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 MARCH 31, 1997
Commission File Number 0-18094
PACKAGING PLUS SERVICES, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 11-2781803
(State or other jurisdiction of (I.R.S. Employer Ident Number)
incorporation or organization)
20 South Terminal Drive, Plainview, New York 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 349-1300
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
(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 MARCH 31, 1997: $8,307,862.
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date.
Class Outstanding at MARCH 31, 1997
- ----------------------- -----------------------------
Common Stock, Class "A" 4,505,959
Class "B" 1,280,000
PACKAGING PLUS SERVICES, INC.
INDEX
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Page
Number
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet -- March 31, 1997 ..................................... 1
Combined Statement of Operations -- Three and nine
months ended March 31, 1997. .................................... 2
Combined Statement of Cash Flows -- Three and nine
months ended March 31, 1997. .................................... 3
Notes to Combined Financial Statements .............................. 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .........................6-13
PART II -- OTHER INFORMATION .......................................... 14
SIGNATURE ............................................................. 15
PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT MARCH 31, 1997
ASSETS
------
CURRENT ASSETS:
Cash $ 29,649
Accounts receivable, net of allowance 292,704
for doubtful accounts of $29,001
Inventory 22,700
Notes receivable, net of allowance of $107,527 59,743
Other, primarily prepaid expenses 1,267,072
---------
TOTAL CURRENT ASSETS 1,671,868
FURNITURE, EQUIPMENT AND LEASEHOLD 315,337
IMPROVEMENTS, net
REORGANIZATION VALUE, net of amortization 596,298
GOODWILL 688,333
-------
TOTAL ASSETS $ 3,271,836
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 516,489
Payroll taxes payable 10,403
Other 6,131
Current maturities of long-term liabilities 524,863
-------
TOTAL CURRENT LIABILITIES 1,057,886
LONG-TERM LIABILITIES 47,708
TOTAL LIABILITIES 1,105,594
STOCKHOLDERS' EQUITY
Common stock, Class A, $0.06 par value; authorized
47,000,000 shares; 4,505,959 issued and outstanding 270,358
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 9,785,220
Deferred compensation (225,000)
Valuation allowance (425,000)
Accumulated deficit (7,245,736)
----------
TOTAL STOCKHOLDER'S EQUITY 2,166,242
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,271,836
=============
See notes to consolidated financial statements.
- 1 -
PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- --------
1997 1996 1997 1996
---- ---- ---- ----
INCOME:
Merchandise and service income $ 478,216 $ 12,952 $ 522,121 $ 83,610
Royalty income 350 1,388 5,977 12,447
Advertising income 0 250 0 1,450
Other income 0 1,000,576 179,745 1,001,726
------- --------- ------- ---------
TOTAL INCOME 478,566 1,015,166 707,843 1,099,233
------- --------- ------- ---------
COSTS AND EXPENSES:
Cost of goods and services 323,601 16,100 348,840 65,582
Selling, General and administrative 588,183 289,826 1,244,166 1,107,341
Depreciation and amortization 69,193 53,369 178,016 159,552
------ ------ ------- -------
980,977 359,295 1,771,022 1,332,475
------- ------- --------- ---------
OPERATING INCOME (LOSS) (502,411) 655,871 (1,063,179) (233,242)
--------- ------- ----------- ---------
INTEREST INCOME 0 0 1,218 1,573
INTEREST EXPENSE 4,534 25,482 16,094 47,052
----- ------ ------ ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $(506,945) $ 630,389 $(1,078,055) $(278,721)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 0 95,111 342,938 164,173
--------- ------ ------- -------
NET INCOME (LOSS) $(506,945) $ 725,500 $ (735,117) $(114,548)
========= ========= =========== =========
PROFIT (LOSS) PER COMMON SHARE
Profit (Loss) from continuing
operations ($0.10) $0.09 (0.30) ($0.03)
Profit (Loss) from discontinued
operations 0 $0.03 0.09 $0.02
Net Profit (Loss) Per
Common Share ($0.10) $0.12 (0.20) ($0.01)
