UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
For the fiscal year ended December 31, 1999
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)
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to section 12(g) of the Act: 7,520,415 common
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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. X yes no
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. _____
The aggregate market value of the voting stock held by non-affiliates of the
Registration was
$ 2,742,270 as of March 31, 2000.
-----------
Shares of Common Stock Outstanding as of March 31, 2000: 7,520,415
<PAGE>
Part I
Item 1. BUSINESS
---------
INTRODUCTION
------------
Air Packaging Technologies, Inc., a Delaware corporation ("APTI") is
engaged in the manufacturing, distribution, marketing, and continued development
of inflatable, protective packaging for use in shipment of higher end fragile
products. It holds worldwide patents on a packaging system which utilizes
chambered packing material which provides an Air Box cushion around shipments.
Its Air Box system competes favorably against materials like bubble wrap,
urethane foam, etc., in terms of protection, ease of use and storage, for
shipment of higher value items throughout the world.
A. GENERAL DEVELOPMENT
--------------------------
The Registrant's predecessor was organized as a Canadian corporation under
the British Columbia Company Act in 1985, under the name "MDE Exploration,
Inc.". MDE Exploration made an initial public offering in 1988 in Canada under
the auspices of the Vancouver Stock Exchange, and raised CDN$175,000 (net of
commissions) through the issuance of 500,000 shares of Common Stock at CDN$0.40
per share.
In 1989, MDE Exploration, Inc. was reincorporated in Delaware, and reorganized
and combined with Puff Pac Hold Co. Inc., P&P Industries, Inc., and Puff Pac
Ltd., under the name Puff Pac Industries, Inc.
In September of 1992 Puff Pac Industries, Inc. changed its name to Air Packaging
Technologies, Inc.
The Registrant's stock commenced trading on the NASD Bulletin Board in April of
1994.
Puff Pac Ltd., a California Limited Partnership, remains in existence due
to ownership by a small minority interest. APTI owns 99.13% of the beneficial
interest in Puff Pac Ltd
APTI's corporate offices are located at 25620 Rye Canyon Road, Valencia,
California 91355; its telephone number is (661) 294-2222; its facsimile number
is (661) 294-0947.
APTI has one wholly owned subsidiary:
Puff Pac Industries Canada Inc. ("Canco"), a British Columbia corporation.
<PAGE>
B. FINANCIAL INFORMATION BY
--------------------------------
INDUSTRY SEGMENT AND CLASSES OF PRODUCTS
----------------------------------------
Registrant is in only one industry segment, "protective packaging".
<TABLE>
<CAPTION>
Year
--------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Sales of Air Box Protective Packaging
to Unaffiliated Customers: . . . . . . $ 959,712 $ 722,268 $ 340,624
Operating Loss . . . . . . . . . . . . $(1,854,918) $(1,819,872) $(1,827,861)
Identifiable Assets, Net . . . . . . . $ 2,970,285 $ 1,810,595 $ 1,137,721
</TABLE>
C. BUSINESS
-----------
1. PRODUCTS
- -- --------
APTI manufactures and markets a line of industrial packaging products under
the name "Air Box" .
The Air Box provides reusable protective packaging during shipping and
storage for a wide range of high 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 storage.
The patented design suspends an item within a double-chambered envelope,
which when inflated, surrounds the item with a protective cushion of air,
protected by a double wall of transparent material, made out of a combination of
polyethylene and nylon.
Although not an inexpensive form of packaging, the Air Box provides a
cost-effective packaging solution for higher value items and is environmentally
superior to conventional packaging. When deflated and disposed of, use of the
Air Box reduces the amount of waste by up to 90%, compared with traditional
packaging. The packaging is also easily storable in deflated form, greatly
reducing warehouse space required to be devoted to package material storage.
Air Box is reusable, allowing the package to be deflated and reused. The
Air Box is designed for companies that have substantial round-trip packaging and
shipping requirements.
APTI has also developed and markets a Static Discharge Shielding (SDS) Air
Box. This product is designed for electronic products requiring
static-discharge protection (i.e., Wafers and Integrated Circuits). The SDS Air
Box has two layers of anti-static coated film (inner and outer bags) that
dissipate static electricity while the package's air chamber provides full
static shielding. This provides one hundred times the protection of traditional
static shielding bags, and still provides cushion protection, all in one
package.
The SDS Air Box also meets MIL B81705C Type II and Type III and EIA 541
specifications. The Electronics Industry Association (EIN) puts out the
standard which is titled packaging materials standard for Electro-state
discharge sensitive items. Motorola and other electronic semiconductor
manufacturers are presently using the SDS Air Box for shipment of their wafer
and integrated circuits.
During the first quarter of 2000 APTI introduced a new line of
products which will substantially reduce the amount of material while preserving
the products protective qualities. The new product, to be called Suspend-A-Pak
will be suitable for the shipment of laptop computers and similar shaped
products. APTI has applied for the patent for this new packaging concept,
Suspend-A-Pak. The bag is made similar to an inner tube surrounding the item
while allowing the 4 corners to protrude through the tube. This in effect lifts
and suspends the item giving it excellent protection against drop and vibration
damage.
APTI adopted the use of AIR BOX for the promotional market
shipping everything from invitations to bottles of Champagne. The see through
effect of the Air Box lends itself to this type of packaging. The Company will
visit trade shows beginning in January to align us with companies presently
selling to this market.
Air Box products are offered in 6 standard sizes and SDS Air Box
products are offered in 8 standard sizes.
Air Box quilting is an additional process developed by the Company which
allows the Air Box to take up less space when inflated and to support heavier
items for shipping. Air Boxes can accommodate products up to 15 pounds in
weight.
APTI has created the Air Box Shipping Center as a marketing tool. The
Center is designed for the miscellaneous shipping needs of small businesses. It
is portable, measuring 17"x22"x4", made of corrugated cardboard, and comes with
an assortment of one hundred and twenty (120) Air Boxes in eight different sizes
and a portable air pump. It offers packaging protection equivalent to a closet
full of Styrofoam.
Conventional packaging requires as much as nine times more material volume
than the Air Box, which consists of 90 percent air when inflated. Since the Air
Boxes are stored flat, storage space requirements are greatly reduced.
Designed to be reused as often as five times per Air Box, deflatable Air
Box materials going into a landfill after use represent 45 times less waste
material compared with existing materials.
The see-through film of the Air Box permits instant verification of
contents and allows a humidity indicator card to be read without opening the
package. In some styles bar codes can also be scanned directly through the Air
Box without opening it.
During inflation, the two chambers, sealed together at the edges, swell
against one another, immobilizing the product trapped between.
The product's disadvantage is its high unit cost. Further, in some
applications the product's moisture barrier does not meet certain Mil specs,
although the Company's research and development department is working to improve
such protection. The product is also relatively unknown, and there are limits
to size, shapes and weights.
At the point of unpacking in the recipient's plant, Air Boxes are deflated
by pulling up the valve stem on the valve allowing air to escape through the
center of the valve, when the Air Box is ready for reuse the valve stem will be
pushed back down after inflation.
In summary the Company's Air Box product has the following
attributes and advantages
- - A unique packaging system
- - Patented products
- - Superior drop and vibration protection
- - Transparency
- - ESD protection
- - Custom shapes
- - Custom printing
- - Reusable Cost effective Environmentally friendly
- - Suspend-A-Pak is a low cost alternative to traditional packaging
MARKETING
--------
The Company has identified and has focused upon six key industries
which management believes can immediately benefit from its products. These are:
- - Promotional product or event announcements
- - Static Discharge Shielding (SDS)
- - Medical
- - Dental
- - In store display
- - Retail packaging
- - Electronic finished product repairs
In addition the Company is continually seeking additional
commercial opportunities for the of its Air Box Products in all markets.
PROMOTIONAL AIR BOX
The Company is attempting to take advantage of the unique
appearance of its Air Box by increasing its efforts to sell the product in the
promotional packaging market. By changing the materials, the price of the Air
Box can be significantly reduced which allows the Company to compete with
traditional forms of packaging. The Company intends to seek strategic alliances
with well-established Companies in the promotion and business premium
industries.
SDS
The SDS market is principally the semiconductor market. Manufacturers are
concerned with the shipment of silicon wafers used to manufacture integrated
circuits, and IC's packaged in a Tape and Reel for shipment and further
manufacture. This is a worldwide market.
Management believes its products are the only protective packaging with
Both static shielding and cushion protection. The Air Box provides superior
-
static shielding, is cost effective, requires less storage space, allows use of
primary shipment containers (Empak) (reusing the manufacturer's carrier provides
additional cost savings), and is more effective in reducing damage from drops
and vibrations.
The product exceeds all ESD standards, all ISTA and ASTM compression and
transportation standards, and has passed all commercial airline altitude tests.
The product does not particulate - avoiding wafer contamination. The product is
environmentally friendly with 90% less waste going into the landfill after use
as compared to other packaging materials. The Company's customers report the
Air Box is providing cost savings and freight savings, since there is less
shipment weight and the corrugated box is smaller when compared to traditional
cushion packaging.
In a typical application, the two chambers contain air and are sealed
together at the edges, with the exception of an open end in which the product is
inserted along with a humidity indicator card. An operator applies pressurized
air from an inexpensive regulator, supplied by APTI to the bag's nozzle,
inflating the bag. The open end is then vacuum-sealed using existing equipment.
The resulting product/package construction, consisting of film/air
gap/film/product/film/air gap/film, is what gives the package its strong static
shielding protection. The air gaps can range anywhere from to 1 inch thick,
depending on the contents. The film is coated to provide the required static
dissapative properties, the polyethylene and nylon both provide enhancing
properties to resist puncture and a long shelf life.
After a variety of tests conducted under several different conditions,
independent testing laboratory Fowler Associates confirmed that the combination
of the material and the air gaps "provide a very good ESD package for
essentially all devices under essentially all conditions. In one test, the
package withstood a 20kV discharge while containing integrated circuits that are
rated at 150 v maximum.
Another part of the SDS market is the Photomask market. The Photomask has
no efficient nor cost-effective method of shipment, is extremely fragile, is
subject to transit damage, and is particularly sensitive to contamination. SDS
Air Box can be sealed to eliminate contamination during transit and storage.
Prior to the SDS Air Box entering this market, the Photomask manufacturers had
no efficient way to ship their fragile Photomasks. They were getting
substantial damage during shipping and storage, causing them to use such
extremes as packaging them in a five-gallon ammo can with bubble wrap or a full
size suitcase lined with polyurethane foam. If the Photomask was extremely
fragile, they had to hand carry it to the customer. In all cases, it was
substantially more expensive to insure the safety of the Photomask prior to the
introduction of the SDS Air Box. APTI has been selling the Photomask Air Box to
Photronics for nine months, and recently began selling the SDS Air Box for
Photomasks to two other companies. These three companies control 60% of the
Photomask market.
Other markets for the SDS Air Box include sensitive parts for wafer making
machines, high-end disc drives, quartz glassware used in making semiconductor
wafers, and lightweight surface mount boards, among others.
MEDICAL
The Company recently successfully designed and sold an Air Box to
ship living human skin in a Petrie dish, combining a temperature controlled
environment with Air Box cushion packaging from the Organogenises laboratory to
the hospital. This skin is called Apligraf and is made by Organogenises of New
England. If the Apligraf is subjected to substantial vibration or shock during
the trip to the hospital, it will form a small bubble under the skin and die
very quickly. Many forms of packaging were tested and the Air Box design is the
only FDA approved method of shipping the Apligraf.
Dental Products
----------------
The Dental market is concerned with the shipment of dental impressions from
the dentist's office to the laboratory for the fabrication of dental plates and
apparati and the return trip to the Dentist. Deliveries inside of about 75
miles are now hand delivered, and do not need the Air Box. Dentists who are
outside the 75-mile radius of the laboratory must ship both ways by air courier.
APTI has replaced the corrugated box and foam interior with a simple reusable
Air Box that fits into an overnight courier bag. The laboratory is saving $1.00
per shipment on freight (going both ways) and plans to use the Air Box four
times, giving them additional savings. They also have their packages delivered
up to two hours earlier than if packaged in boxes and foam. The environmental
effect is tremendous and important to the industry; the Air Box is 95% less
dunnage going into the land fill, and if used four times is 98% less dunnage.
IN STORE DISPLAY
The Company is also utilizing the unique appearance of the Air Box
to increase sales of its product to the in store display market in department
stores and service establishments. A leading manufacturer of beauty parlor
supplies will introduce a new line of products to its beauty salon customers
using a custom-designed Air Box set in a metallic base.
RETAIL PACKAGING
The Company is presently working with both packaging design firms
and manufacturers to develop a line of Air Boxes, which can be used in the
retail market. The Air Box will serve two functions: to protect the enclosed
product and to attract the attention of potential customers.
SUSPEND-A-PAK
Suspend-A-Pak, a totally new line of Air Boxes, was introduced in
the first quarter of 2000. It is designed to be used as suspension packaging
using Air Box technology but utilizing substantially less material. This will
allow the Company to compete in high volume, low-end applications and in the
transportation of electronic items such as laptop computers.
2. Methods of Sales
- ----------------------
The Company has a Vice President of Sales handling national accounts as
well as an inside sales person located in Valencia CA.
End user sales are mainly handled through a variety of packaging
distributors throughout the United States. It is the Company's intention to
develop this area of the sales extensively in the coming months.
The Company has one outside sales representative located in the San Jose
area to sell primarily to the Semiconductor Market.
The Company has three International Distributors selling their products; in
Europe, Air Packaging Europe, in Japan with Captain Industries and in the Far
East with Dou Yee of Singapore. The Company plans to expand its International
sales efforts by working with non-exclusive Distributors.
The major share of the Company's present sales come from the U.S. market
with National accounts and 15% of the sales coming from the International
Distributors.
3. Manufacturing
- ---------------------
APTI purchases raw materials in the form of extruded or laminated webs of
thin flexible plastic films which have been printed or coated by outside
suppliers. These films are produced for the Company to the Company's film
design specifications and standards.
These films are then formed into the Company's various products on the
Company's custom designed and computer controlled modular converting machines,
which use heat sealing technology to join the multiple layers of plastic film
together. The specific sequence of operations and control parameters is
proprietary to the Company, and is covered by process patents. The Company
currently has two product fabrication converting machines which are capable of
producing a total of five (5) million units per year.
The Company fabricates its patented air inflation valve using extruded
printed thin plastic films which are heat sealed together to form the valve on a
custom designed fabrication machine. In the first half of 1998 APTI designed
and developed an industrially acceptable push-pull hard valve. Field tests were
completed with some of the Company's largest customers, and they
enthusiastically endorsed the change in valves. The new push-pull valve
eliminates the threat of air escaping through the valve. APTI is using the
push-pull valve in all Semiconductor applications and most custom design
applications.
The Company utilizes continuous process quality monitoring raw material,
production lot testing and other elements of Total Quality Management to produce
a high quality of product, which continues to hold air in all usual shipping
environments which may be encountered by the Company's customers in shipping
their products.
The Company packages its products in boxes for shipment to its many
customers and distributors throughout the world. Some of the products are
"standard" items and are produced to forecast and warehoused for quick response
subsequent shipment, while other products are produced only upon specific
customer order for immediate shipment. On large special orders the Company can
provide products with custom printing to the customer's requirements; all other
orders are produced and shipped with the Company's standard logo and patent
information printed thereon.
4. Sources and Availability of Raw Material
- ----------------------------------------------------
The Company has at least two suppliers fully qualified to produce each of
the raw material films required for its products and several companies qualified
to provide the printing required.
Basic raw materials required by us from our suppliers, such as Jefferson
Smurfitt and Huntsman, are produced and readily available to us. All of the
film raw materials used are produced in the millions of tons currently in other
industries. The Company has adopted industry standard processes to fabricate
its raw materials. As a result, supplies of raw materials are available to the
Company from many sources, though the lead-time can be several weeks until
receipt of raw materials into the Company plant.
5. Patents, Trademarks & Licenses
- ----------------------------------------
The Company has a combination of products, process and application patents,
backed by proprietary and trade secret manufacturing technology. Management
believes the patents and trademarks provide a formidable barrier to competition.
They include 13 U.S. patents and 1 pending with 2 trademarks and 1 pending, with
13 foreign patents with 2 pending and 1 trademark pending - and further filings
continue to protect and strengthen the technology position. The Company is
required to pay minor royalties related to certain patents and trademarks, and
in prior years had paid royalties on both patents and the trademark "Puff Pac",
which trademark is no longer used. Total expense related to these agreements
was $4,324 in 1999, $3,991 in 1998 and $1,726 in 1997. The continuing royalty
payment on patents continues for the life of the original patents, and is fixed
at 2% of cost of goods sold on an annual basis.
6. Seasonal Factors
- ------------------------
The seasonal factors in the Company's Air Box product are limited, and
revolve only around industry slow downs.
7. Inventory and Other Working Capital Items
- -----------------------------------------------------
The Company carries a continuing inventory of its Air Box products, based
on sales forecasts. The book value of this inventory has been significantly
reduced due to the slower than expected sales rate and potential obsolescence or
rework necessitated by the Company's continuing product development and
improvement. The Company had inventory reserves of $33,000 and $63,000 in 1999
and 1998, respectively.
8. Principal Customers
- ---------------------------
Three larger customers, Motorola (XPEDX), The Air Packaging Company
(Europe) Ltd., and C-PAK PTE, LTD (Singapore) accounted for 16%, 17% and 24% of
its sales during its fiscal year ended December 31, 1999. These companies are
independently owned, and are not affiliates of APTI.
9. Firm Backlog
- ---------------------
As of December 31, 1999, APTI had $97,000 in backlog orders, which are
scheduled to be completed within 90 days. The backlog orders as of December 31,
1998 totaled $35,970. Most orders are non-custom, and are filled and shipped
within 14 working days. Custom orders require 6 to 8 weeks to manufacture and
ship.
10. Government Contracts
- ------------------------------
We recently completed a series of simulated transportation tests for the
Military-Navy for several items with excellent results. The U.S. Military
advised us they want to purchase the Air Box to ship sensitive items for the
U.S. Navy between the ships and repair depots. We are pursuing this at the
present time, and although the potential opportunity is substantial, there is no
guarantee APTI will have a contract with the U.S. Military in the near future.
11. Competition
- --------------------
APTI has two distinct types of competitors, one in the standard Air Box
market and one in the SDS Air Box market.
The Standard Air Box competes against traditional cushion packaging such
as die cut styrofoam, loose fill, bubble wrap, die cut corrugated, convoluted
foam and other forms of packaging. The Company's products are competitively
priced with most of these competitors. The Company's Air Box product performs
better than all other cushion packaging in transportation tests.
