<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTON 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No.: 333-12911
LEADING EDGE PACKAGING, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3432883
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Empire State Building, Suite 3922, 350 Fifth Avenue, New York, New York 10018
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(Address of principal executive offices)
(212) 239-1865
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (D) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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State the number of shares outstanding of each of the issuer's classes of
common stock: As of September 30, 1997, the issuer had 3,312,500 shares of
its common stock, par value $.01 per share, outstanding.
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LEADING EDGE PACKAGING, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1.Financial Statements
Condensed Balance Sheets
September 30, 1997................................... 1
Condensed Statement of Income
Three and Six Months Ended
September 30, 1997 and 1996.......................... 2
Condensed Statement of Cash Flows
Three and Six Months Ended
September 30, 1997 and 1996.......................... 3
Notes to Financial Statements........................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 5-6
Part II. OTHER INFORMATION
Item 2. None.................................................... 6
Item 5. Other Information....................................... 7
Item 6. Exhibits and Reports on Form 8-K........................ 8
SIGNATURES...................................................... 9
</TABLE>
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LEADING EDGE PACKAGING, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
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<S> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents....................................... $ 1,679
Accounts receivable........................................... 2,968
Bills receivable (Note 2)..................................... 1,253
Inventories (Note 3).......................................... 2,540
Deposits to related party/holding co.......................... 925
Receivables from a related party/holding co................... 1,649
Prepaid expenses.............................................. 177
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Total Current
Assets................................ $ 11,191
Property and equipment
Net of accumulation depreciation............................ 271
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TOTAL ASSETS.................................................. $ 11,462
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---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable to related party/holding co.................. 611
Bills payable................................................. 248
Income taxes payable.......................................... 685
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Total Current Liabilities............. $ 1,544
LONG TERM LIABILITIES
Capital Lease Obligations..................................... 5
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SHAREHOLDERS' EQUITY
Common Stock, par value $0.01 per share,
Authorized 5,000,000 shares,
Issued and outstanding 3,312,500 shares in 1997 and
1,875,000 shares in 1996..................................... 33
Additional paid in capital.................................... 7,062
Retained earnings............................................. 2,818
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Total Shareholders' Equity............ $ 9,913
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY........................ $ 11,462
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</TABLE>
See Accompanying Notes to (Unaudited) Financial Statements
1
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LEADING EDGE PACKAGING, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
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Net Sales..................................................... $ 3,029 $ 3,046 $ 5,780 $ 5,551
Cost of goods sold............................................ 2,033 2,039 3,643 3,736
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Gross profit.................................................. 996 1,007 2,137 1,815
Selling, general, and administrative
Expenses...................................................... 596 194 1,025 275
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Operating income.............................................. $ 400 813 1,112 1,540
Other income
Interest, net of interest expense............................. 23 -0 - 61 -0 -
---------- ---------- ---------- ----------
Income before income taxes.................................... 423 813 1,173 1,540
Provision for income taxes.................................... 161 309 446 585
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Net income.................................................... $ 262 $ 504 $ 727 955
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---------- ---------- ---------- ----------
Net income per share primary and fully diluted................ $ .08 $ .27 $ .22 $ .50
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average of
Shares outstanding............................................ 3,312,500 1,875,000 3,312,500 1,875,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share fully diluted............................ $ .08 $ .15 $ .22 $ .29
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total shares outstanding...................................... 3,312,500 3,312,500 3,312,500 3,312,500
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying Notes to (Unaudited) Financial statements
</TABLE>
2
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LEADING EDGE PACKAGING, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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<S> <C> <C> <C> <C>
1997 1996 1997 1996
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Cash flows from operating activities:
Net Income................................................................... $ 262 $ 504 $ 727 $ 955
Adjustment to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization.............................................. 18 0 36 -0-
Net(decrease) in cash due to
Changes in current assets and liabilities................................... (1,561) (481) (3,784) (893)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities:......................... (1,281) 23 (3,021) 62
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment........................................... (25) 0 (33) (29)
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Net cash (used in) investing activities....................................... (25) 0 (33) (29)
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Cash flows from financing activities: Repayment of capital lease
obligations................................................................. (1) 0 (1) 0
Net increase (decrease) in cash and cash equivalents.......................... (1,307) 23 (3,055) 33
Cash and cash equivalents at beginning of period.............................. 2,986 12 4,734 2
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Cash and cash equivalents at end of period.................................... $ 1,679 $ 35 $ 1,679 $ 35
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Supplemental disclosure of cash flow information:
Interest paid
5 0 9 -0 -
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--------- --------- --------- ---------
Taxes paid
$ 376 0 $ 740 $ -0 -
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--------- --------- --------- ---------
Supplemental disclosure of non-cash financing activities:
Contribution of additional paid in capital by a reduction of account
payables.................................................................... $ -0- 0 $ -0 - $ -0 -
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See Accompanying Notes to (Unaudited) Financial Statement
3
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LEADING EDGE PACKAGING, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Leading Edge Packaging,
Inc. (the "Company") as of September 30, 1997 and September 30, 1996 for the
three and six-month period then ended, have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
Exchange Act of 1934, as amended, and regulations thereunder, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included.
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 results of operations for the three-month period ended September 30,
1997 and 1996 are not necessarily indicative of the results to be expected for
the entire year or for any other period. The accompanying financial statements
should be read in conjunction with the financial statements and notes thereto
included in the company's annual report on Form 10-K for the year ended March
31, 1997.
NOTE 2 BILLS RECEIVABLE
Bills receivable represent accounts receivable on FOB sales in the form of
bills of exchange, whose acceptances and settlements are handled by banks.