Weighted average number of
shares used in calculation 5,028,433 11,804,011 3,643,348 10,535,407
** **
<FN>
** Reflects number of shares prior to 1:12 stock split Nov. 1996.
</FN>
See notes to consolidated financial statements
- 2 -
PACKAGING PLUS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS PROVIDED BY OPERATIONS
Net Loss $ (735,117) $ (114,548)
Write-down of Accounts Payable 298,042
Common stock issued as compensation 700,000
Common Stock issued in lieu of cash 709,000 31,818
Depreciation & amortization 178,016 325,880
------- -------
851,899 541,192
------- -------
Change in assets and liabilities:
(Increase)/Decrease in restricted cash 54,000 (3,651)
(Increase)/Decrease in accounts receivable (31,662) 263,685
(Increase)/Decrease in inventory 0 (10,200)
(Increase)/Decrease in loan to officer (96,000) (85,800)
(Increase)/Decrease in notes receivable 0 12,278
(Increase)/Decrease in deferred expenses
and other assets (787,014) (1,287,120)
(Increase)/Decrease in intangible assets (688,333)
Increase/(Decrease) in accounts payable
and accrued expenses 1,934 (647,713)
Increase/(Decrease) in payroll
taxes payable (21,885) (152,805)
Increase/(Decrease) in other liabilities (35,824) 135,336
------- -------
Cash provided (used) by operations (752,885) (1,234,798)
-------- ----------
CASH USED IN INVESTING ACTIVITIES
Investment in holding company 0 (10,000)
Acquisition of furniture, equipment, and
leasehold improvements (44,715) (18,086)
------- -------
CASH PROVIDED BY FINANCING ACTIVITIES
Sale of common stock from treasury 144,020 692,500
Proceeds from notes and loans payable 559,613 810,030
Repayment of notes and other liabilities (415,326) (168,246)
-------- --------
NET INCREASE (DECREASE) IN CASH (509,293) 71,400
CASH - Beginning of period 538,942 2,574
------- -----
CASH - End of period $ 29,649 $ 73,974
======== ========
See notes to consolidated financial statements
- 3 -
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, 1996 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 March 31, 1997, and results of
operations for the three and nine months then ended.
In January, 1997, the Company purchased for shares, the Entertainment Division
of U.S. Transportation Systems Inc. This Division includes the companies:
Downtown Theatre Ticket Agency, Inc. (now known as "Manhattan Concierge"),
Advance Entertainment Chicago, Inc., and Premier Box Office. Together, these
units provide theatre, sports and special events tickets and concierge services.
The Company intends to incorporate this value-added service into the expanding
menu offerings of its' member stores.
In consideration of the sale, the Company paid to USTS, 850,000 of its common
shares with buy-back options at small premiums. The right to repurchase shares
by the Company at 1.15 terminates at the end of the twenty fourth month.
This sale was concluded free of receivables and payables. As such, the excess of
share value over tangible assets was booked to goodwill. Goodwill has been
amortized over ten years.
On April 30, 1997, the Company acquired for shares, Rapid Delivery Services of
NY, Inc. (RDS), and World-Wide Logistics Service, Inc. (WWL). RDS offers
same-day delivery service for critical shipments within the eastern United
States and next-day delivery to the rest of the the country. WWL offers a single
source solution for transportation and logistics management from point of origin
to point of consumption.
- 4 -
The purchase price was $350,000 worth of the Company's stock (restricted) valued
at the average bid price for 5 days prior to the closing, to be delivered in
four equal installments, the first at the closing and the other three at four
month intervals thereafter.
The Company also has the right, for eighteen months, to repurchase all or part
of the shares at the value expressed above, plus 10%.
The effects of the Rapid / World-Wide acquisition have not been included in the
financial statements of this period under review.
- 5 -
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 as a franchisor only on May 14, 1994.
Management has developed new ancillary businesses to support its trade
association which is a development of the Company's former core business of
franchising.
Management is now concentrating on the raising of new capital and focusing on
new ventures, including APAC (Association of Packagers and Carriers), its'
multi-faceted association of packaging centers nationwide connected through the
World Wide Web.
In January, 1997, the Company purchased for shares, the Entertainment Division
of U.S. Transportation Systems Inc. This division is estimated to contribute
revenue of approximately $4.3 million to the Company within its first calender
year.