The second market is the static shielding market. Here, APTI competes
against anti-static foam cushion packaging. Most of the Company's competition
is multi-step packaging, compared to the one step method offered by SDS Air Box
. The Company's SDS Air Box is competitively priced, and management expects to
increase its share of this market.
12. Research, Development & Laboratory
- ---------------------------------------------
The Company maintains an ongoing research and development effort, striving
to develop more effective and efficient packaging products based around the Air
Box technology and design. The Company maintains three full time researchers,
assisted on a part time basis by other employees, and has established an ISTA
Certified testing laboratory within its manufacturing premises in order to aid
its research and development efforts. The Company also partners with its
customers or prospective partners in an effort to develop new and more creative
solutions to the customer's unique packaging needs.
For the years ended December 1999, 1998, and 1997, research and development
expenses were $5,419, $7,371 and $3,322, respectively.
13. Environmental Factors
- ------------------------------
The Company's manufacturing processes are environmentally "clean", as they
comprise only the use of electrically generated heat at modest temperatures (300
to 400F) to heat seal the layers of plastic films together. There are no
by-products created by the Company's manufacturing processes other than scrap
plastic films generated when the machines are set up or occasionally require
adjustment. There is no toxic or dangerous fumes emitted by the heat seal
processes as the materials are kept well below their boiling points.
14. Employees
- -----------------
The Company has 19 full-time employees. Eight of these are in management,
sales, product development, or administration positions and eleven are in
production/warehousing/shipping operations.
The production and packaging operations are supplemented by the addition of
temporary personnel when scheduling requires. The operation is a non-union shop
with staffing drawn from the Valencia and Los Angeles metroplex, California
areas. The production workers when hired are typically non-skilled or
semi-skilled, and are trained, by the Company, in operation of its converting
fabrication equipment. The Company believes that its relationships with its
employees are good.
<PAGE>
15. Financial Information Relating to Foreign and Domestic Sales
- ---------------------------------------------------------------------------
Sales to Unaffiliated Customers:
<TABLE>
<CAPTION>
Year
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States $563,971 $366,177 $295,116
Europe. . . . $165,691 $223,619 $ 45,508
Asia. . . . . $230,050 $132,472 -
</TABLE>
Operating Loss:
<TABLE>
<CAPTION>
Year
--------------------------------
1999 1998 1997
------------- ---------- -------------
<S> <C> <C> <C>
United States $ (1,094,402) $(928,135) $ (1,590,239)
Europe. . . . $ ( 315,336) $(564,160) $( 237,622)
Asia. . . . . $( 445,180) $(327,577) -
</TABLE>
All Identifiable Assets of the Company are located within the U.S.
<PAGE>
Item 2. PROPERTIES
----------
The Issuer has corporate offices, manufacturing, research and distribution
facilities housed in its 17,280 square foot headquarters in Valencia,
California. All products are manufactured at this location. Management
believes its facility is adequate for the Company's current level of operation.
The facility is leased on a long-term lease which expires May 31, 2000, at
a current rental of $10,445.00 per month, plus common area expenses. During
January 2000, the Company extended the term of the lease until May 31, 2005 at a
monthly rental of $11,000.00 plus common area expenses, beginning June 1, 2000.
Item 3. LEGAL PROCEEDINGS
-------------------
A former employee of the Company is seeking a severance payment of $101,500
alleging he is entitled to such a payment under terms of an employment
agreement, which was voluntarily terminated in November 1998. The parties have
agreed to arbitration scheduled to take place during 2000. The Company has
established a liability for the entire amount.
Aside from the above, there is no litigation outstanding, and management is
not aware of any potential claims which might be asserted.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------------
No matters were submitted in the fourth quarter of fiscal 1999.
<PAGE>
Part II
- --------
Item 5. MARKET PRICE AND DIVIDENDS
-----------------------------
ON REGISTRANT'S COMMON STOCK
-------------------------------
EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------
The Company's Common Stock traded on the Vancouver Stock Exchange in
Vancouver, British Columbia, under the symbol "APT" until July 23, 1998. The
symbol was changed on September 1, 1992 commensurate with a name change. The
closing sales price as of July 22, 1998, the last day traded on the Vancouver
Stock Exchange, was $0.14US
The Company's Common Stock trades on the NASD Bulletin Board, under the
symbol "AIRP". The closing sales price on December 31, 1999 was $0.08 at a
pre-reverse stock split price.
Set forth below is the high and low bid information in U.S. dollars for the
Company's Common Stock for each full quarterly period within the two most recent
fiscal years at pre-reverse stock split prices. The information set forth below
was obtained from the OTC Bulletin Board and the Vancouver Stock Exchange, the
latter which was translated to U.S. dollars using the annual average conversion
rate.
<TABLE>
<CAPTION>
High Low
Period Bid Bid
- ---------------- ----- -----
<S> <C> <C>
4th Quarter 1999 $0.12 $0.10
3rd Quarter 1999 0.17 0.17
2nd Quarter 1999 0.17 0.17
1st Quarter 1999 0.26 0.17
4th Quarter 1998 0.29 0.07
3rd Quarter 1998 0.22 0.10
2nd Quarter 1998 0.24 0.12
1st Quarter 1998 0.26 0.11
</TABLE>
At March 31, 2000 the Company had approximately 557 shareholders of record.
The Company has not paid a dividend since its incorporation, and management
does not anticipate the Company will pay dividends in the near future.
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
<TABLE>
<CAPTION>
Class of Nature Amount
Amount Persons to of of Exemption
Dates Title Sold Whom Sold Consideration Consideration Claimed
- --------- ------------------- --------------- ------------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
8/16/99 -
10/14/99 Debentures(4) 1,500 6 Offshore Cash $ 1,500,000 Sec 4 (2), Reg D
Accredited. Sec 4 (6)
Investors
6/11/99 Common 335,000 1 Offshore Cash $ 502,500 Reg S
Stock (3) Accredited
Investor
5/6/99 Common 150,000 1 Offshore Cash $ 225,000 Reg S
Stock (3) Accredited
Investor
4/26/99 Common 160,000 1 Offshore Cash $ 240,000 Reg S
Stock(3) Accredited
Investor
1/28/99 Common 246,667 1 Offshore Cash $ 370,000 Rule 504
Stock(3) Accredited
Investor
1/28/99 Common 3,333 1 Offshore Cash $ 5,000 Reg S
Stock Accredited
Investor
1/15/99 Common Stock 150,000 1 Offshore Cash $ 150,000 Reg S
& Warrants Accredited
(On a 1 for 1 Investors
basis)
1/15/99 Common Stock 50,000 1 Accredited Cash $ 68,000 4(2)
& Warrants U.S. Investor
(On a 1 for 1
basis)
12/21/ Common 420,000 1 Offshore Cash $ 630,000 Rule 504
98 Stock (3) Accredited
Investor
9/98 -
12/98 Common Stock 1,043,157 Ten Conversion of $ 1,066,572 Reg S
Offshore Debt to Equity
Accredited
Investors
9/98 Common Stock 20,839 1 Accredited Conversion of $ 25,000 4(2)
U.S. Investor Debt to Equity
9/11/98 Common Stock(3) 100,000 1 Offshore Cash $ 125,475 Reg S
Accredited
Investor
1/98 - Common Stock 811,250 4 Offshore Cash $ 985,657 Reg S
12/98 and Warrants Accredited
(On a 1 for 1 Investors
basis)
11/4/97 Common Stock & 36,921 1 U.S. Cash $ 99,723 4(2)
Warrants(2) Accredited
(On a 1 for 1 Investor
basis)
5/97 - Common 225,000 3 Offshore Cash $ 365,117 Reg S
11/97 Stock(3) Accredited
Investors
1/97 - Common Stock 180,958 Three Conversion of $ 288,907 Reg S
7/97 Offshore Debt to Equity
Accredited
Investors
1/97 - Options to 5,750 Four Bonus $ 9,539 4(2)
12/97 Acquire Common Sophisticated Consideration
Stock Employees, all to Employees
Sophisticated
1/97 - Common Stock 1,000,583 4 Offshore Cash $ 834,645 Reg S
11/97 and Warrants(2) Accredited
(On a 1 for 1 Investors
basis
5/96 Common 747,778 8 Offshore Cash $ 1,235,638 Reg S
12/96 Shares (2) Accredited
and Warrants Investors
(On a 1 for 1
basis)
7/96 Common Stock 29,375 2 Offshore Conversion of $ 108,555 Reg S
Accredited Debt to Equity
Investors
5/97 Convertible(1) 230,000 1 Offshore Cash $ 1,250,000 Reg S
Debenture Debenture Accredited
Investor
<FN>
(1) 1,250,000 of the debt was converted on May 29, 1997, to 230,000 shares of Common Stock plus 230,000
Warrants exercisable at $1.50 per share, and expiring on May 29, 1999.
(2) Each Warrant provides the right to acquire one share of Common Stock at $1.50, and has a two-year
term.
(3) Issued in connection with the exercise of Warrants previously placed with offshore investors.
(4) The Company issued $1,500,000 in Senior Convertible Notes during 1999 which are convertible into shares
of common stock of the Company at any time before September 30, 2003 at prices ranging from
$1.50 to $2.50 per share.
</FN>
</TABLE>
DESCRIPTION OF REGISTRANT'S SECURITIES
--------------------------------------
The Company has only one type of equity security, Common Stock with par
value equal to U.S. $0.01. There are 50,000,000 authorized shares of Common
Stock of which 7,966,408 shares were issued/outstanding as of December 31, 1999.
The holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the holders of Capital Stock.
Holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any preferred
stock that might be issued in the future. Holders of Common Stock have no
preemptive or subscription rights, and there are no redemption or conversion
rights with respect to such shares. All outstanding shares of Common Stock are
fully paid and nonassessable.
The Company issued $1,500,000 in Senior Convertible Notes during 1999. The
Senior Convertible Notes are unsecured and due on September 30, 2003. The
holder may convert the principal amount of such Note at any time before
September 30, 2003, into shares of common stock at a price ranging from $1.50
per share to $2.50 per share, at the holder's option. The annual interest
payment of 7% of the principal amount of each debenture may be received in
common stock of the Company at a 20% discount, at the holder's option.
The Board of Directors proposed to the Company's shareholders and they
adopted at its Annual Meeting held on June 4, 1999, resolutions giving the Board
of Directors the authority and discretion to reverse split the Company's Common
Stock on a 1 for 10 basis, if and at such time over the succeeding 12 months, as
the Board of Directors determines such a reverse split would be in the interest
of the Company. In such event, the authorized capital stock would change to
50,000,000 shares of common stock authorized and each 10 shares of the
outstanding common stock would automatically convert into a single share of new
common stock. In January 2000, the Board of Directors declared a one-to-ten
reverse stock split and all stock related data for all periods presented has
been adjusted.
<PAGE>
Item 6. FINANCIAL INFORMATION
------------------------
The following table summarizes certain selected financial data for the
periods presented for the Company. The data for the year ended December 31
1999, 1998 and 1997 should be read in conjunction with the more detailed audited
statements for such years presented elsewhere herein.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues. . . . . . . . . . $ 959,712 $ 722,268 $ 340,624 $ 640,074 $ 453,107
Loss: Continuing Operations (1,853,012) (1,723,647) (1,824,199) (1,172,840) (1,774,801)
Net Loss:
Loss per Common Share:
Loss before extraordinary
item. . . . . . . . . . (.25) (.43) (.59) (.61) (1.00)
Extraordinary item. . . . - .05 - - -
Net loss. . . . . . . . . (.25) (.38) (.59) (.61) (1.00)
Dividends Per Share . . . . n/a n/a n/a n/a n/a
Weighted Average Shares . . 7,249,585 4,506,608 3,069,362 1,931,376 1,801,986
Outstanding
BALANCE SHEET DATA
- ---------------------------
Total Assets. . . . . . . . $ 2,970,285 $ 1,810,595 $ 1,137,721 $ 643,062 $ 955,722
Long-term Obligations 1,500,000 --- 39,500 39,500 1,352,000
Total Liabilities . . . . . 1,910,826 275,882 1,004,900 2,211,871 2,479,374
</TABLE>
Item 7. Management's Discussion and Analysis of
--------------------------------------------
Financial Condition and Results of Operation
-------------------------------------------------
1. Results of Operations
- ---------------------------
General Marketing Efforts
- ---------------------------
In 1999, the Company achieved sales of $959,712, which was a 33% increase
over its 1998 total sales of $722,268.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Sales for the year ended December 31, 1999 were $959,712 compared to
$722,268 for the fiscal year ended December 31, 1998. This represents an
increase of $237,444 or 33% during fiscal 1999. The net increase is due to the
increase in sales of the Company's Dental Air Box and the overall increase in
sales of the SDS Air Box as a result of repeat orders and further expansion of
its customer base.
Cost of sales for the year ended December 31, 1999 was $1,012,083 or 105%
of sales compared to $566,837 or 78% of sales for the year ended December 31,
1998. 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 operated at a deficit. The increase also is due
to the related increase in sales of the SDS Air Box product line, which is
sold, with a higher standard cost of sales than the Company's Air Box product
line. The Company also had an increase in labor and overhead in the
manufacturing process which resulted in additional period costs during fiscal
1999 from the comparable period of the preceding year.
Selling, general and administrative expenses decreased by $170,804 or 9%
during fiscal 1999 as compared to fiscal 1998. The decrease is due to decreases
in salaries, consulting fees, travel expenses, legal expenses and a reserve for
a potential liability partially offset by increases in sales and marketing,
general office expenses, casual labor and accounting fees.
The net decrease in salaries of $83,856 is partially due to the decrease in
the salary level of the president of the Company as a result of the change in
presidents which occurred in June 1999. The decrease is also attributable to a
salary adjustment recorded during fiscal 1998 of $81,000 for a former president
for which a similar type of adjustment was not recorded during fiscal 1999. The
decease in consulting fees of $118,086 during fiscal 1999 is due to the decrease
in stock based consulting expense recorded which is partially offset by an
increase in consulting fees paid to a former president. The decrease in travel
expenses of $35,680 is primarily due to the change in presidents in June 1999.
The decrease in legal expenses of $39,956 is due to a reduction in the use of
services by two of the Company's attorneys partially offset by an increase in
legal fees regarding a claim by a former employee. The decrease in selling,
general and administrative expenses includes a reserve recorded during fiscal
1998 for a claim by a former employee of $101,500 for alleged breach of an
employment contract. The net decreases in selling, general and administrative
expenses during fiscal 1999 are partially offset by increases in four
categories. The net increase in sales and marketing expenses of $41,572 is
primarily due to increases in trade show fees and related show expenses and
travel and is partially offset by a decrease in public relations as the Company
did not utilize a public relations company during 1999. The increase in general
office expenses is due to a general increase in business. The increase in
casual labor of $39,162 is primarily due to the Company's increase in utilizing
employees from temporary agencies for staffing needs for the engineering and
quality control departments during 1999. The increase in accounting fees of
$41,337 is primarily due to the initial Form 10 filing with the Securities and
Exchange Commission during fiscal 1999 and the subsequent quarterly filings.
Research and development expenses decreased by $1,952 or 26% during fiscal
1999.
Interest and other income were $32,350 for fiscal 1999 as compared to
$5,676 for fiscal 1998. The increase of 470% in fiscal 1999 is due primarily to
the increase in cash placed in an interest earning account.
Interest expensed decreased by $123,026 for fiscal 1999 as compared to
fiscal 1998 as the Company recorded interest expense of $126,073 due to the
revaluation of its warrants in November 1998. This transaction was not repeated
during fiscal 1999.
The Company did not have an Extraordinary Item during fiscal 1999. The
Company recorded an Extraordinary Item during fiscal 1998 that was due to the
restructuring of certain outstanding payables and accrued expenses. The Company
paid approximately $190,000 in full settlement of accounts payable and other
accrued expenses during the fourth quarter of 1998. This resulted in an
extraordinary gain of approximately $244,000 during fiscal 1998. This was not
repeated during fiscal 1999.
The Company is currently in a loss carryforward position. The net
operating loss carryforwards balance as of December 31, 1999 was approximately
$18,200,000 compared to $16,400,000 as of December 31, 1998. The net operating
loss carryforward is available to offset future taxable income through 2019.
The Company's net operating loss carryforwards may be limited due to ownership
changes as defined under Section 382 of the Internal Revenue Code of 1986.
As of December 31, 1999, the Company had a deferred tax asset of
approximately $7,400,000 which primarily relates to the net operating losses. A
100% valuation allowance has been established as management cannot determine
whether it is more likely than not that the deferred tax assets will be
realized.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Sales for the year ended December 31, 1998 were $722,268 as compared to
$340,624 for the fiscal year ended December 31, 1997. This represents an
increase of $381,644 or 112% during fiscal 1998. The Company began pilot
programs with prospective customers of the SDS Air Box late in the fourth
quarter of 1996. The positive results of these pilot programs resulted in the
increase in sales that occurred during 1998.
The inventory reserve at December 31, 1998 was approximately $63,000, or
13% of total inventory, compared to a reserve of approximately $154,000 or 50%
at December 31, 1997. The net decrease in the reserve from December 31, 1997 to
December 31, 1998 of $91,000 is due to the write-off of specific inventory items
reserved in prior years. The Company evaluated all inventory items for slow
movement and repair, and fully reserved for all items that did not move for at
least three months or that had been discontinued.
Cost of sales for the year ended December 31, 1998 was $566,837, or 78% of
sales, compared to $592,544 for the year ended December 31, 997, or 174% of
sales. The decrease in cost of sales as a percentage of sales is partly due to
an additional inventory reserve of approximately $97,000 that was recorded
during 1997. A similar provision was not recorded in 1998, as by the end o f
1998, the Company had written off those inventory items that had been fully
reserved in prior years.
Selling, general and administrative expenses increased by $395,313 or 25%
during fiscal 1998 as compared to fiscal 1997. The increase in selling, general
and administrative expense is attributable primarily to increases in
professional fees, consulting fees, travel expenses, public company costs and a
reserve for a claim by a former employee.
The increase in professional fees is primarily due to an increase in legal
expenses of $69,228 during fiscal 1998. The Company de-listed from the Vancouver
Stock Exchange during mid-1998. As a result, the Company had several discussions
with both Canadian and U.S. attorneys to verify that the related issues were
properly handled. The Company also retained an additional attorney during
fiscal 1998 specializing in compliance with labor laws. The increase in
consulting fees during fiscal 1998 of $48,811 is primarily due to consulting
work performed to assist the Company in the restructuring of the Company's debt
through the issuance of common shares of stock in settlement of debt. Travel
expenses increased during fiscal 1998 by $29,613 as a result of increased travel
by an officer of the Company who had previously resided in Canada. Public
company costs increased during fiscal 1998 by $68,635 as the Company expenses
fees associated with raising capital through the exercise of warrants and fees
associated with debt for equity transactions. The increase in selling, general
and administrative expense includes a reserve recorded during fiscal 1998 for a
claim by a former employee of $101,500 for alleged breach of an employment
contract. Based on the current status of this claim, the Company believes that
it has fully reserved for the highest potential liability related to this claim.
