U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
|X|      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

For the fiscal year ended: November 30, 1998

|_|      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

For the transition period from ________________ to ______________.

Commission file Number:  0-18686

                        PAK MAIL CENTERS OF AMERICA, INC.
                  --------------------------------------------
                 (Name of small business issuer in its charter)

            Colorado                                         89-0934575
 ------------------------------                          ------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)



3033 South Parker Road, Suite 1200, Aurora, Colorado            80014
----------------------------------------------------           --------
(Address of principal executive offices)                      (Zip Code)

Issuer's telephone number: 303-752-3500

Securities registered under Section 12(b) of the Exchange Act:  NONE

Securities registered under Section 12(g) of the Exchange Act: 
                    Common Stock, par value $.001 per share

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during  the past 12  months,  and (2) has been
subject to such filing requirements for the past 90 days.
YES  X   NO ___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of Issuer'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. [X]

The Issuer's revenues for its most recent fiscal year were $4,615,467.

The aggregate market value of the Issuer's voting stock held as of a recent date
by  nonaffiliates  of the Issuer  cannot be  ascertained  due to the  absence of
reliable  information  as to quoted  prices with respect to the Issuer's  common
stock.

As of February 26, 1999, the Issuer had 2,989,483 shares of its $0.001 par value
common stock issued and outstanding.

Transitional small business disclosure format: YES       NO   X
                                                   -----    -----

<PAGE>



                        PAK MAIL CENTERS OF AMERICA, INC.
                         1998 FORM 10-KSB ANNUAL REPORT
                                TABLE OF CONTENTS



PART I                                                                  Page No.
------                                                                  --------

Item 1.     Description of Business.......................................   1

Item 2.     Description of Property.......................................   6

Item 3.     Legal Proceedings.............................................   6

Item 4.     Submission of Matters to Vote of Security Holders.............   7

PART II
-------

Item 5.     Market for Common Equity and Related Stockholder Matters......   8

Item 6.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations ..........................   9

Item 7.     Financial Statements..........................................  12

Item 8.     Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure...........................  12

Part III
--------

Item 9.     Directors, Executive Officers, Promoters and Control
            Persons; Compliance with Section 16(a) of the Exchange Act....  13

Item 10.    Executive Compensation........................................  15

Item 11.    Security Ownership of Certain Beneficial
            Owners and Management.........................................  16

Item 12.    Certain Relationships and Related Transactions................  18

Item 13.    Exhibits and Reports on Form 8-K .............................  19

            Signatures....................................................  21


<PAGE>
                                                    
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     (a) Business  Development.  Pak Mail Centers of America, Inc. (the "Issuer"
or "Company") was incorporated in the State of Colorado on January 27, 1984. The
Company is principally  engaged in  franchising of retail service  centers which
specialize  in the  packaging  and  shipping  business  ("Pak Mail  Centers"  or
"Centers").  Pak Mail Centers typically provide mailbox service, parcel shipping
and  receiving,  packaging,  freight  forwarding  and other  communications  and
information  products  and  services to  commercial  and  residential  customers
through a variety of carriers  and may offer a variety of related  items such as
stamps, greeting cards,  stationery supplies, keys and passport photographs.  In
February 1998,  holders of the Series A and Series B Preferred  Stock  exchanged
the Series A and Series B Preferred Stock for a new Series C Preferred Stock and
10 year warrants to purchase  884,264  shares of the  Company's  common stock at
$0.10 each.  The new Series C Preferred  Stock has a 6% annual  dividend that is
payable on March 31 of each year,  beginning  in 1999.  Effective  November  30,
1997, the holders of the Series A and Series B Preferred  Stock agreed that they
had no further  rights,  and that the Company had no further  obligations,  with
respect to the Series A and Series B Preferred Stock.

     (b) Business of Issuer.

          (1)(2)  Principal  Products or  Services;  Distribution  Methods.  The
Company's  principal business is the marketing of Pak Mail Center franchises and
its principal source of revenues is derived from royalties and franchise fees as
well as from the sale of certain  equipment,  supplies,  forms and  materials to
franchisees.  As of February 26, 1999, there were 370 individual  franchises and
33 area agreements in existence.

Franchise Program
-----------------

     The Company  offers  individual  franchise  agreements  and area  marketing
agreements.  Individual franchisees are granted the nonexclusive right, within a
specified  area,  to use the Pak Mail name and  trademarks as well as Pak Mail's
proprietary operating procedures,  techniques,  forms, equipment and advertising
materials.  Area  marketers  and,  under a  previously  offered  area  franchise
program,  area developers are granted rights to sell  individual  franchises for
the Company in designated  areas and are required to provide site  selection and
start up assistance and continuing  support for  individual  franchisees  within
those areas. The Company locates prospective  franchisees  through  advertising,
referrals  from  existing  franchisees  and the  marketing  efforts  of its area
marketers and developers.


                                       1
<PAGE>

Franchise Agreements, Fees and Related Matters
----------------------------------------------

     Individual Franchises

     Each  individual   franchisee  enters  into  a  franchise   agreement  (the
"Franchise  Agreement")  with the  Company.  The  Franchise  Agreement  requires
payment  of an  initial  franchise  fee of  $26,950,  although  franchisees  who
initially  commit to acquire  more than one  franchise  are eligible for certain
discounts and may be eligible for financing of the discounted  initial franchise
fees for second and subsequent Centers.  Individual franchisees are also charged
an initial fee ranging between $580 and $900 for a grand opening advertising and
marketing  program  which is  provided  by the Company at or around the time the
individual  franchisee  commences  operation  of a Pak Mail  Center.  Under  the
Company's current standard  Franchise  Agreement,  individual  franchisees pay a
sliding  scale  monthly  royalty in each  calendar  year of five percent for the
first $200,000 of the  franchisee's  royalty based  revenues,  four and one-half
percent for the next  $50,000 of royalty  based  revenues,  four percent for the
next $50,000 of royalty based revenues,  three and one-half percent for the next
$50,000 of royalty based  revenues,  and then three  percent for all  subsequent
royalty based  revenues  received in that calendar  year. No royalty fee is paid
with respect to revenues from postage  stamps.  Individual  franchisees are also
required  to pay an  advertising  fee each month in the amount of two percent of
royalty  based  revenues,  with the  exception of  franchisees  operating  under
agreements  entered  into  prior  to  March  1990  who  are  required  to pay an
advertising fee of one percent of gross revenues.  The advertising fees are held
in a separate  legal trust  controlled  by the  Company.  These fees are used in
connection with the  formulation  and execution of national  advertising and for
other marketing purposes. The Company's current standard Franchise Agreement has
a term of ten years.  With the approval of the Company,  the  franchisee has the
right to transfer and assign their franchise rights.

     Area Marketing Agreement

     Each area marketer franchisee enters into an area marketing agreement which
requires  the payment of an initial  fee based upon  several  factors  including
population and other demographic  factors in the designated  geographic  region.
The area  marketing  agreement  grants the right to market  franchises  within a
specified  territory.  When an area marketer  successfully markets an individual
franchise in its territory,  the Company typically pays the area marketer 40% of
the franchise fee paid by the individual franchisee.  The area marketer receives
50% of the  royalties  paid to the  Company  by  individual  franchisees  in its
territory.  If an individual franchise is sold in an area where there is no area
marketer,  the  Company  retains  100% of all  fees  and  royalties  paid by the
franchisee.  There may be  variations  in the terms of specific  area  marketing
agreements based on special circumstances  affecting the geographic area and the
area marketer.

     Area Developer Franchises

     The  Company  no  longer  offers  area  developer  agreements.  Under  area
developer agreements previously entered into, initial franchise fees paid to the
Company by individual  franchisees  within an area are generally divided 60% and



                                       2

<PAGE>

40% between the Company and the area franchisee,  respectively.  Generally,  the
individual  franchise  royalty fees are divided  equally between the Company and
the area  franchisee.  All franchise fees and royalties are paid directly to the
Company, which then remits the portion of fees owed to the area franchisee.  For
individual  franchisees  in  locations  which  are  not  encompassed  by an area
franchise, the Company retains all fees and royalties.

     International Area Franchises

     The Company's  international area franchise  agreements require the payment
of an initial franchise fee based upon several factors including  population and
other demographic  factors in the designated  country or geographic  region. The
Company often finances a portion of the area  franchise  fee. The  international
area franchise is responsible for individual franchise marketing, site selection
assistance and lease negotiation,  on-site training and continuing local support
of the individual franchisees within their areas.

     Generally,  the division of initial franchise fees of individual franchises
within an international area and the individual franchise royalty fees within an
international  area is  negotiated  on a case by case basis.  As of November 30,
1998,  there were seven  international  franchise  agreements in existence  with
respect  to  geographic   areas  in  the  Mexican  cities  of  Mexico  City  and
Guadalajara,  the Mexican states of Baja California and Sonora and the countries
of Chile, Argentina, Venezuela, Australia, New Zealand and Japan. Because of the
large  number of factors  that exist with  respect to  different  countries  and
different geographic locations within a given country which may affect the terms
of  an   international   area  franchise   agreement,   the  specific  terms  of
international area franchises may vary significantly from one another.

     Related Matters

     The Company provides  various training and support to its franchisees.  The
Company furnishes to each franchisee an operations manual, which sets forth many
of the Company's  standards and  specifications  and contains certain provisions
designed  to  ensure  uniformity  in the  quality  of the Pak Mail  Center,  and
provides updates thereto.  In addition,  each franchisee is required to attend a
nine day training class with regard to packaging, pricing and available shipping
and mailing  services;  preparation  and execution of marketing and placement of
advertising;  record  keeping  and  systems  operation;  use of forms  and forms
management;   soliciting  and  servicing   customers;   selecting  and  training
personnel;  and stock location and operation.  There is no charge for the class,
but franchisees pay their own expenses, including travel, lodging and meals. The
Company  also  provides  three  days of  on-the-job  training  in an  individual
franchisee's Pak Mail Center.

