<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_____________________TO_____________________
AIR PACKAGING TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4337254
(STATE OF INCORPORATION) (IRS EMPLOYER ID NO.)
25620 RYE CANYON ROAD, VALENCIA, CALIFORNIA 91355
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(661) 294-2222
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 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]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 12,13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. AS OF MARCH 31, 1999, THERE
WERE 74,814,087 SHARES OF COMMON STOCK OUTSTANDING.
<PAGE> 2
AIR PACKAGING TECHNOLOGIES, INC
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
<S> <C> <C>
BALANCE SHEETS - MARCH 31, 1999 AND DECEMBER 31, 1998 1
STATEMENTS OF OPERATIONS - THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 2
STATEMENTS OF CASH FLOWS - THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 3
NOTES TO FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 5
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS 8
SIGNATURES 9
</TABLE>
<PAGE> 3
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
3/31/99 12/31/98
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 221,210 125,799
Trade receivables, net of allowance of $5,130
and $5,130 126,814 96,852
Inventories, net of reserve of $32,943 and
and $63,000 586,113 408,643
Advances and prepaids 24,868 75,134
----------- -----------
TOTAL CURRENT ASSETS 959,005 706,428
Property and equipment, net of depreciation
of $1,326,536 and $1,273,553 769,979 810,458
Intangible assets, net of amortization of
of $526,991 and $511,836 232,699 233,609
Deposits 60,100 60,100
----------- -----------
TOTAL ASSETS 2,021,783 1,810,595
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accrued expenses 228,180 269,894
Deferred revenue 5,900 5,988
----------- -----------
TOTAL CURRENT LIABILITIES 234,080 275,882
Other -- --
----------- -----------
TOTAL LONG TERM LIABILITIES -- --
Common stock, $.001 par value per share
Authorized - 100,000,000 shares
Issued and outstanding 74,814,087 at
March 31, 1999 and 70,714,087 at
December 31, 1998 74,814 70,714
Additional paid in capital 20,031,879 19,420,979
Accumulated deficit (18,318,990) (17,956,980)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,787,703 1,534,713
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 2,021,783 1,810,595
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE> 4
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
3/31/99 3/31/98
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net sales 199,029 97,968
Cost of sales 184,912 56,585
----------- -----------
GROSS PROFIT 14,117 41,383
OPERATING EXPENSES:
General and administrative expenses 310,628 280,311
Sales and marketing 68,329 107,707
Research and development 677 162
----------- -----------
Total operating expenses 379,634 388,180
LOSS FROM OPERATIONS (365,517) (346,797)
Interest expense/(income) (3,507) 1,597
----------- -----------
NET LOSS (362,010) (348,394)
=========== ===========
LOSS PER COMMON SHARE:
BASIC $ (0.01) $ (0.01)
----------- -----------
DILUTED $ (0.01) $ (0.01)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 67,892,552 41,219,966
----------- -----------
DILUTED 67,892,552 41,219,966
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 5
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
3/31/99 3/31/98
(Unaudited) (Unaudited)
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss (362,010) (348,394)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 68,138 33,574
Increase (decrease) from changes in:
Trade receivables (29,962) 3,501
Inventories (177,470) (30,130)
Advances and prepaids 50,266 (6,818)
Deposits and other assets -- 6,774
Accounts payable & accrued liabilities (41,714) (96,605)
Accrued officers' salary -- 278
Deferred revenue (88) --
Due to related party -- 31,500
Note payable -- (1,000)
-------- --------
Net cash used in operating activities (492,840) (407,320)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (12,504) (95,398)
Patent expenditures (14,245) (7,250)
-------- --------
Net cash used in investing activities (26,749) (102,648)
-------- --------
Cash flows from financing activities:
Net proceeds from private placements -- 570,105
Proceeds from exercise of warrants 615,000 --
-------- --------
Net cash provided by financing activities 615,000 570,105
-------- --------
Net increase in cash 95,411 60,137
Cash, beginning of period 125,799 59,462
-------- --------
Cash, end of period 221,210 119,599
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes 800 800
Interest -- --
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1 - STATEMENT OF INFORMATION FURNISHED
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position as of March 31, 1999, and the
results of operations and cash flows for the three month periods ended March 31,
1999 and 1998. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with those
used in the preparation of the Company's Annual Report and the Form 10 for the
fiscal year ended December 31, 1998.
