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 June 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.
(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
-------------------------------------------------
(Address of principal executive offices)
(661) 294-2222
--------------------------
(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 June 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 - June 30, 2000 and December 31, 1999 3
Statements of Operations - Three months ended
June 30, 2000 and 1999; Six months ended
June 30, 2000 and 1999 4
Statements of Cash Flows - Six months ended
June 30, 2000 and 1999 5
Notes to Financial Statements - June 30, 2000 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 6. Exhibits 17
SIGNATURES 17
2
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<TABLE>
<CAPTION>
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
6/30/2000 12/31/1999
(Unaudited)
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 374,906 1,150,151
Trade receivables, net of allowance of $22,630,
and $22,630 120,877 57,603
Inventories, net of reserve of $84,000
and $33,000 659,436 577,389
Advances and prepaids 69,905 41,895
------------------ ------------------
Total current assets 1,225,124 1,827,038
Property and equipment, net of depreciation
of $1,616,227and $1,498,949 644,126 714,186
Intangible assets, net of amortization of
of $602,282 and $575,960 217,750 229,378
Deferred financing costs, net of amortization
of $150,000 and $10,417 - 139,583
Deposits 60,100 60,100
------------------ ------------------
Total assets $ 2,147,100 $ 2,970,285
================== ==================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses $ 160,937 $ 402,031
Deferred revenue 15,844 8,795
------------------ ------------------
Total current liabilities 176,781 410,826
Senior convertible notes - 1,500,000
------------------ -------------------
Total long term liabilities - 1,500,000
Common stock, $.01 par value per share.
Authorized - 50,000,000 shares
Issued and outstanding 11,298,358 at
June 30, 2000 and 7,966,408 at
December 31, 1999 112,984 79,664
Additional paid in capital 23,551,222 20,789,787
Accumulated deficit (21,693,887) (19,809,992)
------------------ -------------------
Total stockholders' equity 1,970,319 1,059,459
------------------ -------------------
Total liabilities & stockholders' equity $ 2,147,100 $ 2,970,285
================== ===================
</TABLE>
3
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<TABLE>
<CAPTION>
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Quarter ended Quarter ended Six months ended Six months ended
6/30/2000 6/30/1999 6/30/2000 6/30/1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------- ---------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 190,228 $ 327,491 $ 337,680 $ 526,520
Cost of sales 274,644 279,301 403,987 464,213
---------------- ---------------- ------------------- ------------------
Gross profit (loss) (84,416) 48,190 (66,307) 62,307
Operating expenses:
General, administrative
and selling expenses 550,984 561,561 917,737 940,518
Research and development 1,808 62 1,808 739
---------------- ---------------- ------------------- ------------------
Total operating expenses 552,792 561,623 919,545 941,257
Loss from operations (637,208) (513,433) (985,852) (878,950)
Interest and other expense/(income) 880,047 (2,386) 898,043 (5,893)
---------------- ---------------- ------------------- ------------------
Net loss $ (1,517,255) $ (511,047) $ (1,883,895) $ (873,057)
================ ================ =================== ==================
Loss per common share:
Basic $ (0.17) $ (0.07) $ (0.23) $ (0.12)
---------------- ---------------- ------------------- ------------------
Diluted $ (0.17) $ (0.07) $ (0.23) $ (0.12)
---------------- ---------------- ------------------- ------------------
Weighted average number of common
shares outstanding:
Basic 8,921,140 7,603,387 8,228,129 7,420,359
---------------- ---------------- ------------------- ------------------
Diluted 8,921,140 7,603,387 8,228,129 7,420,359
---------------- ---------------- ------------------- ------------------
</TABLE>
4
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<TABLE>
<CAPTION>
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flow
Six months ended Six months ended
6/30/2000 6/30/1999
(Unaudited) (Unaudited)
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,883,895) $ (873,057)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 283,183 137,696
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 -
Provision for doubtful accounts - 17,500
Stock based consulting expense - 38,800
Increase (decrease) from changes in:
Trade receivables (63,274) (105,314)
Inventories (165,047) (221,255)
Advances and prepaids (28,010) 46,319
(Decrease) increase from changes in:
Accounts payable & accrued liabilities (167,137) 76,383
Deferred revenue 7,049 (88)
--------------------- ---------------------
Net cash used in operating activities (960,833) (883,016)
--------------------- ---------------------
Cash flows from investing activities:
Purchases of property and equipment (47,218) (42,111)
Patent expenditures (14,694) (24,965)
--------------------- ---------------------
Net cash used in investing activities (61,912) (67,076)
--------------------- ---------------------
Cash flows from financing activities:
Net proceeds from private placements 202,500 -
Proceeds from exercise of warrants 25,000 1,342,500
Proceeds from exercise of options 20,000 -
--------------------- ---------------------
Net cash provided by financing activities 247,500 1,342,500
--------------------- ---------------------
Net (decrease)increase in cash (775,245) 392,408
Cash, beginning of period 1,150,151 125,799
--------------------- ---------------------
Cash, end of period $ 374,906 $ 518,207
===================== =====================
Supplemental disclosure of cash flow information:
Cash paid during the six months for:
Income taxes $ 800 $ 800
Interest $ - $ -
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 2000, and the
results of operations and cash flows for the three and six month periods ended
June 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 six month periods ended June 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 six months ended June 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 three months ended June 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 three months ended June 30,
1999, the Company received $727,500 of cash related to the exercise of 485,000
warrants by a shareholder at an exercise price of $1.50 per share. During the
six months ended June 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 six months ended June 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 options will be subject to variable plan accounting
beginning July 1, 2000.
During the six months ended June 30, 2000, a warrant holder submitted 40,000
warrants to purchase common stock for cancellation by the Company.
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.
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.
7
<PAGE>
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 three months ended June 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 three
months ended June 30, 2000.
Note 6 - Liquidity and Going Concern
------------------------------------
The financial statements as of June 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 ($1,883,895) for the six months ended June
30, 2000 and an accumulated deficit of ($21,693,887) at June 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.
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 three months ended June 30, 2000, $225,000 was raised pursuant to the
agreement and the funds were received by the Company.
8
<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 three months ended June 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
three months ended June 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 three months ended June 30, 2000.
Note 8 - Subsequent Event
-------------------------
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. The remaining three warrants will be exercisable based on the attainment
of certain sales levels by the Company to 3M and will be at market price when
such levels are reached.
9
<PAGE>
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.
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 six months ended June 30, 2000 were $190,228 and
$337,680 compared to net sales of $327,491 and $526,520 for the three and six
months ended June 30, 1999. This represents a decrease of $137,263 for the three
months and a decrease of $188,840 for the six 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 six months of fiscal 1999 and were
not repeated during the first six 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 six months ended June 30, 2000. The
Company will continue to operate at low margins until sales increase
substantially.
Cost of sales for the three and six months ended June 30, 2000 were $274,644 and
$403,987 compared to $279,301 and $464,213 for the three and six months ended
June 30, 1999. Cost of sales at June 30, 2000 includes an additional inventory
reserve of $83,000 that was recorded during the three months ended June 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 $550,984 and $917,737 for the
three and six months ended June 30, 2000 as compared to $561,561 and 940,518 for
the comparable period of the preceding year. The net decrease during the three
and six months ended June 30, 2000 of $10,577 and $22,781 respectively, 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.
10
<PAGE>
Interest and other expense (income) for the three and six month periods ended
June 30, 2000 was $880,047 and $898,043, respectively and was $(2,386) and
$(5,893) during the comparable period of the preceding year. Interest expense
was approximately $937,000 for the three months ended June 30, 2000 and
approximately $963,000 for the six months ended June 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 $17,000 and $26,000 was recorded on the Notes for the three and
six months ended June 30, 2000. In addition, during the three months ended June
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. Interest income increased approximately $10,000 during the three
and six months ended June 30, 2000 from the comparable period of the prior year
as the Company had an increase in cash placed in an interest-earning account.
Miscellaneous other income increased during the three and six months ended June
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 six months ended June 30,
2000 increased by $1,006,208 to $1,517,255 from $511,047 and by $1,010,838 to
$1,883,895 from $873,057.