Research and development expenses increased by $4,049 or 122% during fiscal
1998.
Interest and other income were $5,676 for fiscal 1998 as compared to
$21,596 for fiscal 1997. The decrease of 74% in fiscal 1998 is due to the gain
on the disposition of an asset recorded during fiscal 1997.
Interest expense increased by $135,536 for fiscal 1998 as compared to
fiscal 1997 as the Company recorded interest expense of $126,073 due to the
revaluation of its warrants in November 1998.
The Company recorded an Extraordinary Item during fiscal 1998 that was due
to the restructuring of certain outstanding payables and accrued expenses. The
Company paid approximately $190,000 in full settlement of accounts payable and
other accrued expenses during the fourth quarter of 1998. This resulted in an
extraordinary gain of approximately $244,000.
Depreciation and amortization expense increased by $68,664 or 46% during
fiscal 1998 as compared to fiscal 1997. The increase in depreciation expense of
$63,807 is attributable to the net increase in property and equipment during
fiscal 1998 of $818,416 compared to the net increase in property and equipment
during fiscal 1997 of $108,224. The increase in additional property and
equipment during 1998 is primarily due to the cost of the retrofit of one of the
manufacturing machines that approximated $726,500. Depreciation was calculated
beginning in June 1998 for approximately 91% of the additions; the balance which
was added during the last six months of fiscal 1998. The increase in
amortization of $4,857 is due to the increase in additional patent costs from
fiscal 1997 to fiscal 1998.
The Company is currently in a loss carryforward position. The net
operating loss carryforwards balance as of December 31, 1998 was approximately
$16,400,000 compared to $15,000,000 as of December 31, 1997. The net operating
loss carryforward is available to offset future taxable income through 2018.
The Company's net operating loss carryforwards may be limited due to ownership
changes as defined under Section 382 of the Internal Revenue Code of 1986.
At December 31, 1998, the Company had a deferred tax asset of approximately
$6,800,000, which primarily relates to the net operating losses. A 100%
valuation allowance has been established as management cannot determine whether
it is more likely than not that the deferred tax assets will be realized.
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.
As of December 31, 1999, the Company's working capital was $1,416,212
compared to $430,546 as of December 31, 1998. The increase is primarily do to
the cash infusion of $1,328,598 which resulted from the exercise of 895,000
warrants during fiscal 1999 and the cash infusion of $1,500,000 from the
Convertible Debenture during the last half of fiscal 1999.
The net receivables at December 31, 1999 were $ 57,603 compared to $96,852
at December 31, 1998.
Net inventory at December 31, 1999 was $577,389 compared to $408,643 at
December 31, 1998. The net increase of $168,746 is due to the increase in raw
materials purchased for upcoming orders and anticipation of any Year 2000 issues
and an increase in finished goods manufactured for upcoming orders.
Advances and prepaids at December 31, 1999 and December 31, 1998 were
$41,895 and $75,134, respectively. The decrease is due to a prepayment made in
1998 for materials of $57,892 , which was received in 1999. The prepayment is
partially offset by normal recurring advance and prepaid transactions for a net
decrease of $31,632.
The Company recognized a negative gross profit of 5% during 1999 compared
to gross profit of 22% during 1998. The decrease during fiscal 1999 is due to
the increase in labor and overhead in the manufacturing process which resulted
in additional period costs, and therefore decreased gross margin, during the
year ended December 31, 1999 from the comparable period of the preceding year.
The decrease during 1999 is also attributable to the increased in sales of the
SDS Air Box product line 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 a low margins until
sales increases 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 1998 by selling
additional shares of the Company's Common Stock, primarily offshore to overseas
investors and has been met in fiscal 1999 by the exercise of warrants to
purchase additional shares of the Company's Common Stock and the placement in
the third and fourth quarters of fiscal 1999 of $1,500,000 in Convertible
Debentures.
The Company may 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 $1,465,588 from operating activities for
the 1999 fiscal year compared to cash outflows of $1,635,054 for the 1998 fiscal
year. The change in net outflows of $169,466 from operating activities between
1999 and 1998 primarily resulted from the following items. There was a
decrease in trade receivables of $84,035, a decrease in inventory of $113,565,
a decrease in advances and prepaids of $103,711 and a decrease in other
liabilities of $39,500. The total decreases were partially offset by the
increase in accounts payable and accrued expenses of $26,221 combined with the
increase in the net loss from operations after adjustments for non-cash items of
$141,441 during fiscal 1999.
Net cash used in investing activities was $189,018 during the fiscal year
compared to $447,429 during the 1998 fiscal year. The decrease is due to a
reduction in property and equipment expenditures during 1999.
Cash flows from financing activities were $2,678,958 during the 1999 fiscal
year compared to $2,148,820 during fiscal 1998. The change is primarily due to
increased proceeds from the exercise of warrants and notes payable of
$1,564,331, which was partially offset by a decrease in proceeds from private
placements of $924,593.
The Company has suffered recurring losses from operations and has an
accumulated deficit of ($19,809,992) at December 31, 1999, which raises
substantial doubt about its ability to continue as a going concern. The
auditor's report includes an explanatory paragraph on the uncertainty of the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. 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.
On March 24, 2000, the Board of Directors of the Company approved a
temporary reduction in the conversion price on the 7% Senior Convertible
Debentures 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 the receipt of a notice of conversions, with minimum
conversion price of $0.50. The notice of conversion for the temporary reduction
must be received by April 30, 2000 and must include all accrued interest through
May 31, 2000. As a result, the Company will record an expense related to
reduction in conversion price.
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. The notice
of exercises must be received by April 30, 2000. As a result of this temporary
reduction, the Company will record compensation expense for the difference
between original exercise price and reduced exercise price multiplied by the
number of outstanding warrants and options.
Subsequent to December 31, 1999, the Company cancelled 100,000 stock
options outstanding to officer and issued an additional 335,000 stock options,
which expire December 31, 2004 and are subject to certain vesting terms. Any
applicable compensation expense will be recorded in 2000.
On March 27, 2000, the Company entered into a one-year investment banking
agreement with Givigest Fiduciaria SA "Givigest" to raise equity capital. On
March 27,2000, the Company and Givigest agreed to raise up to $500,000 on or
before April 30, 2000. There are no assurances that the Company will be able
to raise any proceeds under this agreement.
3. Seasonality and Inflation
- -------------------------------
The Company's sales do not appear to be subject to any seasonal
fluctuations. The Company does not believe that inflation has had a material
impact on its operations.
4. Year 2000
- --------------
Many existing computer systems and applications use only two digits to
identify a year in the date field without considering the impact of the change
in the century. As a result, such systems and applications could fail or create
erroneous results unless corrected so that they can process data related to the
Year 2000. The Company relies on its systems and applications in operating and
monitoring all major aspects of its business, including financial systems, such
as general ledger, accounts receivable and accounts payable. The Company also
relies, directly and indirectly on external systems of business enterprises such
as its suppliers, creditors and financial organizations for accurate exchange of
data. Following the Year 2000 transition, the Company has not experienced any
know disruption to its business as of Year 2000. The cost of the Company's Year
2000 programs was approximately $25,000, which was not material to the Company's
financial position or results of operations. Although the Company's business
systems were Year 2000 compliant by December 31, 1999, the Company makes no
assurances regarding Year 2000 compliance of third party systems. The Company
has not incurred any problems with third parties related to Year 2000 but can
not guarantee that it will not in the future.
Item 7A. MARKET RISK - INTEREST RATE RISK
-------------------------------------
The Company's exposure to market risks for changes in interest rates relates
primarily to the Company's long term debt obligations. The Company has no cash
flow exposure on its long-term debt obligations related to changes in market
interest rates. The Company primarily enters into long term debt obligations
for general corporate purposes, including the funding of capital expenditures
and larger acquisitions. The Company has not entered into any material
derivative financial instruments to hedge interest rate risk on these general
corporate borrowings.
<PAGE>
Forward Looking Statement
- ---------------------------
The above paragraphs and other parts of this Form 10-K Annual Report
include "Forward Looking Statements". All statements other than statements of
historical fact included herein, including any statements with respect to 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 expectations 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, include 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.
<PAGE>
Item 8. FINANCIAL STATEMENTS
---------------------
AND SUPPLEMENTARY DATA
------------------------
See Index at (Item 14),
Financial Statements and Exhibits
Item 9. CHANGES IN AND DISAGREEMENTS
-------------------------------
WITH ACCOUNTANTS ON
---------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
Not applicable.
<PAGE>
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
-----------------------------------
The names, ages and positions of the directors and executive officers of
the Company as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position Since
- ----------------- --- -------------------------- -----
<S> <C> <C> <C>
Donald Ochacher . 62 Chairman, CEO & a Director 6/99
Janet Maxey . . . 36 Chief Financial Officer 7/97
Garry Newman. . . 49 Vice President 6/97
Elwood C. Trotter 57 Vice President 4/89
Wayne Case. . . . 59 Director 11/98
Carl Stadelhofer. 46 Director 11/98
</TABLE>
The Directors serve until the next annual meeting of shareholders, or until
their successors are elected.
Donald Ochacher - President and Chief Executive Officer and Chairman of the
Board of Directors of the Company since June 1999. Mr. Ochacher has been a
member of the New York bar since 1960 and was engaged in the private practice of
law specializing in corporate and tax law until 1973 when he became General
Counsel and Chief Financial and Administrative Officer of the Newark Group Ltd.,
a large privately owned paper company. Since 1985, he has been both an
attorney and business consultant and at various times, has served as President
of privately owned companies engaged in the paper, hazardous waste, real estate
and long distance telephone resale industries. From May 1994 to the present,
Mr. Ochacher is president of The 800 Network, Inc. From August 1997 to August
1998, he was chief Financial Officer of Electric Entertainment Corp. Mr.
Ochacher graduated from the New York University School of Law in 1960, receiving
a LL.B degree and received his B.A degree from Cornell University in 1957.
Janet Maxey - Ms. Maxey has been an employee of the Company since May 1991,
and became Chief Financial Officer in July 1997. Ms. Maxey attended California
State University, Northridge, and earned a Bachelor of Science Degree in
Business Administration.
Garry Newman - Vice President of Manufacturing and Engineering since June
1997. Prior to that, Mr. Newman was Engineering & Quality Assurance Manager for
Richmond Technology from October 1994 until he joined the Company. Mr. Newman
attended University of California, Davis, and earned a Bachelor of Science
Degree in Chemical Engineering.
Elwood Trotter - Mr. Trotter has been an employee of the Company since
April 1989 and became Vice President, Special Projects in February 1996. Mr.
Trotter attended Simon Frazer University in British Columbia, Canada.
Wayne Case - President and Chairman of the Board of Schmitt Industries,
Inc., since November 1986, when he founded Schmitt Industries, Inc. Mr. Case
holds a Bachelor of Arts Degree in Business and an MBA.
Carl Stadelhofer - Attorney with Rinderknecht Klein & Stadelhofer in
Switzerland since July 1990. Mr. Stadelhofer is a French and Swiss citizen;
admitted in Switzerland 1982. Education: Law Schools of Zurich and Berne
University (lic.jur1979); Harvard Law School, Massachusetts; Georgetown
University, Washington, D.C. Mr. Stadelhofer specializes in banking and
financing, mergers and acquisitions, investment funds, international securities
transactions and international legal assistance.
Section 16(a) Beneficial Ownership Reporting Compliance
The following Officers, Directors or Beneficial Owners of more than ten percent
of the Company's outstanding common stock failed to timely file reports required
under Section 16(a) of the Exchanges Act during 1999.
<TABLE>
<CAPTION>
Transactions Not
Name Number of Late Filings Reported Timely
- ---------------- ----------------------- ----------------
<S> <C> <C>
Donald Ochacher One None*
Elwood Trotter One None*
Garry Newman One None*
Janet Maxey One None*
Wayne Case Two One
Carl Stadelhofer One None*
<FN>
*Report that was filed late was Form 3, Initial Statement
of Beneficial Ownership of Securities. Therefore, no transaction
was involved.
</TABLE>
Item 11. EXECUTIVE COMPENSATION
-----------------------
The following table sets forth the annual compensation paid and accrued by
the Company during its last three fiscal years to the executive officers to whom
it paid in excess of $100,000, including cash and issuance of securities.
<TABLE>
<CAPTION>
Summary Compensation
---------------------
Annual Compensation Awards Payouts
-------------------------------------------- --------------------- --------------
Other Secur-
Name Annual Restricted ities All Other
and Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
- ------------------------ -------- --------------- ----------- ----------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald
Ochacher . . . . . . . . (1) 1999 42,900 n/a - - 40,000 - -
Chairman . . . . . . . . 1998 n/a n/a - - - - -
Of the Bd. . . . . . . . 1997 n/a n/a - - - -
& CEO
Elwood . . . . . . . . . 1999 109,200 n/a - - 75,000(3) - -
Trotter. . . . . . . . . 1998 104,260 n/a - - 22,500 - -
Vice . . . . . . . . . . 1997 97,200 n/a - - 2,500 - -
President
Sales &,
Marketing,
Former
Director
Garvin
McMinn(2)
Former . . . . . . . . . 1999 89,808(4) n/a - - 115,000(3) - -
Chairman . . . . . . . . 1998 162,154(5) n/a - - 65,000 - -
Of the Bd. . . . . . . . 1997 81,346 n/a - - 15,000 - -
& CEO
- ------------------------
<FN>
(1)Donald Ochacher has been President and CEO of the Company since June 1999.
(2)Garvin McMinn resigned as officer and director effective June 4, 1999 and entered into an amendment to his
employment contract shifting has status to that of a consultant over a one year term at a flat agreed fee of
$5,000 per month, for its term.
(3)Includes stock options which were granted in prior years but were repriced during fiscal 1999.
(4)Includes $30,385 of payments in consulting fees.
(5)$81,000 was paid in stock through the issuance of 81,000 shares of Common Stock of the Company.
</FN>
</TABLE>
Options/SAR Grants in Last Fiscal Year
--------------------------------------
<TABLE>
<CAPTION>
Potential Realized Value
At Assumed Rates of Stock
Individual Price Appreciation for
Grants Option Term(b)
------ ---------------
No. Of Sec. % of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted (a) In Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10%($)
- ----------------------- ------------- ---------- ----------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Donald Ochacher
Chairman of
The Board
& CEO 40,000 11% $ 1.50 12/31/04 - -
Elwood Trotter
Vice President
Sales &
Markeing &
Former
Director 35,000 10% $ 1.50 12/31/04 - -
20,000 6% $ 1.50 06/22/98 - -
2,500 1% $ 1.50 03/05/03 - -
2,500 1% $ 1.50 06/06/02 - -
15,000 4% $ 1.50 03/05/03 - -
Garvin McMinn
Former Chairman of
the Board
& CEO 35,000 10% $ 1.50 12/31/04 - -
40,000 11% $ 1.50 06/22/03 - -
25,000 7% $ 1.50 03/05/03 - -
15,000 4% $ 1.50 08/08/02 - -
- -----------------------
<FN>
(a) Includes options which were repriced during fiscal 1999.
(b) These amounts, based on assumed appreciation rates of 5% and 10% rates prescribed by
the Securities and Exchange Commission rules are not intended to forecast possible future
appreciation, if any, of the Company's stock price. The closing price at December 31, 1999
of the Company's Common Stock was $0.80 per share.
</FN>
</TABLE>
The following table sets forth the number of shares covered by exercisable
and unexercisable options held by such executives on December 31, 1999, as
adjusted for a blanket reduction in all exercise prices on all outstanding
options, to $1.50 per share exercise price per resolutions adopted by the Board
of Directors on June 4, 1999, and the aggregate gains that would have been
realized had these options been exercised on December 31, 1999, even though
these options were not exercised, and the unexercisable options could not have
been exercised, on December 31, 1999. The Company did not issue stock
appreciation rights.
<PAGE>
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying in-the-Money
Shares Unexercised Options/SARs
Acquired Value options/SARs at at Fiscal Year End(a)
on Exercise Realized FY-End (#) ($)
Name $ $ Exercisable Unexercisable Exercisable Unexercisable
- --------------- ------ --------- -------------------------- ----------------------------
<S> <C> <C> <C> <C>
Donald Ochacher - - 40,000 - - -
Elwood Trotter. - - 75,000 - - -
Garvin McMinn . - - 115,000 - - -
<FN>
(a) Market value of shares covered by in-the-money options on December 31, 1999,
less option exercise price. Options are in-the-money if the market value of the shares
covered thereby is greater than the option exercise price based on the last trading day
in 1999 of $0.80 per share at a $1.50 per share exercise price.
The Company has no Long-Term Incentive Plans and no Awards were made in its Last Fiscal
Year
</FN>
</TABLE>
Item 12. SECURITY OWNERSHIP OF
-----------------------
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------
The following table sets forth information regarding beneficial ownership
as of December 31, 1999, of the Company's Common Stock, by any person who is
known to the Company to be the beneficial owner of more than 5% of the Company's
voting securities and by each director and by officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
Beneficial(1) Percentage
Officers and Directors Ownership of Class 1
- ---------------------------------------------- ---------- ----------
<S> <C> <C>
Donald Ochacher, Chairman, CEO and a Director(2) 42,500 0.5%
Janet Maxey, Chief Financial Officer(3) . . . 25,000 0.3%
Garry Newman, Vice President(4) . . . . . . . . 30,100 0.4%
Elwood C. Trotter, Vice President(5). . . . . . 104,986 1.2%
Wayne Case, Director (6). . . . . . . . . . . . 67,992 0.8%
Carl Stadelhofer, Director(7) . . . . . . . . . 223,333 2.6%
----------
All current directors and
officers as a group (6 persons). . . . . . . . 493,911 5.8%
========= =====
5% Holders
- ----------------------------------------------
Schmitt Industries, Inc.(8). . . . . . . . . 1,375,716 16.1%
2765 N.W Nicolai Street
Portland OR 97210
Finter Bank Zurich.(9) . . . . . . . . . . . . 485,000 5.7%
Claridenstrasse 3S
CH-8022
Zurich Switzerland
<FN>
1 Assumes all outstanding stock options and all outstanding warrants have been
exercised and the subject shares have been issued and are outstanding.
