FORM 10-QSB
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 September 30, 2000
( ) 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 95-4337254
----------------------- --------------------
(State of Incorporation) (IRS Employer ID No.)
25620 Rye Canyon Road, Valencia, California 91355
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(Address of principal executive offices)
(661) 294-2222
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(Issuer's telephone number)
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 September 30, 2000, there
were 11,298,358 shares of common stock outstanding.
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 2000 and December 31, 1999 3
Statements of Operations - Three months ended
September 30, 2000 and 1999; Nine months ended
September 30, 2000 and 1999 4
Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999 5
Notes to Financial Statements - September 30, 2000 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 6. Exhibits 17
SIGNATURES 17
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AIR PACKAGING TECHNOLOGIES, INC.
Consolidated Balance Sheets
9/30/2000 12/31/1999
(Unaudited)
------------- --------------
ASSETS
Current assets
Cash $ 285,429 1,150,151
Trade receivables, net of allowance of $22,630,
and $22,630 110,243 57,603
Inventories, net of reserve of $84,000
and $33,000 687,405 577,389
Advances and prepaids 45,885 41,895
------------ ------------
Total current assets 1,128,962 1,827,038
Property and equipment, net of depreciation
of $1,675,492 and $1,498,949 606,068 714,186
Intangible assets, net of amortization of
of $615,859 and $575,960 218,076 229,378
Deferred financing costs, net of amortization
of $150,000 and $10,417 25,000 139,583
Deposits 60,100 60,100
------------ ------------
Total assets $ 2,038,206 $ 2,970,285
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses $ 205,168 $ 402,031
Deferred revenue 9,659 8,795
------------ ------------
Total current liabilities 214,827 410,826
Senior convertible notes 250,000 1,500,000
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Total long term liabilities 250,000 1,500,000
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Total liabilites 464,827 1,910,826
Common stock, $.01 par value per share
Authorized - 50,000,000 shares
Issued and outstanding 11,298,358 at
September 30, 2000 and 7,966,408 at
December 31, 1999 112,984 79,664
Additional paid in capital 23,593,222 20,789,787
Accumulated deficit (22,132,827) (19,809,992)
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Total stockholders' equity 1,573,379 1,059,459
------------ ------------
Total liabilities & stockholders' equity $ 2,038,206 $ 2,970,285
============ ============
3
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<TABLE>
<CAPTION>
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Nine months Nine months
Quarter ended Quarter ended ended ended
9/30/2000 9/30/1999 9/30/2000 9/30/1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 220,833 $ 186,239 $ 558,513 $ 712,759
Cost of sales 186,382 186,193 590,369 650,406
------------ ------------ ------------ ------------
Gross profit (loss) 34,451 46 (31,856) 62,353
Operating expenses:
General, administrative and selling expenses 472,595 456,229 1,390,332 1,396,747
Research and development 2,300 438 4,108 1,177
------------ ------------ ------------ ------------
Total operating expenses 474,895 456,667 1,394,440 1,397,924
Loss from operations (440,444) (456,621) (1,426,296) (1,335,571)
Interest and other expense/(income) (1,504) 484 896,539 (5,409)
------------ ------------ ------------ ------------
Net loss $ (438,940) $ (457,105) $ (2,322,835) $ (1,330,162)
============ ============ ============ ============
Loss per common share:
Basic $ (0.04) $ (0.06) $ (0.25) $ (0.19)
------------ ------------ ------------ ------------
Diluted $ (0.04) $ (0.06) $ (0.25) $ (0.19)
------------ ------------ ------------ ------------
Weighted average number of common
shares outstanding:
Basic 11,298,358 7,520,367 9,259,009 7,174,744
------------ ------------ ------------ ------------
Diluted 11,298,358 7,520,367 9,259,009 7,174,744
------------ ------------ ------------ ------------
</TABLE>
4
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AIR PACKAGING TECHNOLOGIES, INC.