On April 30, 1997, the Company acquired for shares, Rapid Delivery Services of
NY, Inc. and World-Wide Logistics Service, Inc. These divisions are expected to
contribute annual revenue of close to $1 million initially.
Management views this year as a period of acquisition and synergetic
development, and anticipates growth based upon its decision to concentrate on
core business development through APAC in particular.
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.
- 6 -
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 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 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 on infrequent users.
Manhattan Concierge: The acquired Entertainment Division consists of six
companies and divisions that provide New York theater, sports and special events
ticket and concierge services. Five of the units are licensed theatre agencies
specializing in the retail sale of theatre, sports, and other tickets in New
York and Chicago. Another unit, New York Concierge, provides customized package
tours including tickets, transportation, dining, lodging and other concierge
amenities. These services are marketed through toll-free phone numbers
(888-NYSHOWS, 8006TIXNOW, 800-NYSHOWS and 800-THE-SHOW). In addition, PKGP plans
to design and implement an Internet web site for the facilitation of these
services.
These 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' member stores while attempting to increase
its own business presence in the overall industry.
- 7 -
Rapid/World-Wide: 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. Worldwide Logistics Services
offers a single source solution for transportation and logistics management from
point of origin to point of consumption. They will both additionally provide
these services within the PKGP family in general, and to APAC stores in
particular. Their staffing strengthens PKGP's team for additional shipping
target companies.
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 showcases the Company's line of
distinctive and "trendy" gifts. On-line visitors to the Web Site are 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. World-Wide Logistics will be supervising
the delivery process of this division worldwide.
UniqueNet and its products will become will become part of APAC for the benefit
of its members and customers. Members will be able to order promotional items,
products for sale within their store, merchandise for customers, and APAC
garments for themselves.
With the number of users of the Internet now estimated at between 35-40
million, and growing at 1.5 million a month, the Internet is experiencing one of
the most explosive growth rates ever seen for an emerging technology--surpassing
even that of the personal computer industry of the early 1980's. This UniqueNet
electronic store may be visited by consumers as well as APAC Members.
Logistics: The Company's logistics subsidiary, Packaging Plus Services
Logistics, Inc., is an integrated logistics provider. Logistics services are
provided internally by the Company and, as needed, by contracted vendors. The
Company's logistic services include home delivery sales, packaging and shipping,
fulfillment, warehousing, distribution and consolidation. The Company
aggressively pursues accounts with major national and regional retailers and
provides support for APAC Members who need help with a "lead" in their Zip Code.
PKGP Logistics will be combined with World-Wide Logistics under the name
World-Wide Logistics.
- 8 -
Future Projects: Three specific projects are being worked on by the
Company.
1. Warehouse Distribution
APAC stores control their ZIP CODE. Direct marketers and product
suppliers such as Home Shopping Network presently operate their own fulfillment
center. APAC offers individual warehouses for each Zip Code in United States for
catalogue and Internet users. This futuristic expectation is one of APAC's
longer term goals.
2. Suitcase Movement
APAC stores could provide bar-coded suitcase movement in the same
manner as we routinely overnight small packages today.
3. 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, or its equivalent, is scheduled for 1997.
- 9 -
Results of Operations -- Three months
Three months ended March 31, 1997, as compared to the three months ended March
31, 1996:
Three Months Ended
March 31,
Revenues 1997 1996
- -------- ---- ----
Royalty $ 350 $ 1,388
Merchandise and service 478,216 12,952
Advertising -0- 250
Other -0- 1,000,576
------- ---------
$ 478,566 $1,015,166
========== ==========
Cost of Revenues
- ----------------
Merchandise and services 323,601 39,240
Advertising -0- (23,140)
Other -0- -0-
----------- --------
$ 323,601 $ 16,100
=========== ==========
Results of Operations -- Nine months
Nine months ended March 31, 1997, as compared to the nine months ended March 31,
1995:
Nine Months Ended
March 31,
Revenues 1997 1996
- -------- ---- ----
Royalty $ 5,977 $ 12,447
Merchandise and service 522,121 83,610
Advertising -0- 1,450
Other 179,745 1,001,726
---------- ----------
$ 707,843 $1,099,233
========== ==========
Cost of Revenues
- ----------------
Merchandise and services 348,840 82,511
Advertising -0- (22,596)
Franchising -0- 5,667
----------- ----------
$ 348,840 $ 65,582
=========== ==========
- 10 -
Packaging Plus Services, Inc. (PKGP), is an integrated business service
conglomerate. Its' principal subsidiaries and divisions include the Association
of Packagers and Carriers, Inc., Rapid Delivery Services of NY, Inc., Manhattan
Concierge, World-Wide Logistics, Inc., Images Design and Marketing, and
UniqueNet. PKGP's existing franchise network and Company-run stores presently
consist of retail franchise outlets located in the Northeast region of the
United States. PKGP suspended the sale of new franchises in 1995 to focus on the
development of the Association of Packagers and Carriers.
