<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, 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.
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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 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 September 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 SEPTEMBER 30, 1999
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Balance Sheet 3
September 30, 1999 and March 31, 1999
Condensed Statement of Income 4
Three and Six Months Ended September 30, 1999 and 1998
Condensed Statement of Cash Flows 5
Three and Six Months Ended September 30, 1999 and 1998
Notes to Financial Statements 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 9
SIGNATURES 10
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Leading Edge Packaging, Inc.
Condensed Combined Balance Sheet
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 March 31
1999 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents $ 389 $ 227
Accounts Receivable $ 425 $ 751
Bills Receivable (Note 2) $ 208 $ 54
Inventories (Note 3) $ 2,493 $ 2,508
Prepaid expenses and other current assets $ 267 $ 215
Income Taxes receivable $ - $ 1,603
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Total Current assets $ 3,782 $ 5,458
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Property & Equipment, net of accumalated $ 1,965 $ 1,985
depreciation of $385 nd $238
=========== ===========
TOTAL ASSETS $ 5,747 $ 7,443
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LIABILITIES AND SHAREHOLDER EQUITY
CURRENT LIABILITIES
Accounts Payable $ 469 $ 295
Bills Payable $ 22 $ -
Accrued Liabilities $ 1,432 $ 1,648
Short-term Payable $ 4,931 $ 5,195
Current portion of long-term debt $ 10 $ 10
Amount due to related company $ 338 $ 420
Dividend Payable $ 89 $ 19
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TOTAL CURRENT LIABILITTIES $ 7,291 $ 7,587
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LONG TERM LIABILITIES
Deferred Income Taxes $ - $ -
Long Term Debt $ 22 $ 28
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TOTAL LONG TERM DEBT $ 22 $ 28
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Redeemable Preferred Stock, Authorized 5,000,000 share: $ 1,750 $ 1,750
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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 $ 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 $ 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 $ 500,000
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$1,750,000 $1,750,000
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SHAREHOLDER'S 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 $(10,670) $ (9,276)
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TOTAL SHAREHOLDER'S DEFICIT $ (3,316) $ (1,922)
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TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 5,747 $ 7,443
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</TABLE>
See accompanying Notes to Condensed Combined (Unaudited) Finacial Statements
<PAGE>
Leading Edge Packaging, Inc.
Condensed Combined Statement of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three MonthsEnded
September 30 September 30
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net sales $ 4,602 $ 9,240 $ 2,249 $ 4,801
Deconsolidation adjustments on Justrite $ - $ (5,049) $ - $ (2,638)
---------- ---------- ---------- ----------
Adjusted Amount $ 4,602 $ 4,191 $ 2,249 $ 2,163
Cost of Goods Sold $ 3,855 $ 6,033 $ 1,895 $ 3,265
Deconsolidation adjustments on Justrite $ - $ (2,984) $ - $ (1,522)
---------- ---------- ---------- ----------
Adjusted Amount $ 3,855 $ 3,049 $ 1,895 $ 1,743
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Gross (Loss)/Profit $ 747 $ 1,142 $ 354 $ 420
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Selling, General, & Administrative Expenses $ 1,843 $ 2,572 $ 881 $ 1,339
$ - $ (1,260) $ - $ (643)
---------- ---------- ---------- ----------
Adjusted Amount $ 1,843 $ 1,312 $ 881 $ 696
---------- ---------- ---------- ----------
Operating (Loss)/Income $ (1,095) $ (170) $ (527) $ (276)
---------- ---------- ---------- ----------
Interest Expense Net of Interest Income $ (234) $ (197) $ (113) $ (87)
Deconsolidation Adjustment on Justrite $ - $ 160 $ - $ 62
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$ (234) $ (37) $ (113) $ (25)
Other Income $ 19 $ 112 $ 19 $ 66
Deconsolidation Adjustments on Justrite $ - $ (90) $ - $ (4)
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$ 19 $ 22 $ 19 $ 62
(Loss)/Income before Income Taxes $ (1,311) $ (185) $ (621) $ (239)
---------- ---------- ---------- ----------
Provision For Income Taxes $ 13 $ (62) $ 13 $ (103)
Deconsolidation Adjustments on Justrite $ - $ 63 $ - $ 104
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$ 13 $ 1 $ 13 $ 1
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Net (Loss)/Income $ (1,324) $ (186) $ (634) $ (240)
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Accumalative Preferred Stock Dividend $ 70 - $ 35 $ -
Net (Loss) Income Attributable to common
stock shareholders $ (1,394) $ (186) $ (669) $ (240)
========== ========== ========== ==========
Net (Loss) Income Attributable to common
stock shareholders before deconsolidated
adjustment N/A $ 612 N/A $ 279
========== ========== ========== ==========
Basic & Diluted Earnings per share $ (0.25) $ (0.03) $ (0.12) $ (0.04)
---------- ---------- ---------- ----------
Basic & Diluted Earnings per share before
Deconsolidated Adjustment N/A $ 0.11 N/A $ 0.05
---------- ---------- ---------- ----------
Weighted Average of Shares Outstanding $5,562,500 $5,562,500 $5,562,500 $5,562,500
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Condensed Combined (Unaudited) Finacial Statements
<PAGE>
Leading Edge Packaging, Inc.