Consolidated Statements of Cash Flow
Nine months Nine months
ended ended
9/30/2000 9/30/1999
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net loss $(2,322,835) $(1,330,162)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 356,025 210,089
Debt conversion price reduction 920,000 -
Expense on grant of warrants 11,298 -
Expense on issuance of common stock 42,000 -
Inventory reserve 83,000 -
Stock based compensation expense 42,000 -
Provision for doubtful accounts - 17,500
Stock based consulting expense - 38,800
Increase (decrease) from changes in:
Trade receivables (52,640) (50,156)
Inventories (193,016) (198,876)
Advances and prepaids (3,990) 42,845
Deposits and other assets - (102,917)
(Decrease) increase from changes in:
Accounts payable & accrued liabilities (122,906) 18,473
Deferred revenue 864 8,090
----------- -----------
Net cash used in operating activities (1,240,200) (1,346,314)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (68,425) (59,401)
Patent expenditures (28,597) (48,406)
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Net cash used in investing activities (97,022) (107,807)
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Cash flows from financing activities:
Net proceeds from private placements 202,500 -
Proceeds from exercise of warrants 25,000 1,342,500
Proceeds from convertible debenture 250,000 1,050,000
Proceeds from exercise of options 20,000 -
Additions to deferred loan costs (25,000) -
----------- -----------
Net cash provided by financing activities 472,500 2,392,500
----------- -----------
Net (decrease)increase in cash (864,722) 938,379
Cash, beginning of period 1,150,151 125,799
----------- -----------
Cash, end of period $ 285,429 $ 1,064,178
=========== ===========
Supplemental disclosure of
cash flow information:
Cash paid during the nine months for:
Income taxes $ 800 $ 800
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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 September 30, 2000, and
the results of operations and cash flows for the three and nine month periods
ended September 30, 2000 and 1999. 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-K for the fiscal year ended December 31, 1999.
The results of operations for the three and nine month periods ended September
30, 2000 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-K for the year ended
December 31, 1999.
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 nine months ended September 30, 2000 and 1999 because the effect would be
antidilutive.
6
<PAGE>
Note 3 - Stock Split
--------------------
In January 2000, the Board of Directors declared a one-to-ten reverse stock
split. All stock-related data in the consolidated financial statements reflect
the stock split for all periods presented.
Note 4 - Exercise of Warrants And Options
-----------------------------------------
On March 24, 2000, the Board of Directors approved a temporary reduction in the
exercise price of all warrants and options outstanding. The exercise price was
reduced from $1.50 to the average bid price of the Company's common stock for
the twenty-five trading days immediately prior to the receipt of a notice of
conversion with a minimum conversion price of $0.50.
During the nine months ended September 30, 2000, the Company received $25,000 of
cash for the exercise of 50,000 warrants by a shareholder at an exercise price
of $0.50 per share and $20,000 of cash for the exercise of 40,000 stock options
at an exercise price of $0.50 per share. During the nine months ended September
30, 1999, the Company received $1,342,500 of cash related to a shareholder
exercising 895,000 warrants at an exercise price of $1.50 per share.
During the nine months ended September 30, 2000, the Company cancelled 100,000
stock options outstanding to officers and issued an additional 375,000 stock
options to officers and employees which expire December 31, 2004 and are subject
to certain vesting terms. These 100,000 options will be subject to variable plan
accounting beginning July 1, 2000. As of September 30, 2000, the Company has
recorded $42,000 in compensation expense related to the variable plan
accounting.
During the nine months ended September 30, 2000, a warrant holder submitted
40,000 warrants to purchase common stock for cancellation by the Company.
During the three months ended September 30, 2000, the Company granted 300,000
stock options to officers and employees which expire in August 2004 and are
subject to certain vesting terms.
Note 5 - Senior Convertible Notes
---------------------------------
During the year ended December 31, 1999, the Company issued $1,500,000 in Senior
Convertible Notes with interest payable annually on June 30 at 7% per annum. The
Senior Convertible Notes are unsecured and due on September 30, 2003. At the
option of the holder, the holder may convert the principal amount of such Note
at any time before September 30, 2003, into shares of common stock. The
conversion price is equal to or greater than the fair value of the stock on the
date the Senior Convertible Notes were issued.
7
<PAGE>
At the holder's option, the holder may elect to receive any annual interest
payment in common stock of the Company at a 20% discount. The difference between
the fair market value of the stock on date of conversion and the conversion
price will be recorded as additional interest expense.
In conjunction with these Notes, the Company paid a finder's fee of $150,000 and
other financing costs, which is being amortized over the life of the Notes.
During the nine months ended September 30, 2000, the finder's fee was fully
amortized due to the conversion of the Notes.