     The Company offers to franchisees  various equipment,  supplies,  forms and
materials  necessary or useful in connection  with the operation of the Pak Mail
Center,  although,  with  the  exception  of  required  computer  software,  the
franchisees  are not required to purchase such items from the Company.  Prior to


                                       3

<PAGE>

and upon the opening of a new franchisee's Pak Mail Center,  the Company or area
franchisee provides  additional on site training to the franchisee.  The Company
maintains  ongoing  communications  with its franchisees  designed to inform the
franchisees of new services to be provided by the Company,  marketing techniques
and other operational aspects of the Pak Mail system.

Services
--------

     The typical Pak Mail Center  offers a wide range of services  and  products
for personal and business support, communications services and convenience items
and services.  The type and importance of particular  services and products vary
from Center to Center.  Prices for services  and products are set by  individual
franchisees and depend on competitive  conditions in their respective  franchise
locations.

     Major  services  and  products  offered at typical  retail Pak Mail Centers
include the following:

     Shipping and Receiving.  Pak Mail Centers offer shipping services through a
variety of carriers  and can assist the  customer in  selecting  the fastest and
most cost  effective  method of  sending  goods.  Pak Mail  Centers  also act as
receiving agents for goods shipped to their  customers.  Pak Mail Centers advise
customers as to the  packaging  requirements  of the various  carriers,  provide
packaging of items for shipment and sell packaging materials.

     Business  Support  Products and Services.  Small businesses are often major
users of a Pak Mail Center.  Pak Mail Centers  provide a small  business  with a
variety of business services and products such as mailbox rental,  notary public
services, telecopy transmission, copying and office supplies.

     Communications  Services. Pak Mail Centers may offer customers a wide range
of  communications  services  such as  telecopies,  wire  transfer  of funds and
electronic mail and Internet access.

     Convenience   Items  and  Services.   Pak  Mail  Centers   generally  offer
convenience  items such as postage  stamps,  envelopes,  custom  rubber  stamps,
laminating,  passport and identification  photos and keys. Most Pak Mail Centers
also offer office supplies, greeting cards, gift wrapping and other gift items.

     Insurance. Also available at the customer's option is loss damage insurance
which can be purchased  either  through the courier's  insurance  carrier and/or
separate  parcel  insurance  which is  available  on an as needed basis from the
Company's  carrier.  The insurance prices for the Company's  insurance vary from
those charged by couriers.

                                       4

<PAGE>


     Private  Mailbox  Service.  Pak Mail Centers  usually offer private mailbox
rentals. Mailbox rental fees vary based on the size of the box, the rental terms
and the location of the Pak Mail Center.

          (3)  Status  of New  Product  or  Service.  There  has been no  public
announcement of, nor has the Company  otherwise made public  information  about,
any new  product or service  of the  Company  requiring  the  investment  by the
Company of a material amount of its total assets or which is otherwise  material
to the Company's operations.

          (4)  Competition.  The Company and its  franchisees  face  competition
primarily  from  independent  packaging and shipping  service  centers and other
franchised operations offering similar products and services. Mail Boxes Etc. is
the largest competitor. The Company's franchising approach and the operations of
a Pak Mail  Center are not unique or  patentable  and can be imitated by others.
Although the Company and its franchisees offer services similar to those offered
by the U.S.  Postal  Service,  such as  private  mail  box  service  and  parcel
handling,  the U.S.  Postal  Service  does not  offer  certain  of the  business
support, communications and personal services offered by most Pak Mail Centers.

          (5) Raw Materials and Supplies.  The Company  purchases  materials for
resale to its  franchisees.  These  materials  are  available  from a variety of
suppliers,  and the Company has not  experienced  any delays in  obtaining  such
materials.

          (6)  Customer  Dependence.  The Company  does not depend upon a single
customer,  or a few  customers,  for its  revenues,  the loss of any one or more
which would have a material adverse effect on the Company.

          (7) Patents, Trademarks, Licenses, Etc. The Company has registered the
service mark "Pak Mail" and the Pak Mail logo on the  Principal  Register of the
United  States  Patent  and  Trademark  Office   ("USPTO").   The  service  mark
registration  expires in 2000,  and the logo  expires in 2005.  The  Company has
registered  several other related service marks on the Principal Register of the
USPTO,  and has  registered the service mark "Pak Mail" and the Pak Mail logo in
several international countries.

          (8)(9)  Government  Regulations.  The  Federal  Trade  Commission  has
adopted  a rule  that  requires  franchisors  to  make  certain  disclosures  to
prospective  franchisees  prior to the  offer or sale of  franchises.  This rule
requires the  disclosure  of  information  necessary for a franchisee to make an
informed  decision  as to  whether to enter into a  franchise  relationship  and
delineates the circumstances in which franchisors may make predictions on future
sales,  income and  profits.  Failure to comply  with this rule  constitutes  an
unfair or deceptive act or practice under the Federal Trade Commission Act.

     Numerous states have adopted laws regulating  franchise  operations and the
franchisor/franchisee  relationship.  Applicable franchise laws vary from filing
and  disclosure  requirements  in  the  offer  and  sale  of  franchises  to the


                                       5

<PAGE>

application of statutory standards  regulating the establishment and termination
of franchise  relationships.  Although the foregoing  matters may result in some
modification of the Company's franchising  activities and the legal inability to
enforce all of the terms of its  franchise  agreements in certain  states,  such
inabilities have not had a material adverse effect on the operations or business
of the Company to date. However, the laws applicable to franchise operations and
relationships  are  subject to change,  and the Company is unable to predict the
effect,   if  any,  on  its  operations  of  additional  laws,   regulations  or
restrictions  that may be enacted or promulgated or of court  decisions that may
be adverse to the franchise industry.

          (10) Research and Development. The Company has not engaged in material
research and development activities during its last two fiscal years.

          (11)  Environmental  Regulation.  Compliance  with federal,  state and
local  environmental  law  provisions  does not have any material  effect on the
capital expenditures, earnings and competitive position of the Company.

          (12) Employees. As of November 30, 1998, the Company had 20 employees,
all of whom are fu time employees.

ITEM 2.  DESCRIPTION OF PROPERTY

     The Company's executive offices are located in approximately  12,000 square
feet of office space in Aurora,  Colorado  under a lease  expiring in April 2000
with a base rental  currently at  approximately  $13,000 per month and rising to
approximately  $13,300 per month by the end of the term. The offices are in good
condition.

ITEM 3.  LEGAL PROCEEDINGS

     The Company filed Civil Action No. 98-WM-2391 in the United States District
Court for the District of Colorado on October 30, 1998, against Golden Commerce,
Inc. ("Golden") and Jaime Mercado  ("Mercado").  The Company's claims arise from
the franchise agreement (the "Agreement") entered into by the Company and Golden
on or  about  January  30,  1996 as  well as  Mercado's  guarantee  of  Golden's
obligations under the Agreement.

     Golden  was  obligated  pursuant  to the  Agreement  to pay  royalties  and
advertising fees to Pak Mail. Golden subsequently  defaulted on such obligations
to the Company and, in addition,  failed to pay invoices for products  delivered
by the Company.  When after notice Golden did not cure its defaults,  its rights
as a franchisee were terminated on September 29, 1998.

     Golden  and  Mercado,  however,  continued  to  advertise  and to  use  the
trademarks  of the  Company,  continued  to  compete  against  the  Company  and
continued to use the proprietary software of the Company after termination. Thus
in the suit the  Company  not only  seeks  damages  suffered  as a result of the
unpaid  royalties and invoices but also requests an injunction  enjoining Golden


                                       6

<PAGE>

and  Mercado  from  engaging  or  participating  in any  packaging  and  mailing
business,  requiring  Golden and  Mercado to return  the  Company's  proprietary
software and  precluding  Golden and Mercado from using the Company's  federally
registered service marks.

     In response,  Golden and Mercado have alleged a number of generic  defenses
including laches, estoppel,  acquiescence,  excuse, impossibility and failure of
consideration.  Additionally,  Golden and  Mercado  have  counterclaimed  for an
unspecified  amount  based  on an  alleged  breach  of  contract  as  well as on
promissory  estoppel grounds.  This case entered the discovery stage in February
1999. Management intends to both pursue its claims and defend itself vigorously.

     Other than the civil action  described  above, no litigation is required to
be disclosed in this Item 3.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter  was  submitted  during the  fourth  quarter  of the fiscal  year
covered by this report to a vote of the Company's security holders.


                                       7


<PAGE>



                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (a) Market Information.
        --------------------

     The Company's common stock is sporadically  traded in the  over-the-counter
market.  During fiscal 1998 and 1997 there was no established trading market for
the Company's  common stock,  and the Company has been unable to obtain reliable
information as to quoted prices with respect to the common stock.

     (b) Holders.
         --------

     As of February  23,  1998,  the Company had 1,165  holders of record of its
$0.001 par value common stock.

     (c) Dividends.
         ----------

     The Company has not declared cash dividends on its common stock in the last
two fiscal years and in any subsequent period for which financial information is
required.  The Company  does not  anticipate  paying any cash  dividends  on its
common stock in the foreseeable future.

     (d) Recent Sales of Unregistered Securities
         ---------------------------------------

     On January 26, 1998, the Company  designated 2,500 shares of its $1,000 par
value preferred stock as Series C Preferred  Stock. In November 1997, the holder
of the Company's Series A Preferred Stock and the holder of the Company's Series
B Preferred  Stock  offered to exchange  their shares of preferred  stock for an
equal  number  of  shares  of Series C  Preferred  Stock,  and for a warrant  to
purchase shares of common stock of the Company. On February 4, 1998, the Company
issued  1,216.668 shares and 1,000 shares of the Series C Preferred Stock to two
shareholders in exchange for their shares of Series A Preferred Stock and Series
B Preferred  Stock,  respectively.  In  connection  with this  transaction,  the
Company issued  warrants to the former  holders of Series A Preferred  Stock and
Series B Preferred Stock to purchase 604,264 and 280,000 shares of the Company's
common stock,  respectively.  The warrants  have an exercise  price of $0.10 per
share and expire on November 30, 2007.

