<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: June 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTON 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No.: 000-28868
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LEADING EDGE PACKAGING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3432883
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(State or other jurisdiction of incorporation (I.R.S. Employer
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 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 June 30, 1999 the issuer had 5,562,500 shares of its common stock,
par value $.01 per share, outstanding.
<PAGE>
LEADING EDGE PACKAGING, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Balance Sheet 2
June 30, 1999 and March 31, 1999
Condensed Statement of Income 3
Three Months Ended June 30, 1999 and 1998
Condensed Statement of Cash Flows 4
Three Months Ended June 30, 1999 and 1998
Notes to Financial Statements 5-6
Item 2. Management's Discussion and Analysis of 7-8
Financial Condition and Results of Operations
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 5. Other Information 10
Item 6. Exhibits and reports on Form 8K 11
SIGNATURES 12
<PAGE>
LEADING EDGE PACKAGING, INC
CONDENSED COMBINED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
June 30 March 31
1999 1999
---- ----
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash & cash equivalents $ 295 $ 227
Accounts receivable 871 751
Bills receivable (Note 2) 0 54
Inventories (Note 3) 2,583 2,608
Prepaid expenses and other current assets 201 215
Income taxes receivable 1,515 1,603
--------- --------
Total current assets 5,465 5,458
--------- --------
Property and equipment, net of accumulated 2,088 1,985
depreciation of $308 and $238 --------- --------
TOTAL ASSETS $ 7,553 $ 7,443
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Account payable 1,654 295
Bills payable 134 -
Accrued liabilities 771 1,648
Short-term payable 5,382 5,195
Current portion of long-term debt 10 10
Amount due to related company 420 420
Dividend payable 54 19
--------- --------
TOTAL CURRENT LIABILITIES 8,425 7,587
--------- --------
LONG TERM LIABILITIES
Long-term debt 25 28
--------- --------
TOTAL LONG TERM DEBT 25 28
--------- --------
Redeemable preferred stock, authorized 5,000,000 share 1,750 1,750
--------- --------
Series A, $0.01 par value, with a redemption and liquidation
value of $0.75 per share; 1,000,000 shares issued and
outstanding 750,000 -
Series B, $0.01 par value, with a redemption and liquidation
value of $1.00 per share; 500,000 shares issued and
outstanding 500,000 -
Series C, $0.01 par value, with a redemption and liquidation
value of $1.00 per share; 500,000 shares issued and
outstanding 500,000 -
--------- --------
1,750,000 -
--------- --------
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share,
authorized 8,000,000 shares,
issued and outstanding 5,562,500 shares 56 56
Additional paid in capital 7,298 7,298
Retained (loss) / earnings (10,001) (9,276)
-------- --------
TOTAL SHAREHOLDERS' DEFICIT (2,647) (1,922)
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 7,553 $ 7,443
======== ========
</TABLE>
See Accompanying Notes to Condensed Combined (Unaudited) Financial Statements
-2-
<PAGE>
LEADING EDGE PACKAGING, INC
CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1999 1998
---- ----
<S> <C> <C>
Net sales $ 2,353 $ 4,439
Deconsolidations adjustment on Justrite - (2,410)
-------- --------
Adjusted amount 2,353 2,029
Cost of goods sold 1,960 2,768
Deconsolidations adjustment on Justrite - (1,462)
-------- --------
Adjusted amount 1,960 1,306
-------- --------
Gross (loss) / profit 393 723
-------- --------
Selling, general, and administrative expenses 962 1,233
Deconsolidations adjustment on Justrite - (617)
-------- --------
Adjusted amount 962 616
-------- --------
Net (loss)/income before interest & tax (569) 107
-------- --------
Interest expense net of interest income (121) (110)
Deconsolidations adjustment on Justrite - 98
-------- --------
(121) (12)
Net (loss)/income before income taxes (690) 95
-------- --------
Provision for income taxes - 41
-------- --------
Net (loss)/income (690) 54
-------- --------
Accumulative preferred stock dividend 35 -
Net (loss) income attributable to common
stock shareholders $ (725) $ 54
======== ========
Basic and diluted earnings per share $ (0.13) $0.01
Net (loss) income attributable to common
stock shareholders before deconsolidated
Adjustment N/A $ 333.00
========= =========
Basic and diluted earning per share before N/A $ 0.06
deconsolidated adjustment --------- ---------
Weighted average of shares outstanding 5,562,500 5,562,500
========= =========
</TABLE>
See Accompanying Notes to Condensed Combined (Unaudited) Financial Statements
-3-
<PAGE>
LEADING EDGE PACKAGING, INC
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30
1999 1998
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) / income $ (690) $ 54
Adjustment to reconcile net income to net
cash provided (used in) activities:
Depreciation and amortization 70 27
Net increase (decrease) in cash due to
changes in current assets and liabilities 677 (476)
-------- --------
Net cash provided by (used in) operating activities: 57 (395)
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment
Net cash used in investing activities (173) (25)
-------- --------
(173) (25)
-------- --------
Cash flow from financing activities:
Proceeds from short-term borrowings 187 -
Repayments of long-term borrowings (3) -
-------- --------
Net cash (used in) provided by financing activities 184 -
-------- --------
Net increase (decrease) in cash and cash equivalents 68 (420)
Cash and cash equivalents at the beginning of period 227 911
-------- --------
Cash and cash equivalents at the end of period $ 295 $ 491
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ - $ (12)
-------- --------
Taxes paid $ - $ 479
-------- --------
</TABLE>
See Accompanying Notes to Condensed Combined (Unaudited) Financial Statements
-4-
<PAGE>
LEADING EDGE PACKAGING, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited financial statements of Leading Edge
Packaging, Inc. (the "Company") as of June 30, 1999 and March 31, 1999 and for
the three-month period ended June 30, 1999 and 1998 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 June 30,
1999 and 1998 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, 1999.
