<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, 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 December 31, 1999 the issuer had 5,562,500 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 December 31, 1999
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Balance Sheet
December 31, 1999 and March 31, 1999 3
Condensed Statement of Income
Three and Nine Months Ended December 31, 1999
and March 31, 1998 4
Condensed Statement of Cash Flows
Three and Nine Months Ended December 31, 1999
and March 31, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Part II. OTHER INFORMATION
Item 1. Legal Proceeding 9
Item 3. Defaults Upon Senior Securities & Creditors in China 9
Item 5. Other Information
Changes in Directors and Officers 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>
December 31 March 31
1999 1999
----------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents $ 191 $ 227
Accounts Receivable $ 714 $ 751
Bills Receivable (Note 2) $ - $ 54
Inventories (Note 3) $ 2,391 $ 2,508
Prepaid expenses and other current assets $ 339 $ 215
Income Taxes receivable $ 20 $ 1,603
--------- -------
Total Current assets $ 3,655 $ 5,458
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Property & Equipment, net of accumalated
depreciation of $454 $ 1,935 $ 1,985
--------- -------
TOTAL ASSETS $ 5,590 $ 7,443
========= =======
LIABILITIES AND SHAREHOLDER EQUITY
CURRENT LIABILITIES
Accounts Payable $ 856 $ 295
Bills Payable $ 74 $ -
Accrued Liabilities $ 1,395 $ 1,648
Short-term Payable $ 4,994 $ 5,195
Current portion of long-term debt $ 10 $ 10
Amount due to related company $ 338 $ 420
Dividend Payable $ 124 $ 19
--------- -------
TOTAL CURRENT LIABILITTIES $ 7,791 $ 7,587
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LONG TERM LIABILITIES
Deferred Income Taxes $ - $ -
Long Term Debt $ 18 $ 28
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TOTAL LONG TERM DEBT $ 18 $ 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 $ -
Series B, $0.01 par value, with a redemption and liquidation
value of $1.00 per share: 500,000 shares issued and
outstanding.............................. $ 500 $ -
Series C, $0.01 par value, with a redemption and liquidation
value of $1.00 per share: 500,000 shares issued and
outstanding........................ $ 500 $ -
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$ 1,750 $ -
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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 $ (11,323) $(9,276)
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TOTAL SHAREHOLDER'S DEFICIT $ (3,969) $(1,922)
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TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 5,590 $ 7,443
========= =======
</TABLE>
See accompanying Notes to Condensed Combined (Unaudited) Financial Statements.
<PAGE>
Leading Edge Packaging, Inc.
Condensed Combined Statement of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 6,910 $ 5,628 $ 2,308 $ 1,437
Cost of Goods Sold $ 5,798 $ 4,323 $ 1,942 $ 1,274
----------- ------------ ----------- -----------
Gross (Loss)/Profit $ 1,112 $ 1,305 $ 366 $ 163
----------- ------------ ----------- -----------
Selling, General, & Administrative Expenses $ 2,752 $ 2,482 $ 909 $ 1,206
----------- ------------ ----------- -----------
Operating (Loss)/Income $ (1,640) $ (1,177) $ (543) $ (1,043)
----------- ------------ ----------- -----------
Interest Expense Net of Interest Income $ (338) $ (61) $ (105) $ (9)
Liquidation of subsidiary (loss) $ - $ (8,440) $ - $ (8,440)
----------- ------------ ----------- -----------
$ (1,978) (9,678) $ (648) $ (9,492)
Other Income $ 49 $ - $ 30 $ -
----------- ------------ ----------- -----------
(Loss)/Income before Income Taxes $ (1,929) $ (9,678) $ (618) $ (9,492)
----------- ------------ ----------- -----------
Provision For Income Taxes $ 13 $ - $ - $ -
Net (Loss) Income $ (1,942) $ (9,678) $ (618) $ (9,492)
----------- ------------ ----------- -----------
Accumalative Preferred Stock Dividend $ 105 $ - $ 35 $ -
Net (Loss) Income Attributable to common
stock shareholders $ (2,047) $ (9,678) $ (653) $ (9,492)
=========== ============ =========== ===========
Basic & Diluted Earnings per share $ (0.37) $ (1.74) $ (0.12) $ (1.70)
----------- ------------ ----------- -----------
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) Financial Statements
<PAGE>
Leading Edge Packaging, Inc.
Condensed Combined Statement of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows from operating activities:
Net (Loss)/Income $(1,942) $(9,678) $ (618) $(9,492)
Adjustments to reconcile net income to net
Cash provided (used in) activities:
Depreciation and Amortization $ 216 $ 82 $ 69 $ 53
Loss on liquidation of subsidiary $ -- $ 8,440 $ -- $ 8,440
Net increase (decrease) in cash due to
changes in current assets and liabilities $ 2,067 $ 1,584 $ 237 $ 2,039
------- ------- ------- -------
Net cah provided by (used in) operating activities: $ 341 $ 428 $ (312) $ 1,040
------- ------- ------- -------
Cash Flows from Investing Activities:
Advance to related company $ -- $(4,135) $ -- $(2,080)
Purchase of Property, Plant & Equipment $ (166) $ (173) $ (39) $ (173)
------- ------- ------- -------
Net Cash Used in Investing Activities $ (166) $(4,308) $ (39) $(2,253)
------- ------- ------- -------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings $ -- $ 2,986 $ -- $ 486
Proceeds from convertible sub-debt $ -- $ 350 $ -- $ 350
Repayments of long-term borrowings $ (10) $ (1) $ (4) $ (1)
-------
Repayments of short-term borrowings $ (201) $ -- $ 157 $ --
------- ------- ------- -------
New Cash (used in) provided by financing activities $ (211) $ 3,335 $ 153 $ 835
------- ------- ------- -------
Net Increase (decrease) in cash and cash equivalents $ (36) $ (545) $ (198) $ (378)
Cash & cash equivalents at the beginning of the period $ 227 $ 912 $ 389 $ 745
------- ------- ------- -------
Cash & Cash equivalents at the end of the period $ 191 $ 367 $ 191 $ 367
======= ======= ======= =======
Supplemental disclosures of cash flow information:
Interest Paid $ 52 $ 80 $ 29 $ 47
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Taxes Paid $ 13 $ -- $ -- $ --
------- ------- ------- -------
</TABLE>
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LEADING EDGE PACKAGING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited financial statements of Leading Edge
Packaging, Inc. (the "Company") as of December 31, 1999 and March 31, 1999 and
for the period of nine and three months ended December 31, 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 nine-and-three-month period ended
December 31, 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 nine and three months ended December 31 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.