     The offer and sale of the Series C Preferred  Stock and warrants  were made
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended  ("Securities  Act"). In connection with such
offer, the purchasers  represented that they were "accredited investors" as that
term is defined in Regulation D adopted under the Securities  Act, and that they
were  provided  access to  complete  information  concerning  the  Company.  The
purchasers have represented that they will hold the Series C Preferred Stock for
the  purchaser's   own  account  and  that  they  have  no  present   agreement,


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<PAGE>

understanding or arrangement to subdivide,  sell, assign,  transfer or otherwise
dispose  of all or part of the  Series C  Preferred  to any  other  person.  The
purchasers further agreed that they understood that the Series C Preferred Stock
had not been  registered  under the Securities Act and that the purchaser  could
not  resell  the  securities  without  compliance  with  the  provisions  of the
Securities Act of 1933, as amended.  All  certificates  issued to the purchasers
were  impressed  with  a  restrictive   legend   advising  that  the  securities
represented  by the  certificates  may  not be  sold,  transferred,  pledged  or
hypothecated  without  having first been  registered or the  availability  of an
exemption from registration established.  No underwriters were involved in these
transactions and no commissions were paid by the Company.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
         OF OPERATIONS

Liquidity and Capital Resources
-------------------------------

     The Company had cash provided from operating  activities of $206,712 during
the fiscal year ended  November 30, 1998 compared to cash flow  deficiencies  of
$31,561 during the fiscal year ended  November 30, 1997.  During the fiscal year
ended November 30, 1997, the deficiency was financed through  payments  received
on notes  receivable.  The excess  cash  generated  during the fiscal year ended
November 30, 1998 was used to pay the capitalized software costs.

     At  November  30,  1998,  the  average  age  of  accounts   receivable  was
approximately 50 days.  Accounts  receivable  relate primarily to royalties from
franchisees and sales of equipment, supplies and services. Royalties are payable
on a monthly basis and invoices for equipment, supplies and services are payable
within 30 days. The Company continues to take an aggressive approach to managing
accounts  receivable  and reducing the average age by  implementing  a proactive
collection  system and hiring the personnel to maintain it. The Company believes
that cash flow from operating activities will be adequate to cover capital needs
for the next 12 months.  The Company does not have any material  commitments for
capital expenditures to be incurred in the next 12 months.

Results of Operations
---------------------

     Fiscal 1998 Compared to Fiscal 1997
     -----------------------------------

     The Company  recorded net income  before income tax benefit was $430,686 as
compared to $191,820 in the fiscal year ended  November 30,  1997.  The $238,866
increase was  attributable  to an increase in revenues (up 10.8% from $4,164,330
to $4,615,467)  offset by a lesser  increase in costs and expenses (up 5.2% from
$3,972,510 to $4,179,781).

     The $451,137 increase in revenues during the fiscal year ended November 30,
1998 is primarily  attributable  to increases in royalties from  franchisees (up
14.3% from $1,947,464 to $2,225,581) and area marketer franchise fees (up 195.7%
from  $231,194 to $683,633)  offset by a decrease in individual  franchise  fees
(down 25.3% from $1,152,990 to $860,800).

                                       9

<PAGE>


     The $278,117  increase in royalties from  franchisees is due to an increase
in the  average  sales  volume  per  store and the  number  of  stores  open and
operating throughout the year.

     The $452,439  increase in area marketer  franchise  fees  represents  three
domestic  awards  and one  international  award  during  the  fiscal  year ended
November 30, 1998 compared to one domestic  award and two  international  awards
during the fiscal year ended  November 30, 1997.  The  international  franchises
sold during  fiscal year 1998  governed  the country of Japan,  with the Company
realizing  area marketer  franchise  fees of $500,000  during fiscal 1998 on the
sale.  Although the Company awarded more new international  franchises in fiscal
1997 than in fiscal 1998, only the cash  downpayments  of the two  international
franchises  were  recognized as income during fiscal 1997.  The note portions of
the two international franchises were deferred as of November 30, 1998, and will
be recognized at the time the note payments are received.

     The $292,190  decrease in individual  franchise  fees is  represented  by a
decrease in franchise sales recognized during the fiscal year ended November 30,
1998 compared to the fiscal year ended  November 30, 1997 and a differing mix of
franchise  revenue  recognition.  The  Company  awarded  50  and  54  individual
franchises  during the fiscal year ended  November  30, 1998 and the fiscal year
ended  November 30, 1997,  respectively.  In the fiscal year ended  November 30,
1998,  the  Company  recognized  revenue on 36 of the 50  individual  franchises
awarded,  whereas  the  Company  recognized  revenue on 49 of the 54  individual
franchises  awarded in the fiscal year ended November 30, 1997. The revenue from
four  individual  franchises  awarded and deferred in 1997 was recognized in the
fiscal year ended November 30, 1998. There were 10 individual franchises awarded
but deferred as of November 30, 1998.

     The $212,271  increase in costs and expenses is primarily  attributable  to
increases  in  selling,  general  and  administrative  expenses  (up  5.3%  from
$1,765,735 to $1,859,272) and royalties paid to area  franchisees (up 22.3% from
$677,555 to $828,848).

     The $93,537  increase in selling,  general and  administrative  expenses is
primarily due to increases in personnel and legal offset by a decrease in travel
and entertainment costs during fiscal 1998.

     The  $151,293  increase  in  royalties  paid  to  area  franchisees  is due
primarily to the higher  proportion of stores  operating  within area franchisee
regions  during the fiscal year ended  November  30,  1998  compared to the same
prior year period.

     The Company is aware of the issues  associated with the programming code in
existing  computer systems as the year 2000 approaches.  The "Year 2000" problem
is pervasive and complex as virtually every computer  operation will be affected
in some way by the  rollover  of the  two-digit  year  value to 00. The issue is
whether computer systems will properly recognize date-sensitive information when


                                       10

<PAGE>

the  year  changes  to  2000.  Systems  that  do  not  properly  recognize  such
information could generate erroneous data or cause a system to fail.

     The  Company  is  utilizing  internal  resources  to  identify,  correct or
reprogram,  and test its  systems  for Year 2000  compliance  and to assess  the
potential  impact  of third  parties  with  which  the  Company  has a  material
relationship. It is anticipated that all reprogramming efforts will be completed
in fiscal  1999.  The Company has asked  ReSource,  Inc.,  the  developer of the
Company's  primary  software  program that will be in use until July 1999, about
Year 2000 compliance and has been assured by ReSource,  Inc. that the program is
Year 2000 compliant.  The Company has also been assured by the developers of its
proprietary software program "Pack, Ship and Sell," which will be implemented in
July  1999,  that  Pack,  Ship and Sell is Year 2000  compliant.  The  Company's
decision  to  implement  and timing  for  implementing  the Pack,  Ship and Sell
software  program  was  made  independent  and  irrespective  of any  Year  2000
compliance issues.

     The  Company is aware that  certain  software  comprising  a portion of its
operating  system  is  not  currently  Year  2000  compliant.  The  Company  has
implemented  a plan to replace  the  non-Year  2000  compliant  software.  It is
anticipated  that the project  will be  completed by the end of July 1999 and is
estimated not to exceed $50,000.

     The Company has made formal  inquiries  of all of its major  suppliers  and
some of its franchisees' suppliers and, based on the responses received to date,
management  believes that all major systems are Year 2000 compliant.  Therefore,
to date, management has not implemented,  and does not feel that it is necessary
to implement,  a Year 2000  contingency  plan.  Management  believes that in the
event its major  suppliers or its  franchisees'  suppliers  experience Year 2000
complications,  a sufficient  number of alternate  suppliers exist to handle the
Company's needs.

     To date,  management  believes that the costs of Year 2000  compliance will
not be material  and does not  anticipate  any material  adverse  effects on its
operation or those of its franchisees with respect to Year 2000 compliance.

     The foregoing discussion contains certain forward looking statements within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Exchange  Act of 1934,  which are intended to be covered by the safe
harbors created thereby.  These  statements  include the plans and objectives of
management for future operations, including plans and objectives relating to the
development of the Company.  The forward looking statements  included herein are
based on current  expectations  that involve  numerous risks and  uncertainties.
Assumptions  relating to the foregoing  involve judgments with respect to, among
other things,  future  economic,  competitive  and market  conditions and future
business  decisions,  all of  which  are  difficult  or  impossible  to  predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions  underlying the forward looking statements
are reasonable, any of the assumptions could be inaccurate and, therefore, there


                                       11

<PAGE>

can be no assurance that the forward  looking  statements  included in this Form
10-KSB  will prove to be  accurate.  In light of the  significant  uncertainties
inherent in the forward looking  statements  included  herein,  the inclusion of
such information  should not be regarded as a  representation  by the Company or
any other person that the objectives and plans of the Company will be achieved.
 
ITEM 7.  FINANCIAL STATEMENTS

     See Financial Statements in this report following the signature page.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND
         FINANCIAL DISCLOSURE

     During the Company's two most recent fiscal years,  and any interim period,
the principal  independent  accountant of the Company did not resign (or decline
to stand for re-election) and was not dismissed.



                                       12


<PAGE>



                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     (a) Identification of Directors and Executive Officers.
     -------------------------------------------------------

     The present term of office of each  director will expire at the next annual
meeting of  shareholders.  The  executive  officers  of the  Company are elected
annually at the first  meeting of the  Company's  Board of Directors  held after
each annual meeting of shareholders.  Each executive  officer holds office until
his or  her  successor  is  duly  elected  and  qualified  or  until  his or her
resignation  or until he or she shall be removed in the manner  provided  by the
Company's Bylaws. The name, position with the Company,  the age of each director
and  executive  officer,  and the  period  during  which  each has served are as
follows:
<TABLE>
<CAPTION>


Name, Age and                             Director or              Principal Occupation
Position in the Company                   Officer Since            During the Last Five Years
-----------------------                   -------------            --------------------------
<S>                                       <C>                      <C>                           
John E. Kelly, 58                         September, 1989          Executive officer of the Company since
(President, Chief Executive                                        September, 1989.
Officer and Director)

P. Evan Lasky, 57                         March, 1988              Executive officer of the Company since March,
(Executive Vice President and                                      1988.
Chief Operating Officer)

Raymond S. Goshorn, 40                    December, 1988           Executive officer of the Company since
(Chief Financial Officer,                                          December, 1988.
Treasurer, Secretary)

Tonya D. Sarina, 37                       December, 1996           Executive officer of the Company since
(Vice President of Sales                                           December 1996; marketing manager of the
and Marketing)                                                     Company from March, 1991 through November, 1996.