The Condensed Combined Statement of Income and Statement of Cash Flows
for the three months ended June 30, 1999 have been adjusted to reflect the
deconsolidation adjustments on Justrite Investments Limited. Justrite
Investments Limited previously served as the investment holding company for the
companies other overseas operating subsidiaries. Justrite has ceased its
activities due to the liquidation of all of its operating subsidiaries.
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 June 30, 1999, the Company had no bills receivable outstanding.
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LEADING EDGE PACKAGING, INC.
Note 3. Inventories
Inventories held for resale are stated at the lower of cost, determined
by the first-in, first out method, or value determined by the market. Finished
goods inventories consist of raw materials, direct labor, and overhead
associated with the manufacture process.
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<PAGE>
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 manufactures, sells and distributes worldwide 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 a
warehouse and distribution facility of a 33,000 square-foot office and light
assembly in Raritan Center Industrial Park, Edison, New Jersey. The Company has
two principal overseas subsidiaries, The LEPI China Limited in Hong Kong, an
international trading company, and LEPI (Zhongshan) Manufacturing Company
Limited ("LEPI Manufacturing") in China, a manufacturing subsidiary. LEPI
Manufacturing occupies approximately 230,000 square feet, can employ up to 2,500
workers and is managed with a focus on worker safety and welfare. It is a fully
integrated plant which is equipped with computerized injection molding machines,
automatic printing equipment, automatic stamping presses, automatic vacuum
forming machine, high precision paper cutters, CNC wire cutters, a high
precision milling machine, a lather, sewing machines and heating conveyor
systems to air dry all products. The Company believes that it is the only plant
in the industry which as its own fully equipped laboratory including a
spectrometer, gas chromatograph, ph microprocessor, colorimeter, hardness
tester, bonding/stress tester and a titration system which enables the testing
of all raw materials to meet specific standards. The plant is designed to
improve productivity and efficiency over that of the Company's prior joint
venture factory. The Company believes that this is important in order for it to
remain competitive in the industry and position the Company for future growth.
Results of Operations
Comparison of the three months ended June 30, 1999 to the three months
ended June 30, 1998.
The Company has presented its results of operations for the three
months ended June 30, 1998 both before and after deconsolidating amounts
attributable to Justrite Investments Limited. The financial data for Justrite,
the Company's former holding company subsidiary, was consolidated into the
Company's results of operations in its Quarterly Report on Form 10-Q for the
three months ended June 30, 1998. However, because the operating subsidiaries
owned by Justrite are currently in liquidation and it is no longer active, the
deconsolidated results for each quarter during the fiscal year ended March 31,
1999 were presented in the Company's Annual Report on Form 10-K on an unaudited
basis. Management believes that the deconsolidated data provides a more
meaningful and accurate basis for comparison and, accordingly, has used these
amounts as the basis of its analysis below.
-7-
<PAGE>
Net sales for the three months ended June 30, 1999 were approximately
$2,353,000 an increase of $324,000 or 16% from approximately $2,029,000 for the
three months ended June 30, 1998. The increase in sales is due to the recovery
of our sales to international customers. The Company continues to focus efforts
on increasing sales to its North America customers.
Cost of goods sold for the three months ended June 30, 1999 was
approximately $1,960,000, an increase of $654,000 or 50.0% from approximately
$1,306,000 for the three months ended June 30, 1998. The increase of cost of
goods sold is due to the corresponding increase in sales and the higher work
force wages. The higher work force employed is in anticipation of increasing our
production output in the following quarter. This is necessary due to the need to
train the new workers. The disposal of inventory at a lower margin has a
resulting effect in a higher cost of sales.
Selling, general and administrative expenses for the three months ended
June 30, 1999 were approximately $962,000, an increase of $346,000 from
approximately $616,000 for the three months ended June 30, 1998. The increase in
selling, general and administrative expenses is primarily due to the aggressive
marketing and sales program of the Company. This includes recruiting more
marketing and sales people in our direct marketing efforts which is necessary as
we strive to rely less on our distributors. The participation in the Basel,
Switzerland trade show and the expenses incurred in the Grand Opening
Cerebration of our new modern production facilities in China added to this
increase.