The Company is currently in a loss carry-forward position. The net operating
loss carry-forward balance as of June 30, 2000 was approximately $20,100,000
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 June 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 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.
11
<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 three months
ended June 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 three months ended June 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 three months ended June 30,
1999, the Company received $727,500 of cash related to the exercise of 485,000
warrants by a shareholder at an exercise price of $1.50 per share. During the
six months ended June 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 six months ended June 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 options will be subject to variable plan accounting
beginning July 1, 2000.
During the six months ended June 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 three months ended June 30, 2000, $225,000 was raised pursuant to the
agreement and the funds were received by the Company.
12
<PAGE>
The Company's working capital as of June 30, 2000 was $1,048,343 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 six months of fiscal 2000.
The net receivables were $120,877 at June 30, 2000 compared to $57,603 at
December 31, 1999. The net increase of $63,274 is due to additional receivables
recorded for sales during the six months ended June 30, 2000 partially offset by
payments on receivables at December 31, 1999.
Inventories at June 30, 2000 were $659,436 and $577,389 at December 31, 1999.
The increase of $82,047 or 14% is primarily due to an increase in finished goods
for upcoming shipments.
Advances and prepaids were $69,905 at June 30, 2000 compared to $41,895 at
December 31, 1999. The increase of $28,010 is primarily due to an increase in
short term deferred costs, an increase in prepaid expenses and an increase in
loan receivable, 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 do not move for at least three months.
The days in inventory ratio increased by 67% from 183 at December 31, 1999 to
306 at June 30, 2000. This is due to the increase in finished goods inventory
for upcoming shipments. The inventory turnover at December 31, 1999 was 2.0
compared with 1.2 at June 30, 2000.
The Company recognized a 44% gross loss during the three months ended June 30,
2000 compared to a 15% gross profit during the three months ended June 30, 1999
and a 20% gross loss during the six months ended June 30, 2000 compared to a 12%
gross profit for the six months ended June 30, 1999. The decrease in gross
profit during the three and six months ended June 30, 2000 is primarily due to
the additional inventory reserve recorded during the three months period ending
June 30, 2000 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.
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.
13
<PAGE>
The Company had cash outflows of $960,833 from operating activities for the six
months ended June 30, 2000 compared to cash outflows of $883,016 for the six
months ended June 30, 1999. The change in net outflows of $77,817 from operating
activities between the two periods resulted from the decrease in advances and
prepaids of $74,329 and the decrease in accounts payable and accrued expenses of
$243,520, which was partially offset by the increase in trade receivables of
$42,040, the increase in inventories of $56,208 and the increase in deferred
revenue of $7,137 and the decrease in the net loss from operations after
adjustments for non-cash items of $134,647.
Net cash used in investing activities was $61,912 for the six months ended June
30, 2000 compared to $67,076 for the six months ended June 30, 1999. The net
decrease is due to the reduction in patent expenditures during the first six
months of fiscal 2000, offset by increases in property and equipment.
Cash flows from financing activities were $247,500 during the six months ended
June 30, 2000 compared to $1,342,500 during the six months ended June 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 an
original issue of $202,500 and the exercise of stock options of $20,000.
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.
14
<PAGE>
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 canceled 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 4. - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of APTI was held on July 17, 2000 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 Abstined Unvoted
--------- --------- -------- --------
Donald Ochacher 8,241,328 703 33,840 0
Wayne Case 8,241,278 753 33,840 0
Carl Stadelhofer 8,239,228 2,803 33,840 0
Marco Calmes 8,238,411 3,620 33,840 0
(2) To authorize the adoption of a stock option plan for the period July 1,
2000 to June 30, 2001.
7,881,419 383,074 11,378 0
(3) To authorize the appointment of BDO Seidman, LLP as independent auditors
for the fiscal year ending December 31, 2000.
8,243,653 25,530 6,688 0
(4) To amend the bylaws to redesignate the minimum number of directors to serve
on the Board of Directors from four to three.
8,241,328 703 33,840 0
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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: August 11, 2000
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