2 Includes 40,000 stock options outstanding and exercisable at 12/31/99
3 Includes 25,000 stock options outstanding and exercisable at 12/31/99
4 Includes 30,000 stock options outstanding and exercisable at 12/31/99
5 Includes 75,000 stock options outstanding and exercisable at 12/31/99
6 Includes 40,000 stock options outstanding and exercisable at 12/31/99
7 Includes 40,000 stock options outstanding and exercisable at 12/31/99
8 Wayne Case, a Director of the Company, is a principal shareholder, President,
and Chairman of the Board of Schmitt Industries, Inc.
9 Finter Bank Zurich holds these shares on behalf of various clients, none of
which is an officer, director, or affiliate of the Company. Under the
laws of the country of Switzerland, Finter Bank may not divulge the names of
its individual clients and, therefore, may be deemed the beneficial owner
of these shares, although Finter Bank Zurich disclaims any individual
interest in these shares.
</FN>
</TABLE>
On March 24, 2000, 100,000 stock options outstanding to officers were
cancelled. An additional 335,000 stock options were issued to officers which
expire December 31, 2004 and are subject to certain vesting terms.
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------
1. Wayne Case, a Director of the Company, also serves as the President
and Chairman of the Board of Schmitt Industries, Inc. Schmitt acquired during
fiscal 1998, and the first quarter of 1999, an aggregate of 1,375,716 Shares of
the Company's Common Stock, from another principal shareholder. As of December
31, 1999, Schmitt held 1,375,716 shares of the Company's Common Stock and on a
fully diluted basis, represent 16.1% of the Company's outstanding Common Stock.
2. In December 1998, the Company issued 81,000 shares of its common stock in
settlement of $81,000 of debt owned to Garvin McMinn.
3. The Company issued 131,250 shares of common stock, through a private
placement, to Variety Investments, Ltd., a company owned by Don Farrell (a
former principal shareholder) during 1998. In December of 1998, 256,671 shares
of common stock were issued in exchange for debt owed to Farrell Financial in
the amount of $282,887, a company owned by Don Farrell.
4. On June 4, 1999, the Board of Directors adopted a 1999 Non Qualified Key
Man Stock Option Plan. This Plan authorized the issuance of up to 500,000
options to acquire shares of the Company's common stock at an exercise price of
not less than 100% of the 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.
5. The Company has written employment agreements with two individuals:
Elwood Trotter and Janet Maxey, and a consulting agreement with Garvin McMinn.
Summaries of the provisions under the agreements follow.
Garvin McMinn resigned as officer and director effective June 4, 1999 and
entered into a one year consulting agreement to provide consulting services as
needed at a flat agreed fee of $5,000 per month, for its term which expires May
31, 2000.
Elwood Trotter has a one-year employment contract that was amended June 1999 and
expires May 31, 2000. He receives $8,000 per month as Vice-President Special
Projects. In the event of his termination, he will receive only the
compensation earned up to the date of termination.
Janet Maxey has a one-year employment contract that was amended June 1999 and
expires May 31, 2000. She receives $3,574 per month as Chief Financial Officer.
In the event of her termination, she will receive only the compensation earned
up to the date of termination.
6. Donald Ochacher was retained as President and Chief Executive Officer of
the Company on June 4, 1999 at a salary of $6,500 per month. In addition, the
Board of Directors authorized the issuance of 40,000 options to acquire shares
of the Company's common stock at an exercise price of $1.50 per share and with
other terms and conditions as provided in the Company's 1999 Non Qualified Key
Stock Option Plan. No formal written agreement has been entered into between
the Company and Donald Ochacher.
<PAGE>
7. Escrowed Shares. In 1991, 29 stockholders of the Company entered into an
escrow agreement under which a total of approximately 4.50,000 shares of the
Company's common stock were placed in escrow, in exchange for an assignment by
the 29 stockholders of certain fractional rights they held in the original Air
Box patents to the Company. None of these 29 stockholders currently hold
significant shares, nor are they officers or directors. The shares are 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. The
agreement specifies that the shares are to be released from escrow on a pro rata
basis of the Company as measured by the Cumulative Cash Flow of the Company
since January 1, 1990 not previously applied towards a release, divided by the
earn-out price of $4.60 CDN. Cash flow is defined as net income or loss before
tax adjusted to add back expenses including depreciation, amortization of
goodwill, expensed research and development costs and any other amounts
permitted or required by the Vancouver Stock Exchange. The Cumulative Cash Flow
I, at any time, the aggregate cash flow up to that time from a date no earlier
than the Company; financial year-end immediately preceding, and no later than
the Company's financial year-end immediately following the date the issuance of
the performance shares is finally accepted by the Vancouver Stock Exchange, net
of any negative cash flow. At the time that this agreement was entered into,
the Company's common stock was traded on the Vancouver Stock Exchange, the
Company de-listed itself form the Vancouver Stock Exchange and the last day it
traded on the Vancouver Stock Exchange was July 22, 1998. While the shares re
in escrow, the stockholders have waived their rights to receive dividends or
participate in the distribution of assets upon a winding up of the Company. Any
shares while the shares are in escrow, the stockholders have waived their rights
to receive dividends or participate in the distribution of assets upon a winding
up of the Company. Any shares remaining in escrow at December 31, 1999 are to
be canceled by the Company. As of December 31, 1999 as the shares were not
actually cancelled by the Company's Transfer Agent until January 2000, all such
shares remain in escrow. These shares are included in the number of shares
outstanding in each of the three years ended 1999. However, these shares have
been excluded from the computation of basic and diluted loss per shares for each
of the three years ended 1999.
8. The Board of Directors proposed to the Company's shareholders and they
adopted at its Annual Meeting held on June 4, 1999, resolutions giving the Board
of Directors the authority and discretion to reverse split the Company's
outstanding common Stock on a 1 for 10 basis, if and at such time over the
succeeding 12 months, as the Board of Directors determines such a reverse split
would be in the interest of the Company. In such event, the authorized capital
stock would change to 50,000,000 shares of common stock authorized and each 10
shares of the outstanding commons tock would automatically convert into a single
share of new common stock. In January 2000, the Board of Directors declared the
one-to-ten reverse stock split.
9. The Value of Warrant Exercise Price. During 1998 and 1997 the Company
issued 1,011,250 and 1,037,504 shares of Common Stock through private
placements. Each share issued had attached a share purchase warrant to purchase
one additional share of Common Stock for a period of two years.
During 1999, 1998 and 1997, the Company issued a total of 134,250, 520,000 and
225,000 shares at various per share prices upon the exercise of warrants by
various shareholders.
In November 1998, the Company's Board of Directors revalued 2,248,754
outstanding warrants based on the fair value of the stock, and amended the
exercise price to $1.50 per share up to the expiration date. From November 1998
to the present, 1,315,000 warrants have been exercised.
10. Conversion of Related Party Debt to Equity. The Company in 1997 converted a
debt owed to Donald Farrell, an offshore former Director and through his
offshore company, formerly a principal shareholder of the Company, in the
amount of $126,000, 86,310 shares of the Company's Common Stock. In 1998,
additional fees of $31,500 were incurred, and all remaining outstanding debt was
settled in exchange for 256,671 shares of the Company's Common Stock issued in
an offshore transaction, at $1.00 per share.
In January 1997, the Company entered into an agreement with Variety
Investments, Ltd., an offshore affiliate of Donald Farrell, by which the Company
could borrow up to $150,000. Interest payments at 8.5% per annum were due
monthly, and any borrowings are secured by the Company's assets. The
outstanding loan payable became due and payable on June 1, 1998. In December
1998, the Company issued a total of 43,529 shares of its Common Stock at a value
of $1.00 per share, in full settlement of the outstanding debt plus accrued
interest, in an offshore transaction.
Other than discussed above, the Company has no knowledge of any transaction
or series of transactions, since January 1, 1998, or any currently proposed
transaction, or series of transactions, to which the Company was or is to be
party, in which the amount involved exceeds $60,000, involving management, any
person owning 10% or more of the common stock, or any member of the immediate
family of any of the foregoing persons.
Management believes that the transactions with related parties were on
terms as favorable as the Company would have obtained from unaffiliated parties.
Item 14. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
Reports of Independent Certified Public Accountants
Consolidated Financial Statements
Balance Sheets as of December 31, 1999 and 1998;
Statement of Operations for the years ended December 31, 1999,
1998 and 1997;
Statement of Stockholders' Equity for the years ended December 31,
1999, 1998 and 1997;
Statement of Cash Flows for the years ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
(b) Exhibits Required by Item 601 of Regulation SK.
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
4 Instruments defining rights of security holders, including indentures
None.
-----
9 Voting Trust Agreement
None
----
10 Material Contracts
Lease Agreement for plant facilities, Incorporated by reference to
exhibits attached to Amended Form 10 filed July 23, 1999
(b)1. Employment Agreement with Garvin McMinn, Incorporated by reference to
exhibits attached to Amended Form 10 filed July 23, 1999
(b)2. Amendment to Employment with Garvin McMinn, Incorporated by reference
to exhibits to Amended Form 10 filed July 23, 1999
(c)1. Employment Contract with CFO Janet Maxey, Incorporated by reference to
exhibits attached to Amended Form 10 filed July 23, 1999
(c)2. Amendment to Employment Contract with CFO Janet Maxey, Incorporated by
reference to exhibits attached to Amended Form 10 filed July 23, 1999
(d)1. Employment Contract with Vice President Elwood Trotter, Incorporated
by reference to exhibits attached to Amended Form 10 filed July 23,
1999
(d)2. Amendment to Employment Contract with Vice President Elwood Trotter,
Incorporated by reference to exhibits attached to Amended Form 10 filed
July 23, 1999
(e) Form of Option Certificate delivered to certain Key Employees in
connection with the Grant of Individual Options to said Employees,
Incorporated by reference to exhibits attached to Amended Form
10 filed July 23, 1999
(f) Patent Royalty Agreement between Puff Pac, Ltd. (the Company's
predecessor), and Puff Pac People, Incorporated by reference to
exhibits attached to Amended Form 10 filed July 23, 1999
(g) Escrow Agreement, Incorporated by reference to exhibits attached to
Amended Form 10 filed July 23, 1999
(h) 1999 Non-Qualified Key Man Stock Option Plan, Incorporated by reference
to exhibits attached to Amended Form 10 filed July 23, 1999
(i) 1999 Investment Banking Agreement
(j) 2000 Investment Banking Agreement
21 Subsidiaries of the Registrant
Name Domicile
---- --------
Puff Pac Industries
(Canada) Inc. (inactive) Canada
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: 4/11/00 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board,
Director, and
/s/ Donald Ochacher Chief Executive Officer 4/11/00
- ----------------------
Donald Ochacher
/s/ Janet Maxey Chief Financial Officer 4/11/00
- ----------------------
Janet Maxey
/s/ Wayne Case Director 4/11/00
- ----------------------
Wayne Case
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONTENTS
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1999 and 1998 F-3
Statements of Operations for the years ended December 31, 1999,
1998 and 1997 F-5
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Air Packaging Technologies, Inc.
Valencia, California
We have audited the accompanying consolidated balance sheets of Air Packaging
Technologies, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1999. We have
also audited the schedule listed in the accompanying index. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and schedule
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Air Packaging
Technologies, Inc. and Subsidiary at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
The accompanying consolidated financial statements and schedule have been
Prepared assuming that the Company will continue as a going concern. As
discussed in Note 3 to the financial statements, the Company has suffered
recurring losses from operations that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 3. The financial statements and schedule do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Los Angeles, California
March 3, 2000, except for Note 17
as to which the date is March 27, 2000
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Air Packaging Technologies, Inc.
Valencia, CA
We have audited the consolidated balance sheet of Air Packaging Technologies,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Air Packaging Tehnologies, Inc.
and subsidiaries as of December 31, 1997, and results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company has suffered recurring losses from
operations that raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 3. The financial statements do not include any adjustments
relating to the recoverability and classification of reported asset amounts or
the amounts and classification of liabilities that might result from the outcome
of this uncertainty.
/s/Hein + Associates LLP
Hein + Associates LLP
Certified Public Accountants
Orange, California
March 30, 1998
F-2
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $1,150,151 $ 125,799
Trade receivables, net of allowance for doubtful accounts of
$22,630 and $5,130 (Note 15). . . . . . . . . . . . . . . . . 57,603 96,852
Inventories, net (Note 4) . . . . . . . . . . . . . . . . . . 577,389 408,643
Advances and prepaids . . . . . . . . . . . . . . . . . . . . 41,895 75,134
---------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 1,827,038 706,428
PROPERTY AND EQUIPMENT, net (Note 5) . . . . . . . . . . . . . . 714,186 810,458
INTANGIBLE ASSETS, net (Note 6). . . . . . . . . . . . . . . . . 229,378 233,609
DEFERRED FINANCING COSTS, net of accumulated amortization of
$ 10,416 139,583 -
DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,100 60,100
---------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $2,970,285 $1,810,595
========== ==========
</TABLE>
F-3
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
------------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 11) . . . . . . . . . . . . . . . . . $ 316,861 $ 191,025
Accrued expenses (Note 11) . . . . . . . . . . . . . . . . . 93,965 84,857
-------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . 410,826 275,882
-------------- -------------
LONG TERM LIABILITIES
Senior convertible notes (Note 10) . . . . . . . . . . . . . 1,500,000 -
-------------- -------------
Total long term liabilities . . . . . . . . . . . . . . . . . 1,500,000 -
-------------- -------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 1,910,826 275,882
-------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY (Notes 7, 8, 9, 12, 14 and 16)
Common stock, $.01 par value, 50,000,000 shares authorized;
7,966,408 and 7,071,408 shares issued and outstanding. . . . 79,664 70,714
Additional paid-in capital . . . . . . . . . . . . . . . . . 20,789,787 19,420,979
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . (19,809,992) (17,956,980)
-------------- -------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . 1,059,459 1,534,713
-------------- -------------
Total liabilities and stockholders' equity. . . . . . . . . . $ 2,970,285 $ 1,810,595
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES (Note 15). . . . . . . . . . . . $ 959,712 $ 722,268 $ 340,624
COST OF SALES. . . . . . . . . . . . . . . 1,012,083 566,837 592,544
------------ ------------ ------------
GROSS PROFIT (LOSS). . . . . . . . . . . . (52,371) 155,431 (251,920)
------------ ------------ ------------
OPERATING EXPENSES:
Sales, general and administrative . . . . 1,797,128 1,967,932 1,572,619
Research and development. . . . . . . . . 5,419 7,371 3,322
------------ ------------ ------------
Total operating expenses . . . . . . . . . 1,802,547 1,975,303 1,575,941
------------ ------------ ------------
LOSS FROM OPERATIONS . . . . . . . . . . . (1,854,918) (1,819,872) (1,827,861)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense. . . . . . . . . . . . . (30,444) (153,470) (17,934)
Interest income . . . . . . . . . . . . . 20,900 3,433 2,010
Other income. . . . . . . . . . . . . . . 11,450 2,243 19,586
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) . . . . . . . 1,906 (147,794) 3,662
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM . . . . . . - (1,967,666) (1,824,199)
EXTRAORDINARY ITEM - GAIN ON
RESTRUCTURING OF PAYABLES (Note 11). . . - 244,019 -
------------ ------------ ------------
NET LOSS . . . . . . . . . . . . . . . . . $(1,853,012) $ (1,723,647) $ (1,824,199)
============ ============ ============
LOSS PER COMMON SHARE - BASIC AND DILUTED
Loss before extraordinary item. . . . . . $ (.25) $ (.43) $ (.59)
Extraordinary item. . . . . . . . . . . . $ - $ .05 $ -
Net loss. . . . . . . . . . . . . . . . . $ (.25) $ (.38) $ (.59)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED . . . . . 7,249,585 4,506,608 3,069,362
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997. . . . . . . . . . . . 2,796,952 $ 27,970 $ 12,812,355 $ (14,409,134)$ (1,568,809)
Net cash proceeds from private
placements (Note 12) . . . . . . . . . . . . . 1,037,504 10,376 1,580,343 - 1,590,719
Debt for equity exchange (Notes 7 and 12) . . . 180,958 1,809 285,477 - 287,286
Conversion of debenture (Note 9). . . . . . . . 230,000 2,300 1,247,700 - 1,250,000
Exercise of options (Note 12) . . . . . . . . . 5,750 58 8,089 - 8,147
Exercise of warrants (Note 12). . . . . . . . . 225,000 2,249 343,978 - 346,227
Stock-based compensation (Note 12). . . . . . . - - 43,450 - 43,450
Net loss. . . . . . . . . . . . . . . . . . . . - - - (1,824,199) (1,824,199)
----------- --------- ----------- ------------ -------------
BALANCE, December 31, 1997. . . . . . . . . . . 4,476,164 44,762 16,321,392 (16,233,333) 132,821
Net cash proceeds from private
placements (Note 12) . . . . . . . . . . . . . 1,011,250 10,113 914,480 - 924,593
Debt for equity exchange
(Notes 7, 8, 9 and 12) . . . . . . . . . . . . 1,063,994 10,639 1,073,534 - 1,084,173
Exercise of warrants (Notes 9 and 12) . . . . . 520,000 5,200 738,427 - 743,627
Stock-based compensation (Note 12). . . . . . . - - 247,073 - 247,073
Revaluation of warrants (Note 12) . . . . . . . - - 126,073 - 126,073
Net loss. . . . . . . . . . . . . . . . . . . . - - - (1,723,647) (1,723,647)
----------- --------- ----------- ------------ ------------
BALANCE, December 31, 1998. . . . . . . . . . . 7,071,408 70,714 19,420,979 (17,956,980) 1,534,713
Exercise of warrants (Notes 9 and 12) . . . . . 895,000 8,950 1,320,008 - 1,328,958
Stock-based compensation (Note 12). . . . . . . - - 48,800 - 48,800
Net loss. . . . . . . . . . . . . . . . . . . . - - - (1,853,012) (1,853,012)
----------- --------- ----------- ------------ ------------
BALANCE, December 31, 1999. . . . . . . . . . . 7,966,408 $ 79,664 $ 20,789,787 $ (19,809,992) $ 1,059,459
=========== ========== ============ =============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<PAGE>
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
-----------------------------
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . $ (1,853,012) $ (1,723,647) $ (1,824,199)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . 299,938 219,064 150,400
Provision for doubtful accounts . . . . . . . . . . 17,500 - 2,037
Inventory reserve . . . . . . . . . . . . . . . . . (30,123) - 97,202
Stock-based compensation. . . . . . . . . . . . . . 48,800 247,073 43,450
Expense on revaluation of warrants. . . . . . . . . - 126,073 -
Extraordinary gain on restructuring of payables . . - (244,019) -
Gain on sale of property and equipment. . . . . . . - - (6,742)
Increase (decrease) from changes in:
Trade receivables . . . . . . . . . . . . . . . . . 21,749 (62,286) 3,730
Inventories . . . . . . . . . . . . . . . . . . . . (138,623) (252,188) (123,211)
Advances and prepaids . . . . . . . . . . . . . . . 33,239 (70,472) 356
Deposits. . . . . . . . . . . . . . . . . . . . . . - 6,774 (51,594)
Accounts payable and accrued liabilities. . . . . . 133,085 159,306 171,981
Accrued officers' salaries. . . . . . . . . . . . . 1,859 (1,232) (24,794)
Due to related party. . . . . . . . . . . . . . . . - - 126,000
Other liabilities . . . . . . . . . . . . . . . . . - (39,500) -
------------- -------------- -------------
Net cash used in operating activities. . . . . . . . . (1,465,588) (1,635,054) (1,435,384)
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment. . . . . - - 7,000
Purchases of property and equipment . . . . . . . . . (129,126) (413,765) (528,193)
Patent expenditures . . . . . . . . . . . . . . . . . (59,892) (33,664) (37,788)
------------- -------------- -------------
Net cash used in investing activities. . . . . . . . . (189,018) (447,429) (558,981)
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placements. . . . . . . . . - 924,593 1,590,719
Net proceeds from exercise of warrants. . . . . . . . 1,328,958 743,627 346,227
Net proceeds from exercise of options . . . . . . . . - - 8,147
Deferred costs. . . . . . . . . . . . . . . . . . . . (150,000) - -
Proceeds from loan payable - related party. . . . . . - - 38,128
Proceeds from senior convertible notes. . . . . . . . 1,500,000 521,000 50,000
Payment on note payable . . . . . . . . . . . . . . . - (33,000) (31,000)
Costs associated with debt conversion . . . . . . . . - (7,400) -
------------- -------------- -------------
Net cash provided by financing activities. . . . . . . 2,678,958 2,148,820 2,002,221
------------- -------------- -------------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . 1,024,352 66,337 7,856
CASH, at beginning of year . . . . . . . . . . . . . . 125,799 59,462 51,606
------------- -------------- -------------
CASH, at end of year . . . . . . . . . . . . . . . . . $ 1,150,151 $ 125,799 $ 59,462
============= ============== =============
</TABLE>
F-7
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid interest in the amount of $237, $0 and $43,205 during 1999,
1998 and 1997, respectively. The Company paid income taxes in the amount of
$800, $800 and $800 during 1999, 1998 and 1997, respectively.