The net loss before interest and tax of approximately $569,000 for the
three months ended June 30, 1999 reflects a decrease of $676,000 or 631% as
compared to a profit of $107,000 for the three months ended June 30, 1998. This
was due to a higher cost of sales and higher general, sales and administrative
expenses as explained above.
The net loss after interest and tax of approximately $690,000 for the
three months ended June 30, 1999 reflects a decrease of $785,000 or 726% as
compared to a net profit of approximately $95,000 for the three months ended
June 30, 1998. This was due to large loan and higher interest rate and the
result of above.
Liquidity and Capital Resources
The Company is currently facing a period of restricted cash flow and a
shortage of capital resources. While it endeavors to regain the confidence and
loyalty of its customer base, the Company has experienced difficulty in
obtaining trade financing from suppliers and vendors. The Company had negative
working capital of approximately $(2,960,000) at June 30, 1999, compared with
$(2,129,000) at March 31, 1999. At March 31, 1999, the Company's credit
facilities were terminated, and it had borrowings under previously available
facilities. At June 30, 1999, these borrowings totaled approximately $5,382,000.
The lines of credit extended to the Company by First Union were converted to
term loans which expired on August 15, 1999. The Company has received a letter
from First Union demanding payment for these loans. The Company's officers are
presently attempting to negotiate with First Union to reach a mutually agreeable
plan to extinguish the loans. Management believes that the resolution of certain
issues relating to the Company's current capital structure and the liquidation
of its subsidiaries in Hong Kong and China should enable it to begin to overcome
its liquidity concerns. However, resolution of these issues may not produce this
effect.
Item 3. Not applicable.
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<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) In connection with the issuance of preferred stock to certain
accredited investors as described in (c) below, the Company filed a Certificate
of Designations, designating the preferred stock and its rights and preferences.
This certificate effects an amendment to the Company's Certificate of
Incorporation, although, as provided in the Certificate of Incorporation, it
does not require approval of the stockholders of the Company. In addition, the
Company has amended its Amended and Restated By-laws in connection with the
issuance of the preferred stock. This amendment defines the rights of the
holders of the preferred stock vis a vis holders of the common stock.
(b) Not applicable.
(c) The Company has completed the issuance of its Series A, B and C 8%
Cumulative Redeemable Preferred Stock. 500,000 shares of Series B were issued to
BroadAsia LLC, the holder of all of the existing Series A preferred shares, at a
price of $1.00 per share. 500,000 shares of Series C were issued to two
accredited investors, also at a price of $1.00 per share. The Company issued
1,000,000 Series A shares to BroadAsia LLC in exchange for 1,000,000 shares of
Series A 8% Redeemable Preferred Stock, which it previously held. The shares
were issued under Section 4(2) of the Securities Act and Rule 506 of Regulation
D thereunder based on the limited nature of the offering, the accredited status
of the investors and the fact that the shares issued to BroadAsia LLC were
pursuant to a negotiated transaction for a controlling interest in the Company.
The Series B and C shares were funded in February and March of 1999,
respectively, and accordingly, were treated as issued and outstanding at year
end for financial reporting purposes. Similarly, because the Series A shares
were issued in exchange for an equivalent amount of then outstanding shares,
they were also treated as issued and outstanding.
Item 3. Defaults upon Senior Securities
The Company has received a demand letter under certain term loans,
which arose from conversion of the Company's credit facilities under its Loan
Agreement, dated September 25, 1997, with First Union National Bank, Edison, New
Jersey. The amount currently outstanding and demanded under the term loans is
$4,873,947.31, including principal of $4,698,302.51 and accrued and unpaid
interest of $178,644.80. The Company announced that it was in technical default
under the Loan Agreement in its form 10-Q for the three months ended December
31, 1998.
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<PAGE>
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.
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<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
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<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: August 16, 1999 By: /s/ Casey K. Tjang
--------------------------------
Casey K. Tjang
Director, Chief Financial Officer and
Secretary
Signing on behalf of the registrant
as principal accounting officer.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements of Leading Edge Packaging, Inc. and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 871
<ALLOWANCES> 0
<INVENTORY> 2,583
<CURRENT-ASSETS> 5,465
<PP&E> 2,088
<DEPRECIATION> 308
<TOTAL-ASSETS> 7,553
<CURRENT-LIABILITIES> 8,425
<BONDS> 0
0
1,750
<COMMON> 56
<OTHER-SE> (2,703)
<TOTAL-LIABILITY-AND-EQUITY> 7,553
<SALES> 2,353
<TOTAL-REVENUES> 0
<CGS> 1,960
<TOTAL-COSTS> 1,960
<OTHER-EXPENSES> 1,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> (690)
<INCOME-TAX> 0
<INCOME-CONTINUING> (690)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (690)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
