<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 June 30, 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 June 30, 1999, there were
79,664,087 shares of common stock outstanding.
<PAGE> 2
AIR PACKAGING TECHNOLOGIES, INC
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1999 and December 31, 1998 1
Statements of Operations - Three months ended
June 30, 1999 and 1998; Six months ended
June 30, 1999 and 1998 2
Statements of Cash Flows - Six months ended
June 30, 1999 and 1998 3
Notes to Financial Statements - June 30, 1999 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security 13
Holders
Item 6. Exhibits 13
SIGNATURES 14
<PAGE> 3
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
6/30/99 12/31/98
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 518,207 125,799
Trade receivables, net of allowance of $22,630
and $5,130 184,666 96,852
Inventories, net of reserve of $33,000
and $63,000 629,898 408,643
Advances and prepaids 28,815 75,134
------------ ------------
TOTAL CURRENT ASSETS 1,361,586 706,428
Property and equipment, net of depreciation
of $1,380,472 and $1,273,552 745,649 810,458
Intangible assets, net of amortization
of $542,612 and $511,836 227,798 233,609
Deposits 60,100 60,100
------------ ------------
TOTAL ASSETS 2,395,133 1,810,595
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accrued expenses 346,277 269,894
Deferred revenue 5,900 5,988
------------ ------------
TOTAL CURRENT LIABILITIES 352,177 275,882
Common stock, $.001 par value per share
Authorized - 100,000,000 shares
Issued and outstanding 79,664,087 at
June 30, 1999 and 70,714,087 at
December 31, 1998 79,664 70,714
Additional paid in capital 20,793,329 19,420,979
Accumulated deficit (18,830,037) (17,956,980)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,042,956 1,534,713
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 2,395,133 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>
QUARTER ENDED QUARTER ENDED SIX MONTHS ENDED SIX MONTHS ENDED
6/30/99 6/30/98 6/30/99 6/30/98
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 327,491 88,072 526,520 186,040
Cost of sales 279,301 89,645 464,213 146,230
------------- ------------- ------------- -------------
GROSS PROFIT (LOSS) 48,190 (1,573) 62,307 39,810
OPERATING EXPENSES:
General and administrative expenses 486,199 388,539 796,827 668,850
Sales and marketing 75,362 64,230 143,691 171,937
Research and development 62 5,721 739 5,883
------------- ------------- ------------- -------------
Total operating expenses 561,623 458,490 941,257 846,670
LOSS FROM OPERATIONS (513,433) (460,063) (878,950) (806,860)
Interest expense/(income) (2,386) 5,063 (5,893) 6,660
------------- ------------- ------------- -------------
NET LOSS (511,047) (465,126) (873,057) (813,520)
============= ============= ============= =============
LOSS PER COMMON SHARE:
BASIC $ (0.01) $ (0.01) $ (0.01) $ (0.02)
------------- ------------- ------------- -------------
DILUTED $ (0.01) $ (0.01) $ (0.01) $ (0.02)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 76,033,867 47,964,249 74,203,590 46,828,626
------------- ------------- ------------- -------------
DILUTED 76,033,867 47,964,249 74,203,590 46,828,626
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
2.
<PAGE> 5
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
6/30/99 6/30/98
(Unaudited) (Unaudited)
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss (873,057) (813,520)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 137,696 86,206
Provision for doubtful accounts 17,500 -
Stock based consulting expense 38,800 -
Increase (decrease) from changes in:
Trade receivables (105,314) (1,846)
Inventories (221,255) (125,147)
Advances and prepaids 46,319 (10,544)
Deposits and other assets - 6,774
(Decrease) increase in:
Accounts payable & accrued liabilities 76,383 (46,452)
Accrued officers' salary - 52,768
Deferred revenue (88) 11,636
Due to related party - 31,500
Note payable - (16,000)
------------ ------------
Net cash used in operating activities (883,016) (824,625)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (42,111) (134,344)
Patent expenditures (24,965) (13,694)
------------ ------------
Net cash used in investing activities (67,076) (148,038)
------------ ------------
Cash flows from financing activities:
Net proceeds from private placements - 813,081
Proceeds from exercise of warrants 1,342,500 -
Proceeds from notes payable - 370,864
------------ ------------
Net cash provided by financing activities 1,342,500 1,183,945
------------ ------------
Net increase in cash 392,408 211,282
Cash, beginning of period 125,799 59,462
------------ ------------
Cash, end of period 518,207 270,744
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the six months for:
Income taxes 800 800
Interest - -
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE> 6
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
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 June 30, 1999, and the
results of operations and cash flows for the three and six month periods ended
June 30, 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 and six months periods ended June 30,
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 issue 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
and six months ended June 30, 1999 and 1998 because the effect would be
antidilutive.