On March 24, 2000, the Board of Directors of the Company approved a temporary
reduction in the conversion price on the 7% Senior Convertible Debenture into
common stock. The conversion price was reduced from $1.50 to the average bid
price of the Company's common stock for the twenty-five trading days immediately
prior to the receipt of a notice of conversion, with a minimum conversion price
of $0.50. The notice of conversion for the temporary reduction must include all
accrued interest through May 31, 2000. During April 2000, the Company received
notices of conversion from all of the debenture holders. As a result, the
Company recorded an expense of $920,000 related to the beneficial conversion
feature which resulted from the reduction in conversion price during the nine
months ended September 30, 2000.
During the three months ended September 30, 2000, the Company issued $250,000 in
Convertible Notes with interest payable annually in common stock on December 31
at 8.75% per annum. The Convertible Notes are secured by certain assets of the
Company and are due on December 31, 2004. At the option of the holder, the
holder may convert the principal amount of such Note at any time before December
31, 2003 into shares of common stock of the Company. The conversion price shall
be the lesser of $0.40 per share or a 20% discount to be closing high bid price
on the date of conversions if the closing high bid price for the Company's
common stock has been less than $0.40 for the previous 40 consecutive business
days. There are also mandatory conversion provisions. In addition, each
Convertible Debenture is part of a unit consisting of the debenture, one $0.50
warrant and one $0.60 warrant allowing the purchase of one share of common stock
per warrant at certain times before January 1, 2004, subject to certain
conditions. A beneficial conversion feature exists related to the 20% discount
on conversion price. The Company has calculated the expense associated with the
beneficial conversion feature and it has been properly reflected in the
financial statements.
In connection with these Notes, the Company paid a finder's fee of $25,000 which
is being amortized over the life of the Notes.
Note 6 - Liquidity and Going Concern
------------------------------------
The financial statements as of September 30, 2000 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 the Company's losses
during the past three years of ($1,853,012), ($1,723,647) and ($1,824,199) in
1999, 1998, and 1997, respectively and a net loss of ($2,322,835) for the nine
months ended September 30, 2000 and an accumulated deficit of ($22,132,827) at
September 30, 2000. 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.
8
<PAGE>
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.
On March 27, 2000, the Company entered into a one-year investment banking
agreement with Givigest Fiduciaria SA "Givigest" to raise equity capital. During
the nine months ended September 30, 2000, $225,000 was raised pursuant to the
agreement and the funds were received by the Company.
9
<PAGE>
Note 7 - Investment Banking Agreement
-------------------------------------
On March 27, 2000, the Company entered into a one-year Investment Banking
Agreement with Givigest Fiduciaria SA "Givigest" to raise equity capital. During
the nine months ended September 30, 2000, $225,000 was raised pursuant to the
agreement and the funds were received by the Company. The funds will be used for
the operations of the Company. Pursuant to the terms of the agreement, the
Company issued 100,000 shares of common stock to Givigest which were valued at
fair market value. The Company also granted 250,000 warrants to purchase the
common stock of the Company and the related expense was recorded during the nine
months ended September 30, 2000. An additional 22,500 warrants to purchase the
common stock of the Company were granted along with a 10% finder's fee for the
$225,000 funds raised. These warrants were valued and properly recorded during
the nine months ended September 30, 2000.
On August 31, 2000, modifications were made to the Investment Banking Agreement
entered into on March 27, 2000. The modifications included clarification of the
timing of the equity capital to be raised and the grant date of the remaining
warrants. During the three months ended September 30, 2000, an additional
$250,000 was raised pursuant to this modified Agreement through the issuance of
four-year 8.75% Convertible Notes. A 10% finder's fee was paid upon receipt of
the funds and will be amortized over the life of the Convertible Notes. In
addition, during the three months ended September 30, 2000, 227,500 warrants to
purchase the common stock of the Company were granted.
Note 8 - Product Purchase Agreement
-----------------------------------
On August 8, 2000, the Company entered into a product purchase agreement (the
"Agreement") with Minnesota Mining and Manufacturing ("3M") under which the
Company has agreed, among other things, to sell certain products to 3M on a
worldwide exclusive basis. The Agreement is of an indefinite duration. Pursuant
to the Agreement, 3M has been granted under certain circumstances a right of
first refusal to purchase the Company and has also been granted four warrants,
each of which entitles 3M to purchase 560,000 shares of the Company's Common
Stock. The first of the four warrants is exercisable immediately at $0.55 per
share until February 10, 2003. The remaining three warrants will vest upon the
attainment of certain sales levels by the Company to 3M and will be at market
price when such levels are reached and will be exercisable for two and one half
years from the vesting date.
