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



                                       1



<PAGE>








         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.











                                       2



<PAGE>









                                     PART I
                                     ------

                                     ITEM 1
                                     ------

                             DESCRIPTION OF BUSINESS

HISTORY
-------

         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.



                                       3



<PAGE>


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.



                                       4



<PAGE>



         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



                                       5




<PAGE>




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.


                                       6

<PAGE>


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!




                                       7



<PAGE>




         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.



                                       8

<PAGE>


                                   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



                                       9



<PAGE>



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.



                                       10



<PAGE>




                          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.



                                       11



<PAGE>




                                     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.


                                       12



<PAGE>




                                     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.

                                       13



<PAGE>







                                     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.






                                       14



<PAGE>



RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997:
-------------------------------------------------------

                                                     TWELVE  MONTHS ENDED
                                                JUNE 30, 1997      JUNE 30, 1996
                                               -------------      -------------

REVENUES:
---------
Merchandise & service sales                        1,212,022             93,520
Royalty                                                5,977             13,036
Advertising                                             --                1,450
Other income                                         179,745            486,727
                                                 -----------        -----------

                                                 $ 1,397,744        $   594,733
                                                 -----------        -----------

COSTS & EXPENSES:
-----------------

Cost of Goods Sold                                   834,766             76,725
Selling, General & Admin                           4,023,278          2,230,420
                                                 -----------        -----------

                                                 $ 4,858,044        $ 2,307,145
                                                 -----------        -----------
Loss from Continuing Operations
before Interest                                   (3,460,300)        (1,712,412)


Interest Expense - Net                               (34,244)          (169,440)
                                                 -----------        -----------

Loss from Continuing Operations                  $(3,494,544)       $(1,881,852)
                                                 -----------        -----------

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.

                                       15



<PAGE>



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.




                                       16



<PAGE>










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




<PAGE>

<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.




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<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.




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<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




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