NOTE 3 - EXERCISE OF WARRANTS
During the three months ended June 30, 1999, the Company received $727,500 of
cash related to the exercise of 4,850,000 warrants by a shareholder at an
exercise price of $0.15 per share. During the six months ended June 30, 1999,
the Company received $1,342,500 of cash related to a shareholder exercising
8,950,000 warrants at an exercise price of $0.15 per share.
4.
<PAGE> 7
NOTE 4 - STOCK OPTIONS
The Board of Directors adopted a 1999 Non Qualified Key Man Stock Option plan on
June 4, 1999. This Plan authorizes the issuance of up to 5,000,000 options to
acquire shares of the Company's common stock at an exercise price of not less
than 100% of fair market value at the date of grant, and with the addition of
such additional terms at the date of grant as the Board of Directors determines.
During the second quarter, the Company granted 1,350,000 stock options under
this plan of which 350,000 options were granted to a non-employee and the
related consulting expense of $22,750 was recorded.
The Board of Directors also approved a blanket reduction in the exercise price
of all existing options to an exercise price of $0.15 in June 1999. As a result,
the Company recorded consulting expense of $16,050 for the re-pricing of options
held by non-employees.
5.
<PAGE> 8
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 5 - LIQUIDITY AND GOING CONCERN
The consolidated financial statements as of June 30, 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 two quarters of 1999 of
($1,723,647), ($1,824,199) and ($1,172,840) in 1998, 1997, and 1996 and
($873,057) during the six months ended June 30, 1999 and an accumulated deficit
of ($18,830,037) at June 30, 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.
6.
<PAGE> 9
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.
The Company has an aggressive on-going plan to increase its sales activity and
achieve a profitable business level of sales. In past time periods, the
Company's sales activities have been limited by a lack of funds, incomplete
designs and poor manufacturing quality. In the final quarter of fiscal 1998, the
Company solved its financial problems by obtaining additional financing sources
for the years 1999 and 2000. Management believes it has the ability to raise the
necessary capital to build the sales levels to a profitable level in the year
2000. All of the design and quality problems of the Company were resolved
successfully in the fourth quarter of fiscal 1998. It's only since January 1999
that the Company has been able to concentrate on developing future sales with
major customers.
The Company management believes that the Company will require an additional
$1 million to assure the continuing existence of the business until such time
that the sales level grows to the point of profitability. Management believes it
has the contacts and resources available to achieve that additional investment
in the Company within the next four to six months.
1. RESULTS OF OPERATIONS
Net sales for the three and six months ended June 30, 1999 were $327,491 and
$526,520, respectively as compared to $88,072 and $186,040 for the comparable
periods of the preceding year.
Cost of sales for the three and six months ended June 30, 1999 were $279,301 and
$464,213 compared to $89,645 and $146,230 for the three and six months ended
June 30, 1998. The increase for the three month period is $189,656 and is
$317,983 for the six month period ended June 30, 1999. The increase is primarily
due to the increase in sales of the SDS Air Box product line during the three
and six months ended June 30, 1999 which is sold with a higher standard cost of
sales and thus a lower gross margin than the Company's Air Box product line. The
net sales of the SDS Air Box product line during the three and six months ended
June 30, 1999 were approximately $222,000 and $392,000, respectively compared
with approximately $67,000 and $124,000 for the three and six months ended June
30, 1998. 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.
7.