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.
10
<PAGE>
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. All of the known design and quality
problems of the Company were resolved successfully in the fourth quarter of
fiscal 1998. Only since January 1999 has the Company been able to concentrate on
developing future sales with major customers.
1. Results of Operations
Net sales for the three and nine months ended September 30, 2000 were $220,833
and $558,513 compared to net sales of $186,239 and $712,759 for the three and
nine months ended September 30, 1999. This represents an increase of $34,594 for
the three months and a decrease of $154,246 for the nine months of fiscal 2000.
The net decrease is primarily due to sales of the SDS product and sales of the
dental bag product which were made during the first nine months of fiscal 1999
and were not repeated during the first nine months of fiscal 2000. The Company
has not yet achieved sales levels to cover fixed costs. As a result, the Company
recognized a negative gross profit for the three and nine months ended September
30, 2000. The Company will continue to operate at low margins until sales
increase substantially.
Cost of sales for the three and nine months ended September 30, 2000 were
$186,382 and $590,369 compared to $186,193 and $650,406 for the three and nine
months ended September 30, 1999. Cost of sales at September 30, 2000 includes an
additional inventory reserve of $83,000 that was recorded during the nine months
ended September 30, 2000. 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, administrative and selling expenses were $472,595 and $1,390,332 for
the three and nine months ended September 30, 2000 as compared to $456,229 and
$1,396,747 for the comparable period of the preceding year. The net increase
during the three months ended September 30, 2000 of $16,366 is primarily due to
an increase in stock based compensation expense. The net decrease of $6,415
during the nine months ended September 30, 2000 is primarily due to a decrease
in the provision for doubtful accounts, a decrease in stock-based consulting
expense and a decrease in trade show fees and related expenses, which are
partially offset by the increase in amortization of the finders fee related to
the Convertible Senior Notes and the increase in stock based compensation
expense.
11
<PAGE>
Interest and other expense (income) for the three and nine month periods ended
September 30, 2000 was $(1,504) and $896,539, respectively and was $484 and
$(5,409) during the comparable period of the preceding year. Interest expense
was approximately $3,000 for the three months ended September 30, 2000 and
approximately $966,000 for the nine months ended September 30, 2000. The
increase is related to the 7% interest-bearing Convertible Senior Notes which
were issued during the third and fourth quarters of fiscal 1999. Interest
expense of approximately $0 and $26,000 was recorded on the Notes for the three
and nine months ended September 30, 2000. In addition, during the nine months
ended September 30, 2000, interest expense of $920,000 was recorded as a result
of the beneficial conversion which resulted from the reduction in the conversion
price of the Notes. Also, approximately $2,000 of interest expense was recorded
during the three months ended September 30, 2000 related to the 8.75%
Convertible Notes which were issued in the third quarter of fiscal 2000.
Interest income for the three and nine months ended September 30, 2000 was
approximately $2,800 and $16,100 compared to approximately $4,200 and $7,800 for
the comparable periods of the prior year. The decrease during the three months
period of $1,400 and the increase of $8,300 during the nine month period is due
to the timing and amount of cash placed in an interest-earning account.
Miscellaneous other income increased during the three and nine months ended
September 30, 2000 from the comparable period of the preceding year due to the
settlement of a legal proceeding in which the Company recorded miscellaneous
other income of $51,500.
As a result of the above, net loss for the three and nine months ended September
30, 2000 decreased by $18,165 to $438,940 from $457,105 and increased by
$1,192,673 to $2,322,835 from $1,130,162.
The Company is currently in a loss carry-forward position. The net operating
loss carry-forward balance as of September 30, 2000 was approximately
$20,500,000 compared to $18,200,000 as of December 31, 1999. The net operating
loss carry-forward is available to offset future taxable income through 2020.
The Company's net operating loss carry-forwards may be limited due to ownership
changes as defined under Section 382 of the Internal Revenue Code of 1986.
At September 30, 2000, the Company had a deferred tax asset, which primarily
related to the net operating losses. A 100% valuation allowance has been
established as management cannot determine whether it's more likely than not
that the deferred tax assets will be realized.