Alex Zai, 39                              May, 1996                Executive officer of the Company since May,
(Vice President of                                                 1996; director of store operations of the
Store Operations)                                                  Company since April, 1994.


                                       13

<PAGE>

Name, Age and                             Director or              Principal Occupation
Position in the Company                   Officer Since            During the Last Five Years
-----------------------                   -------------            --------------------------

J. S. Corcoran, 55                        September, 1989          Self-employed as a business consultant since
(Director)                                                         October, 1996; executive officer of D.P.
                                                                   Kelly & Associates L.P., a firm offering
                                                                   management services, from November, 1988 to
                                                                   January, 1997; executive officer of Envirodyne
                                                                   Industries, Inc., a manufacturer of food packaging
                                                                   and food service supplies, from June, 1989 to
                                                                   March, 1996.

John W. Grant, 74                         September, 1989          Retired since September, 1987.
(Director)

F. Edward Gustafson, 57                   September, 1989          Executive officer of D.P. Kelly & Associates
(Director)                                                         L.P., a firm offering management services,
                                                                   since November, 1988; executive officer of
                                                                   Envirodyne Industries, Inc., a manufacturer
                                                                   of food packaging and food service supplies,
                                                                   since June, 1989; director of Envirodyne
                                                                   Industries, Inc. since December, 1993;
                                                                   executive officer of Viskase Corporation, a
                                                                   wholly-owned subsidiary of Envirodyne Industries,
                                                                   Inc., from February, 1990 to August, 1993.

William F. White, 68                      September, 1989          Executive officer of Whitnell & Co., an
(Director)                                                         investment advisory firm, since January,
                                                                   1988; executive officer of Donegal, Inc., an
                                                                   investment management firm, since January, 1991.
</TABLE>

     (b) Identification of Certain Significant Employees.
     ----------------------------------------------------

     Not Applicable.

     (c) Family Relationships.
     -------------------------

     Not Applicable.

                                       14

<PAGE>


     (d) Involvement in Certain Legal Proceedings.
     ---------------------------------------------

     Not Applicable.

     (e) Compliance With Section 16(a) of the Exchange Act.
     ------------------------------------------------------

     Not Applicable.

ITEM 10. EXECUTIVE COMPENSATION

     Cash Compensation.
     ------------------

     The  following  table shows all cash  compensation  paid by the Company for
services rendered during the fiscal years ended November 30, 1998,  November 30,
1997 and  November  30,  1996 to John E. Kelly and P. Evan Lasky  (there were no
other  executive  officers of the Company whose annual salary and bonus exceeded
$100,000).

                           SUMMARY COMPENSATION TABLE


Name and                                                            Other Annual
Principal Position       Fiscal Year      Salary         Bonus      Compensation
------------------       -----------      ------         -----      ------------
John E. Kelly                1998         $138,000     $47,472(1)    $7,980(2)
President and Chief          1997         $131,040     $44,554(1)    $7,980(2)
Executive Officer            1996         $126,000     $16,630(1)    $7,980(2)

P. Evan Lasky                1998         $ 96,000     $28,205(1)       -0-
Executive Vice               1997         $ 91,000     $21,840(1)       -0-
President and Chief          1996         $ 86,000     $11,000(1)       -0-
Operating Officer


     (1) Bonus was earned in the fiscal  year  indicated,  although  it may have
been paid in the following fiscal year.

     (2) The amount for each of fiscal 1998,  1997 and 1996 consists of a $4,800
car allowance and $3,180 of country club dues.

     Option/SAR Grants and Long-Term Incentive Plans.
     ------------------------------------------------

     Not Applicable.

                                       15

<PAGE>


     Compensation of Directors--Standard Arrangement.
     ------------------------------------------------

     Members of the Board of Directors, other than members who are also officers
of the  Company,  are  entitled to receive a fee of $2,000 per year and $250 for
each attended meeting of the Board of Directors.

     Compensation of Directors--Other Arrangements.
     ----------------------------------------------

     Not Applicable.

     Employment  Contracts and  Termination  of Employment and Change of Control
Arrangements.
--------------------------------------------------------------------------------

     Not Applicable.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT.

     (a) Security Ownership of Certain Beneficial Owners.
     ----------------------------------------------------

     The  following  persons  are the only  persons  known to the Company who on
February 26, 1999, owned  beneficially  more than 5% of the Company's $0.001 par
value common stock, its only class of outstanding voting securities:

                                              Amount and Nature of       Percent
Name and Address of Beneficial Owner          Beneficial Ownership(1)   of Class
------------------------------------          -----------------------   --------
D.P. Kelly and Associates, L.P.                 298,400(2)                 9.1%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523

Pak Mail Investment Partnership L.P.           2,404,264(3)                66.9%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523

Janie M. D'Addio                                188,833(4)                 6.3%
c/o Security Manufacturing Corporation
815 South Main Street
Grapevine, Texas 76051


(1)  The  beneficial  owners listed have sole voting and  investment  power with
     respect to the shares shown unless otherwise indicated.

(2)  Includes  280,000 shares of common stock underlying  presently  exercisable
     warrants.

                                       16

<PAGE>



(3)  Includes  604,264 shares of common stock underlying  presently  exercisable
     warrants.

(4)  Information with respect to Ms. D'Addio's common stock is given to the best
     of the Company's knowledge based upon the records of the Company's transfer
     agent.

     (b) Security Ownership of Management.
     -------------------------------------

     The  following  table  shows as of  February  26,  1999,  the shares of the
Company's  $0.001 par value common stock  beneficially  owned by each  director,
each  executive  officer and by all the  executive  officers and  directors as a
group:

 Name and Address of                     Amount and Nature of           Percent
  Beneficial Holder                      Beneficial Ownership          of Class
  -----------------                      --------------------          --------
J. S. Corcoran                                 1,000(1)                   (4)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523

John W. Grant                                    800(2)                   (4)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523

F. Edward Gustafson                           20,000(1)(3)                (4)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523

John E. Kelly                                  12,000                     (4)
3033 S Parker Rd Suite 1200
Aurora, Colorado 80014

William F. White                                2,000                     (4)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523

P. Evan Lasky                                     -0-                     (4)
3033 S Parker Rd Suite 1200
Aurora, Colorado 80014

All directors and executive officers          36,912(1)                  1.2%
as a group (9 persons)

(1)  Excludes  1,800,000  shares of common  stock  owned by Pak Mail  Investment
     Partners,  L.P.  ("PMIP")  and 604,264  shares of common  stock  underlying
     presently  exercisable  warrants  owned  by  PMIP.  Mr.  Corcoran  and  Mr.
     Gustafson are officers, directors and shareholders of Norcross Corporation,



                                       17

<PAGE>

     701 Harger Road,  Suite 190, Oak Brook,  Illinois  60523,  which  exercises
     control over PMIP,  and therefore may be deemed to have the ability to vote
     or dispose of  securities  owned by PMIP.  Messrs.  Corcoran and  Gustafson
     disclaim beneficial ownership of the shares of common stock owned by PMIP.

(2)  Shares owned jointly by Mr. Grant and his wife.

(3)  Includes  6,000 shares of common stock owned by Mr.  Gustafson's  children,
     for whom he acts as  custodian;  excludes  280,000  shares of common  stock
     underlying   presently   exercisable  warrants  owned  by  D.P.  Kelly  and
     Associates,  L.P. ("D.P.  Kelly"). Mr. Gustafson is an executive officer of
     D.P. Kelly but disclaims beneficial ownership of the 280,000 shares.

(4)  Less than 1%.

     (c) Changes in Control. Not Applicable.
         -------------------

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     (a)(b)  Transactions  With  Management  and  Others  and  Certain  Business
Relationships.

     The Company  purchases  mailboxes from Security  Manufacturing  Corporation
("Security") for resale to the Company's franchisees.  Security is controlled by
Janie M. D'Addio,  who owns 6.3% of the Company's $0.001 par value common stock.
During  fiscal 1998 and fiscal  1997,  the Company  made  purchases in the total
amounts of $62,350 and $82,128, respectively, from Security.

     (c) Parent  Companies.  PMIP owns a  controlling  interest  in the  Company
through  its  ownership  of  1,800,000  shares  of  common  stock,  representing
approximately  60.2% of the  outstanding  common stock.  In addition,  PMIP owns
presently  exercisable  warrants to  purchase  604,264  shares of common  stock,
which, if exercised,  will increase PMIP's ownership to  approximately  66.9% of
the outstanding common stock of the Company.

     (d) Transactions With Promoters. Not Applicable.


                                       18



<PAGE>



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits.
         ---------

(3)(a)         Articles of  Incorporation  incorporated  by reference to Exhibit
               (3)(a) of the  Company's  Annual  Report on Form  10-KSB  for the
               fiscal year ended November 30, 1995.

(3)(b)         Articles of Amendment to the Articles of Incorporation filed with
               the Colorado  Secretary of State on January 26, 1998 incorporated
               by reference to Exhibit (3)(b) of the Company's  Annual Report on
               Form 10-KSB for the fiscal year ended November 30, 1997.

(3)(c)         Articles of Amendment to the Articles of Incorporation filed with
               the Colorado Secretary of State on July 13, 1998, incorporated by
               reference to Exhibit 3(a) of the  Company's  Quarterly  Report on
               Form 10-QSB for the quarter ended May 31, 1998.

(3)(d)         Bylaws incorporated by reference to Exhibit 3(b) of the Company's
               Quarterly  Report on Form  10-QSB for the  quarter  ended May 31,
               1998.