<PAGE> 10
General and administrative expenses were $486,199 and $796,827 for the three and
six months ended June 30, 1999 as compared to $388,539 and $668,850 for the
comparable period of the preceding year. The net increase during the three and
six months ended June 30, 1999 is due primarily to an increase in legal
professional fees, an increase in the provision for doubtful accounts and an
increase in stock-based consulting expense.
Sales and marketing expenses increased by $11,132 during the three months ended
June 30, 1999 and decreased by $28,246 during the six months ended June 30, 1999
as compared to the three and six months ended June 30, 1998. The increase is due
to an increase in trade show fees and related expenses. 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 six months ended June 30, 1999 as the Company's use of a
public relations firm during the first six months of fiscal 1998 was not
continued for the first six months 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.
Research and development expenses during the three and six months ended June 30,
1999 were $62 and $739 compared with $5,721 and $5,883 for the comparable period
of the preceding year.
Interest expense (income) for the three and six month periods ended June 30,
1999 was $(2,386) and $(5,893), respectively and was $5,063 and $6,660 during
the comparable period of the prior year. The decrease in interest expense
during the three and six months periods ended June 30, 1999 is a result of the
decrease in interest bearing debt of the Company. The Company recorded interest
expense during the three and six months ended June 30, 1998 on its interest
bearing debt but did not have the debt in fiscal 1999. Interest income
increased during fiscal 1999 as the Company had an increase in cash placed in
an interest earning account.
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 June 30, 1999 was $1,009,409 as compared to
working capital of $ 430,546 at December 31, 1998. The increase is primarily due
to the cash infusion of $1,342,500 which resulted from the exercise of 8,950,000
warrants during the first six months of fiscal 1999.
The net receivables at June 30, 1999 were $184,666 compared to $96,852 at
December 31, 1998. The net increase of $87,814 is due to additional receivables
recorded for sales during the second quarter ended June 30, 1999 partially
offset by payments on receivables at December 31, 1998.
Net inventory at June 30, 1999 was $629,898 compared to $408,643 at December
31, 1998. The net increase of $221,255 is due to the increase in raw materials
purchased and finished goods manufactured for upcoming orders.
Advances and prepaids at June 30, 1999 and December 31, 1998 were $28,815 and
$75,134, respectively. The decrease is due to a prepayment made in 1998 for
materials of $57,892. The prepayment is partially offset by normal recurring
advance and prepaid transactions, for a net decrease of $46,319.
Inventory is evaluated by reviewing on hand materials and related quantities
and confirming that the market for the respective materials is continually
present. The Company analyzes all inventory items for slow movement and repair
and fully reserves items that do not move for at least three months.
The days in inventory ratio increased by 12% from 182 at December 31, 1998 to
204 at June 30, 1999. This is due to the increase in raw materials inventory
that was purchased for production orders for third quarter shipments. The
inventory turnover at December 31, 1998 was 2.01 compared with 1.79 at June 30,
1999.
8
<PAGE> 11
The Company recognized a 15% gross profit during the three months ended June 30,
1999 compared to a (.02)% gross loss during the three months ended June 30,
1998, and a 12% gross profit during the six months ended June 30, 1999 compared
to 21% gross profit for the six months ended June 30, 1998. The decrease is
primarily due to the increase in sales of the SDS Air Box product line during
the six months ended June 30, 1999 which is sold with a lower gross margin than
the Company's Air Box product line. The Company has estimated that sales of
$3,500,000 would be required to cover operating costs and to achieve an overall
gross margin of 40%. The Company will continue to operate at low margins until
sales increase substantially. 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 $883,016 from operating activities for the six
months ended June 30, 1999 compared to cash outflows of $824,625 for the six
months ended June 30, 1998. The change in net outflows of $58,391 from operating
activities between the two comparable periods primarily resulted from the
decrease in trade receivables of $103,468, the decrease in inventory of $96,108,
the decrease in deposits and other assets of $6,774, the decrease in accrued
officers' salary of $52,768, the decrease in deferred revenue of $11,724 and the
decrease in due to related party of $31,500 which was partially offset by the
increase in advances and prepaids of $56,863, the increase in accounts payable
and accrued liabilities of $122,835, the increase in note payable of $16,000 and
the net loss from operations after adjustments for non-cash items of $48,253.