2. Liquidity and Capital Resources
During the Company's operating history, it has yet to show a net profit for any
given fiscal year. The Company sustained net losses of approximately $1,853,000,
$1,724,000 and $1,824,000 for the fiscal years ended December 31, 1999, 1998 and
1997, respectively that have caused the Company's Independent Certified Public
Accountants to issue an explanatory paragraph in their opinions which expresses
substantial doubt about the Company's ability to continue as a going concern.
The Company also reported a net loss of $2,322,835 for the nine months ended
September 30, 2000 and accumulated deficit of $22,132,827. The Company has
required periodic infusions of capital to survive and remain solvent. There can
be no assurance that the Company will continue to be able to attract additional
capital and there can be no assurance that the Company will become profitable in
the foreseeable future.
12
<PAGE>
The Company's primary need for capital has been to purchase raw materials,
upgrade machinery and continue to develop and enhance patents and trademarks.
On March 24, 2000, the Board of Directors of the Company approved a temporary
reduction in the conversion price on the 7% Senior Convertible Debenture into
common stock. The conversion price was reduced from $1.50 to the average bid
price of the Company's common stock for the twenty-five trading days immediately
prior to the receipt of a notice of conversion, with a minimum conversion price
of $0.50. The notice of conversion for the temporary reduction must include all
accrued interest through May 31, 2000. As of April 30, 2000, the Company
received notices of conversion from all of the debenture holders As a result,
the Company recorded an expense of $920,000 related to the beneficial conversion
which resulted from the reduction in conversion price during the nine months
ended September 30, 2000.
On March 24, 2000, the Board of Directors also approved a temporary reduction in
the exercise price of all warrants and options outstanding. The exercise price
was reduced from $1.50 to the average bid price of the Company's common stock
for the twenty-five trading days immediately prior to the receipt of a notice of
conversion with a minimum conversion price of $0.50.
During the nine months ended September 30, 2000, the Company received $25,000 of
cash for the exercise of 50,000 warrants by a shareholder at an exercise price
of $0.50 per share and $20,000 of cash for the exercise of 40,000 stock options
at an exercise price of $0.50 per share. During the nine months ended September
30, 1999, the Company received $1,342,500 of cash related to a shareholder
exercising 895,000 warrants at an exercise price of $1.50 per share.
During the nine months ended September 30, 2000, the Company cancelled 100,000
stock options outstanding to officers and issued an additional 375,000 stock
options to officers and employees which expire December 31, 2004 and are subject
to certain vesting terms. These 100,000 options will be subject to variable plan
accounting beginning July 1, 2000. As of September 30, 2000, the Company has
recorded $42,000 in compensation expense related to the variable plan
accounting.
During the nine months ended September 30, 2000, a warrant holder submitted
40,000 warrants to purchase common stock for cancellation by the Company.
On March 27, 2000, the Company entered into a one-year Investment Banking
Agreement with Givigest Fiduciaria SA "Givigest" to raise equity capital. During
the nine months ended September 30, 2000, $225,000 was raised pursuant to the
agreement and the funds were received by the Company.
On August 31, 2000, modifications were made to the Investment Banking Agreement
entered into on March 27, 2000. During the three months ended September 30,
2000, $250,000 was raised pursuant to this modified Agreement through the
issuance of four-year 8.75% Convertible Notes. Each Convertible Debenture is
part of a unit consisting of the debenture, one $0.50 warrant and one $0.60
warrant allowing the purchase of one share of common stock per warrant at
certain times before January 1, 2004, subject to certain conditions. Subsequent
to September 30, 2000, an additional $250,000 was raised pursuant to the
Agreement.
13
<PAGE>
The Company's working capital as of September 30, 2000 was $914,135 compared to
working capital of $1,416,212 at December 31, 1999. The decrease is primarily
due to the increase in cash outflows during the first nine months of fiscal 2000
partially offset by an increase in cash for the placement of debentures of
$250,000 in September 2000.
The net receivables were $110,243 at September 30, 2000 compared to $57,603 at
December 31, 1999. The net increase of $52,640 is due to additional receivables
recorded for sales during the nine months ended September 30, 2000 partially
offset by payments on receivables at December 31, 1999.