(4)(a)         Letter of  Exchange  of  Series A  Preferred  Stock for  Series C
               Preferred  Stock  incorporated  by reference to Exhibit (4)(a) of
               the  Company's  Annual  Report on Form 10-KSB for the fiscal year
               ended November 30, 1997.

(4)(b)         Letter of  Exchange  of  Series B  Preferred  Stock for  Series C
               Preferred  Stock  incorporated  by reference to Exhibit (4)(b) of
               the  Company's  Annual  Report on Form 10-KSB for the fiscal year
               ended November 30, 1997.

(4)(c)         Warrant to Purchase  Shares of Common Stock granted in connection
               with exchange of Series A Preferred  Stock for Series C Preferred
               Stock   incorporated  by  reference  to  Exhibit  (4)(c)  of  the
               Company's  Annual Report on Form 10-KSB for the fiscal year ended
               November 30, 1997.

(4)(d)         Warrant to Purchase  Shares of Common Stock granted in connection
               with exchange of Series B Preferred  Stock for Series C Preferred
               Stock   incorporated  by  reference  to  Exhibit  (4)(d)  of  the
               Company's  Annual Report on Form 10-KSB for the fiscal year ended
               November 30, 1997.

(10)(a)*       Individual Franchise Agreement.

(10)(b)*       Area Marketing Agreement.

(10)(c)*       International Area Marketing Agreement.

(10)(d)        Agreement by and between Security  Manufacturing  Corporation and
               the Company  dated July 10, 1995  incorporated  by  reference  to
               Exhibit (10)(3) of the Company's Annual Report on Form 10-KSB for
               the fiscal year ended November 30, 1996.


                                       19

<PAGE>


(10)(e)        Pak Mail Centers of America,  Inc. Management  Incentive Plan for
               Fiscal Year 1997  incorporated by reference to Exhibit (10)(d) of
               the  Company's  Annual  Report on Form 10-KSB for the fiscal year
               ended November 30, 1997.

(10)(f)*       Pak Mail Centers of America,  Inc. Management  Incentive Plan for
               Fiscal Year 1998.

(10)(g)*       Pak Mail Centers of America,  Inc. Management  Incentive Plan for
               Fiscal Year 1999.

(10)(h)*       Pak Mail Centers of America, Inc. 1999 Incentive and Nonstatutory
               Employee Stock Option Plan.

(21)*          Subsidiaries of the Registrant.

(27)*          Financial Data Schedule.


     (b) 8-K Reports. None.
         -----------


*  Filed herewith.


                                       20

<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                      PAK MAIL CENTERS OF AMERICA, INC.,
                                      a Colorado corporation

                                      By:   /s/ John E. Kelly
                                          --------------------------------------
                                          John E. Kelly, President and
                                          Chief Executive Officer


                                      By:   /s/ Raymond S. Goshorn
                                         ---------------------------------------
                                         Raymond S. Goshorn, Chief Financial
                                         Officer, Treasurer and Secretary

     Dated: February 26, 1999.

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

Name and Title               Signature                               Date
--------------               ---------                               ----

J.S. Corcoran              /s/ J.S. Corcoran                   February 26, 1999
Director                   --------------------------


John W. Grant              /s/ John W. Grant                   February 26, 1999
Director                   --------------------------


F. Edward Gustafson        /s/ F. Edward Gustafson             February 26, 1999
Director                   --------------------------


John E. Kelly              /s/ John E. Kelly                   February 26, 1999
Director                   --------------------------


William F. White           /s/ William F. White               February 26, 1999
Director                   --------------------------


                                       21
<PAGE>
                        PAK MAIL CENTERS OF AMERICA, INC.
                                 AND SUBSIDIARY

                            Financial Statements and
                          Independent Auditors' Report
                           November 30, 1998 and 1997



<PAGE>



                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY





                   Index to Consolidated Financial Statements


                                                                           Page


Independent Auditors' Report..............................................F - 1

Financial Statements

        Consolidated Balance Sheets - November 30, 1998 and 1997..........F - 2

        Consolidated Statements of Income - For the Years Ended
         November 30, 1998 and 1997.......................................F - 3

        Consolidated Statement of Stockholders' Equity - For the
         Years Ended November 30, 1998 and 1997...........................F - 4

        Consolidated Statements of Cash Flows - For the Years Ended
         November 30, 1998 and 1997.......................................F - 5

Notes to Consolidated Financial Statements................................F - 6

Accompanying Schedule

       Independent Auditors' Report on Accompanying Schedule.............F - 16

       Schedule of Selling, General and Administrative Expenses..........F - 17




<PAGE>
                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
Pak Mail Centers of America, Inc. and Subsidiary
Aurora, Colorado


We have audited the accompanying consolidated balance sheets of Pak Mail Centers
of  America,  Inc.  and  Subsidiary  as of November  30, 1998 and 1997,  and the
related consolidated statements of income,  stockholders' equity, and cash flows
for the years  then  ended.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  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 financial position of Pak Mail Centers of
America,  Inc. and  Subsidiary as of November 30, 1998 and 1997, and the results
of their  operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.






                                       Ehrhardt Keefe Steiner & Hottman PC

January 7, 1999
Denver, Colorado


                                      F-1

<PAGE>
<TABLE>
<CAPTION>

                            PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                                      Consolidated Balance Sheets
                                                                       November 30,
                                                            --------------------------------
                                                               1998                 1997
                                               Assets       -----------          -----------
<S>                                                        <C>                   <C>    
    Cash and cash equivalents                               $   230,964          $    87,405
    Restricted cash (Note 8)                                      3,880               23,780
    Accounts receivable, net of allowance of
      $69,981 (1998) and $101,039 (1997)                        365,277              262,791
    Inventories                                                  56,237               34,514
    Prepaid expenses and other current assets                    37,500               31,805
    Deferred income tax benefit - current (Note 9)              275,000              136,100
                                                            -----------          -----------
              Total current assets                              968,858              576,395
                                                            -----------          -----------
Furniture and equipment, net of accumulated
      depreciation (Note 2)                                     110,169               61,892
                                                            -----------          -----------
Other assets
    Notes receivable, net (Note 3)                              666,408              722,478
    Deposits and other                                           95,253               90,130
    Deferred franchise costs, net of accumulated
      amortization of $54,711
     (1998) and $36,360 (1997)                                  197,732              175,943
    Capitalized software costs                                  351,207              124,202
                                                            -----------          -----------
              Total other assets                              1,310,600            1,112,753
                                                            -----------          -----------

                                                            $ 2,389,627          $ 1,751,040
                                                            ===========          ===========

                                  Liabilities and Stockholders' Equity
Current liabilities
    Current portion of long-term debt (Note 4)              $      --            $   100,000
    Trade accounts payable                                      189,754              191,565
    Preferred stock dividends payable                           133,000                 --
    Accrued commissions                                          31,085               52,950
    Accrued bonuses                                             120,936               92,790
    Other accrued expenses                                       32,394               18,580
    Due to advertising fund (Note 7)                              3,880               23,780
                                                            -----------          -----------
              Total current liabilities                         511,049              479,665
                                                            -----------          -----------

Deferred revenue                                                704,135              533,518
                                                            -----------          -----------
Commitments (Notes 11 and 12)

Stockholders' equity (Note 5)
    Series C redeemable preferred stock,
     $1,000 par value; 6% cumulative; 2,500
     shares authorized 2,216.668 shares
     issued and outstanding (liquidation
     preference $2,349,668)                                   2,216,668            2,216,668
    Common stock, $.001 par value;
     200,000,000 shares authorized,
     2,989,483 shares issued and outstanding                      2,990                2,990
    Additional paid-in capital                                5,026,453            5,026,453
    Accumulated deficit                                      (6,071,668)          (6,508,254)
                                                            -----------          -----------
              Total stockholders' equity                      1,174,443              737,857
                                                            -----------          -----------

                                                            $ 2,389,627          $ 1,751,040
                                                            ===========          ===========

                                 See notes to consolidated financial statements.


                                                        F-2
</TABLE>

<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                        Consolidated Statements of Income

                                                           For the Years Ended
                                                             November 30,
                                                        ------------------------
                                                           1998         1997
                                                        ----------    ----------
Revenue
    Royalties from franchisees                          $2,225,581    $1,947,464
    Individual franchise fees                              860,800     1,152,990
    Sales of equipment, supplies, and services             749,071       748,148
    Area franchise fees                                    683,633       231,194
    Interest income                                         19,378        16,723
    Other                                                   77,004        67,811
                                                        ----------    ----------
                                                         4,615,467     4,164,330
                                                        ----------    ----------
Costs and expenses
    Selling, general and administrative                  1,859,272     1,765,735
    Cost of sales of equipment, supplies
      and services (Note 10)
                                                           672,451       675,685
    Royalties paid to area franchisees                     828,848       677,555
    Commissions on franchise sales                         589,357       614,449
    Advertising                                            166,698       178,783
    Depreciation and amortization                           66,463        57,810
    Interest                                                 1,692         2,493
                                                        ----------    ----------
                                                         4,184,781     3,972,510
                                                        ----------    ----------

Net income before income tax benefit                       430,686       191,820

Income tax benefit (Note 9)                                138,900       136,100
                                                        ----------    ----------

Net income                                                 569,586       327,920

Preferred stock dividend (Note 5)                          133,000          --
                                                        ----------    ----------

Net income attributable to common shares                $  436,586    $  327,920
                                                        ==========    ==========

Net income per common share (Note 6)
    Basic                                               $      .15    $      .11
                                                        ==========    ==========

    Diluted                                             $      .12    $      .11
                                                        ==========    ==========

Shares used in per share calculation (Note 6)
    Basic                                                2,989,483     2,989,483
                                                        ==========    ==========

    Diluted                                              3,716,489     2,989,483
                                                        ==========    ==========

                 See notes to consolidated financial statements.