Net cash used in investing activities was $67,076 for the six months ended June
30, 1999 compared to $148,038 for the six months ended June 30, 1998. The net
decrease is due to the reduction in property and equipment expenditures
partially offset by the increase in patent expenditures during the first six
months of fiscal 1999.
Cash flows from financing activities were $1,342,500 during the six months ended
June 30, 1999 compared to $1,183,945 during the comparable period for the
preceding year. The net increase is due to the proceeds from the exercise of
warrants of $1,342,500 that are partially offset by a decrease in proceeds from
private placements of $813,081 and by a decrease in proceeds from notes payable
of $370,864.
The Company has suffered recurring losses from operations and has an accumulated
deficit of ($18,830,037) at June 30, 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.
9
<PAGE> 12
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 believe it will
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 has spent considerable time and resources on Year 2000 compliant
issues. The Company has reviewed all of its products and none of its products
utilize computer technology in the product itself. The Company's products are
Air Box (R) technology made from plastics that are formed together into a self
enclosing packaging system which is neither computer controlled nor is it a
computer chip carrying product.
In the second phase of its investigation, the Company reviewed all manufacturing
equipment within its facility, including inventory management systems,
accounting systems, sales order systems; in other words, all computer or
micro-controlled devices, and all manufacturing , accounting , sales and
inventory systems are currently believed to be Y2K compliant. Additionally, the
Company has sent specific questionnaires to all vendors who supply the Company
with components and these vendors have responded indicating that they believe
that they are Y2K compliant.
The Company has already spent in excess of $25,000 to become Y2K compliant. The
project is finished and the Company believes it is currently Y2K compliant.
Management does not believe that there are any future costs related to fixing
Y2K issues beyond the $25,000 that has already been expended. The Company's
product is a disposable item, which possibly can be used twice, or three times,
by does not utilize computer technology of any shape or form. The Company's
vendors are multi-national companies who have completed Y2K compliant
questionnaires for the Company. The Company believes that all existing Y2K
problems have been addressed.
As of December 31, 1998, $15,000 of the cost of Y2K compliance had been
expended. As of June 30, 1999, $5,000 had been expended. the balance of $5,000
will be expended by September 1, 1999.
10
<PAGE> 13
A breakdown of Y2K compliant costs is as follows:
<TABLE>
<S> <C>
A. Manufacturing machine microprocessor changes $7,500
B. Manufacturing machinery software changes $7,500
C. Accounting/inventory management systems-software $5,000
D. Accounting/inventory management systems-hardware $5,000
</TABLE>
The source of funds of Y2K cost of compliance came from general working capital
of the Company. The Company does not gave a specific information technology
budget due to its small size. The Y2K compliance program was specifically
instituted in 1998 to assure that the Company would be compliant in the year
1999 by no later that September 30, 1999. The Company has deducted these
expenditures along with other operating expenses from its income.
A worst case scenario for the Company would be the inability of its vendors to
provide raw materials to the Company so that the Company could not manufacture
its products. The Company believes that its internal operations are unlikely to
be negatively impacted by a problem with Y2K or an uncertainty in relation to
Y2K compliance. In dealing with outside vendors, the Company has established a
contingency plan that has identified at least two alternative suppliers for all
critical items supplied to the Company. Additionally, the Company is currently
building inventory of any specialized raw materials to offset problems, if any,
to assure that Company can continue to manufacture on an uninterrupted basis
during the first quarter of the year 2000. This contingency plan will increase
the corporate raw materials inventory by approximately $250,000 prior to
December 31, 1999 to reduce the likelihood of vendors interrupting the
manufacturing flow.
Additionally, the Company has qualified alternative vendors and is prepared to
switch to these vendors if problems develop with existing primary vendors. As
the lead time from these vendors is approximately six weeks, the Company feels
assured that it has addressed all possible worst case scenarios in relation to
supply and materials for continued manufacturing.