During 1997, $3,528 of interest was capitalized for construction of property and
equipment.
During 1998 and 1997, the Company exchanged $1,084,173 and $287,286,
respectively, of debt for 1,063,995 and 180,958 shares of common stock (see
Notes 7, 8, 10 and 12).
During 1997, the convertible debenture with a balance of $1,250,000 was
converted into 230,000 shares of common stock of the Company at the exercise
price of $5.40 per share and 230,000 detachable nontransferable warrants (see
Note 9).
During the years ended December 31, 1999, 1998 and 1997, the Company recorded
$22,750, $187,073 and $43,450, respectively, representing stock-based
compensation in conjunction with stock options granted to nonemployees (see Note
12).
During 1998, the Company issued 81,000 shares to an employee in satisfaction of
accrued compensation in the amount of $81,000 (Note 12).
During 1999, the Company's board of directors revalued 435,000 outstanding
options to their fair value. As a result, stock-based compensation of $16,050
was recorded in the current year for options held by non employees (see Note
12).
During 1998, the Company's Board of Directors changed the exercise price of
2,248,754 outstanding warrants to their fair value. As a result, an expense of
$126,073 was recorded in the 1998 year (see Note 12).
During the years ended December 31, 1999 and 1998, the Company recorded
stock-based compensation of $10,000 and $60,000 related to employee options.
These amounts represent the excess fair market price of the Company' stock at
the date of grant over the exercise price.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-NATURE OF OPERATIONS
Air Packaging Technologies, Inc. (the "Company") and Subsidiary develops,
manufactures and distributes inflatable commercial packaging systems. The
Company's sales are primarily to companies producing Silicon wafers and computer
chips in California, Arizona, Oregon, Colorado and Texas in the United States,
Denmark and the U.K. in Europe, and Singapore in Asia. The Company was
incorporated in the State of Delaware on November 9, 1989.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Air Packaging
Technologies, Inc. and its wholly-owned foreign subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
The foreign subsidiary currently has no operations, therefore has no foreign
translation adjustment.
REVENUE RECOGNITION
Revenue is recognized upon shipment of products.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
INVENTORY
Inventory, which consists of raw material, work in progress, and finished goods,
is valued at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives (ranging from 3 to 5 years) of the respective assets. The cost of normal
maintenance and repairs is charged to operating expenses as incurred. Material
expenditures which increase the life of an asset are capitalized and depreciated
over the estimated remaining useful life of the asset. The cost of property
and equipment sold, or otherwise disposed of, and the related accumulated
depreciation or amortization are removed from the accounts, and any gains or
losses are reflected in current operations.
INTANGIBLE ASSETS
Patents, trademarks, and rights to patent and trademark royalties are carried at
cost less accumulated amortization which is calculated on a straight-line basis
over ten years, the estimated useful lives of the assets. The Company
periodically evaluates and assesses the overall recoverability of its intangible
assets by determining if the unamortized balance can be recovered through
undiscounted future operating cash flows.
F-9
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,"
established guidelines regarding when impairment losses on long-lived assets,
which include plant and equipment and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The Company
periodically reviews such assets for possible impairments and expected losses,
if any, are recorded currently.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". SFAS
109 requires a company to use the asset and liability method of accounting for
income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
A valuation allowance is provided when management cannot determine whether it is
more likely than not that the deferred tax asset will be realized. Under SFAS
109, the effect on deferred income taxes of a change in tax rates is recognized
in income in the period that includes the enactment date.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), establishes a fair value method of accounting for
stock-based compensation plans. In accordance with SFAS 123, the Company has
chosen to continue to account for stock-based compensation utilizing the
intrinsic value method prescribed in APB 25. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair market price of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock.
Also, in accordance with SFAS 123, the Company has provided footnote disclosure
with respect to stock-based employee compensation. The cost of stock-based
employee compensation is measured at the grant date based on the value of the
award and is recognized over the service period. The value of the stock-based
award is determined using a pricing model whereby compensation cost is the
excess of the fair value of the stock as determined by the model at grant date
or other measurement date over the amount an employee must pay to acquire the
stock.
F-10
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or groups of counterparties
when they have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly effected by changes in economic
or other conditions described below. In accordance with FASB Statement No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk," the credit
risk amounts shown in Note 15 do not take into account the value of any
collateral or security.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for financial instruments under Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," are determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot be determined
with precision. The estimated fair values of the Company's financial
instruments, which includes all cash, accounts receivables, accounts payable,
long-term debt, and other debt, approximates the carrying value in the
consolidated financial statements at December 31, 1999 and 1998 as a result of
their short term nature, or due to the interest rates approximating the
Company's effective borrowing rates.
At December 31, 1999, the fair value of the Senior Convertible Notes, is
estimated to be $978,807 based on the quoted market prices using an interest
rate of 10.5%.
EARNINGS (LOSS) PER SHARE
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share," requires presentation of basic and diluted earnings per share. Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts, such as stock
options, to issue common stock were exercised or converted into common stock,
but does not include the impact of these dilutive securities that would be
antidilutive. During the three years ended December 31, 1999, these dilutive
securities were antidilutive. All prior period weighted average and per share
information had no effect on the amounts presented in accordance with SFAS 128.
Options and warrants to purchase 575,000, 2,215,754 and 2,170,032 shares were
outstanding during the years ended 1999, 1998 and 1997, respectively, but were
not included in the computation of diluted loss per common share because the
effect would be antidilutive.
The Company has 446,042 shares in escrow included in the number of shares
outstanding in each of the three years ended 1999. However, these shares have
been excluded from the computation of basic and diluted loss per share for each
of the three years ended 1999 as the necessary conditions have not been
satisfied (see Note 14).
F-11
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130") establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is comprised of net income and all
changes to stockholders' equity except those due to investments by owners and
distribution to owners. The Company does not have any components of
comprehensive income for each of the years ended December 31, 1999, 1998 and
1997.
SEGMENTS OF AN ENTERPRISE
During the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS 131") issued by the FASB and is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS 131 requires that public companies report certain information
about operating segments, products, services and geographical areas in which
they operate. At December 31, 1999 and 1998, the Company did not report any
segment information as operations and business activity are considered one unit.
Adoption of SFAS 131 did not have an impact on the Company's financial position,
results of operations and cash flows.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year statements to conform
to the 1999 presentation. Such reclassifications had no effect on the
previously reported net loss.
NOTE 3-LIQUIDITY AND GOING CONCERN
The accompanying consolidated financial statements 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, ($1,853,012), ($1,723,647) and ($1,824,199) in 1999, 1998 and
1997 and an accumulated deficit of ($19,809,992) at December 31, 1999.
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. Management 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.
F-12
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4-INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials $ 450,583 $ 350,147
Work-in-process 21,385 23,703
Finished goods 105,421 34,793
---------- ----------
$ 577,389 $ 408,643
========== ==========
</TABLE>
The above balances are presented net of total inventory reserves of
approximately $33,000 and $63,000 in 1999 and 1998, respectively.
During the year ended December 31, 1997, the Company wrote down inventory by
approximately $97,000, respectively, to reflect lower of cost or market pricing.
NOTE 5-PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
---------- ----------
<S> <C> <C>
Manufacturing equipment . . . $ 1,710,269 $ 1,639,469
Dies and molds. . . . . . . . 187,375 166,866
Computer equipment. . . . . . 92,494 62,673
Quality control lab . . . . . 102,035 102,035
Office equipment. . . . . . . 108,232 100,237
Vehicles. . . . . . . . . . . 12,730 12,730
---------- ----------
2,213,135 2,084,010
Less accumulated depreciation 1,498,949 1,273,552
---------- ----------
$ 714,186 $ 810,458
========== ==========
</TABLE>
Depreciation and amortization expense for property and equipment charged to
operations for the years ended December 31, 1999, 1998 and 1997 was $225,397,
$143,967 and $80,160, respectively.
F-13
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6-INTANGIBLE ASSETS
Intangible assets consist of the following at:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
--------- ---------
<S> <C> <C>
Patents. . . . . . . . . . . . . . . . . . $ 711,543 $ 657,142
Trademarks . . . . . . . . . . . . . . . . 3,649 3,157
Rights to patent and trademark royalties . 90,146 85,146
--------- ---------
805,338 745,445
Less accumulated amortization. . . . . . . 575,960 511,836
--------- ---------
$ 229,378 $ 233,609
========== ==========
</TABLE>
Amortization expense for intangible assets charged to operations for the years
ended December 31, 1999, 1998 and 1997 was $64,124, $75,097 and $70,240,
respectively.
NOTE 7-RELATED PARTY TRANSACTIONS
A former employee of the Company, who resigned effective June 4, 1999 entered
into a one year consulting agreement that expires May 31, 2000 to provide
consulting services at a fee of $5,000 per month.
The amount due to related party consists of fees payable to, and non-interest
bearing advances from, a former director. During 1997, $126,000 of the
outstanding balance was converted to 86,310 shares of common stock. In 1998,
additional fees of $31,500 were incurred, and all remaining outstanding debt was
settled in exchange for 256,671 shares at $1.00 per share.
NOTE 8-LOAN PAYABLE - RELATED PARTY
In January 1997, the Company entered into an agreement with an affiliate of a
related party by which the Company can borrow up to $150,000. Interest payments
at 8.5% per annum are due monthly, and any borrowings are secured by the
Company's assets. The outstanding loan payable became due and payable on June
1, 1998. In December 1998, the Company issued 43,529 shares at a value of $1.00
per share in full settlement of the outstanding debt plus accrued interest.
NOTE 9-CONVERTIBLE SUBORDINATED DEBENTURE AND NOTES PAYABLE
In 1991, the Company issued a $1,500,000 convertible subordinated debenture due
October 31, 1996. In February 1994, a principal payment of $250,000 was made.
On May 15, 1996 this debenture was modified and extended to October 31, 1997.
On May 29, 1997, the debenture was converted into 230,000 shares of common stock
of the Company and 230,000 detachable nontransferable warrants. Two warrants
entitle the lender to purchase one additional common share of the Company. The
exercise price of each warrant is $5.40 for the first year ended May 29, 1998
and $6.20 for the second year ended May 29, 1999.
F-14
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9-CONVERTIBLE SUBORDINATED DEBENTURE AND NOTES PAYABLE
(CONTINUED)
In November 1998, the Company's board of directors amended the warrants to be
convertible on a one for one basis at a price of $1.50 per share up to the
expiration date (see Note 12).
In December 1998, the lender exercised the entire 230,000 warrants at the
amended price of $1.50 per share.
During 1998, the Company paid $23,000 in full settlement of the outstanding
installment note payable and recognized a gain of $8,500, which is included in
"Extraordinary Item" in the consolidated statements of operations (see Note 11).
In December 1998, the Company issued 56,800 shares at a value of $1.00 per share
in full settlement of the interest-bearing note payable, plus accrued interest
(see Note 12).
NOTE 10-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.
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.
NOTE 11-EXTRAORDINARY ITEM
During the fourth quarter of 1998, the Company paid approximately $190,000 in
full settlement of various accounts payables and other accrued expenses totaling
approximately $434,000 and recognized an extraordinary gain of $244,000, or $.05
per share. There was no income tax effect due to the Company's current year net
loss and related valuation allowance.
The Company did not recognize any gains or losses on the issuance of stock in
full settlement of debts as described in Notes 7, 8, 10 and 12 as the fair value
of the equity interest granted was equivalent to the carrying amount of the
settled debts.
NOTE 12-STOCKHOLDERS' EQUITY
COMMON STOCK
During the year ended December 31, 1999, 895,000 warrants were exercised
resulting in proceeds of $1,328,958.
F-15
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12-STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the reverse stock split discussed below, the Company amended
its Articles of Incorporation to reduce the authorized common shares from
100,000,000 at $0.001 par value to 50,000,000 at $0.01 par value.
During 1998, the Company completed six private placements for a total of
1,011,250 shares and received total net proceeds of approximately $925,000, net
expense of $81,423.
During 1997, the Company issued 1,037,504 shares of common stock through private
placements, receiving net proceeds of approximately $1,600,000 after expenses.
In 1998 and 1997, the Company issued a total of 1,063,994 and 180,958 common
shares, which includes shares also disclosed in Notes 7, 8 and 10, in full
settlement of various debts amounting to approximately $1,084,000 and $287,000.
The Company did not recognize any gains or losses on the conversion as the fair
value of the equity interest granted was equivalent to the carrying amount of
the settled debts.
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.
STOCK OPTIONS
The Company has issued options to purchase common stock to certain officers,
employees and others under various stock option plans for services performed and
to be performed. Some options require continued employment.
NOTE 12-STOCKHOLDERS' EQUITY (CONTINUED)
Option activity is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
------------ ---------------
<S> <C> <C>
Outstanding at January 1, 1997 . 96,750 $ 2.30
Granted . . . . . . . . . . . . 297,750 1.70
Exercised . . . . . . . . . . . (5,750) 1.40
Expired/canceled. . . . . . . . (9,000) 2.70
------------ ---------------
Outstanding at December 31, 1997 379,750 1.80
Granted . . . . . . . . . . . . 283,000 1.80
Exercised . . . . . . . . . . . - -
Expired/canceled. . . . . . . . (275,750) 1.60
------------ ---------------
Outstanding at December 31, 1998 387,000 1.90
Granted . . . . . . . . . . . . 570,000 1.50
Exercised . . . . . . . . . . . - -
Expired/canceled. . . . . . . . 522,000 2.00
------------ ---------------
Outstanding at December 31, 1999 435,000 $ 1.50
------------ ---------------
Exercisable at December 31, 1999 435,000 $ 1.50
============ ===============
</TABLE>
F-16
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12-STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (Continued)
Information relating to stock options at December 31, 1999 summarized by
exercise price are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------- -----------
Weighted Average Weighted Average
----------------
Exercise Price Remaining Life Exercise Exercise
Per Share Shares (Months) Price Shares Price
---------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
1.50 . . . . . 435,000 39 $ 1.50 435,000 $ 1.50
========== ========= ========= ======== ========
</TABLE>
In June 1999, the Company's board of directors revalued 435,000 common stock
shares, based on the fair value of the stock, and amended the exercise price to
$1.50 per share.
During the years ended December 31, 1999, 1998 and 1997, the Company recorded
$22,750, $187,073 and $43,450, respectively, related to stock-based compensation
in conjunction with stock options granted to non-employees.
During 1999, the Company's Board of Directors revalued 435,000 outstanding
options to their fair value. As a result, stock-based compensation of $16,050
was recorded in the current year for options held by non-employees.
During the years ended December 31, 1999 and 1998, the Company recorded
stock-based compensation of $10,000 and $60,000 related to employee options.
These amounts represent the excess fair market price of the Company' stock at
the date of grant over the exercise price.
PRO FORMA INFORMATION
In accordance with SFAS 123 and described in Note 2, the Company continues to
account for stock-based compensation utilizing the intrinsic value method
prescribed by APB 25. Had compensation cost for stock options issued to
employees been determined based on the fair value at grant dates consistent with
the method of SFAS 123, the Company's net loss and net loss per share would have
increased to the pro forma amounts presented below:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net loss, as reported. . . . . . . . . . . . . . . . . $ (1,843,012) $ (1,723,647) $ (1,824,199)
Net loss, pro forma. . . . . . . . . . . . . . . . . . (1,935,285) (1,900,179) (2,265,081)
Loss per common share - basic and diluted, as reported $ (.25) $ (.38) $ (.59)
Loss per common share - basic and diluted, pro forma . $ (.27) $ (.42) $ (.74)
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model using the following weighted-average
assumptions: expected volatility of 27%, 106% and 130% in 1999, 1998 and 1997,
respectively, an expected life of five and a half years in 1999, five years in
1998, and two years in 1997, no dividends would be declared during the expected
term of the options, risk-free interest rate of 5.81%, 5.01% and 6.1% for 1999,
1998 and 1997, respectively.
The weighted average fair value of stock options granted to employees during
1999, 1998 and 1997 was $1.50, $1.60 and $1.60, respectively.
