<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: December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTON 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 incorporation (I.R.S. Employer Identification
or organization) 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 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
stock: As of December 31, 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, 1997
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- -------
Item 1. Financial Statements
Condensed Balance Sheet 1
December 31, 1997 and December 31, 1996
Condensed Statement of Income 2
Three Months and Nine Months Ended
December 31, 1997 and 1996
Condensed Statement of Cash Flows 3
Three and Nine Months Ended
December 31, 1997 and 1996
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of 5-6
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
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Item 2. None 6
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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LEADING EDGE PACKAGING, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31,
1997 1996
-------- --------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash & cash equivalents $ 672 $ 5,595
Accounts receivable 3,669 843
Bills receivable (Note 2) 1,270 1,621
Inventories (Note 3) 1,660 613
Deposits to related party/holding co. 816
Receivables from a related party/holding co. 2,700
Prepaid expenses 149 1,353
------- -------
Total Current Assets $10,936 10,025
Property and equipment
Net of accumulation depreciation 251 193
------- -------
TOTAL ASSETS $11,187 $10,218
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 110 168
Accounts payable to related party/holding co. 377
Bills payable 699
Accrued expenses 72
Income Taxes payable 231 898
------- -------
Total Current Liabilities $ 1,040 $ 1,515
------- -------
LONG TERM LIABILITIES
Capital Lease Obligations 5 -
------- -------
SHAREHOLDERS' EQUITY
Common Stock, par value $0.01 per share,
Authorized 5,000,000 shares,
Issued and outstanding 3,312,500 shares in 1997 33 33
Additional paid in capital 7,062 7,205
Retained earnings 3,047 1,465
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Total Shareholders' Equity 10,142 8,703
------- -------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $11,187 $10,218
======= =======
</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 Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 3,262 $ 3,695 $ 9,043 $ 9,247
Cost of goods sold 2,206 2,545 5,849 6,281
---------- ---------- ---------- ----------
Gross profit 1,056 1,150 3,194 2,966
Selling, general, and administrative
Expenses 649 341 1,675 616
---------- ---------- ---------- ----------
Operating income $ 407 $ 809 $ 1,519 $ 2,350
Other income (expense)- Net
Interest income net of interest expense (59) 13 2 13
---------- ---------- ---------- ----------
Income before income taxes 348 822 1,521 2,363
---------- ---------- ---------- ----------
Provision for income taxes 119 312 565 898
---------- ---------- ---------- ----------
Net income $ 229 $ 510 $ 956 $ 1,465
========== ========== ========== ==========
Net income per share primary
and fully diluted $ .07 $ .22 $ .29 $ .72
========== ========== ========== ==========
Weighted average of
Shares outstanding 3,312,500 2,343,750 3,312,500 2,031,818
========== ========== ========== ==========
Net income per share
fully diluted $ .07 $ .15 $ .29 $ .44
========== ========== ========== ==========
Total shares outstanding 3,312,500 3,312,500 3,312,500 3,312,500
========== ========== ========== ==========
</TABLE>
See accompanying Notes to (Unaudited) Financial statements
2
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LEADING EDGE PACKAGING, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 229 $ 510 $ 956 $ 1,465
Adjustment to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 20 4 56 4
Net increase (decrease) in cash due to
Changes in current assets and liabilities (1,706) (1,680) (5,518) (2,600)
------- ------- ------- -------
Net cash provided by (used in) operating
activities: (1,457) (1,166) (4,506) (1,131)
Cash flows from investing activities:
Purchase of property and equipment 0 (164) (33) (164)
------- ------- ------- -------
Net cash (used in) investing activities 0 (164) (33) (164)
Cash flows from financing activities:
Proceeds from Initial public offering 6,738 6,738
Proceeds from Banker's acceptances 451 152 478 152
Repayment of capital lease obligations (1) (1)
------- ------- ------- -------
Net cash provided by financing activities 450 6,890 477 6,890
Net increase (decrease) in cash and cash
equivalents (1,007) 5,560 (4,062) 5,595
Cash and cash equivalents at the beginning
of period 1,679 35 4,734 0
------- ------- ------- -------
$ 672 $ 5,595 $ 672 $ 5,595
======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Interest paid $ 55 - 64 -
------- ------- ------- -------
Taxes paid $ 932 - $ 1,384 -
------- ------- ------- -------
Supplemental disclosure of non-cash financing
activities:
Contribution of additional paid in capital
by a reduction of account payable $ - 0 - $ - 0 - $ - 0 - $ - 0 -
------- ------- ------- -------
</TABLE>
See Accompanying Notes to (Unaudited) Financial Statement
3
<PAGE>
LEADING EDGE PACKAGING, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Leading Edge Packaging,
Inc. (the "Company") as of December 31, 1997 and December 31, 1996 for the
three and nine 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 December 31,
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 December 31, 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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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 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 65,000 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 DECEMBER 31, 1997 TO THE THREE MONTHS
ENDED DECEMBER 31, 1996.