                                      F - 3

<PAGE>
<TABLE>
<CAPTION>


                              PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                               Consolidated Statement of Stockholders' Equity
                               For the Years Ended November 30, 1998 and 1997


                                 Preferred Stock               Preferred Stock         
                                     Series A                      Series B            
                             --------------------------    -------------------------- 
                                Shares         Amount         Shares       Amount      
                             -----------    -----------    -----------    ----------- 

<S>                            <C>          <C>                  <C>      <C>        
Balance, November 30, 1996     1,216,668    $ 1,216,668          1,000    $ 1,000,000

Exchange of Series A and
  B for Series C
  preferred stock (Note 5)    (1,216,668)    (1,216,668)        (1,000)    (1,000,000)

Net income                          --             --             --             --   
                             -----------    -----------    -----------    -----------

Balance, November 30, 1997          --             --             --             --   

Net income                          --             --             --             --   
                             -----------    -----------    -----------    -----------

Balance, November 30, 1998          --      $      --             --      $      --   
                             ===========    ===========    ===========    ===========




                                 Preferred Stock                              
                                     Series C                   Common Stock         Additional                     Total     
                             -------------------------   -------------------------    Paid-in    Accumulated      Stockholers'
                                Shares       Amount        Shares       Amount        Capital     Deficit          Equity
                             -----------   -----------   -----------   -----------   ----------  ------------     ------------

Balance, November 30, 1996         --      $      --       2,989,483   $    2,990    $ 5,026,453   $(6,836,174)   $   409,937

Exchange of Series A and      
  B for Series C             
  preferred stock (Note 5)     2,216,668     2,216,668          --            --            --            --             --

Net income                          --            --            --            --            --         327,920        327,920
                             -----------   -----------   -----------   -----------   -----------   -----------    -----------

Balance, November 30, 1997     2,216,668     2,216,668     2,989,483         2,990     5,026,453    (6,508,254)       737,857

Net income                          --            --            --            --            --         436,586        436,586
                             -----------   -----------   -----------   -----------   -----------   -----------    -----------

Balance, November 30, 1998     2,216,668   $ 2,216,668     2,989,483   $     2,990   $ 5,026,453   $(6,071,668)   $ 1,174,443
                             ===========   ===========   ===========   ===========   ===========   ===========    ===========



                                   See notes to consolidated financial statements.

                                                         F-4

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                   PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                                         Consolidated Statements of Cash Flows
                                                                                          For the Years Ended
                                                                                              November 30,
                                                                                     ------------------------------
                                                                                        1998                1997
                                                                                     ---------            ---------
Cash flows from operating activities                                                   
<S>                                                                                  <C>                  <C>      
    Net income                                                                       $ 436,586            $ 327,920
                                                                                     ---------            ---------
    Adjustments to reconcile net income to
     net cash provided by (used in) by
     operating activities -
        Depreciation and amortization                                                   66,463               55,114
        Provision for loss on accounts receivable                                      (31,058)             (14,533)
        Provision for loss on notes receivable                                          (8,039)                  36
        Deferred franchise costs                                                       (40,140)             (51,981)
        Franchise fee revenue financed through notes receivable                        (39,257)             (95,816)
        Deferred income taxes                                                         (138,900)            (136,100)
        Changes in operating assets and liabilities -
             Accounts receivable                                                       (71,428)              16,621
             Inventories                                                               (21,723)                (745)
             Prepaid expenses and other current assets                                  (5,695)               6,643
             Deposits and other                                                         (5,123)             (37,945)
             Trade accounts payable                                                     (1,811)             (18,148)
             Accrued expenses                                                           20,095               56,785
             Due to advertising fund                                                   (19,900)             (36,563)
             Deferred revenue                                                           66,642             (102,849)
                                                                                     ---------            ---------
                                                                                      (229,874)            (359,481)
                                                                                     ---------            ---------
                 Net cash provided by (used in) operating activities                   206,712              (31,561)
                                                                                     ---------            ---------

Cash flows from investing activities
    Capital expenditures                                                               (96,389)             (58,321)
    Capitalized software costs                                                        (227,005)            (124,202)
    Proceeds from sale of assets held for sale                                            --                 20,000
    Payments on notes receivable                                                       207,341              168,073
                                                                                     ---------            ---------
                 Net cash (used in) provided by investing activities                  (116,053)               5,550
                                                                                     ---------            ---------

Cash flows from financing activities
    Payments on long-term debt                                                        (100,000)             (15,276)
    Preferred stock dividends payable                                                  133,000                 --
    Decrease (increase) in restricted cash                                              19,900               56,513
                                                                                     ---------            ---------
                 Net cash provided by financing activities                              52,900               41,237
                                                                                     ---------            ---------

Net increase in cash and cash equivalents                                              143,559               15,226

Cash and cash equivalents, beginning of year                                            87,405               72,179
                                                                                     ---------            ---------

Cash and cash equivalents, end of year                                               $ 230,964            $  87,405
                                                                                     =========            =========

Supplemental disclosure of cash flow information -
        Cash paid during the year for interest was  approximately  $1,700 (1998) and $2,500 (1997).

Supplemental schedule of non-cash investing and financing activities:
        At November 30, 1998 and 1997 $103,975 and $176,000 of notes  receivable additions are included in deferred revenue.


                                        See notes to consolidated financial statements.
</TABLE>
                                                               F-5
<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 1 - Organization and Summary of Significant Accounting Policies
--------------------------------------------------------------------

Organization

Pak Mail Centers of America,  Inc. was  incorporated  in Colorado in 1984 and is
engaged in the business of marketing and franchising Pak Mail Retail and Service
Centers which  specialize  in custom  packaging of items to be mailed or shipped
throughout the United States and Mexico.

The consolidated  financial  statements include the accounts of Pak Mail Centers
of America,  Inc. and its wholly owned subsidiary,  Pak Mail Crating and Freight
Service,  Inc.,  collectively  referred  to  as  the  Company.  All  significant
intercompany transactions and balances have been eliminated in consolidation.

The following table summarizes the number of Pak Mail Retail and Service Centers
in  operation  during  the  last  two  fiscal  years:

                                                           November 30,
                                                   ----------------------------
                                                      1998              1997
                                                   ----------         --------- 
Franchises:
   Franchise centers in operation:
     Domestic                                          315               299
     International                                      17                12
   Rights to franchisec enters sold and
    not in operation                                    27                 5
                                                    ------             -----
                                                       359               316
                                                    ======             =====

Cash and Cash Equivalents
-------------------------

The Company  considers cash on hand and investments with original  maturities of
three months or less to be cash equivalents.

Fair Value of Financial Instruments
-----------------------------------

The  carrying  amounts  of  financial   instruments   including  cash,  accounts
receivable,  accounts payable and accrued expenses approximate fair values as of
November  30,  1998,  as a result  of the  relatively  short  maturity  of these
instruments.

The fair value of the notes  receivable  approximate  the carrying value as both
the stated rate and discount rate on the notes approximate the estimated current
market rate.

Inventories
-----------

Inventories consist of equipment and supplies held for resale to franchisees for
use at their store locations or held at corporate owned stores for resale to the
public  and are  stated  at the  lower  of  cost  (determined  on the  first-in,
first-out method) or market.

                                      F-6
<PAGE>


                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------------------

Property and Equipment
----------------------

Property and equipment are stated at cost.  Depreciation  is computed  using the
straight-line method over an estimated useful life of three years.

Franchise Fee Revenue Recognition
---------------------------------

The  Company  has  awarded  franchise  rights  under  the  following   franchise
agreements:

*    Individual  franchise  agreement - Right to operate one store at a location
     to be  determined.  Franchise  fees  are  payable  in  cash or  notes  upon
     execution of agreement.

*    Area  developer  agreement  - Right to develop  stores  within a  specified
     geographic   area.  The  area  franchise  fee  (based  upon  the  estimated
     development  potential  of the  area) is  payable  in cash and  notes  upon
     execution of the area  developer  agreement.  Upon  awarding of  individual
     franchises within the franchise area, the Company typically receives 60% of
     the individual  franchise fee and the area developer receives 40%. The area
     developer receives 50% to 60% of the royalties from individual  franchisees
     within the area.  Although  the Company  currently  has several  franchises
     operating  under this  agreement,  during  fiscal  year 1994,  the  Company
     changed the terms of this  agreement  as  specified  in the area  marketing
     agreement below.

*    Area marketing  agreement - Right to market  franchises  within a specified
     geographic region. The area marketing fee is payable in cash and notes upon
     execution  of the area  marketing  agreement.  Upon  selling of  individual
     franchises  within the area,  the  Company  typically  receives  60% of the
     individual  franchise  fee and the area  marketer  receives  40%.  The area
     marketer receives 50% of the royalties from individual  franchisees  within
     the area.

*    International area franchise  agreement - Right to market franchises within
     a designated  country or specified  geographic  region.  The  international
     franchise fee is payable in cash and notes upon  execution of the franchise
     agreement.  The Company's participation in franchise fees and royalties for
     individual  franchises sold within the international area are negotiated on
     a case by case basis.  Additionally,  the  Company  agrees to train all new
     individual franchisees for a flat fee.

Individual  franchise  fees outside a marketing  area are  recognized as revenue
when all  material  services  and  conditions  relating  to the sale  have  been
substantially   performed  by  the  Company  and  the  franchise  has  commenced
operations.

                                      F-7

<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements



Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------------------

Franchise Fee Revenue Recognition (continued)
---------------------------------------------

Domestic  area  developer  fees are  deferred  and  recognized  as  revenue on a
straight-line  basis as the stores within the area are opened or upon completion
of the  initial  training  program  depending  on the  terms  of the  agreement.
Individual  franchise fees within a domestic area are recognized as revenue when
all  material   services  and   conditions   relating  to  the  sale  have  been
substantially performed by the Company, principally site selection and training.

Area  marketing  fees are  recognized  as income upon  completion of the initial
training by the area marketer and  collection of the marketing  fee. The Company
has the option to terminate the agreement  before training is completed at which
time the marketing fee is refundable.

International  area  franchise  fees are deferred and recognized as revenue upon
completion  of the  material  service  to the area  marketer,  which is  initial
training to the area marketer,  and upon  collection of notes  receivable  being
reasonably assured.