F-17
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12-STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
During 1998 and 1997, the Company issued 1,011,250 and 1,037,504 shares of
common stock through private placements. Each share issued had attached a share
purchase warrant to purchase one additional share of common stock for a period
of two years.
During 1999, 1998 and 1997, the Company issued a total of 895,000, 520,000 and
225,000 shares in connection with the exercise of warrants by various
shareholders, amounting to approximately $1,329,000, $744,000 and $346,000,
respectively.
In November 1998, the Company's Board of Directors revalued 2,248,754
outstanding warrants based on the fair value of the stock, and amended the
exercise price to $1.50 per share. As a result, interest expense of $126,073
was recognized in the 1998 year.
Outstanding and exercisable warrants at December 31, 1999 to acquire the
Company's stock, held primarily by existing stockholders, are as follows:
Warrants Exercise Price Expiration Date
- ----------- -------------- ---------------
140,000 $ 1.50 October 3, 2000
NOTE 13-INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. At December 31,
1999, the Company has a net operating loss carryforward (NOL) of approximately
$18,200,000 for federal tax purposes. At December 31, 1999, the Company has a
deferred tax asset of approximately $7,400,000, which primarily relates to net
operating losses. A 100% valuation allowance has been established as management
cannot determine whether it is more likely than not that the deferred tax asset
will be realized. The NOLs expire as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
--------------- --------------
<S> <C>
2007 $ 5,400,000
2008 2,000,000
2009 2,300,000
2010 1,400,000
2011 1,700,000
2012 2,200,000
2018 1,400,000
2019 1,800,000
-------------
Total $ 18,200,000
=============
</TABLE>
The Company's net operating loss carryforwards may be limited due to ownership
changes as defined under Section 382 of the Internal Revenue Code of 1986.
F-18
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14-COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Minimum lease commitments under noncancelable operating lease agreements are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
- ------------- ----------
<S> <C>
2000 $ 130,354
2001 134,625
2002 134,625
2003 134,625
2004 132,656
Thereafter 55,000
----------
Total $ 721,885
==========
</TABLE>
Rent expense was $151,131, $142,987 and $140,788 for the years ended December
31, 1999, 1998 and 1997, respectively.
ROYALTY AGREEMENTS
The Company is required to pay royalties related to certain patents and
trademarks. Total expense related to these agreements was $4,324 in 1999,
$3,991 in 1998 and $1,726 in 1997.
ESCROW AGREEMENT
In 1991, certain stockholders of the Company entered into an escrow agreement
under which a total of approximately 4.5 million 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. While the shares were
in escrow, the stockholders waived their rights to receive dividends or
participate in the distribution of assets upon a winding up of the Company. Per
the agreement, any shares remaining in escrow at December 31, 1999 would be
canceled by the Company. As of December 31, 1999 as the shares were not
actually cancelled by the Company's Transfer Agent until January 2000, all such
shares remain in escrow. These shares are included in the number of shares
outstanding in each of the three years ended 1999. However, these shares have
been excluded from the computation of basic and diluted loss per share for each
of the three years ended 1999.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with one employee in August
1994 and two five-year employment agreements with employees of the Company in
July 1998. In June 1999, two of the contracts were amended and expired May 31,
2000. The current salaries under these agreements are $96,000 and $43,000 per
annum for each employee. Upon termination, the employees will receive the
salaries earned to the date of termination. The employee related to the third
contract, resigned effective June 4, 1999 and entered into a one year consulting
agreement to provide consulting services at a fee of $5,000 per month, for its
term that expires May 31, 2000.
POTENTIAL LIABILITY
A former employee of the Company is seeking a severance payment of $101,500 per
terms of his employment agreement, which was voluntarily terminated in November
1998. The parties have agreed to arbitration scheduled to take place during
2000. The Company has established a liability for the entire amount.
F-19
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15-SIGNIFICANT CONCENTRATIONS OF CREDIT RISK, MAJOR CUSTOMERS
AND OTHER RISKS AND UNCERTAINTIES
The Company operates primarily in one industry segment: developing,
manufacturing and distributing of inflatable commercial packaging systems. The
Company's sales are primarily to companies producing Silicon wafers and computer
chips in California, Arizona, Oregon, Colorado and Texas in the United States,
Denmark and the U.K. in Europe, and Singapore in Asia. Sales to unaffiliated
customers which represent more than 10% of the Company's net sales for 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
Customer 1999 1998 1997
- ----------- ----------- ---------- -----------
<S> <C> <C> <C>
A 16% 15% 22
B - -% 13
C 17% 31% -%
D 24% 18 -
</TABLE>
Financial instruments that subject the Company to credit risk consist primarily
of accounts receivable. The Company frequently makes large credit sales to
customers. At December 31, 1999 and 1998, approximately $41,162 or 84%, and
$69,400 or 72% of the Company's accounts receivable were due from three
customers, respectively.
NOTE 16-RELATED PARTY TRANSACTIONS
The Company issued 475,833 shares of common stock to a related party through a
private placement for net proceeds of $635,769 during 1997 (See also Note 7).
During 1997, the Company issued 350,000 shares of common stock to an affiliate
of a related party through a private placement for net proceeds of $548,742 (See
also Note 8).
During 1997, the Company was billed $126,000 for fees due to a related party
related to private placements (See Note 7).
During 1998, the Company issued 81,000 shares of its common stock to the Chief
Executive Officer in exchange for salary expenses of $81,000. The transaction
was based on the fair value of the stock on the date the services were rendered.
The President and Chairman of the Board of Schmitt Industries, Inc., who is also
a director of the company, acquired an aggregate of 1,208,000 shares of common
stock in 1998 from another principal shareholder.
NOTE 17-SUBSEQUENT EVENTS
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 $.50. The notice of conversion for the temporary reduction must be received
by April 30, 2000 and must include all accrued interest through May 31, 2000.
As a result, the Company will record an expense related to the reduction in
conversion price.
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 $.50. The notice of exercises
must be received by April 30, 2000. As a result of this temporary reduction,
the Company will record compensation expense for the difference between original
exercise price and reduced exercise price multiplied by the number of
outstanding warrants and options.
Subsequent to December 31, 1999, the Company cancelled 100,000 stock options
outstanding to officers and issued an additional 335,000 stock options, which
expire December 31, 2004 and are subject to certain vesting terms. Any
applicable compensation expense will be recorded in 2000.
On March 27, 2000, the Company entered into a one year investment banking
agreement with Givigest Fiduciaria SA "Givigest" to raise equity capital. On
March 27, 2000, the Company and Givigest agreed to raise up to $500,000 on or
before April 30, 2000. There are no assurances that the Company will be able
to raise any proceeds under this agreement.
F-20
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC.
AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN A Column B Column C Column D Column E
---------------------------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End of
Description of year Expenses Deductions Year
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for possible losses on
receivables
Year ended December 31,
1999. . . . . . . . . . . . . . $ 5,130 $ 17,500 $ - $ 22,630
1998. . . . . . . . . . . . . . 3,878 1,252 - 5,130
1997. . . . . . . . . . . . . . 1,842 2,576 (540) 3,878
Allowance for inventory reserve
Year ended December 31,
1999. . . . . . . . . . . . . . $ 63,066 $ - $ (30,123)(a) $ 32,943
1998. . . . . . . . . . . . . . 153,637 - (90,571)(a) 63,066
1997. . . . . . . . . . . . . . 361,393 97,202 (304,958)(a) 153,637
<FN>
(a) Write-off of obsolete inventory.
</TABLE>
F-21
EXHIBIT 10(i)
GIVIGEST FIDUCIARIA SA
ONE TIME PROGRAM
INVESTMENT BANKING AGREEMENT
THIS INVESTMENT BANKING AGREEMENT made this 13th day of August, 1999 by and
between:
GIVIGEST FIDUCIARIA SA
Corso Elvezia 4,
CH-6901 Lugano, Switzerland
a Swiss Corporation (hereinafter referred to as "GIVIGEST"), and;
AIR PACKAGING TECHNOLOGIES, INC.
25260 Rye Canyon Road,
Valencia, California, USA
(hereinafter referred to as "COMPANY");
collectively GIVIGEST and COMPANY hereinafter referred to as "the parties".
WITNESSETH:
WHEREAS, GIVIGEST is an investment banking, financial, management
consulting and strategic planning firm, with expertise in the dissemination of
information about publicly traded companies, and
WHEREAS, COMPANY is publicly held with its common stock trading Over the
Counter (OTC) under the ticker symbol "AIRP",
WHEREAS, COMPANY desires to place a private placement of 7% Convertible
Debentures to institutional and accredited investors as more particularly
described in Addendum "B", attached hereto, and
WHEREAS, GIVIGEST is willing to accept COMPANY as a client; and assist
COMPANY to place the above mentioned private placement,
WHEREAS, GIVIGEST is a company under the laws of the State of Ticino,
Country of Switzerland and, through its financial and investment banking
functions, makes venture capital investments on behalf of itself and clients;
and
THEREFORE, in consideration of the mutual covenants contained herein, it is
agreed as follow:
DEFINITIONS AND INTERPRETATIONS
1. CAPTIONS AND SECTION NUMBERS
The headings and section references in this Investment Banking Agreement are for
convenience or reference only and do not form a part of this agreement and are
not intended to interpret, define or limit the scope, extent or intent of this
Investment Banking Agreement or any provisions thereof.
<PAGE>
2. EXTENDED MEANINGS
The words "hereof", "herein", "hereunder" and similar expressions used in any
clause, paragraph or section of this agreement will relate to the whole of this
Investment Banking Agreement and not to that clause, paragraph or section only,
unless otherwise expressly provided.
3. NUMBER AND GENDER
In this Investment Banking Agreement, words importing the masculine gender
include the feminine or neuter gender and words in the singular include the
plural, and vice-versa.
4. SECTION REFERENCES AND SCHEDULES
Any reference to a particular "article", "section", "paragraph" or other
subdivision of this Investment Banking Agreement and any reference to a
schedule, exhibit or addendum by name, number and/or letter will mean the
appropriate schedule, exhibit or addendum attached to this Investment Banking
Agreement.
AGREEMENT
5. APPOINTMENT
COMPANY hereby appoints and engages GIVIGEST, on a non-exclusive basis, as its
investment banking and financial planning counsel for Switzerland and Italy, and
hereby retains and employs GIVIGEST upon terms and conditions of this Investment
Banking Agreement.
GIVIGEST accepts such appointment and agrees to perform the services upon the
terms and conditions of said Investment Banking Agreement.
6. FIRST ENGAGEMENT
COMPANY engages GIVIGEST to place the private placement, as described on
Addendum "B", to prospective investors as further described below and subject to
the further provisions of this Investment Banking Agreement.
GIVIGEST hereby accepts said engagement and COMPANY as a client and agrees to
provide the services as further described below and subject to the further
provisions of this Investment Banking Agreement.
7. AUTHORITY AND DESCRIPTION OF SERVICES
During the term of this Agreement, GIVIGEST shall furnish various professional
services. Said professional services and advice shall relate to those services,
items and/or subjects described in Addendum "A", which is attached hereto and
made a part hereof by this reference, and/or as follows:
8. TERM OF AGREEMENT
This agreement shall become effective upon execution hereof and shall continue
thereafter through and including October 15, 1999 or in case of paragraphs
10,11,12(d),12(e),17,18,23,24,26, and 30 so long as any of the debentures that
are to be offered to the private placement are outstanding.
<PAGE>
9. WHERE SERVICES SHALL BE PERFORMED
GIVIGEST services shall be performed at the main office location of GIVIGEST in
Lugano (Switzerland), or other such designated location(s) as GIVIGEST and
COMPANY agree are the most advantageous for the work to be performed.
10. LIMITATIONS ON RELEASE OF INFORMATION
The parties hereto recognize that certain responsibilities and obligations are
imposed by federal and state securities laws and by the applicable rules and
regulations of stock exchanges, the National Association of Securities Dealers,
in house "due diligence" or "compliance departments of brokerage houses, etc.
Accordingly, GIVIGEST agrees as follows:
(a) GIVIGEST will NOT release any financial or other information or data
about COMPANY that has not previously been publicly disseminated, without the
consent and approval of COMPANY.
(b) GIVIGEST will NOT conduct any meetings with financial analysts without
informing COMPANY in advance of any proposed meeting, the format or agenda of
such meeting and allowing COMPANY to elect to have a representative of COMPANY
attend such meeting.
11. DUTIES OF COMPANY
(a) COMPANY shall supply GIVIGEST, on a regular and timely basis, with all
approved data and information about COMPANY, its management, its product and its
operations; and COMPANY shall promptly advise GIVIGEST of any facts which would
affect the accuracy of any prior data and information previously supplied to
GIVIGEST so that GIVIGEST may take corrective action.
(b) COMPANY shall promptly supply GIVIGEST with full and complete copies of
all filings with all federal and state securities agencies; with full and
complete copies of all shareholder reports and communications; with all data and
information supplied to any analyst, broker-dealer, market maker, or other
member of the financial community; and with all product/services brochures,
sales material, etc
(3) COMPANY will immediately notify GIVIGEST if it intends to make any
additional private or public offering of securities, including an S-8 or other
registered offering, a Regulation S placement, or any other public or private
placement or distribution of its securities and, if reasonably possible, give
GIVIGEST a first right of refusal to make such offering or placement upon the
same terms and conditions.
(4) COMPANY will immediately notify GIVIGEST at least 30 days prior to any
insider selling of COMPANY'S stock, an insider being defined as any officer,
director, or holder of five (5) per cent or more of COMPANY'S outstanding
securities.
(e) In that GIVIGEST shareholders, officers, employees, and/or members of
their families may hold a position in and engage in transactions with respect to
COMPANY securities and, in light of the fact that GIVIGEST imposes restrictions
on such transactions to guard against trading on the basis of material non
public information, COMPANY shall contemporaneously notify GIVIGEST if any
information or data being supplied to GIVIGEST has not been generally released
or promulgated.
(f) COMPANY will cause the outstanding common shares to be reverse split on
a 1 new share for 10 old share basis no sooner than October 15, 1999 and no
later than December 31, 1999.
(g) COMPANY will cause DTC sheets to be provided to GIVIGEST on a weekly
basis and will pay all costs thereof.
(h) COMPANY will provide GIVIGEST, at no cost, a quarterly shareholder list
and, in addition will provide a list anytime the shareholdings of any
shareholder holding 5% or more of COMPANY'S shares is transferred.
<PAGE>
(i) COMPANY will notify GIVIGEST, in advance, of its intention to issue to
COMPANY officers, directors, employees, or consultants any new options or
warrants on its common stock.
12. REPRESENTATIONS AND INDEMNIFICATION
(A) In that GIVIGEST relies on information provided by COMPANY for a
substantial part of its efforts, COMPANY represents that said information
provided by COMPANY will be neither false nor misleading nor will COMPANY fail
to disclose information necessary to make the other information provided not
misleading.
(b) COMPANY shall be deemed to make a continuing representation of the
accuracy of any and all material facts, materials, information, and data which
it supplies to GIVIGEST and COMPANY acknowledges its awareness that GIVIGEST
will rely on such continuing representation in disseminating such information
and otherwise performing its investment banking functions.
(c) GIVIGEST, in the absence of notice in writing from COMPANY, will rely
on the continuing accuracy of materials, information, and data supplied
by COMPANY.
(d) COMPANY hereby agrees to hold harmless and indemnify GIVIGEST against
any claims, demands, suits, loss, damages, liabilities and expenses arising out
of GIVIGEST's reliance upon the instant accuracy and continuing accuracy of such
facts, materials, information, and data, unless GIVIGEST has been negligent in
performing its duties and obligations hereunder.
(e) GIVIGEST hereby agrees to hold harmless and indemnify COMPANY and its
officers and directors against any claims, demands, suits, loss, damage,
liabilities and expenses incurred which arise out of the services to be provided
by GIVIGEST to COMPANY, but only to the extent that such claims, demands, suits,
loss, damage, liabilities and expenses shall arise out of or be based upon any
untrue statement or alleged untrue statement of a material fact made by GIVIGEST
in the offer and sale of COMPANY'S debentures.
(f) COMPANY shall cooperate fully and timely with GIVIGEST to enable
GIVIGEST to perform its duties and obligations under this agreement.
(g) The execution and performance of this Investment Banking Agreement by
COMPANY has been duly authorized by the Board of Directors of COMPANY in
accordance with applicable law, and, to the extent required, by the requisite
number of shareholders of COMPANY.
(h) The performance by COMPANY of this Agreement will not violate any
applicable court decree or order, law or regulation, nor will it violate any
provision of the organizational documents and/or bylaws of COMPANY or any
contractual obligation to which COMPANY may be bound.
13. COMPENSATION
(a) For its Investment Banking services, COMPANY shall make payment to
GIVIGEST according to the terms and conditions set forth in Addendum "A".
(2) All moneys payable hereunder shall be in U.S. funds and drawn on U.S.
banks.
(c) For all services not within the scope of this agreement, COMPANY shall
pay to GIVIGEST such fee(s) as, and when, the parties determine in advance of
performance of said special services, provided COMPANY has agreed to said
special services in advance.
<PAGE>
14. BILLING AND PAYMENT
Finder's Fees will by paid by wire within three days after COMPANY has received
the funds from any sale of its securities under this agreement. Billing and
payments for any special services shall be agreed on a case by case basis.
15. GIVIGEST AS AN INDEPENDENT CONTRACTOR
GIVIGEST shall provide said services as an independent contractor and not as an
employee of COMPANY nor of any company affiliated with COMPANY. GIVIGEST has no
authority to bind COMPANY or any affiliate of COMPANY to any legal action,
contract, agreement, or purchase and such action can not be construed to be made
in good faith or with the acceptance of COMPANY, thereby becoming the sole
responsibility of GIVIGEST. GIVIGEST is not entitled to any medical coverage,
life insurance, savings plans, health insurance, or any and all other benefits
of afforded COMPANY employees. GIVIGEST shall be solely responsible for any
Federal State or Local Taxes; and should COMPANY for any reason be required to
pay taxes at a later date, GIVIGEST shall insure such payment is made by
GIVIGEST and not COMPANY. GIVIGEST shall be responsible for all workers
compensation payments and herein holds COMPANY harmless for any and all such
payments and responsibilities related hereto.
16. GIVIGEST NOT TO ENGAGE IN CONFLICTING ACTIVITIES
During the term of this agreement, GIVIGEST shall not engage in any activities
that directly conflicts with the interests of COMPANY. COMPANY hereby
acknowledges notification by GIVIGEST and understands that GIVIGEST does and
shall represent and service other multiple clients in the same manner as it
does COMPANY, and that COMPANY is not an exclusive client of GIVIGEST.