Net sales for the three months ended December 31, 1997 were approximately
$3,262,000 a decrease of $433,000 or 11.7% from approximately $3,695,000 for
the three months ended December 31, 1996. The Company's soft 3rd Quarter's
sales were largely caused by unusual pricing tactics of many Asian
manufacturers selling products to the U.S. during recent currency and
economic turmoil. The Company is reviewing its pricing strategy, and will
further strengthen its marketing and sales force to off-set such Asian
manufacturing pricing pressure.
Cost of goods sold for the three months ended December 31, 1997 was
approximately $2,206,000, a decrease of $339,000 or 13.3% from approximately
$2,545,000 for the three months ended December 31, 1996. As a percentage of net
sales, cost of goods sold for the three months ended December 31, 1996 was 68.9%
or 2.3% higher compared to 67.6% for the three months ended December 31, 1997.
Improved gross margin was primarily due to savings on consolidation of shipments
and freight. Pursuant to the Distribution Agreement between Rich City
International Packaging, Ltd. (the "Rich City") and the Company, the Company
pays to Rich City a mark-up over wholesale price of between 6% and 8%, which
covers all of Rich City's General, Selling and Administrative costs to process
orders for the Company. However, with the completion of reverse merger with
Rich City, the Company will become the parent company of Rich City and will
eliminate such cost of a 6% and 8% mark-up over the wholesale price.
Selling, general and administrative expenses for the three months ended
December 31, 1997 were approximately $649,000, an increase of $308,000 from
approximately $341,000 for the three months ended December 31, 1996. For the
three months ended December 31, 1997, these expenses primarily consisted of
adding personnel for tele-marketing, warehouse operation and promotional
expenses for "Hang Ten" watches, 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 expenses for the three months
ended December 31, 1996 reflect only the costs incurred to
5
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LEADING EDGE PACKAGING, INC.
establish facilities in the U.S., which, at the time, were not fully staffed and
operational.
The Company had net income of approximately $229,000 (or $0.7 per share on
a fully diluted basis) for the three months ended December 31, 1997, compared to
net income of approximately $510,000 (or $0.15 per share on a fully diluted
basis ) for the three months ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1997, the Company used
approximately $1,007,000 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 $9,896,000 at December 31, 1997 from approximately $8,510,000 at
December 31, 1996, reflecting the major part of cash from the proceeds from
sales for the nine-month period ended December 31, 1997. 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.
$672,000 of the proceeds from the Company's initial public offering is
currently invested in money market funds, which allow for liquidity. The
decrease of $1,007, 000 from $1,679,000 was due to tax payments of $643,895 and
$288,275 estimated tax to Federal government for the fiscal years 1997 and 1998,
respectively. 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. The Company has received an additional offer of $5,000,000
from the Bank for acquisition purpose.
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>
LEADING EDGE PACKAGING, INC.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27. Financial Data Schedule
B. Reports on Form 8-K
The Company filed Form 8-K with respect to the acquisition of
Justrite Investments, Ltd., on January 30, 1998, from Chung Hwa
Development Holdings Limited, Hong Kong. Form 8-K were filed
during the quarter for which this report is being filed.
8
<PAGE>
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 12, 1998 By: /s/ Casey K. Tjang
--------------------
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 Summary Financial information Extracted from Leading Edge
Packaging's Financial Statement For the Quarter ended December 31, 1997 and the
Nine months ended December 31, 1997 and is qualified in its entirety by
Reference to such Financial Statements.
</LEGEND>
<CIK> 0001021549
<NAME> LEADING EDGE PACKAGING, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997 MAR-31-1998 MAR-31-1997
<PERIOD-START> OCT-01-1997 OCT-01-1996 APR-01-1997 APR-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1997 DEC-31-1996
<CASH> 672 5,595 0 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 7,639 2,464 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 1,660 613 0 0
<CURRENT-ASSETS> 10,936 10,025 0 0
<PP&E> 251 193 0 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 11,187 10,218 0 0
<CURRENT-LIABILITIES> 1,040 1,515 0 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 33 33 0 0
<OTHER-SE> 10,109 8,670 0 0
<TOTAL-LIABILITY-AND-EQUITY> 11,187 10,218 0 0
<SALES> 3,262 3,695 9,043 9,247
<TOTAL-REVENUES> 3,262 3,695 9,043 9,247
<CGS> 2,206 2,545 5,849 6,281
<TOTAL-COSTS> 649 341 1,675 616
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> (59) 13 2 13
<INCOME-PRETAX> 348 822 1,521 2,363
<INCOME-TAX> 119 312 565 898
<INCOME-CONTINUING> 229 510 956 1,465
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 229 510 956 1,465
<EPS-PRIMARY> .07 .22 .29 .72
<EPS-DILUTED> .07 .15 .29 .44
</TABLE>
