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: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No.: 333-12911
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LEADING EDGE PACKAGING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3432883
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__ No X
State the number of shares outstanding of each of the issuer's classes of common
stock:
As of February 3, 1997, the issuer had 3,312,500 shares of its common stock, par
value $.01 per share, outstanding.
<PAGE>
LEADING EDGE PACKAGING, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Financial Condition - 1 - 2
March 31, 1996 and December 31, 1996
Condensed Statement of Income - 3
Three and Nine Months Ended
December 31, 1996 and 1995
Condensed Statement of Cash Flows - 4
Nine months ended December 31, 1996 and 1995
Notes to Condensed Financial Statements - 5 - 6
Item 2. Management's Discussion and Analysis of 7 - 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities 10
(c) 1996 Incentive Stock Option Plan
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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LEADING EDGE PACKAGING, INC.
CONDENSED STATEMENT OF FINANCIAL CONDITION
AS OF MARCH 31, 1996 AND DECEMBER 31, 1996
(UNAUDITED)
(In thousands, except per share data)
ASSETS
March 31, December 31,
1996 1996
(Carved-Out)
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 35 $ 95
Investments in money market funds -- 5,500
Receivables 192 843
Bills receivable (Note 3) 170 1,621
Inventories (Note 4) -- 613
Advance to Head Office (Note 5) 1,152 --
Prepaid expenses 55 1,353
------- -------
Total Current Assets $ 1,604 $10,025
------- -------
Office, furniture and equipment-
Net of depreciation and amortization 193 193
------- -------
TOTAL ASSETS $ 1,797 $10,218
======= =======
See Accompanying Notes to Condensed (Unaudited) Financial Statements
1
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LEADING EDGE PACKAGING, INC.
CONDENSED STATEMENT OF FINANCIAL CONDITION
AS OF MARCH 31, 1996 AND DECEMBER 31, 1996
(UNAUDITED)
(In thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1996 1996
(Carved-Out)
------------ ------------
CURRENT LIABILITIES
Accounts payable $ -- $ 168
Accounts payable to related party 1,656 377
Taxes payable -- 898
Other accrued expenses -- 72
Accrued liabilities 141
------- --------
Total Current Liabilities $ 1,797 $ 1,515
------- --------
SHAREHOLDERS' EQUITY
Common Stock par value $0.01 per share,
voting: 5,000,000 shares authorized -
3,312,500 shares issued and outstanding -- 33
Additional paid in capital -- 7,205
Retained earnings -- 1,465
------- --------
Total Shareholders' Equity -- $ 8,703
------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,797 $ 10,218
======= ========
See Accompanying Notes to Condensed (Unaudited) Financial Statements
2
<PAGE>
LEADING EDGE PACKAGING, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
December 31 December 31
1996 1995 1996 1995
---- ---- ---- ----
Net sales $ 3,695 $3,112 $ 9,247 $8,322
Cost of goods sold 2,545 2,023 6,281 5,154
---------- ------ ---------- ------
Gross profit 1,150 1,089 2,966 3,168
Selling general and administrative
expenses 341 282 616 823
---------- ------ ---------- ------
Operating income 809 807 2,350 2,345
Other income (expense):
Interest 13 (15) 13 (37)
Other -- 2 -- 3
---------- ------ ---------- ------
Income before income taxes 822 794 2,363 2,311
---------- ------ ---------- ------
Provision for income taxes 312 302 898 801
---------- ------ ---------- ------
Net income $ 510 $ 492 $ 1,465 $1,510
Net income per share primary
and fully diluted $ 0.22 -- $ 0.72 --
========== ====== ========== ======
Weighted average of
shares outstanding 2,343,750 -- 2,031,818 --
========== ====== ========== ======
See Accompanying Notes to Condensed (Unaudited) Financial Statements
3
<PAGE>
LEADING EDGE PACKAGING, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended Nine Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Cash flows from operating activities:
Net Income $ 510 $ 492
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4 9
Net increase (decrease) in cash due
to changes in current assets
and liabilities (1,680) (539)
------- -------
Net cash used in operating activities (1,166) (38)
Cash flows from investing activities:
Investments in money market funds (Note 6) (5,500) --
Purchase of furniture and equipment (164) (3)
------- -------
Net cash used in investing activities (5,664) (3)
Cash flows from financing activities:
Proceeds from initial public offering 6,738 --
Proceeds from bankers' acceptances 152 --
------- -------
Net cash provided by financing activities 6,890 --
Net increase (decrease) in cash and
cash equivalents 60 (41)
Cash and cash equivalents at beginning
of period 35 59
------- -------
Cash and cash equivalents at end of period $ 95 $ 18
======= =======
Supplemental disclosure of cash flow
information:
Interest paid $ -- $ 37
Taxes paid (Note 2) -- --
See Accompanying Notes to Condensed (Unaudited) Financial Statement
4
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LEADING EDGE PACKAGING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1996
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements of Leading Edge
Packaging, Inc. (the "Company") as of March 31, 1996 and December 31, 1996, and
for the three and nine month periods ended December 31, 1996 and 1995, 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 and 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 and nine month periods ended
December 31, 1996 and 1995 are not necessarily indicative of the results to be
expected for the entire year or for any other period. For the three and nine
month periods ended December 31, 1995 and at March 31, 1996, the financial
statements of the Company, successor to Rich City International Packaging
Limited's ("Rich City") North America Distribution Business ("N.A. Distribution
Business"), have been prepared on a "carved-out" basis as if the N.A.