17. PROPRIETARY INFORMATION
GIVIGEST shall treat as proprietary any and all information, not previously
publicly disclosed, belonging to COMPANY, its affiliates, or any third parties
and disclosed to GIVIGEST in the course of the performance of GIVIGEST Services.
18. INSIDE INFORMATION - SECURITIES VIOLATIONS
In the course of the performance of this agreement it is expected that specific
sensitive information concerning the operations of COMPANY business and/or
affiliate companies shall be divulged to GIVIGEST. In such event GIVIGEST will
not divulge, discuss, or otherwise reveal such information to any third parties.
19. DISCLOSURE
GIVIGEST shall disclose any outside activities or interests, including ownership
or participation in the development of prior inventions, that conflict or may
conflict with the best interests of COMPANY. It is mutually understood that
prompt disclosure is required under this paragraph if the activity or interest
is related directly or indirectly, to any activity that GIVIGEST may be involved
with on behalf of COMPANY.
20. WARRANTY AGAINST CONTEMPLATION OF AGREEMENT FOR RELATED CORRUPT
PRACTICES
GIVIGEST represents and warrants that all payments and other valuable
consideration paid or to be paid under this agreement constitutes compensation
for services rendered that this agreement; all payments and other valuable
considerations and the use of those payments and valuable considerations are
non-political in nature; and that said payments and valuable considerations will
not be used to influence, sway or bribe any government or municipal party,
either domestic or foreign, in any way.
<PAGE>
21. SEVERABILITY
If any provision of this agreement shall be held to be contrary to law, invalid
or unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this agreement is
contrary to law, invalid or unenforceable and that by limiting such provision it
would become valid and enforceable, then such provision shall be deemed to be
written, construed, and enforceable as so limited.
22. TERMINATION OF AGREEMENT
This Investment Banking Agreement may not be terminated by either party prior to
the expiration of the term provided in Paragraph 8 above except as follows:
(a) Upon the bankruptcy or liquidation of the other party, whether voluntary
or involuntary,
(b) Upon the other party taking the benefit of any insolvency law, and/or
(c) Upon the other party having or applying for a receiver appointment for
either party.
(d Upon the discovery of false, misleading, or fraudulent misrepresentations
by either party or the breach of any warranty, representation of covenant
contained herein by either party.
(e) In the event COMPANY fails or refuses to cooperate with GIVIGEST
or fails or refuses to make timely payment of the compensation set forth above
and/or in Addendum "A". In such a case, GIVIGEST shall have the right to
terminate any further performance under this agreement and upon, notification
thereof, all earned compensation shall become immediately due and payable.
23. ATTORNEY FEES
In the event either party is in default of the terms and conditions of this
Investment Banking Agreement and legal action is initiated or suit be entered as
a result of such a default, the prevailing party shall be entitled to recover
all costs incurred as a result of such default including all costs, reasonable
attorney fees, expenses, court costs through trial, appeal and to final
disposition (if applicable), and all costs of arbitration provided for herein.
24. RETURN OF RECORDS
Upon termination of this agreement, GIVIGEST shall deliver all of Company's
records, notes, data, memorandum, models and equipment of any nature that are
in the control of GIVIGEST.
25. Miscellaneous
(1) Effective date of representations shall be no later than the date
of the signing of this agreement by both parties.
(2) Currency: in all instances, references to dollars shall be deemed to be
United States Dollars
26. NOTICES
<PAGE>
All notices hereunder shall be in writing and addressed to the party at the
address herein set forth, or at such other address which notice pursuant to this
section may be given and shall be given by either personal delivery, certified
mail, express mail or other national overnight courier services. Notices shall
be deemed given upon the earlier or actual receipt or three (3) business days
after being mailed or delivered to such courier service. Any notices to be given
hereunder shall be effective if executed by and sent by the attorneys for the
parties giving such notice; and in connection therewith, the parties and their
respective counsel agree that in giving such notice, such counsel may
communicate directly in writing with such parties to the extent necessary to
give such notice. Any notice required or permitted by this agreement to be given
shall be given to the respective parties at the following addresses:
GIVIGEST:
GIVIGEST FIDUCIARIA SA
Corso Elvezia 4,
CH-6901 Lugano, Switzerland
Telephone: +4191-921-1821
Fax: +4191-921-1823
COMPANY:
AIR PACKAGING TECHNOLOGIES, INC.
25260 Rye Canyon Road,
Valencia, California, USA
Telephone 1-661-294-2222
Fax: 1-661-294-0947
27. TIME IS OF THE ESSENCE
Time is hereby expressly made of the essence of this Investment Banking
Agreement with respect to the performance by the parties of their respective
obligations hereunder.
28. INUREMENT
This Investment Banking Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors, assigns and any addenda attached hereto.
29. ENTIRE AGREEMENT
This Investment Banking Agreement contains the entire agreement of the parties
and may be modified or amended only by agreement, in writing, signed by the
party against whom enforcement of any waiver, change, amendment, modification,
extension or discharge is sought. It is declared by both parties that there are
no oral or other agreements or understanding between them affecting this
Investment Banking Agreement or relating to the business of GIVIGEST. This
agreement supersedes all previous agreements between GIVIGEST and COMPANY.
30. APPLICABLE LAW
This Agreement is executed pursuant to and shall be interpreted and governed for
all purposes by the laws of the State of Ticino. If any provision of this
Investment Banking Agreement is declared void, such provisions shall be deemed
severed from this agreement, which shall otherwise remain in full force and
effect. Any controversy or claim arising out of, relating to this agreement, or
the breach thereof, shall be settled by arbitration in the Lugano District,
Ticino in accordance with the rules then promulgated by said Courts, the Court
shall appoint an arbitrator, and judgment upon award rendered may be entered in
the courts of the Lugano District, Ticino or any other court having
jurisdiction, which award and/or judgment shall include reasonable attorney's
fees.
31. ACCEPTANCE BY GIVIGEST
This Investment Banking Agreement is not valid or binding upon GIVIGEST unless
and until executed by the President or other duly authorized executive officer
of GIVIGEST at its home office in Lugano, Switzerland.
<PAGE>
32. NON-WAIVER
The failure of either party at any time to require any such performance by any
other part shall not be construed as a waiver of such right to require such
performance and shall in no way affect such party's right to require such
performance and shall in no way affect such party's right subsequently to
require full performance hereunder.
33. EXECUTION IN COUNTERPARTS
This agreement may be executed in counterparts, not withstanding the date or
dates upon which this agreement is executed and delivered by any of the parties,
and each shall be deemed to be an original and all of which will constitute one
and the same agreement.
34. Costs
All costs and expenses incurred in the preparation of this agreement shall be
borne solely by COMPANY.
IN WITNESS WHEREOF, the parties hereto have set their hands in execution of this
agreement.
For and in behalf of: For and in behalf of:
COMPANY GIVIGEST
AIR PACKAGING TECHNOLOGIES, INC. GIVIGEST FIDUCIARIA SA
a US Company a Swiss Company
By /s/ Donald M. Ochacher By /s/ Claudio Gianascio
------------------------ ----------------------
Donald M. Ochacher Claudio Gianascio
President President
<PAGE>
GIVIGEST FIDUCIARIA SA
ONE TIME PROGRAM
INVESTMENT BANKING AGREEMENT
ADDENDUM "A"
SPECIFIC SERVICES
1. GIVIGEST agrees to use its efforts to place COMPANY's $2,000,000 7%
Convertible Debentures (hereinafter "Debentures"), as described on Addendum "B".
2. GIVIGEST commits to place $1,500,000 of COMPANY's Debentures on a
firm basis, as that term is commonly used.
3. GIVIGEST will use its best efforts to place the remaining $500,000
of COMPANY's Debentures.
4. GIVIGEST commits to place the first $500,000 of COMPANY's Debentures
no later than August 13, 1999.
5. GIVIGEST commits to place the next $1,000,000 of COMPANY's
Debentures no later than September 15, 1999.
6. GIVIGEST will use its best efforts to place the remaining $500,000
of COMPANY's debentures no later than October 15, 1999.
COMPENSATION
10% commission on all funds received by COMPANY through the sale of the
Debentures subject to this agreement, including but not limited to the sale of
the aforementioned debentures by GIVIGEST directly, received from investors or
subscribers presented by GIVIGEST, or received from persons related to or
referred by any such investor or subscriber.
For and in behalf of: For and in behalf of:
COMPANY GIVIGEST
AIR PACKAGING TECHNOLOGIES, INC. GIVIGEST FIDUCIARIA SA
a US Company a Swiss Company
By /s/ Donald M. Ochacher By /s/ Claudio Gianascio
------------------------ ----------------------
Donald M. Ochacher Claudio Gianascio
President President
<PAGE>
GIVIGEST FIDUCIARIA SA
ONE TIME PROGRAM
INVESTMENT BANKING AGREEMENT
ADDENDUM "B"
DESCRIPTION OF DEBENTURES
1. 4 year 7% Convertible Debentures of Air Packaging Technologies, Inc.
2. Conversion Price
a. Convertible into common stock of COMPANY at anytime within two years of
issue date at $0.15 per share.
b. Convertible into common stock of COMPANY at anytime between the first day of
the third year and the last day of the fourth year after issue date at $0.25
c. Conversion feature expires at 12:00 midnight Los Angeles, California time on
the last day of the fourth year after the issue date.
3. Payable in full, if not converted, upon surrender of debenture to
COMPANY no sooner than the first day of the fifth year after issue date.
4. Interest
a. Payable annually in arrears.
b. Payable, at the option of holder, in unregistered common stock of COMPANY at
a 20% discount to the average bid price of COMPANY's common stock during the 30
business days immediately prior to payment date, if COMPANY is notified of the
election a minimum of 15 days prior to the payment date. For the purpose of
this paragraph the "payment date" is defined as the 365th day from the issue
date or the last payment date, as applicable.
c. At COMPANY's option, COMPANY may choose to register said dividend shares.
In such event, the dividend shall be payable at the average bid price of
COMPANY's common stock for the 30 business days immediately prior to payment
date. If COMPANY chooses this option, it will use its best efforts to register
the dividend shares as soon as practicable after payment date.
D. Notwithstanding anything to the contrary, the minimum price to be used to
compute the number of shares to be issued as a dividend shall be $0.15.
5. Issuance of Debentures
a. The Debentures will be issued in the names and denominations as directed by
GIVIGEST, provided, that COMPANY shall be entitled to request information from
GIVIGEST concerning any purchaser and approve any purchaser of the Debentures,
which approval shall not be unreasonably withheld or delayed.
REGISTRATION RIGHTS AND OTHER FEATURES
1. Registration Rights
a. Company will use its best efforts to file a registration with the US
Securities and Exchange Commission within 30 days of this agreement to register
the debentures and the underlying common shares upon conversion.
<PAGE>
b. Company will use its best efforts to cause said registration statement to
become effective by December 31, 1999 and will use its best efforts to maintain
said registration until 6 months after the conversion of all of the debentures
or the expiration of the conversion rights, whichever comes first.
2. Other Features
a. The minimum amount of debentures that can be converted at any time by any
debenture holder shall be $100,000.
b. Debentures shall be senior in preference to all other debentures whether
presently outstanding or issued in the future unless unanimously agreed to by
the debenture holders in the particular case.
SUBSCRIBERS & EXEMPT PLACEMENT
a. The aforementioned debentures shall be offered by GIVIGEST only to accredited
institutions and individuals as that term is defined under the Securities Act of
1933 and the rules promulgated thereunder (hereinafter "The Act")and only to
institutions and individuals which acknowledge that they are acquiring the
Debentures with an investment intent and not with a view to resale unless
registered.
b. The Debentures will be offered and sold pursuant to an exemption from
registration under The Act and, as such, both the Debentures and the common
shares issued upon conversion will be issued with a restrictive legend and may
not be resold, hypothecated, or transferred within the US or to a US person, as
that term is defined under The Act, unless and until a registration statement
covering the debentures and underlying shares is in effect or an exemption from
registration for said sale, hypothecation, or transfer is applicable to said
action.
For and in behalf of: For and in behalf of:
COMPANY GIVIGEST
AIR PACKAGING TECHNOLOGIES, INC. GIVIGEST FIDUCIARIA SA
a US Company a Swiss Company
By /s/ Donald M. Ochacher By /s/ Claudio Gianascio
------------------------ ----------------------
Donald M. Ochacher Claudio Gianascio
President President
EXHIBIT 10(j)
GIVIGEST FIDUCIARIA SA
One Time Program
INVESTMENT BANKING AGREEMENT
THIS INVESTMENT BANKING AGREEMENT made this 27th day of March, 2000 by and
---- -----
between:
GIVIGEST FIDUCIARIA SA
Corso Elvezia 4,
CH-6901 Lugano, Switzerland
a Swiss Corporation (hereinafter referred to as "GIVIGEST"), and;
AIR PACKAGING TECHNOLOGIES, INC.
25260 Rye Canyon Road,
Valencia, California, USA
(hereinafter referred to as "COMPANY");
collectively GIVIGEST and COMPANY hereinafter referred to as "the parties".
WITNESSETH:
WHEREAS, GIVIGEST is an investment banking, financial, management
consulting and strategic planning firm, with expertise in the dissemination of
information about publicly traded companies, and is in the business of providing
investor relations services and other related program services and products;
and,
WHEREAS, COMPANY is publicly held with its common stock trading Over the
Counter (OTC) under the ticker symbol "AIRP", and
WHEREAS, COMPANY desires the advise and services of GIVIGEST in providing
investor relations, preparation of research reports, being introduced to
institutional investors, and assist in a private placement, and
WHEREAS, GIVIGEST is willing to accept COMPANY as a client and to assist
COMPANY in the aforementioned matters,
THEREFORE, in consideration of the mutual covenants contained herein, it is
agreed as follow:
DEFINITIONS AND INTERPRETATIONS
1. Captions and Section Numbers
The headings and section references in this Investment Banking Agreement are for
convenience or reference only and do not form a part of this agreement and are
not intended to interpret, define or limit the scope, extent or intent of this
Investment Banking Agreement or any provisions thereof.
2. Extended Meanings
<PAGE>
The words "hereof", "herein", "hereunder" and similar expressions used in any
clause, paragraph or section of this agreement will relate to the whole of this
Investment Banking Agreement and not to that clause, paragraph or section only,
unless otherwise expressly provided.
3. Number and Gender
In this Investment Banking Agreement, words importing the masculine gender
include the feminine or neuter gender and words in the singular include the
plural, and vice-versa.
4. Section References and Schedules
Any reference to a particular "article", "section", "paragraph" or other
subdivision of this Investment Banking Agreement and any reference to a
schedule, exhibit or addendum by name, number and/or letter will mean the
appropriate schedule, exhibit or addendum attached to this Investment Banking
Agreement.
AGREEMENT
5. Appointment
COMPANY hereby appoints and engages GIVIGEST, on exclusive basis, as its
investment banking and financial planning counsel for Europe, and hereby retains
and employs GIVIGEST upon terms and conditions of this Investment Banking
Agreement.
GIVIGEST accepts such appointment and agrees to perform the services upon the
terms and conditions of said Investment Banking Agreement.
6. Authority and Description of Services
During the term of this Agreement, CONSULTANT shall furnish various professional
services and advice as needed and as specifically requested by Mr. Donald
Ochacher, President of COMPANY and/or a representative appointed by the Board of
Directors of COMPANY. Said professional services and advice shall relate to
those services, items and/or subjects described in Addendum "A", which is
attached hereto and made a part hereof by this reference.
7. Term of Agreement
This agreement shall become effective on April 1, 2000 shall continue for a
period of one year.
8. Where Services Shall Be Performed
GIVIGEST services shall be performed at the main office location of GIVIGEST in
Lugano (Switzerland), or other such designated location(s) as GIVIGEST and
COMPANY agree are the most advantageous for the work to be performed.
<PAGE>
9. Limitations On Release Of Information
The parties hereto recognize that certain responsibilities and obligations are
imposed by federal and state securities laws and by the applicable rules and
regulations of stock exchanges, the National Association of Securities Dealers,
in house "due diligence" or "compliance" departments of brokerage houses, etc.
Accordingly, GIVIGEST agrees as follows:
(a) GIVIGEST will NOT release any financial or other information or data
about COMPANY that has not previously been publicly disseminated, without the
consent and approval of COMPANY.
(b) GIVIGEST will NOT conduct any meetings with financial analysts without
informing COMPANY in advance of any proposed meeting, the format or agenda of
such meeting and allowing COMPANY to elect to have a representative of COMPANY
attend such meeting.
10. Duties Of COMPANY
(a) COMPANY shall supply GIVIGEST, on a regular and timely basis, with all
approved data and information about COMPANY, its management, its product and its
operations; and COMPANY shall promptly advise GIVIGEST of any facts which would
affect the accuracy of any prior data and information previously supplied to
GIVIGEST so that GIVIGEST may take corrective action.
(b) COMPANY shall promptly supply GIVIGEST with full and complete copies of
all filings with all federal and state securities agencies; with full and
complete copies of all shareholder reports and communications; with all data and
information supplied to any analyst, broker-dealer, market maker, or other
member of the financial community; and with all product/services brochures,
sales material, etc.
(c) COMPANY will immediately notify GIVIGEST if it intends to make any
additional private or public offering of securities, including an S-8 or other
registered offering, a Regulation S placement, or any other public or private
placement or distribution of its securities and give GIVIGEST a first right of
refusal to make such offering or placement upon the same terms and conditions.
(d) COMPANY will immediately notify GIVIGEST at least 15 days prior to any
insider selling of COMPANY'S stock, an insider being defined as any officer,
director, or holder of five (5) per cent or more of COMPANY'S outstanding
securities.
(e) In that GIVIGEST shareholders, officers, employees, and/or members of
their families may hold a position in and engage in transactions with respect to
COMPANY securities and, in light of the fact that GIVIGEST imposes restrictions
on such transactions to guard against trading on the basis of material non
public information, COMPANY shall contemporaneously notify GIVIGEST if any
information or data being supplied to GIVIGEST has not been generally released
or promulgated.
(f) COMPANY will consult with GIVIGEST, in advance, of its intention to
issue to COMPANY officers, directors, employees, or consultants any new options
or warrants on its common stock In the event that GIVIGEST disagrees with such
issuance and COMPANY carries through with the issuance, GIVIGEST shall have the
unilateral right to terminate this agreement.
<PAGE>
(g) Prior to this agreement becoming effective, COMPANY will provide to
GIVIGEST a year 2000 budget and warrants that it will not materially deviate
from such budget without first consulting with GIVIGEST as to the propriety of
any such deviation. In the event Company materially deviates from such budget
without the permission of GIVIGEST, which shall not be unreasonably withheld,
GIVIGEST shall have the right to terminate this agreement and any unearned
portion of Compensation provided for in Addendum A shall immediately become
fully earned as liquidated damages for this breach. The aforementioned Budget
shall be attached hereto as Addendum B.