Condensed Combined Staement of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended Three Months Ended
<TABLE>
<CAPTION>
September 30 September 30
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Cash Flows from operating activities:
Net (Loss)/Income before dividend $(1,324) $ (186) $ (704) $ (240)
Adjustments to reconcile net income to net
Cash provided (used in) activities:
Depreciation and Amortization $ 147 $ 53 $ 77 $ 27
Net increase (decrease) in cash due to
changes in current assets and liabilities $ 1,830 $(2,509) $1,223 $(2,034)
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Net cah provided by (used in) operating activities: $ 653 $(2,642) $ 596 $(2,247)
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Cash Flows from Investing Activities:
Proceeds from sale of property, plant and equipment $ - $ - $ 46 $ -
Purchase of Property, Plant & Equipment $ (127) $ (25) $ - $ -
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Net Cash Used in Investing Activities $ (127) $ (25) $ 46 $ -
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Cash Flows from Financing Activities:
Bank Loan Raised $ - $ 2,500 $ - $ 2,500
Repayments of short-term borrowings $ (358) $ - $ (545) $ -
Repayments of long-term borrowings $ (6) $ - $ (3) $ -
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New Cash (used in) provided by financing activities $ (364) $ 2,500 $ (548) $ 2,500
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Net Increase (decrease) in cash and cash equivalents $ 162 $ (167) $ 94 $ 253
Cash & cash equivalents at the beginning of the period $ 227 $ 911 $ 295 $ 491
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Cash & Cash equivalents at the end of the period $ 389 $ 744 $ 389 $ 744
======= ======= ====== =======
Supplemental disclosures of cash flow information:
Interest Paid $ 23 $ -
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Taxes Paid $ 13 $ -
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</TABLE>
<PAGE>
LEADING EDGE PACKAGING, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited financial statements of Leading Edge
Packaging, Inc. (the "Company") as of September 30, 1999 and March 31, 1999 and
for the period of three and six months ended September 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-and-six-month period ended
September 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 and six months ended September 30, 1999 and 1998 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 September 30, 1999, the Company had bills receivable outstanding of
$208,000.
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.
<PAGE>
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 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 September 30, 1999 to the three
months ended September 30, 1998.
The Company has presented its results of operations for the three
months ended September 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.
Net sales for the three months ended September 30, 1999 were
approximately $2,249,000 an increase of $86,000 or 4% from approximately
$2,163,000 for the three months ended September 30, 1998. The increase in sales
is due to the gradual recovery of our sales to international customers. The
Company continues to focus efforts on increasing sales to its North America
customers.
<PAGE>
Cost of goods sold for the three months ended September 30, 1999 was
Approximately $1,895,000, an increase of $152,000 or 9% from approximately
$1,743,000 for the three months ended September 30, 1998. The increase of cost
of goods sold is due to the corresponding increase in sales and the higher
workforce wages. The higher work force employed is in anticipation of increasing
ourproduction output in the following quarter. Higher work force wages also
attributed 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
September 30, 1999 were approximately $881,000, an increase of $185,000 from
approximately $696,000 for the three months ended September 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 domicile in the States of California and Florida
in our direct marketing efforts, which is necessary as we strive to rely less on
our distributors.
The net loss before interest and tax of approximately $621,000 for the
three months ended September 30, 1999 reflects an increase of $382,000 or 160%
as compared to a loss of $239,000 for the three months ended September 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 $634,000 for the
three months ended September 30, 1999 reflects an increase of $394,000 or 164%
as compared toa net loss of approximately $240,000 for the three months ended
September 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 $(3,509,000) at September 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 September 30, 1999, these borrowings totaled approximately
$4,931,000. 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 two letters 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, there is no
guarantee such resolution of these issues may produce this effect.
Item 3. Not applicable.
<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 two demand letters 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
$4,966,215.04, including principal of $4,698,302.51 and accrued and unpaid
interest of $267,912.53. 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.
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.
<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: November 17, 1999 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