Distribution Business had been in existence and operating independently prior to
the Assignment and Distribution Agreement (the "Distribution Agreement") between
Rich City and the Company, which became effective on April 1, 1996. This
financial information does not purport to represent what the results of
operations or the financial position of the N.A. Distribution Business would
actually have been had the Distribution Agreement been in effect on such date or
at the beginning of the period. The formula of adding a 6% - 8% mark-up to the
cost to manufacture the packaging products under the Distribution Agreement was
not incorporated. For further information, refer to the Company's public
offering prospectus, dated December 2, 1996.
Note 2. Income Taxes
No taxation has been provided for the six months ended September 30, 1995
as the carved-out business was not subject to taxation either in Hong Kong or
the United States. For the six months ended September 30,
5
<PAGE>
1996, the Company is subject to the income tax in the United States and an
income tax expense has been computed using a rate of 38% for U.S. federal and
state income taxes.
There were no significant temporary timing differences during the periods
or at the balance sheet dates.
LEADING EDGE PACKAGING, INC.
Note 3. Bills Receivable
Bills receivable represent accounts receivable in the form of bills of
exchange, whose acceptances and settlements are handled by banks.
At December 31, 1996, the Company had not factored any bills receivable
with financial institutions.
Note 4. Inventories
Effective April 1, 1996, the Company maintains inventories for
distribution to customers in the United States. These inventories represent
finished goods held for resale.
Note 5. Advances to Head Office
Rich City's
N.A.
Distribution
Business
March 31, 1996
Carved-Out
--------------
Advances to Rich City:
Balance as of April 1, 1995 .......................... $ (362,384)
Net advances to Head Office .......................... 1,514,220
----------
Balance as of March 31, 1996 ......................... $1,151,836
==========
Note 6. Investments
$5,500,000 of the proceeds from the Company's initial public offering are
currently invested in money market funds.
6
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LEADING EDGE PACKAGING, INC.
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. The Company has a 2,000 square-foot office and
showroom in the Empire State Building, 350 Fifth Avenue, New York City and a
33,000 square-foot office and warehouse facility in Raritan Center Industrial
Park, Edison, New Jersey.
Results of Operations
Comparison of the three months ended December 31, 1996 to the three months
ended December 31, 1995.
Net sales for the three months ended December 31, 1996 were approximately
$3,695,000, an increase of $583,000 or 15.8% from approximately $3,112,000 for
the three months ended December 31, 1995. The increase was primarily due to the
increase in the size of orders from existing customers and the addition of new
customers.
Cost of goods sold for the three months ended December 31, 1996 was
approximately $2,545,000, an increase of $522,000 or 20.5% from approximately
$2,023,000 for the three months ended December 31, 1995. As a percentage of net
sales, cost of goods sold increased from 65% of net sales for the three months
ended December 31, 1995 to 68.9% for the three months ended December 31, 1996.
The increase in cost of sales as a percentage of net sales was primarily due to
the payment to Rich City of an average mark-up of 6.5% of its manufacturing
costs pursuant to the Distribution Agreement between Rich City and the Company.
Included in the 6.5% mark-up are all of Rich City's general and administrative
costs to process orders for the Company, including salaries, office space and
use of equipment. This increase corresponded with the increase in net sales over
the same periods and resulted partly from a variation in customer orders to
products with higher costs in that specific period.
Selling, general and administrative expenses for the three months ended
December 31, 1996 were approximately $341,000, an increase of $59,000 from
approximately $282,000 for the three months ended December 31, 1995. For the
three months ended December 31, 1996, these expenses primarily consisted of
salaries, miscellaneous office expenses, additional office equipment, and other
expenses in connection with setting up the Company's New Jersey warehouse
facilities. In contrast, these expenses for the three months ended
7
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December 31, 1995 reflect the "carved-out" selling expenses of Rich City
attributable to its N.A. Distribution Business, including expenses incurred for
sales and marketing personnel and for advertising and promotions.
The Company had net income of approximately $510,000 (or $0.22 per share)
for the three months ended December 31, 1996, compared to net income of
approximately $492,000 for the three months ended December 31, 1995.
LEADING EDGE PACKAGING, INC.
Comparison of the nine months ended December 31, 1996 to the nine months
ended December 31, 1995.