(h) COMPANY will not negotiate with or enter into any agreement with a US
investor relations group or US investment banking group without prior
consultation with GIVIGEST, will allow GIVIGEST to assist in any such
negotiations, and will give to GIVIGEST a first right of refusal to perform the
same services on terms equal to any proposed US investor relations group or US
investment banking group.
11. Representations And Indemnification
(a) In that GIVIGEST relies on information provided by COMPANY for a
substantial part of its efforts, COMPANY represents that said information
provided by COMPANY will be neither false nor misleading nor will COMPANY fail
to disclose information necessary to make the other information provided not
misleading.
(b) COMPANY shall be deemed to make a continuing representation of the
accuracy of any and all material facts, materials, information, and data which
it supplies to GIVIGEST and COMPANY acknowledges its awareness that GIVIGEST
will rely on such continuing representation in disseminating such information
and otherwise performing its investment banking functions.
(c) GIVIGEST, in the absence of notice in writing from COMPANY, will
rely on the continuing accuracy of materials, information, and data
supplied by COMPANY.
(d) COMPANY hereby agrees to hold harmless and indemnify GIVIGEST against
any claims, demands, suits, loss, damages, liabilities and expenses arising out
of GIVIGEST's reliance upon the instant accuracy and continuing accuracy of such
facts, materials, information, and data, unless GIVIGEST has been negligent in
performing its duties and obligations hereunder.
(e) GIVIGEST hereby agrees to hold harmless and indemnify COMPANY and its
officers and directors against any claims, demands, suits, loss, damage,
liabilities and expenses incurred which arise out of the services to be provided
by GIVIGEST to COMPANY, but only to the extent that such claims, demands, suits,
loss, damage, liabilities and expenses shall arise out of or be based upon any
untrue statement or alleged untrue statement of a material fact made or absence
to disclose a material fact by GIVIGEST in the offer and sale of COMPANY'S
securities.
(f) COMPANY shall cooperate fully and timely with GIVIGEST to enable
GIVIGEST to perform its duties and obligations under this agreement.
(h) COMPANY represents and warrants that it will provide to GIVIGEST
evidence of its present capital structure, including authorized shares,
outstanding shares, outstanding warrants, outstanding options, and outstanding
convertible securities prior to this agreement becoming effective and further
warrants that it is not negotiating or discussing the issuance of any additional
warrants, options, or shares, common or otherwise, nor any repricing of any
existing equity linked securities, except as specifically disclosed to GIVIGEST.
Such Document of Capital structure shall be attached hereto as Addendum C
(i) The execution and performance of this Investment Banking Agreement by
COMPANY has been duly authorized by the Board of Directors of COMPANY in
accordance with applicable law, and, to the extent required, by the requisite
number of shareholders of COMPANY.
(j) The performance by COMPANY of this Agreement will not violate any
applicable court decree or order, law or regulation, nor will it violate any
provision of the organizational documents and/or bylaws of COMPANY or any
contractual obligation to which COMPANY may be bound.
<PAGE>
12. Compensation
(a) For its Investment Banking services, COMPANY shall make payment to
GIVIGEST according to the terms and conditions set forth in Addendum "A".
(b) All moneys payable hereunder shall be in U.S. funds and drawn on U.S.
banks.
(c) For all services not within the scope of this agreement, COMPANY shall
pay to GIVIGEST such fee(s) as, and when, the parties determine in advance of
performance of said special services, provided COMPANY has agreed to said
special services in advance.
13. Billing And Payment
Any Fees or expense reimbursements shall by paid by wire within three days after
COMPANY has received a billing for the services or documentation for the
reimbursements. Any monthly fees will be paid by wire by the tenth day of each
month. Billing and payments for any special services shall be agreed on a case
by case basis.
14. GIVIGEST As An Independent Contractor
GIVIGEST shall provide said services as an independent contractor and not as an
employee of COMPANY nor of any company affiliated with COMPANY. GIVIGEST has no
authority to bind COMPANY or any affiliate of COMPANY to any legal action,
contract, agreement, or purchase and such action can not be construed to be made
in good faith or with the acceptance of COMPANY, thereby becoming the sole
responsibility of GIVIGEST. GIVIGEST is not entitled to any medical coverage,
life insurance, savings plans, health insurance, or any and all other benefits
of afforded COMPANY employees. GIVIGEST shall be solely responsible for any
Federal State or Local Taxes; and should COMPANY for any reason be required to
pay taxes at a later date, GIVIGEST shall insure such payment is made by
GIVIGEST and not COMPANY. GIVIGEST shall be responsible for all workers
compensation payments and herein holds COMPANY harmless for any and all such
payments and responsibilities related hereto.
15. GIVIGEST Not to engage in Conflicting Activities
During the term of this agreement, GIVIGEST shall not engage in any activities
that directly conflicts with the interests of COMPANY. COMPANY hereby
acknowledges notification by GIVIGEST and understands that GIVIGEST does and
shall represent and service other multiple clients in the same manner as it
does COMPANY, and that COMPANY is not an exclusive client of GIVIGEST.
16. Proprietary Information
GIVIGEST shall treat as proprietary any and all information, not previously
publicly disclosed, belonging to COMPANY, its affiliates, or any third parties
and disclosed to GIVIGEST in the course of the performance of GIVIGEST Services.
<PAGE>
17. Inside information - Securities Violations
In the course of the performance of this agreement it is expected that specific
sensitive information concerning the operations of COMPANY business and/or
affiliate companies shall be divulged to GIVIGEST. In such event GIVIGEST will
not divulge, discuss, or otherwise reveal such information to any third parties.
18. Disclosure
GIVIGEST shall disclose any outside activities or interests, including ownership
or participation in the development of prior inventions, that conflict or may
conflict with the best interests of COMPANY. It is mutually understood that
prompt disclosure is required under this paragraph if the activity or interest
is related directly or indirectly, to any activity that GIVIGEST may be involved
with on behalf of COMPANY.
19. Warranty Against Contemplation of Agreement For Related Corrupt
Practices
GIVIGEST represents and warrants that all payments and other valuable
consideration paid or to be paid under this agreement constitutes compensation
for services rendered that this agreement; all payments and other valuable
considerations and the use of those payments and valuable considerations are
non-political in nature; and that said payments and valuable considerations will
not be used to influence, sway or bribe any government or municipal party,
either domestic or foreign, in any way.
20. Conditions Precedent to Performance by GIVIGEST
Prior to GIVIGEST being required to perform any duties or obligations agreed to
under the agreement, COMPANY shall have satisfied the following conditions
precedent:
(a) Perform any Duties under Section 10 above or Representations or
warranties under Section 11 above that are to be performed prior to GIVIGEST
undertaking its obligations and duties.
(b) Provide evidence reasonably satisfactory to GIVIGEST that Company's key
executives have agreed to enter into one year employment agreements.
(c) Provide evidence that COMPANY is using its best efforts to acquire a D
& O Insurance having a minimum combined limits of $2,500,000.
(d) Reserve a minimum of one seat on the Board of Directors for a
representative of GIVIGEST reasonably acceptable to the Board, if and when
GIVIGEST requests such an appointment, such director(s) to sit until resignation
or replacement by the shareholders of COMPANY.
(e) COMPANY shall have reached a repricing of the COMPANY's 7% Convertible
Notes due 2003 reasonably acceptable to GIVIGEST.
21. Severability
If any provision of this agreement shall be held to be contrary to law, invalid
or unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this agreement is
contrary to law, invalid or unenforceable and that by limiting such provision it
would become valid and enforceable, then such provision shall be deemed to be
written, construed, and enforceable as so limited.
22. Termination of Agreement
<PAGE>
This Investment Banking Agreement may not be terminated by either party prior to
the expiration of the term provided in Paragraph 8 above except as follows:
(a) Upon the bankruptcy or liquidation of the other party, whether voluntary
or involuntary,
(b) Upon the other party taking the benefit of any insolvency law, and/or
(c) Upon the other party having or applying for a receiver appointment for
either party.
(d) Upon the discovery of false, misleading, or fraudulent
misrepresentations by either party or the breach of any warranty, representation
of covenant contained herein by either party.
(e) In the event COMPANY fails or refuses to cooperate with GIVIGEST or
fails or refuses to make timely payment of the compensation set forth above
and/or in Addendum "A". In such a case, GIVIGEST shall have the right to
terminate any further performance under this agreement and upon, notification
thereof, all earned compensation shall become immediately due and payable.
(f) In the event of any breach of any other section of this agreement
which provides for termination, including but not limited to Sections 10(f) and
10(g).
23. Attorney Fees
In the event either party is in default of the terms and conditions of this
Investment Banking Agreement and legal
action is initiated or suit be entered as a result of such a default, the
prevailing party shall be entitled to recover all costs
incurred as a result of such default including all costs, reasonable attorney
fees, expenses, court costs through trial,
appeal and to final disposition (if applicable), and all costs of arbitration
provided for herein.
24. Return Of Records
Upon termination of this agreement, GIVIGEST shall deliver all of Company's
records, notes, data, memorandum,
models and equipment of any nature that are in the control of GIVIGEST.
25. Miscellaneous
(a) Effective date of representations shall be no later than the date
of the signing of this agreement by both parties.
(b) Currency: in all instances, references to dollars shall be deemed to be
United States Dollars
26. Notices
<PAGE>
All notices hereunder shall be in writing and addressed to the party at the
address herein set forth, or at such other address which notice pursuant to this
section may be given and shall be given by either personal delivery, certified
mail, express mail or other national overnight courier services. Notices shall
be deemed given upon the earlier or actual receipt or three (3) business days
after being mailed or delivered to such courier service. Any notices to be given
hereunder shall be effective if executed by and sent by the attorneys for the
parties giving such notice; and in connection therewith, the parties and their
respective counsel agree that in giving such notice, such counsel may
communicate directly in writing with such parties to the extent necessary to
give such notice. Any notice required or permitted by this agreement to be given
shall be given to the respective parties at the following addresses:
GIVIGEST:
GIVIGEST FIDUCIARIA SA
Corso Elvezia 4,
CH-6901 Lugano, Switzerland
Telephone: +4191-921-5600
Fax: +4191-921-5606
COMPANY:
AIR PACKAGING TECHNOLOGIES, INC.
25260 Rye Canyon Road,
Valencia, California, USA
Telephone 1-661-294-2222
Fax: 1-661-294-0947
27. Time Is Of The Essence
Time is hereby expressly made of the essence of this Investment Banking
Agreement with respect to the performance by the parties of their respective
obligations hereunder.
28. Inurement
This Investment Banking Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors, assigns and any addenda attached hereto.
29. Entire Agreement
This Investment Banking Agreement contains the entire agreement of the parties
and may be modified or amended only by agreement, in writing, signed by the
party against whom enforcement of any waiver, change, amendment, modification,
extension or discharge is sought. It is declared by both parties that there are
no oral or other agreements or understanding between them affecting this
Investment Banking Agreement or relating to the business of GIVIGEST. This
agreement supersedes all previous agreements between GIVIGEST and COMPANY.
30. Applicable Law
This Agreement is executed pursuant to and shall be interpreted and governed for
all purposes by the laws of the State of Ticino. If any provision of this
Investment Banking Agreement is declared void, such provisions shall be deemed
severed from this agreement, which shall otherwise remain in full force and
effect. Any controversy or claim arising out of, relating to this agreement, or
the breach thereof, shall be settled by arbitration in the Lugano District,
Ticino in accordance with the rules then promulgated by said Courts, the Court
shall appoint an arbitrator, and judgment upon award rendered may be entered in
the courts of the Lugano District, Ticino or any other court having
jurisdiction, which award and/or judgment shall include reasonable attorney's
fees.
<PAGE>
31. Acceptance by GIVIGEST
This Investment Banking Agreement is not valid or binding upon GIVIGEST unless
and until executed by the President or other duly authorized executive officer
of GIVIGEST at its home office in Lugano, Switzerland.
32. Non-waiver
The failure of either party at any time to require any such performance by any
other part shall not be construed as a waiver of such right to require such
performance and shall in no way affect such party's right to require such
performance and shall in no way affect such party's right subsequently to
require full performance hereunder.
33. Execution In Counterparts
This agreement may be executed in counterparts, not withstanding the date or
dates upon which this agreement is executed and delivered by any of the parties,
and each shall be deemed to be an original and all of which will constitute one
and the same agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands in execution of this
agreement.
For and on behalf of: For and on behalf of:
COMPANY GIVIGEST
AIR PACKAGING TECHNOLOGIES, INC. GIVIGEST FIDUCIARIA SA
a US Company a Swiss Company
By /s/ Donald M. Ochacher By /s/ Claudio Gianascio
------------------------ ----------------------
Donald M. Ochacher Claudio Gianascio
President President
Date Signed 3/27/2000 Date Signed 3/31/00
--------- -------
<PAGE>
GIVIGEST FIDUCIARIA SA
One Time Program
INVESTMENT BANKING AGREEMENT
Addendum "A"
A. SPECIFIC SERVICES
10 Act as an investor relations contact in Europe, such information as is
approved by COMPANY, responding to shareholders requests, and coordinating
shareholder communication with COMPANY. One of GIVIGEST's representatives will
be in charge of answering a dedicated telephone line and dedicated email address
and coordinate with COMPANY all shareholders' questions by telephone, fax, or
email. GIVIGEST will advise COMPANY on the construction and management of a
corporate website. All costs of construction and management shall be paid by
COMPANY.
20 Coordinate with and advise COMPANY on the appointment of a US investor
relations group and/or Investment Banking group.
30 Coordinate the preparation of research reports on COMPANY and its
activities. An initial research report will be issued by GIVIGEST to be
distributed to GIVIGEST's customers and associates as well as COMPANY's existing
shareholders, if appropriate. All costs for printing and mailing will be
pre-approved and paid for by COMPANY.
40 Introduce COMPANY to institutional investors that would indicate an
interest in COMPANY's business and activities. At COMPANY's request, or when it
is deemed appropriate, GIVIGEST will organize one-on-one presentations or road
shows to introduce COMPANY to the European financial community. The first of
these will be held in Switzerland and Italy. COMPANY will pre-approve and pay
for all costs, including travel, accommodations, space rental, and materials
supplied during the presentations.
50 Evaluate and negotiate alternative listings of the COMPANY's stock.
60 Introduce COMPANY to additional market makers and brokerage firms to
broaden its base of investors.
70 Introduce COMPANY to one or more individuals who would have education,
talents, or business experience that could bring additional breadth to the Board
of Directors.
80 During the term of this agreement, use its best efforts, based upon
market conditions, to raise up to $2.5 million in additional capital or
convertible debt at terms to be fixed according to market conditions. As a part
thereof, GIVIGEST will ,on a firm basis, raise $250,000 within one month from
the execution of this agreement upon terms to be agreed and assuming that
COMPANY will have an immediate need for such funds to finance the purchase of
equipment and inventory for a substantial new order that COMPANY has indicated
should be received shortly.
B. COMPENSATION
10 All expenses incurred by GIVIGEST which have been pre-approved by the
President of COMPANY, including but not limited to stationery, printing, travel,
accommodations, and related business meals
20 A monthly retainer of $5,000 payable, in advance, by the last day of the
previous month beginning March 31, 2000.
<PAGE>
30 100,000 shares of the common stock of COMPANY, upon the execution of the
agreement, to be issued in the name of GIVIGEST and delivered as soon as
practicable, said shares to be issued as "restricted shares" and to carry upon
them the normal restrictive legend which prohibits their sale or transfer in the
absence of a registration statement covering the same or an exemption from
registration being applicable to the shares and transaction.
40 250,000 warrants to purchase the common stock of COMPANY upon execution
of the agreement. Each warrant shall entitle the holder to purchaser one share
of the common stock of COMPANY at a determined price (see below) for a period of
three years from the ending day of the month in which this agreement is
executed
50 250,000 additional warrants on the same terms as II(4) above on the basis
of one warrant for every $10 raised pursuant to I.(8) above.
60 The price at which the aforementioned warrants are to be issued shall be
a fixed price which shall equal the average of the closing bid prices of the
Company's common stock for the twenty-five trading days prior to execution of
this agreement, but not less than $0.50 per share
70 A Finder's fee equal to ten percent (10%) of all funds raised on behalf
of COMPANY by GIVIGEST during the term of this agreement.
80 As additional consideration, GIVIGEST will have the following
registration rights:
i. In the event that COMPANY shall file, at any time any of the warrants are
outstanding, a registration statement under which the issued shares and the
shares underlying the above warrants could be registered, the COMPANY, upon the
request of GIVIGEST, will use its best efforts to include the same under said
registration statement.
ii. In addition, GIVIGEST shall have the one time right to request the
registration of the issued shares and/or the shares underlying the above
warrants and COMPANY will use its best efforts to secure said registration.
iii. In the case of any such registration filed by the COMPANY under either i or
ii above, COMPANY shall use its best efforts to maintain it in an effective
status for a minimum of one year from the effective date of the registration
For and in behalf of: For and in behalf of:
COMPANY GIVIGEST
AIR PACKAGING TECHNOLOGIES, INC. GIVIGEST FIDUCIARIA SA
a US Company a Swiss Company
By /s/ Donald M. Ochacher By /s/ Claudio Gianascio
------------------------ ----------------------
Donald M. Ochacher Claudio Gianascio
President President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT DEC-31-1999 AND STATEMENT OF OPERATIONS FOR THE
YEAR-ENDED DEC-31-1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS REPORTED ON FORM 10K.
</LEGEND>
<MULTIPLIER> 1
<CAPTION>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1150151
<SECURITIES> 0
<RECEIVABLES> 80233
<ALLOWANCES> (22630)
<INVENTORY> 577389
<CURRENT-ASSETS> 1827038
<PP&E> 2213135
<DEPRECIATION> (1498949)
<TOTAL-ASSETS> 2970285
<CURRENT-LIABILITIES> 410826
<BONDS> 0
0
0
<COMMON> 79664
<OTHER-SE> 979795
<TOTAL-LIABILITY-AND-EQUITY> 2970285
<SALES> 959712
<TOTAL-REVENUES> 959712
<CGS> 1012083
<TOTAL-COSTS> 1012083
<OTHER-EXPENSES> 1802547
<LOSS-PROVISION> 17500
<INTEREST-EXPENSE> 30444
<INCOME-PRETAX> (1853012)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1852012)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1853012)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
<FN>
FOR PURPOSES OF THIS EXHIBIT PRIMARY MEANS BASIC.
</FN>
</TABLE>