The results of operations for the three months periods ended March 31, 1999 are
not necessarily indicative of the results to be expected for any other period or
for the entire year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's Annual Report on Form 10 for the year ended
December 31, 1998.
NOTE 2 - EARNINGS (LOSS) PER COMMON SHARE
The Company computes loss per common share under SFAS No. 128, "Earnings Per
Share," which requires presentation of basic and diluted earnings (loss) per
share. Basic earnings (loss) per common share is computed by dividing income or
loss available to common shareholders by the weighted average number of common
shares outstanding for the reporting period. Diluted earnings (loss) per common
share reflects the potential dilution that could occur if securities or other
contracts, such as stock options and warrants, to issued common stock were
exercised or converted into common stock. Common stock options and warrants were
not included in the computation of diluted loss per common share for the three
months ended March 31, 1999 and 1998, because the effect would be antidilutive.
NOTE 3 - EXERCISE OF WARRANTS
During the three months ended March 31, 1999, the Company received $615,000 of
cash related to a shareholder exercising 4,100,000 warrants at an exercise
price of $0.15 per share.
NOTE 4 - LIQUIDITY AND GOING CONCERN
The consolidated financial statements as of March 31, 1999 have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. However, there is substantial doubt about the Company's
ability to continue as a going concern because of the magnitude of its losses
during the past three years and during the first quarter of 1999 of
($1,723,647), ($1,824,199) and ($1,172,840) in 1998, 1997 and 1996, and
($362,010) during the three months ended March 31, 1999 and an accumulated
deficit of ($18,318,990) at March 31, 1999. The Company's continued existence is
dependent upon its ability to raise additional capital, to increase sales, to
significantly improve operations, and ultimately become profitable.
The Company believes that future investments and certain sales-related efforts
will provide sufficient cash flow for it to continue as a going concern in its
present form. However, there can be no assurance that the Company will achieve
such results. Accordingly, the consolidated financial statements do not include
any adjustments related to the recoverability and classification of recorded
asset amounts or the amount and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Air Packaging Technologies, Inc. (APTI) manufactures and markets a line of
industrial packaging products under the name "Air Box"(R). The Air Box(R)
provides reusable protective packaging during shipping and storage for a wide
range of higher value items. It provides vastly superior protection from ESD
(electro static discharge) damage and moisture. It also provides see-through
transparency for visual inspection of the product during shipment and upon
receipt.
1. RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1999 were $199,029 compared to
net sales of $97,968 for the comparable period of the preceding year. This
represents an increase of $101,061 or 103% that is attributable to the positive
results of sales pilot programs of the SDS Air Box(R).
Cost of sales increased $128,327 for the three months ended March 31, 1999
compared to the comparable period of the preceding year. The increase is due to
the related increase in sales. At the Company's current level of sales, the
Company realizes approximately a 60% gross margin. However, the Company has not
yet achieved sufficient sales to cover all of its fixed operating costs, with
the result that until sales increase substantially, the Company will continue to
operate at a deficit. In addition, as sales increase, additional working capital
is required to fund inventory and work in process. As a result of these factors,
the Company has an ongoing and urgent need for infusion of additional working
capital.
General and administrative expenses increased by $30,317 during the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998. The
net increase is primarily due to an increase in legal professional fees during
the first quarter of fiscal 1999.
