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March 18, 1998
PACKAGING PLUS SERVICES INC (PKGP)
Quarterly Report (SEC form 10QSB)
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
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.
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
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.
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!
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
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.
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
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.
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.
Management continues to explore methods to increase working capital through convertible subordinated debt and additional
equity infusions, as well as possible acquisitions.
Recent Filings: Jun 1997 (Qtrly Rpt) | Dec 1997 (Annual Rpt) | Jan 1998 (Qtrly Rpt) | Mar 1998 (Qtrly Rpt)
More filings for PKGP available from EDGAR Online
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