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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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 nine months ended December 31, 1999 to the three
months ended December 31, 1998.
The Company has presented its results of operations for the three
months ended December 31, 1999 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 December 31, 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 December 31, 1999 were
approximately $2,308,000 an increase of $871,000 or 61% from approximately
$1,437,000 for the three months ended December 31, 1998. The increase in sales
is due to the gradual recovery of our sales to international customers and new
accounts in the U.S.. The Company continues to focus efforts on increasing sales
to its North America customers.
<PAGE>
Cost of goods sold for the nine months ended December 31, 1999 was
Approximately $5,798,000, an increase of $1,475,000 or 34% from approximately
$4,323,000 for the nine months ended December 31, 1998. The increase of cost of
goods sold is due to the corresponding increase in sales and the higher
workforce wages and lack of trade financing lines of credit. The higher work
force employed is in anticipation of increasing our production 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
December 31, 1999 were approximately $909,000, a decrease of $297,000 from
approximately $1,274,000 for the three months ended December 31, 1998. The
decrease in selling, general and administrative expenses is primarily due to the
stable marketing and sales program of the Company.
The net loss before interest and tax of approximately $618,000 for the
three months ended December 31, 1999 reflects a significant decrease of
$8,844,000 or 143% as compared to a loss of $9,492,000 for the three months
ended December 31, 1998. This was due to a higher sales and lower general, sales
and administrative expenses as explained above.
The net loss after interest and tax of approximately $618,000 for the
three months ended December 31, 1999 reflects a decrease of $8,874,000 or 143%
as compared to a net loss of approximately $9,492,000 for the three months ended
December 31, 1998. This was due to loss of sales in conjunction with closing of
the joint venture production facility on November 23, 1998 and higher interest
rate and the result of above.
Liquidity and Capital Resources
Although it has regained the confidence and loyalty of its customer
base, the Company continues to experience difficulty in obtaining trade
financing from suppliers and vendors. First Union National Bank's restrictive
convenants prevent other financial institution from providing the Company lines
of credit for working capital. The Company is currently doing business under
restricted cash flow and a shortage of capital resources. During the quarter
ended December 31, 1999, the Company raised its working capital through sales of
existing inventories and IRS tax refund received during the year. The Company
had negative working capital at December 31, 1999 of approximately 4(2,211,000)
compared with $(2,129,000) at March 31, 1999. At March 31, 1999, the Company's
credit facilities with First Union National Bank were terminated, and it had
borrowings under these lines. At December 31, 1999, these borrowings totaled
approximately $4,931,000. The lines of credit extended to the Company by First
Union National Bank were converted to term loans, which matured on August 15,
1999. A "Civil Action Summons" was served upon the Company and its subsidiaries,
LEP Products, Inc., LEP Marketing and Sales, Inc., LEP Distributors, Inc. and
LEP China Holdings, Inc., by First Union National Bank on January 24, 2000. The
Company will engage attorneys to answer the complaint and seek appropriate
settlement to the complaints. However, there is no guaranty that the settlement
may be reached.
Item 3. Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceeding
The Company received a Civil Action Summons on January 24,
2000, alleging that the Company failed to repay certain 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.
Item 3 Defaults upon Senior Securities and Creditors in China
(a) The Company has received a Civil Action Summons under
certain loans, which arose from conversion of the Company's credit facilities
under its loan agreement dated September 24, 1997, with First Union National
Bank, Edison, New Jersey. The amount currently outstanding under the term loan
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 then technical
default under the Loan Agreement in its form 10-Q for the three months ended
December 31, 1998.
(b) In view of BroadAsia LLC's inability to raise the full
amount of its $3.2 million financing commitment in February 1999, the Company
had to seek local Hong Kong and China financing, including a non-interest
bearing bridge loan from L.B. Saw & Associates, Ltd. to complete the
construction of the new factory in progress. The local creditors have demanded
payments. Management has been negotiating an extension with various local
creditors and the landlord since November 1999. However, negotiation of this
matter may not produce positive results. Thus, the Company may run the risk of
losing the entire Hong Kong and China operations.
Item 5 Other Information
(a) Changes in Directors and Officers
Stephen DeGroat, Lip-Boon Saw, Robert Goergern, Peter L.
Coker, Fung-Gea Wong and Berbard Esquenet had resigned from the directorship of
the Company. Patrick Hing-Tat Wong and Joel P. Paritz have been appointed to the
board of directors of the Company. Casey K. Tjang has been appointed to the post
of Chief Executive Officer, and resigned from the post of Chief Financial
Officer and Secretary. Andres H. Pugliese was appointed as Chief Financial
Officer and Deborah Steiner was appointed as Secretary.
(b) 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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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 11, 2000 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