Royalties From Franchisees
--------------------------

Royalties  from  individual  franchisees  are based  upon a  percentage  of each
franchisee's  sales and are  recognized  when earned based upon  reported  sales
activity by each franchisee.

Software Revenue Recognition
----------------------------

The Company's  products are  generally  licensed to  franchisees  for a one-time
initial fee and  subsequent  annual  license and  maintenance  fees. The initial
license  fee is  recognized  as revenue  upon  execution  of a signed  contract,
delivery of licensed  software and when the Company believes that the collection
of the receivable is probable.

Net Income Per Common Share
---------------------------

Basic net income per share is computed  based on the weighted  average number of
common shares outstanding. Diluted net income per share is computed based on the
weighted  average number of common shares  outstanding  plus potential  dilutive
shares of common shares  outstanding  plus potential  dilutive  shares of common
stock including common stock warrants granted to preferred shareholders.



                                      F-8
<PAGE>


                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------------------

Income Taxes
------------

The Company  recognizes  deferred  tax  liabilities  and assets for the expected
future tax  consequences  of events  that have been  included  in the  financial
statements  or tax returns.  Under this method,  deferred  tax  liabilities  and
assets are determined based on the difference  between the financial  statements
and tax basis of assets and  liabilities  using the  enacted tax rates in effect
for the year in which the differences  are expected to reverse.  The measurement
of  deferred  tax  assets is  reduced,  if  necessary,  by the amount of any tax
benefits that, based on available evidence, are not expected to be realized.

Deferred Franchise Costs
------------------------

Costs related to the development of the franchise operations are capitalized and
amortized  over the  expected  period of benefit of five years.  These costs are
primarily comprised of costs incurred to develop the franchise documents.

Incremental direct development costs, such as commissions, are deferred, but not
in excess of the deferred  revenue and are expensed  when the related  franchise
fee revenue is recognized.

Capitalized Software Costs
--------------------------

Capitalized  software costs consist of costs of internally  developed  software.
Capitalization   of  internally   developed   software  costs  begins  upon  the
establishment of the technological  feasibility of a product. The recoverability
of capitalized software costs requires  considerable judgment by management with
respect  to  certain   external   factors,   including,   but  not  limited  to,
technological feasibility, anticipated future gross revenues, estimated economic
life  and  changes  in  software  and  hardware  technologies.  Amortization  of
internally developed software costs are provided on a  product-by-product  basis
using  the  amount  computed  by the  straight-line  method  over the  remaining
economic life of the product.  Generally, an original estimated economic life of
three years is assigned to capitalized software costs.

Concentration of Credit Risk
----------------------------

Financial instruments which potentially subject the Company to concentrations of
credit  risk  consist  of cash and cash  equivalents,  and  accounts  and  notes
receivable  from  franchisees,  area  developers  and marketing  directors.  The
Company places its temporary cash  investments in high credit quality  financial
institutions  which at times may  exceed  federally  insured  limits.  To reduce
credit risk, the Company  reserves the right to terminate  franchise  agreements
for   non-payment  of  amounts  owed.   Additionally,   at  November  30,  1998,
approximately  $352,000 of notes receivable are offset by comparable  amounts in
deferred revenue.


                                      F-9

<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements



Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------------------

Use of 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.

The  Company  has  recorded  an  allowance  for  doubtful  collection  on  notes
receivable  of  approximately  $45,000 (Note 3). This  allowance is  continually
reviewed based upon changes in the nature of the notes  receivable  outstanding.
Accordingly,  the  allowance  is  subject to changes  due to  circumstances  not
presently known.

The Company has  recorded a valuation  allowance  for  potentially  unrealizable
deferred  tax assets of  approximately  $1,716,900  (Note 8). This  allowance is
reviewed based upon historical and projected  financial  results of the Company.
Accordingly,  the  allowance  is  subject to changes  due to  circumstances  not
presently known.

Accounting Standards Not Yet Adopted
------------------------------------

In December 1997, the FASB issued  Statement No. 130,  "Reporting  Comprehensive
Income" (FAS 130).  FAS 130  incorporates  the  all-inclusive  concept of income
recognition.  It requires  that all items that are required to be  recognized as
comprehensive  income  (adjustments  to  equity)  be  reported  in  a  financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  FAS 130 is effective for fiscal years  beginning after December 15,
1997,  consequently,  the Company has not yet adopted FAS 130.  The Company does
not anticipate a significant change from adopting FAS 130.

Advertising Costs
-----------------

Advertising costs are expensed in the period incurred.

Reclassifications
-----------------

Certain  amounts in the 1997  financial  statements  have been  reclassified  to
conform to the 1998 presentation.


                                      F-10


<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements



Note 2 - Furniture and Equipment
--------------------------------

Furniture and equipment consists of the following:
                                                       November 30,
                                          -------------------------------------
                                               1998                   1997
                                          --------------         --------------
Office equipment                          $      393,610         $      305,167
Furniture and fixtures                           151,509                143,563
                                          --------------         --------------
                                                 545,119                448,730
Less accumulated depreciation                   (434,950)              (386,838)
                                          --------------         --------------

                                          $      110,169          $      61,892
                                          ==============          =============

Note 3 - Notes Receivable
-------------------------

Notes  receivable  consist of franchise  fees and area marketer fees financed by
the Company. The notes are collateralized by the underlying franchise agreements
and by essentially all of the franchisees' assets incidental to the operation of
the franchise centers. Most of the notes are personally guaranteed by the owners
of each franchise.

Notes receivable consist of the following:
                                                             November 30,
                                                      -----------------------
                                                         1998           1997
                                                      ----------    ----------
Non-interest-bearing notes; interest
imputed at 8%, net of unamortized
discounts of $6,513 (1998 and 1997)                   $  401,403    $  479,073

Interest-bearing notes; interest
rates from 6% to 8%                                      310,099       296,538
                                                      ----------    ----------
                                                         711,502       775,611
       Less allowance for doubtful collections           (45,094)      (53,133)
                                                      ----------    ----------

                                                      $  666,408    $  722,478
                                                      ==========    ==========

It is the  Company's  policy not to impute  interest  on these  notes  until the
earnings process is complete. Included in these notes are financed area marketer
fees, the maturities of which are based upon the expected  opening of franchises
within the area.

                                      F-11


<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 3 - Notes Receivable (continued)
-------------------------------------

Future minimum  principal  payments to be received  pursuant to the notes are as
follows:

        Year Ending November 30,

               1999                                        $     500,332
               2000                                              148,426
               2001                                               56,670
               2002                                                5,949
               2003                                                1,200
              Thereafter                                           5,438
                                                           -------------
                                                                 718,015
             Less unamortized discount                            (6,513)
                                                           -------------
                                                           $     711,502
                                                           =============


At the time the notes receivable are executed, the Company reserves an allowance
for doubtful collections. The provision for uncollectible amounts is continually
reviewed and adjusted to maintain the allowance at a level  considered  adequate
to  cover  future  losses.  The  allowance  is  management's  best  estimate  of
uncollectible  amounts and is determined based on historical  performance of the
notes which is tracked by the Company on an ongoing basis. The losses ultimately
incurred could differ  materially in the near term from the amounts estimated in
determining the allowance.


Note 4 - Long-Term Debt
-----------------------

The note payable to an affiliate was paid in full during fiscal year 1998.

In January  1999,  the Company  entered  into a  line-of-credit  agreement.  The
agreement requires monthly interest payments at 9.25% and matures January 2000.


Note 5 - Stockholders' Equity
-----------------------------

Dividends on Series C Preferred Stock accrue at 6% per year commencing  December
1, 1997. Dividends are payable annually commencing March 31, 1999 and each March
31  thereafter  for the  previous  year end. The  preferred  stock does not vote
although  holders  of 51% must  approve  certain  items  such as any  change  in
control,  sale of the Company or a sale of the majority of the Company's assets.
The Series C Preferred Stock may be redeemed at the Company's option any time at
$1,000 per share plus accrued dividends.

                                      F-12


<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 5 - Stockholders' Equity (continued)
-----------------------------------------

During  fiscal year 1997, as an incentive to exchange for the Series C preferred
stock, the holders of Series A and Series B preferred stock were granted a total
of 884,264  warrants to purchase common stock at .10 per share at any time prior
to November 30, 2007.  There was no fair value  attributed to the warrants as no
material imputed value was estimated in the Company's pricing model.

The fair values of the warrants  granted are  estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants:  dividend yield of 0; expected  volatility of 133%;
discount rate of 5.25% and expected lives of 10 years.


Note 6 - Earnings Per Share
---------------------------

The following is an  illustration  of the  reconciliation  of the numerators and
denominators of the basic and diluted Earnings Per Share (EPS) computations:
<TABLE>
<CAPTION>

                                                                          For the Year Ended November 30, 1998
                                                             --------------------------------------------------------
                                                                   Income               Shares              Per-Share
                                                                 (Numerator)        (Denominator)             Amount
                                                                 -----------        -------------             ------

<S>                                                          <C>                     <C>                 <C>
Net income                                                   $         569,586
Less preferred stock dividends                                        (133,000)
                                                             -----------------

Basic EPS
  Income available to common stockholders                              436,586             2,989,483    $            .15
                                                             -----------------                          ================

Effect of dilutive securities
  Warrants                                                                  -                727,006
                                                             -----------------     -----------------

Diluted EPS
  Income available to common stockholders
  plus assumed conversions                                             436,586             3,716,489    $            .12
                                                             =================     =================    ================

</TABLE>

Note 7 - Advertising Fund
-------------------------

The Company has established an advertising  trust to administer  funds collected
from  franchisees for  advertising.  The  advertising  trust is a separate legal
entity  and,  therefore,  the Company is not  contingently  liable for any trust
liabilities  incurred;  nor is the trust activity  reflected in the accompanying
consolidated financial statements.

                                      F-13


<PAGE>


                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 8 - Restricted Cash
------------------------

At November 30, 1998 and 1997, the amounts due the  advertising  trust of $3,880
and $23,780, respectively, are included in restricted cash.


