803 3,097,790 7,712,906 3,041,395
============= ============ ============ ==========
</TABLE>
See notes to consolidated
financial statements
2
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PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS PROVIDED BY OPERATIONS
* Net Loss $ (2,235,854) $ (228,173)
Adjustment to reconcile net loss to net
cash used by operating activities:
Common stock issued as compensation 694,695 297,500
Common Stock issued in lieu of cash 248,350 0
Depreciation & amortization 150,369 108,823
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(1,142,440) 178,150
Change in assets and liabilities:
(Increase)/Decrease in restricted cash (102,000) 54,000
(Increase)/Decrease in accounts receivable (27,254) (31,663)
(Increase)/Decrease in inventory (64,096) 0
(Increase)/Decrease in loan to officer 18,077 (74,500)
(Increase)/Decrease in notes receivable 0 0
(Increase)/Decrease in deferred expenses and
other assets (1,374,055) (145,940)
Increase/(Decrease) in accounts payable and
accrued expenses (496,106) (72,186)
Increase/(Decrease) in payroll taxes payable 35,399 (20,299)
Increase/(Decrease) in other liabilities 3,227 (349,746)
----------- ---------
Cash provided (used) by operations (3,149,248) (462,184)
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CASH USED IN INVESTING ACTIVITIES
Investment in holding company 0 0
Acquisition of furniture, equipment, and
leasehold improvements (64,580) (8,197)
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CASH PROVIDED BY FINANCING ACTIVITIES
Sale of common stock from treasury 0 59,320
Proceeds from notes and loans payable 0 278,000
Proceeds from issuance of convertible debt 3,714,097 0
Repayment of notes and other liabilities (501,905) (386,201)
----------- ---------
NET INCREASE (DECREASE) IN CASH (1,636) (519,262)
CASH - Beginning of period 97,738 538,942
----------- --------
CASH - End of period $ 96,102 $ 19,680
=========== ========
* - 1996 figure includes Discontinued Operations write-down of $350,588
See notes to consolidated
financial statements
3
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PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
Notes To Financial Statements
(Unaudited)
1. Basis of Presentation
Reference is made to the Company's Consolidated financial statements as of June
30, 1997 and for the fiscal year then ended, filed with the United States
Securities and Exchange Commission for a complete discussion of the Company's
significant accounting policies and other matters.
The accompanying unaudited consolidated interim financial statements reflect all
adjustments that, in the opinion of management are necessary for a fair
presentation of financial position as of December 31, 1997, and results of
operations for the three months then ended.
4
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MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 and Office Quick.
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.
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
5
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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.
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.
Also, the Company announced the signing of a letter of intent to purchase
Vallerie's Transportation Services, Inc., a $28,000,000 regional transportation
company with 300 employees and in excess of $3,000,000 in assets, including
equipment. This acquisition is pending.
THE ASSOCIATION OF PACKAGERS AND CARRIERS (APAC): Private postal and
business service centers form a highly fragmented cottage industry. This
industry generates over $5 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.
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 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.
6
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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
Prepaid phone card
Centralized purchasing
Monthly Newsletter
Brand recognition of APAC Logo
APAC advisory council
Store (design/modernization) program
7
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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,
advertising revenues directly from suppliers.
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.
8
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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.
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 manufacturing
operation for the production of custom, personalized corrugated boxes. This core
business will lend itself to expand our customer base. 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.
PKGP anticipates acquisitions in the transportation area. Through this expected
PKGP transportation network, distribution and allocation of finished goods will
be provided to APAC members as well as all qualified customers. This network
will also enable member stores to save on costs, through the overall
centralization of products and logistics.
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.
UNIQUENET: In 1996, the Company launched its venture called UniqueNet.
UniqueNet is an interactive, specialty gifts Web Site on the Internet's
WorldWide Web (UnaiqueNet.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
10
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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.
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.
11
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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 4.6% decline from 30,326
to 26,210. Due to high labor costs of staffing additional facilities and the
continuing pressure on the U.S. Congress to reduce government subsidies, such as
those provided to the U.S. Postal Service, the Company believes it is unlikely
that the number of U.S. Post Offices, branches and stations will increase
substantially in the foreseeable future. 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.
CO-BRANDING with major suppliers, i.e. Kodak, USPS and others.