The Company has extensively analyzed and checked all of its internal
manufacturing systems, accounting, sales, inventory, etc. and believes it has
adequately addressed the Y2K compliance issues.
The Company's contingency plan is detailed above and is fully operational at
this time.
FORWARD LOOKING STATEMENT
THE ABOVE PARAGRAPHS AND OTHER PARTS OF THIS 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
11
<PAGE> 14
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.
12
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 4. --SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of APTI was held on June 4, 1999 and several
matters were put to a vote. The results are as follows:
(1) To elect four directors to serve until the next annual meeting of the
shareholders.
Votes Cast Votes Cast Votes
For Against Abstained Unvoted
---------- ---------- --------- ---------
Wayne Case 66,018,227 782,425 0 0
Carl Stadelhofer 66,018,227 782,425 0 0
Donald Ochacher(a) 42,559,162 0 0 24,241,490
Sterling Mason(a) 42,559,162 0 0 24,241,490
(2) To amend the bylaws to redesignate the range for the number of directors
on the Board of Directors to between four to nine.
65,411,582 1,284,294 104,776 0
(3) To authorize the amendment of the Articles of Incorporation to reverse
split the Company's common stock on a 1 for 10 basis and to reduce the
total authorized shares to 50,000,000 shares.
65,549,546 2,175,380 75,726 0
(4) To appoint BDO Seidman, LLP as independent auditors of the Company for
fiscal 1999.
65,954,979 792,898 52,775 0
(5) To grant incentive stock options to insiders, employees and consultants
of the Company.
48,741,378 1,339,784 154,952 16,564,538
(a) Director was nominated at the meeting and was elected by receiving the
proper number of votes as a quorum was present.
ITEM 6. - EXHIBITS
(3)(I) ARTICLES OF INCORPORATION. INCORPORATED BY REFERENCE TO EXHIBITS
ATTACHED TO AMENDED FORM 10 FILED JULY 23, 1999.
(3)(II) BYLAWS. INCORPORATED BY REFERENCE TO EXHIBITS ATTACHED TO
AMENDED FORM 10 FILED JULY 23, 1999.
(10) MATERIAL CONTRACTS. INCORPORATED BY REFERENCE TO EXHIBITS
ATTACHED TO AMENDED FORM 10 FILED JULY 23, 1999.
(27). FINANCIAL DATA SCHEDULE
13
<PAGE> 16
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/ DONALD OCHACHER
----------------------------------
Donald Ochacher
Chief Executive Officer
/s/ JANET MAXEY
----------------------------------
Janet Maxey
Chief Financial Officer
Date: August 11, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S BALANCE
SHEET AS OF JUNE 30, 1999 AND STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS REPORTED ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 518,207
<SECURITIES> 0
<RECEIVABLES> 207,296
<ALLOWANCES> (22,630)
<INVENTORY> 629,898
<CURRENT-ASSETS> 1,361,586
<PP&E> 2,126,121
<DEPRECIATION> (1,380,472)
<TOTAL-ASSETS> 2,395,133
<CURRENT-LIABILITIES> 352,177
<BONDS> 0
0
0
<COMMON> 79,664
<OTHER-SE> 1,963,292
<TOTAL-LIABILITY-AND-EQUITY> 2,395,133
<SALES> 526,520
<TOTAL-REVENUES> 526,520
<CGS> 464,213
<TOTAL-COSTS> 464,213
<OTHER-EXPENSES> 941,257
<LOSS-PROVISION> 17,500
<INTEREST-EXPENSE> (5,893)
<INCOME-PRETAX> (873,057)
<INCOME-TAX> 0
<INCOME-CONTINUING> (873,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (873,057)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS REPORTED
ON FORM 10-Q.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<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> 186,040
<TOTAL-REVENUES> 186,040
<CGS> 146,230
<TOTAL-COSTS> 146,230
<OTHER-EXPENSES> 846,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,660
<INCOME-PRETAX> (813,520)
<INCOME-TAX> 0
<INCOME-CONTINUING> (813,520)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (813,520)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