Net sales were approximately $9,247,000 for the nine months ended December
31, 1996, an increase of $925,000 or 10% from approximately $8,322,000 for the
nine month period ended December 31, 1995. The increase was primarily due to an
increase in the size of orders from existing customers and the addition of new
customers.
Cost of goods sold for the nine months ended December 31, 1996 was
approximately $6,281,000, an increase of $1,127,000 or 21.9% from approximately
$5,154,000 in the nine months ended December 31, 1995. As a percentage of net
sales, cost of goods sold increased from 61.9% in the nine months ended December
31, 1995 to 67.9% in the nine months ended December 31, 1996. The increase in
cost of sales as a percentage of net sales was primarily due to the payment to
Rich City of an average mark-up of 6.5% of its manufacturing costs pursuant to
the Distribution Agreement between Rich City and the Company. Included in the
6.5% mark-up are 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 nine months ended
December 31, 1996 were approximately $616,000, a decrease of $207,000 or 25.2%
from approximately $823,000 during the nine months ended December 31, 1995.
These expenses were relatively low during the first six months of fiscal 1997,
consisting primarily of travel and related costs incurred by Lip-Boon Saw, the
Company's Chairman and Chief Executive Officer, to expand the Company's business
in North America, as well as administrative costs of setting up the Company's
offices in the U.S. Commencing with the three months ended December 31, 1996,
these expenses also included warehouse and office expenses as well as additional
salaries, as discussed in the "Comparison of the three months ended December 31,
1996 to the three months ended December 31, 1995." For the entire nine months
ended December 31, 1995, in contrast, these expenses reflect the "carved-out"
selling expenses of Rich City attributable to its N.A. Distribution Business.
The Company had net income of approximately $1,465,000 or $0.72 per share
for the nine months ended December 31, 1996.
The Company anticipates higher fourth quarter operating expenses
attributable to setting up offices and warehouse distribution operations in the
U.S., although some of these expenses are non-recurring. The Company continues
to implement its market consolidation strategy, which requires additional
selling and administrative support. In addition, the Company has started to
advertise its products in trade magazines and will participate in the Basel
jewelry packaging trade show in Switzerland, which U.S. buyers and end-users
attend.
The Company anticipates that net sales for the fourth quarter of the
fiscal year ended March 31, 1997 will be consistent with the trend of growth
experienced in recent periods. There can be no assurance, however, that such
sales will be achieved.
8
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LEADING EDGE PACKAGING, INC.
Liquidity and Capital Resources
During the nine months ended December 31, 1996, the Company used
approximately $1,166,000 in net cash for its operating activities, compared with
approximately $38,000 for the nine months ended December 31, 1995. This amount
primarily consisted of purchases of inventory, salaries, office equipment and
establishment of warehouse facilities. The Company's working capital increased
to approximately $8,510,000 at December 31, 1996 from approximately $193,000 at
December 31, 1995, reflecting the receipt of proceeds from the initial public
offering. The Company anticipates that the proceeds from the offering, together
with cash flows from operating activities and the possibility of obtaining one
or more lines of credit will be sufficient to meet its operating expenses into
fiscal 1998, including amounts needed to purchase inventory.
$5,500,000 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 been in
negotiation with several banks in New York and New Jersey to establish a credit
facility for working capital and trade finance.
9
<PAGE>
LEADING EDGE PACKAGING, INC.
PART II. OTHER INFORMATION
Item 1. None
Item 2. Changes in Securities
(c) 1996 Incentive Stock Option Plan
The Company previously established the 1996 Incentive Stock Option Plan
(the "Plan"). Options under the Plan may be granted permitting the purchase in
the aggregate of not more than 312,500 shares of the Company's common stock, par
value, $0.01 per share ("Common Stock"). On December 11, 1996, options (the
"1996 Options") to purchase up to 250,000 shares of Common Stock in the
aggregate were granted to officers and directors of the Company. One-third of
the 1996 Options become exercisable after each of 12 months, 30 months and 60
months, respectively. The stock options granted under this Plan are intended to
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The per share option
price of the Common Stock subject to each of the 1996 Options shall be $7.15,
which is equal to one hundred ten percent (110%) of the fair market value of
a share of Common Stock on the date that the options were granted. Shares of
Common Stock issued in exchange for options under the Plan will be restricted
against resale as necessary to qualify for exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless and until the
Company deems it appropriate to register such shares under the Securities Act.
Item 3. None
Item 4. None
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
10
<PAGE>
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.
LEADING EDGE PACKAGING, INC.
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
Financial Data Schedule (Exhibit 27)
(b) Reports on Form 8 - K
No reports on Form 8-K were filed during the quarter for which this
report is being filed.
11
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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: February 5, 1997 By: /s/ Casey K. Tjang
-------------------------------------
Casey K. Tjang
Director, Chief Financial Officer and
Secretary
Signing on behalf of the registrant as principal
accounting officer
12
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<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
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<ALLOWANCES> 0
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0
0
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