Note 9 - Income Taxes
---------------------

During 1998, the Company  utilized  approximately  $58,000 in net operating loss
carryforwards to offset current taxable income.  This resulted in tax savings of
approximately  $20,000.  In addition the Company reduced its operating valuation
allowance  on its  remaining  net  operating  loss  carryforward  resulting in a
deferred tax asset of $275,000.  This estimate is based on the  Company's  three
consecutive years of taxable income.

The components of long-term deferred tax assets are as follows:

                                                       November 30,
                                              ------------------------------
                                                  1998              1997
                                              ------------      ------------
 Deferred tax assets
        Net operating loss carryforward       $  2,061,600      $  2,058,700
        Reserves and other deferrals                41,300            54,600
        Depreciation and amortization             (111,000)          (26,500)
                                              ------------      ------------
               Total deferred tax assets         1,991,900         2,086,800
        Valuation allowance                     (1,716,900)       (1,950,700)
                                              ------------      ------------

                                              $    275,000      $    136,100
                                              ============      ============

At November 30, 1998, the Company has net operating loss  carryforwards  for tax
purposes of  approximately  $6,063,000.  If not used, these  carryforwards  will
expire in varying amounts during the years 1999 to 2009.


Note 10 - Related Party Transactions
------------------------------------

The Company purchases certain equipment for resale through an exclusive supplier
agreement with a stockholder and former director of the Company.  Purchases were
$62,350 and $82,128, in 1998 and 1997, respectively.

                                      F-14


<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 11 - Employee Benefit Plan
-------------------------------

Effective  December 1, 1991, the Company  established the Pak Mail 401(k) Profit
Sharing  Plan (the Plan).  All  employees of the Company who are 21 years of age
and have completed one year of eligibility  service, as defined, may participate
in the Plan.  Participants may make tax deferred  contributions in any amount up
to the  maximum  allowable  under  current  federal tax laws.  The Company  will
contribute an amount equal to 50% of each participant's contribution, limited to
3% of the  participant's  compensation as defined in the Plan. Costs incurred by
the Company in connection with the Plan were approximately $9,910 and $6,794 for
the years ended November 30, 1998 and 1997, respectively.


Note 12 - Commitments
---------------------

Operating Lease Commitments
---------------------------

The  Company  leases  office  space and  office  equipment  under  noncancelable
operating  leases.   Aggregate  future  minimum  rental  commitments  for  these
operating leases as of November 30, 1998 are as follows:

         Year Ending November 30,
         ------------------------
                   1999                                      $       177,400
                   2000                                               99,300
                   2001                                               12,900
                   2002                                                3,400
                                                             ---------------

                                                             $       293,000
                                                             ===============

Rental  expense  for  1998 and 1997 was  approximately  $198,000  and  $210,000,
respectively.

Subsequent Event
----------------

Effective  January 1, 1999,  the Company  adopted an Incentive and  Nonstatutory
Stock Option Plan.  The plan covers an  aggregate of 400,000  shares.  Under the
terms of the plan, options are granted to eligible employees at 100% of the fair
value of the common stock of the Company on the date of grant.  The Common stock
options are exercisable at the date of grant and expire January 2009.

                                      F-15


<PAGE>

                              ACCOMPANYING SCHEDULE

<PAGE>



              INDEPENDENT AUDITORS' REPORT ON ACCOMPANYING SCHEDULE





To the Board of Directors
Pak Mail Centers of America, Inc. and Subsidiary
Aurora, Colorado


Our audits  were  conducted  for the  purpose of forming an opinion on the basic
financial  statements taken as a whole.  The accompanying  schedule is presented
for  purposes of  additional  analysis  and is not a required  part of the basic
financial  statements.  Such  information  has been  subjected  to the  auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
financial statements taken as a whole.





                                             Ehrhardt Keefe Steiner & Hottman PC


January 7, 1999
Denver, Colorado


<PAGE>

                PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY

              Schedule of Selling, General and Administrative Expenses


                                                          For the Year Ended
                                                              November 30,
                                                     ---------------------------
                                                         1998             1997
                                                     ----------       ----------
General and Administrative Expenses
    Salaries and bonuses                             $  867,149       $  813,814
    Repairs and maintenance                               8,791            7,020
    Rent                                                197,991          209,861
    Operating insurance                                   9,007            6,114
    Payroll taxes                                        68,760           58,169
    Employee benefits                                    36,206           34,883
    Supplies                                             24,750           15,675
    Training                                             25,217           38,202
    Trade shows                                          15,582           12,285
    Telephone                                            38,041           56,569
    Freight                                               7,966            7,904
    Health insurance                                     67,278           59,812
    Other taxes                                          12,865           10,874
    Contract labor                                          840            5,531
    Professional services                               153,532          108,243
    Travel and entertainment                            106,387          164,185
    Bad debts, net of recoveries                         36,850           25,158
    Dues and fees                                        24,787           18,406
    Printing                                             44,956           26,051
    Subscriptions                                         6,635            3,890
    Postage                                              28,466           19,714
    Miscellaneous expense and other                      72,205           62,218
    Donations                                             5,011            1,157
                                                     ----------       ----------

                                                     $1,859,272       $1,765,735
                                                     ==========       ==========
                                      F-18

<PAGE>


Directors of the Company                             Officers of the Company
------------------------                             -----------------------


John E. Kelly                                                      John E. Kelly
President                                                              President
Chief Executive Officer                                  Chief Executive Officer
Pak Mail Centers of America, Inc.

J.S. Corcoran                                                      P. Evan Lasky
Self employed Business Consultant                       Executive Vice President
                                                         Chief Operating Officer

John W. Grant                                                 Raymond S. Goshorn
Retired                                                  Chief Financial Officer
                                                             Corporate Treasurer
                                                             Corporate Secretary

F. Edward Gustafson
Executive Officer                                                Tonya d. Sarina
D.P. Kelly & Associates L.P.               Vice President of Sales and Marketing
Envirodyne Industries, Inc.

William F. White                                                        Alex Zai
Executive Officer                             Vice President of Store Operations
Whitnell & Co.
Donegal, Inc.






<TABLE>
<CAPTION>

<S>                          <C>                                          <C>   
TRANSFER AGENT               INDEPENDENT AUDITORS                        CORPORATE COUNSEL
American Stock Transfer      Ehrhardt, Keefe, Steiner & Hottman P.C.     Smith McCullough, P.C.
40 Wall Street               7979 E. Tufts Avenue, Suite 400             4643 S. Ulster Street, Suite 900
New York, NY 10005           Denver, CO 80237                            Denver, CO 80237

</TABLE>






<PAGE>


                                  EXHIBIT INDEX


(3)(a)         Articles of  Incorporation  incorporated  by reference to Exhibit
               (3)(a) of the  Company's  Annual  Report on Form  10-KSB  for the
               fiscal year ended November 30, 1995.

(3)(b)         Articles of Amendment to the Articles of Incorporation filed with
               the Colorado  Secretary of State on January 26, 1998 incorporated
               by reference to Exhibit (3)(b) of the Company's  Annual Report on
               Form 10-KSB for the fiscal year ended November 30, 1997.

(3)(c)         Articles of Amendment to the Articles of Incorporation filed with
               the Colorado Secretary of State on July 13, 1998, incorporated by
               reference to Exhibit 3(a) of the  Company's  Quarterly  Report on
               Form 10-QSB for the quarter ended May 31, 1998.

(3)(d)         Bylaws incorporated by reference to Exhibit 3(b) of the Company's
               Quarterly  Report on Form  10-QSB for the  quarter  ended May 31,
               1998.

(4)(a)         Letter of  Exchange  of  Series A  Preferred  Stock for  Series C
               Preferred  Stock  incorporated  by reference to Exhibit (4)(a) of
               the  Company's  Annual  Report on Form 10-KSB for the fiscal year
               ended November 30, 1997.

(4)(b)         Letter of  Exchange  of  Series B  Preferred  Stock for  Series C
               Preferred  Stock  incorporated  by reference to Exhibit (4)(b) of
               the  Company's  Annual  Report on Form 10-KSB for the fiscal year
               ended November 30, 1997.

(4)(c)         Warrant to Purchase  Shares of Common Stock granted in connection
               with exchange of Series A Preferred  Stock for Series C Preferred
               Stock   incorporated  by  reference  to  Exhibit  (4)(c)  of  the
               Company's  Annual Report on Form 10-KSB for the fiscal year ended
               November 30, 1997.

(4)(d)         Warrant to Purchase  Shares of Common Stock granted in connection
               with exchange of Series B Preferred  Stock for Series C Preferred
               Stock   incorporated  by  reference  to  Exhibit  (4)(d)  of  the
               Company's  Annual Report on Form 10-KSB for the fiscal year ended
               November 30, 1997.

(10)(a)*       Individual Franchise Agreement.

(10)(b)*       Area Marketing Agreement.

(10)(c)*       International Area Marketing Agreement.

(10)(d)        Agreement by and between Security  Manufacturing  Corporation and
               the Company  dated July 10, 1995  incorporated  by  reference  to
               Exhibit (10)(3) of the Company's Annual Report on Form 10-KSB for
               the fiscal year ended November 30, 1996.


                                       22

<PAGE>


(10)(e)        Pak Mail Centers of America,  Inc. Management  Incentive Plan for
               Fiscal Year 1997  incorporated by reference to Exhibit (10)(d) of
               the  Company's  Annual  Report on Form 10-KSB for the fiscal year
               ended November 30, 1997.

(10)(f)*       Pak Mail Centers of America,  Inc. Management  Incentive Plan for
               Fiscal Year 1998.

(10)(g)*       Pak Mail Centers of America,  Inc. Management  Incentive Plan for
               Fiscal Year 1999.

(10)(h)*       Pak Mail Centers of America, Inc. 1999 Incentive and Nonstatutory
               Employee Stock Option Plan.

(21)*          Subsidiaries of the Registrant.

(27)*          Financial Data Schedule.




-------------

*   Filed herewith



                                       23