Sales and marketing expenses decreased by $39,378 during the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998. The
decrease primarily resulted from the decrease in sales salaries for one employee
who left the Company during the first quarter of 1998, and the decrease of
public relations expenses during the three months ended March 31, 1999 as the
Company's use of a public relations firm during the first quarter of fiscal 1998
was not continued for the first quarter of fiscal 1999. This was partially
offset by the increase in salaries for an additional employee who began with the
Company at the beginning of the fiscal 1999 year.
5
<PAGE> 8
Research and development expenses increased by $515 during the three months
ended March 31, 1999.
Interest expense (income) was $(3,507) at March 31, 1999 and was $1,597 at March
31, 1998. Interest expense (income) decreased by $5,104 for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998,
primarily due to the Company having interest bearing debt during the first
quarter of fiscal 1998 and did not have any during the first quarter of 1999.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital has been to purchase raw materials,
upgrade machinery and continue to develop and enhance patents and trademarks.
The Company's working capital as of March 31, 1999 was $724,925 as compared to
working capital of $430,546 at December 31, 1998. The increase is primarily due
to the cash infusion of $615,000 which resulted from the exercise of 4,100,000
warrants during the first three months of fiscal 1999.
At the Company's current level of sales, the Company realizes approximately a
60% gross margin. However, the Company has not yet achieved sufficient sales to
cover all of its fixed operating costs, with the result that until sales
increase substantially, the Company will continue to operate at a deficit. In
addition, as sales increase, additional working capital is required to fund
inventory and work in process. As a result of these factors, the Company has an
ongoing and urgent need for infusion of additional working capital. This need
was met in fiscal 1998 by selling additional shares of the Company's Common
Stock, primarily offshore to overseas investors.
The Company will continue to require an infusion of additional working capital
in order to develop its business. The source, timing and costs of such infusion
is uncertain, and there is no certainty that the Company will be successful in
raising additional working capital, either through the sale of debt or equity
securities, or through commercial banking lines of credit. The Company currently
has no banking lines of credit.
The Company had cash outflows of $492,840 from operating activities for the
three months ended March 31, 1999 compared to cash outflows of $407,320 for the
three months ended March 31, 1998. The change in net outflows of $85,520 from
operating activities between the two comparable quarters primarily resulted from
the decrease in trade receivables of $33,463, the decrease in inventory of
$147,340, the decrease in deposits and other assets of $6,774 and the decrease
in due to related party of $31,500, which was partially offset by increases in
advances and prepaids of $57,084, the increase in accounts payable and accrued
liabilities of $54,891 and the decrease in the net loss from operations after
adjustments for non-cash items of $20,948.
Net cash used in investing activities was $26,749 for the three months ended
March 31, 1999 compared to $102,648 for the three months ended March 31, 1998.
The net
6
<PAGE> 9
decrease is due to the reduction in property and equipment expenditures
partially offset by the increase in patent expenditures during the first quarter
of fiscal 1999.
Cash flows from financing activities were $615,000 during the three months ended
March 31, 1999 compared to $570,105 during the comparable period for the
preceding year. The change is due to increased proceeds from the exercise of
warrants of $615,000 that are partially offset by a decrease in proceeds from
private placements of $570,105.
The Company has suffered recurring losses from operations and has an
accumulated deficit of ($18,318,990) at March 31, 1999, which raises
substantial doubt about its ability to continue as a going concern. The
Company's continued existence is dependent upon its ability to raise
substantial capital, to increase sales, to significantly improve operations,
and ultimately become profitable. The Company believes that future investments
and certain sales-related efforts will provide sufficient cash flow for it to
continue as a going concern in its present form. However, there can be no
assurance that the Company will achieve such results.
3. SEASONALITY AND INFLATION
The Company's sales do not appear to be subject to any seasonal fluctuations.
The Company does not believe that inflation has had a material impact on its
operations.