Inventories at September 30, 2000 were $687,405 and $577,389 at December 31,
1999. The increase of $110,016 or 19 % is primarily due to an increase in
finished goods for upcoming shipments and purchases of raw materials for
shipments to be made in the fourth quarter of fiscal 2000.
Advances and prepaids were $45,885 at September 30, 2000 compared to $41,895 at
December 31, 1999. The increase of $3,990 is primarily due to an increase in
short term deferred costs, an increase in prepaid expenses partially offset by a
decrease in prepaid offering costs.
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 are not expected to move in the coming twelve months.
The days in inventory ratio increased by 75% from 183 at December 31, 1999 to
321 at September 30, 2000. This is due to the increase in finished goods and raw
materials inventory for upcoming shipments. The inventory turnover at December
31, 1999 was 2.0 compared with 1.1 at September 30, 2000.
The Company recognized a 16% gross profit during the three months ended
September 30, 2000 compared to a 0 % gross profit during the three months ended
September 30, 1999 and a 6% gross loss during the nine months ended September
30, 2000 compared to a 9% gross profit for the nine months ended September 30,
1999. The increase in gross profit during the three months ended September 30,
2000 is due to the increase in sales of the custom Air Box product line. The
decrease in gross profit during the nine month period ended September 30, 2000
is primarily due to the additional inventory reserve recorded of $83,000. 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 an infusion of additional working
capital. This need was met in fiscal 1999 by the placement of Senior Convertible
Notes of $1,500,000. In addition, the Company has also issued $250,000 in
Convertible Notes during the three months ended September 30, 2000.
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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 $1,240,200 from operating activities for the
nine months ended September 30, 2000 compared to cash outflows of $1,346,314 for
the nine months ended September 30, 1999. The change in net outflows of $106,114
from operating activities between the two periods resulted from the increase in
inventory of $5,860, the increase in deposits and other assets of $102,917 and
the decrease in the net loss from operations after adjustments for non-cash
items of $195,261 which were partially offset by the decrease in trade
receivables of $2,484, the decease in advances and prepaids of $46,835, the
decrease in accounts payable and accrued expenses of $141,379 and the decrease
in deferred revenue of $7,226.
Net cash used in investing activities was $97,022 for the nine months ended
September 30, 2000 compared to $107,807 for the nine months ended September 30,
1999. The net decrease is due to the reduction in patent expenditures during the
first nine months of fiscal 2000, offset by increases in property and equipment.
Cash flows from financing activities were $472,500 during the nine months ended
September 30, 2000 compared to $2,392,500 during the nine months ended September
30, 1999. The net decrease is due to the decrease in proceeds from the exercise
of warrants of $1,317,500 partially offset by the increase in proceeds from the
private placement of $202,500 and the exercise of stock options of $20,000 and
the issuance of Convertible Notes of $250,000.
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.
Forward Looking Statement
-------------------------
The above paragraphs and other parts of this Form 10-QSB 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.
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PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
A former employee of the Company was seeking a severance payment of $101,500 per
terms of his employment agreement, which was voluntarily terminated in November
1998. The Company had established a liability for the entire amount. Mediation
was held during April 2000 between the parties and the issue was settled. During
May 2000, the Company paid $50,000 in full settlement of the claim. The Company
has recognized miscellaneous income of $51,500 during the three and six months
ended June 30, 2000 as the difference between the original liability and the
settlement amount, and is recorded in "Interest and other expense(income)".
Item 2. - Changes in Securities
In January 2000, the Board of Directors declared a one-to-ten reverse stock
split. All stock-related data in the consolidated financial statements reflect
the stock split for all periods presented.
In 1991, certain stockholders of the Company entered into an escrow agreement
under which a total of approximately 450,000 shares of the Company's common
stock were placed in escrow. The shares were entitled to be released from escrow
based on the performance of the Company as measured by cash flow (as defined by
the agreement) and certain other conditions. Per the agreement, the Company
would cancel any shares remaining in escrow at December 31, 1999. The Company's
transfer agent cancelled all such shares in January 2000. The shares are
included in the number of shares outstanding for prior periods presented but
have been excluded from the computation of basic and diluted loss per share for
each of the prior periods presented.
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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
Form 10 filed April 11, 2000, Form 10Q filed November 12, 1999 and
Amended Form 10 filed July 23, 1999.
(27). Financial Data Schedule
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: November 14, 2000
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