NATIONAL TRADE SHOW & CONVENTION
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RESULTS OF OPERATIONS -- THREE MONTHS
- -------------------------------------
Three months ended December 31, 1997, as compared to the three months ended
December 31, 1996:
Three Months Ended
December 31,
REVENUES 1997 1996
- -------- ---- ----
Royalty $ -0- $ 285
Merchandise and services 730,497 21,950
Other -0- 119,745
-------- ---------
$730,497 $ 141,980
======== =========
COST OF REVENUES
- ----------------
Merchandise and services $408,139 $ 10,500
======== =========
RESULTS OF OPERATIONS - SIX MONTHS
- ----------------------------------
Six months ended December 31, 1997, as compared to the six months ended December
31, 1996:
Six Months Ended
December 31,
REVENUES 1997 1996
- -------- ---- ----
Royalty $ -0- $ 5,627
Merchandise and services 1,421,768 43,905
Other -0- 179,745
$1,421,768 $ 229,277
========== =========
COST OF REVENUES
- ----------------
Merchandise and services $ 782,004 $ 25,239
========== ==========
Packaging Plus Services, Inc. (PKGP), is an integrated business service
conglomerate. Its' principal subsidiaries and divisions include the Association
of Packagers and Carriers, Inc., Manhattan Concierge, Office Quick, Packaging
Plus Services Logistics, Inc., Images Design and Marketing, and UniqueNet.
During this period, Images Design and Marketing continues to operate as an
"in-house" advertising arm for Packaging Plus Services, Inc., in preparing for
and setting up advertising related to the Company's new ventures.
During the three months ended December 31, 1997, the Company's operations
generated total revenues of $730,497 from the abovementioned operations,
compared to $142,000 for the corresponding prior year period. Cost of revenues
were $408,139 and $10,500 respectively.
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Accordingly, gross operating income for the three months ended December 31, 1997
was $322,358 compared to $141,980 for the corresponding period in 1996.
Selling, general and administrative expenses were approximately $1,263,000 for
the three months ended December 31, 1997, compared to approximately $327,000 for
the corresponding period in 1996.
Similarly, for the six month period ended December 1997, total income was
approximately $1,422,000 compared to approximately $229,000 for the prior year
period. Cost of revenues was $782,000 and $25,000 respectively, resulting in
gross operating income for the periods of $640,000 and $204,000 respectively.
Selling, general and administrative expenses were approximately $2,631,000 for
the six months ended December 31, 1997, compared to $656,000 for the
corresponding 1996 period.
Generally, increases in revenue and expenses of 1997 over 1996 are as a result
of new businesses coming on line and being integrated. 1997 expenses also
include in excess of $600,000 of allocated costs directly related to convertible
debt.
In October, 1997 the business of Rapid Delivery Services was discontinued. This
discontinuance is the subject of litigation involving the subsidiary's former
president and others.
On January 16, 1998, the Company, in a press release, announced the suspension
of conversions with respect to its "offshore" convertible debentures, since the
Company believes several debenture holders had breached the terms of the
Subscription Agreements relating to the debentures. The Company expects this
matter to be resolved on terms favorable to the Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the six months ended December 31, 1997, the Company used cash flow from
operations of $3,149,000 due in part to the net loss of $2,236,000 for the same
period. Investing activities used $65,000. Financing activities in the six month
period provided a net of $3,212,000, due to the issuance of convertible debt.
The net result of the activity for the six month period was a decrease in cash
of $2,000.
Until APAC is fully operational, the Company faces a situation whereby it needs
to raise additional cash in the near future. 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.
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Management continues to explore methods to increase working capital through
convertible subordinated debt and additional equity infusions, as well as
possible acquisitions.
15
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PART II -- OTHER INFORMATION
- ----------------------------
Item 1. 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.
Litigation has been commenced against the former president of Rapid
Delivery Services and others for converting to their own use the business of
this subsidiary. The amount sought in damages is $6,000,000, among other claims
and counterclaims.
The Company settled in April, 1997, a litigation involving the business of
a former subsidiary. The settlement calls for monthly payments by the Company
totaling $270,000, of which $220,000 has been paid, with three monthly payments
remaining totaling $50,000.
Legal proceedings were commenced by several "offshore" convertible debenture
holders as a result of the Company's suspension of conversions. The Company
expects these matters to be resolved on terms favorable to the Company and an
agreement with the debenture holders has been reached in principle.
The Company is 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.
Item 2. CHANGES IN SECURITIES -- NONE
-----------------------------
Item 3. DEFAULTS ON SENIOR SECURITIES -- NONE
-------------------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --
---------------------------------------------------
NONE
Item 5. OTHER INFORMATION -- NONE
-------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K -
--------------------------------
Current report filed on Form 8-K dated October 2, 1997.
16
<PAGE>
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.
PACKAGING PLUS SERVICES, INC.
/S/ RICHARD A. ALTOMARE
Richard A. Altomare, President
as Registrant's duly authorized
Chairman of the Board.
Dated: March 13, 1998
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