At September 30, 1997, the Company had not factored any bills receivable or
accounts receivable with financial institutions.
NOTE 3. INVENTORIES
Effective April 1, 1996, the Company maintains inventories for distribution
to customers in the United States. These inventories represent finished goods
and semi-finished goods for customization and resale.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements under this item constitute "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995 (the "Reform Act").
See "Part II. Item 5(a). Other Information."
GENERAL
The Company sells and distributes, in North America, packaging products used
primarily in the sale of luxury consumer goods. Its packaging products include
metal, plastic and paper based jewelry, optical and watch cases, pouches and
bags, and paper gift boxes and bags, and, to a lesser extent, premium and
novelty items. The Company has a 2,000 square-foot office and showroom in the
Empire State Building, 350 Fifth Avenue, New York City and two warehouse and
distribution facilities of a 33,000 square-foot office and warehouse facility in
Raritan Center Industrial Park, Edison, New Jersey and a 22,000 square-foot
warehouse and distribution facility in Carteret, New Jersey respectively.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1997 to the three months
ended September 30, 1996.
Net sales for the three months ended September 30, 1997 were approximately
$3,029,282 a decrease of $16,848 or 0.6 % from approximately $3,046,130 for the
three months ended September 30, 1996. The sluggishness of U.S. domestic jewelry
sales in general and the late start of the Company's tele-marketing operations
in New Jersey were largely responsible for the second quarter's lack of sales
growth.
Cost of goods sold for the three months ended September 30, 1997 was
approximately $2,033,201 a decrease of $5,873 or 0.3 % from approximately
$2,039,074 for the three months ended September 30, 1996. As a percentage of net
sales, cost of goods sold for the three months ended September 30, 1996 and for
the three months ended September 30, 1997 remained unchanged. Pursuant to the
Distribution Agreement between Rich City and the Company, the Company pays to
Rich City a mark-up over the wholesale price of between 6 and 8%, which covers
all of Rich City's general and administrative costs to process orders for the
Company, including salaries, office space and use of equipment.
Selling, general and administrative expenses for the three months ended
September 30, 1997 were approximately $596,494 an increase of $402,331 from
approximately $194,163 for the three months ended September 30, 1996. For the
three months ended September 30, 1997, these expenses primarily consisted of
adding personnel for tele-marketing and promotional expenses, including among
other things participation at various trade shows both in the United States and
overseas, and advertisement in national trade magazines. In contrast, these
5
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LEADING EDGE PACKAGING,INC.
expenses for the three months ended September 30, 1996 reflect the
costs incurred to establish facilities in the U.S., which , at the
time, were not fully staffed and operational.
The Company had net income of approximately $262,000 (or $.08 per share
on a fully diluted basis) for the three months ended September 30, 1997,
compared to net income of approximately $504,000 (or $.15 per share on a fully
diluted basis) for the three months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 1997, the Company used
approximately $1,307,000 in net cash for its operating activities. This amount
primarily consisted of purchases of inventory, salaries, office equipment and
operations of warehouse facilities. The Company's working capital increased to
approximately $9,662,000 at September 30, 1997 from approximately $9,392,000 at
September 30, 1996, reflecting the major part of cash from the proceeds from the
initial public offering. The Company anticipates that the proceeds from the
offering, together with cash flows from operating activities and utilizing a
bank line of credit will be sufficient to meet its operating expenses into
fiscal 1998, including amounts needed to purchase inventory. There can be no
assurance, however, that such amounts will be sufficient to cover any
unanticipated operating expenses.
$1,679,000 of the proceeds from the Company's initial public offering are
currently invested in money market funds which allow for liquidity with an
emphasis on preservation of principal amounts invested. The Company has
obtained a bank line of credit totaling $5,000,000 from First Union National
Bank, New Jersey for trade finance and working capital.
PART II. OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. None
6
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LEADING EDGE PACKAGING, INC.
Item 5. Other Information
(a) Forward-Looking Statements
Certain statements in this form 10-Q and in the future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of an
authorized executive officer constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance, or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: general economic and business conditions which may impact demand
for the Company's packaging products; changes in tax laws and regulations;
the ability of the Company to implement its market consolidation strategy and
to expand its business in the North American market; and changes in laws and
government regulations applicable to the Company.
7
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is being filed.
8
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LEADING EDGE PACKAGING, INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEADING EDGE PACKAGING, INC.
----------------------------
DATED: NOVEMBER 10, 1997 By: /s/ Casey K. Tjang
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Casey K. Tjang
Director, Chief Financial Officer and
Secretary
Signing on behalf of the registrant as principal
accounting officer.
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM LEADING EDGE
PACKAGING'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001021549
<NAME> LEADING EDGE PACKAGING'S
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,679
<SECURITIES> 0
<RECEIVABLES> 5,870
<ALLOWANCES> 0
<INVENTORY> 2,540
<CURRENT-ASSETS> 11,191
<PP&E> 330
<DEPRECIATION> 59
<TOTAL-ASSETS> 11,462
<CURRENT-LIABILITIES> 1,544
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 9,880
<TOTAL-LIABILITY-AND-EQUITY> 11,462
<SALES> 5,780
<TOTAL-REVENUES> 0
<CGS> 3,643
<TOTAL-COSTS> 360
<OTHER-EXPENSES> 665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 1,173
<INCOME-TAX> 446
<INCOME-CONTINUING> 1,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 727
<EPS-PRIMARY> $0.22
<EPS-DILUTED> $0.22
</TABLE>