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 March 31, 1997, the Company's operations generated
total revenues of $478,566 from the abovementioned operations. For the nine
month period, $707,843 was generated, $179,745 of which was non-recurring
income. For the similar period in 1996, non-recurring income accounted for the
bulk of the revenue generated. The influx in the current three month period is
indicative of the income-generating divisions starting to come online.
Selling, general and administrative expenses were approximately $588,000 for the
three months ended March 31, 1997 while for the similar period in 1996 this
amount was approximately $290,000. In 1996, the company was exercising
continuing cost cutting during a transitionary period. For 1997, S.G.&A expenses
were increased as a result of i) the build-up of the Entertainment Division,
including the preparation of their moving to new premises; ii) the takeover of
Rapid / World-Wide and iii) additional administration costs related to another
pending takeover.
- 11 -
Discontinued Operation -- By the end of June 1995, the Company phased out the
business of its subsidiary, Pinnacle Direct Marketing, Inc. The results of the
discontinuance of this operation have been reported separately as Discontinued
Operation in the Consolidated Statement of Operations since then. The following
table reflects the components of this discontinued operation for the periods
ended March 31, 1997, and 1996. There was no activity for the current period -
see note below.
Three Months Ended
March 31,
1997 1996
---- ----
Income $ -0- $ (18,490)
Cost and Expenses -0- (113,601)
-----------
Earnings (loss) from
discontinued operation $ -0- $ 95,111
========== ==========
Nine Months Ended
March 31,
1997 1996
---- ----
Income $ 2,530) $ (9,489)
Cost and Expenses (345,468) (173,661)
---------- ----------
Earnings (loss) from
discontinued operation $ 342,938 $ (164,172)
========== ===========
On November 18, 1996, Pinnacle Direct Marketing, Inc. which had been a
discontinued subsidiary operation for 1 1/2 years, filed a Chapter 7 petition.
- 12 -
Liquidity and Capital Resources
During the nine months ended March 31, 1997, the Company's cash position
decreased by approximately $510,000. Approximately $700,000 of common stock was
issued for compensation and $709,000 for acquisition, largely offset by an
increase in intangibles. Approximately $753,000 was used in operating
activities, approximately $415,00 was used in the repayment of notes and other
liabilities; $71,000 of which was used to reduce payroll taxes in accordance
with the payout schedule agreed to between the I.R.S. and the Company, which
scheduled amounts were substantially paid within the quarter, but were
completely paid off in April. Amounts of approximately $144,000 in equity
capital, and $560,000 in debt capital, were raised during the period. $175,000
of debt capital was collateralized by 1,325,000 of the Company's shares issued
as restricted stock.
Until APAC is fully operational, and the Entertainment Division has been fully
integrated into its' overall operations, the Company faces a situation whereby
it needs to raise additional cash. On June 4th, a $14 million lending facility
was announced to the public. 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 further continuing efforts to increase working capital through
convertible subordinated debt and additional equity infusions, as well as
possible acquisitions.
- 13 -
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company has commenced litigation against sixteen
franchisees for non-payment of royalties to the Company. The
total amount sought in the suits exceeds $500,000, including
interest and attorneys' fees.
The Company has recently settled a litigation involving a former
business unit of the Company. The settlement calls for seven payments by the
Company, each payment to be made at two month intervals, of approximately
$38,000 for each payment. The first payment has already been made.
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 January 7, 1997.
- 14 -
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: June 10, 1997
- 15 -