4. YEAR 2000
The Company has completed an evaluation of the Year 2000 (Y2K) computer
information processing problems and Year 2000 program requirements for internal
operations and Company products. With proposed computer software upgrades in
place by the third quarter of 1999, the Company does not expect to experience
Year 2000 problems in those areas. A survey analysis of external vendors has
been initiated to evaluation their Y2K preparedness. The Company's Year 2000
compliance evaluation will then be complete. The Company does not believe it has
significant exposure to Year 2000 problems with significant vendors, customers
and financial institutions and does not expect that the Year 2000 issue will
have a material cost or impact on Company operations. However, there can be no
assurance that the systems of other companies on which the Company relies will
not have an adverse effect on the Company.
The Company does not have a contingency plan, but is currently working on one.
The Company is evaluating the operational effect, if any, that Y2K issues will
have on the Company.
FORWARD LOOKING STATEMENT
The above paragraphs and other parts of this Form 10-Q Report include "Forward
Looking Statements". All statements other than statements of historical fact
included herein, including any statements with respect sales forecast, future
product acceptance or other future matters, are Forward Looking Statements.
Although the Company believes that there is a reasonable basis for the
projections reflected in such Forward Looking Statements, it can give no
assurance that such expectation will prove to be correct. Certain of the
important factors that could cause actual results to differ materially and
negatively from the Company's expectations, among others, included a slow down
in the trend in sales and orders during the remainder of the year, an inability
to obtain sufficient working capital to meet order demand, and/or a worldwide
economic slowdown.
7
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS
(3)(I) ARTICLES OF INCORPORATION. INCORPORATED BY REFERENCE TO
EXHIBITS ATTACHED TO FORM 10 FILED MAY 17, 1999.
(3)(II) BYLAWS. INCORPORATED BY REFERENCE TO EXHIBITS ATTACHED TO FORM
10 FILED MAY 17, 1999.
(10) MATERIAL CONTRACTS. INCORPORATED BY REFERENCE TO EXHIBITS
ATTACHED TO FORM 10 FILED MAY 17, 1999.
(27). FINANCIAL DATA SCHEDULE
8
<PAGE> 11
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
AIR PACKAGING TECHNOLOGIES, INC.
/s/ GARVIN MCMINN
-----------------------
GARVIN MCMINN
CHIEF EXECUTIVE OFFICER
/s/ JANET MAXEY
-----------------------
JANET MAXEY
CHIEF FINANCIAL OFFICER
DATE: MAY 17, 1999
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF MARCH 31, 1999 AND STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS REPORTED ON FORM 10-Q.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 221,210
<SECURITIES> 0
<RECEIVABLES> 131,944
<ALLOWANCES> (5,130)
<INVENTORY> 586,113
<CURRENT-ASSETS> 959,005
<PP&E> 2,096,515
<DEPRECIATION> (1,326,536)
<TOTAL-ASSETS> 2,021,783
<CURRENT-LIABILITIES> 234,080
<BONDS> 0
0
0
<COMMON> 74,814
<OTHER-SE> 1,712,889
<TOTAL-LIABILITY-AND-EQUITY> 2,021,783
<SALES> 199,029
<TOTAL-REVENUES> 199,029
<CGS> 184,912
<TOTAL-COSTS> 184,912
<OTHER-EXPENSES> 379,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,507)
<INCOME-PRETAX> (362,010)
<INCOME-TAX> 0
<INCOME-CONTINUING> (362,010)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362,010)
<EPS-PRIMARY> (.01)<F1>
<EPS-DILUTED> (.01)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS REPORTED
ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 97,968
<TOTAL-REVENUES> 97,968
<CGS> 56,585
<TOTAL-COSTS> 56,585
<OTHER-EXPENSES> 388,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,597
<INCOME-PRETAX> (348,394)
<INCOME-TAX> 0
<INCOME-CONTINUING> (348,394)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (348,394)
<EPS-PRIMARY> (.01)<F1>
<EPS-DILUTED> (.01)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
