As originally filed with the Securities and Exchange Commission on
November 17, 1999.
Registration No. 333-90953
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST EFFECTIVE AMENDMENT TO FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AIR PACKAGING TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 3089 95-4337254
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification Number)
Classification Number)
Donald Ochacher
Chief Executive Officer
25620 Rye Canyon Road, Valencia, California 91355
(661) 294-2222
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
J. G. McAllister, Esq.
W. Sterling Mason, Esq.
405 E. 12450 S0.
Draper, Utah 84020
(801) 572-6610
Approximate date of proposed sale to the public:
As soon as practicable after the
Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check this box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class
Of securities to be Amount to be Amount of
Registered Registered Price Per Share Registration Fee
Maximum Offering
Common Stock, $0.01 3,622,943 $0.4375 $418.45
-------------------------------------------------------------------------------
(1) Estimated for the purpose of calculating the registration fee pursuant to
Rule 457(c) on the basis of the high and low price of the Registrant's
Common Stock on July 25,2000.
(2) The amount to be registered includes an indeterminate number of shares
issuable as a result of stock splits, stock dividends and antidilution
provisions in accordance with Rule 416.
(3) Estimated solely for the purpose of computing the amount of the
registration fee.
(4) $427.16 previously Paid on November 17, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
And Sec. Rel. No. 7497
Showing Location in Prospectus of Information
Required by Part I Items of Form S-1
Item
No. Form S-1 Caption Page
----- ---------------- ----
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus............................. Cover
2. Inside Front Cover and
Outside Back Cover Pages............................. Cover
3. Prospectus Summary................................... 5
>> Risk Factors .................................. 6
4. Use of Proceeds...................................... 10
5. Dilution............................................. 10
6. Selling Security Holders............................. 32
7. Plan of Distribution................................. 32
8. Interests of Named Experts and Counsel............... N/A
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities....... 34
10. Information with Respect to the Registrant
>> Prospectus Summary.............................. 5
>> Risk Factors.................................... 6
>> Selected Consolidated Financial Data............ 10
>> Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................... 11
>> Liquidity and Capital Resources................. 15
>> Year 2000....................................... 17
>> Business........................................ 17
>> Management...................................... 23
>> Security Ownership of Certain Beneficial
Owners and Management........................ 27
>> Certain Transactions............................ 27
>> Description of Securities of the Company........ 29
>> Market for the Company's Common Stock........... 30
<PAGE>
PROSPECTUS
3,622,943 Shares
AIR PACKAGING TECHNOLOGIES, INC.
Common Stock, Par Value $.01
This Prospectus relates to the resale by the Selling Stockholders,
identified herein, of an aggregate of up to 3,622,943 shares of Common Stock of
the Air Packaging Technologies, Inc. (the "Company"), which are presently owned
by certain of the Selling Stockholders of which 3,137,943 resulted from their
conversion of certain Debentures previously held by said Selling Stockholders.
See "Selling Persons and Plan of Distribution." The Company has received the
proceeds from the payment for the Debentures and therefore will not receive any
of the proceeds from the sale of shares.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Common Stock of the Company is traded on the OTC Bulletin Board under
the symbol "AIRP" operated by NASD, Inc. On July 24, 2000 the last reported
sales price for the Company's Common Stock on the OTC Bulletin Board was
$0.4844. See "Price Range of Common Stock."
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN A OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
STATE.
Subject to completion, dated July 28, 2000
The Date of this Prospectus is __________, 2000.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its entirety.
This Prospectus contains forward looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The Company
Since 1992, Air Packaging Technologies, Inc., a Delaware corporation
("herein referred to as "APTI", the "Issuer", or "We"as the text may dictate)
has been engaged in the manufacturing, distribution, marketing, and continued
development of inflatable, protective packaging for use in shipment of higher
value and fragile products. We hold worldwide patents on a packaging system
which utilizes chambered packing material to provide a cushion of air around
products during shipment. Its Air Box(R) 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. In
addition, in the year 2000 we have been agressively targeting the promotion
packaging market and focusing on the lower priced, higher volume packaging
market with new products.
Our corporate offices are located at 25620 Rye Canyon Road, Valencia,
California 91355; our telephone number is (661) 294-2222; and our facsimile
number is (661) 294-0947.
An investment in the shares of the Common Stock offered hereby involves a
high degree of risk. See "Risk Factors."
The Offering
Securities Offered by the
Company.............................. None
Securities Offered by the
Selling Stockholders................. up to 3,622,943 shares of Common Stock
Common Stock Outstanding prior
To and after the Offering (1)........ 10,758,358 shares
Use of proceeds....................... The Company will not receive any
proceeds from the sale of Common
Stock by the Selling Shareholders.
Risk Factors.......................... The Common Stock offered by the
Selling Stockholders involves a high
degree of risk. See "Risk Factors."
Market Symbol (2)..................... AIRP
------------------------------
(1) Based upon the number of shares outstanding as of June 15, 2000, and does
not include options and warrants to purchase 1,017,500 shares of the Company's
common stock.
(2) The Common Stock of the Company is traded on the NASD, Inc. OTC Bulletin
Board under the symbol "AIRP"
5
<PAGE>
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. An investment in the Common
Stock offered hereby involves a high degree of risk and is not an appropriate
investment for persons who cannot afford the loss of their entire investment.
Prospective investors should be aware of the following risk factors and should
review carefully the financial and other information provided by the Company.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE
DECIDING TO INVEST IN THE SHARES OF COMMON STOCK.
IT IS HIGHLY LIKELY THAT WE WILL NEED TO RAISE ADDITIONAL CAPITAL IN
THE FUTURE AND WE ARE UNCERTAIN IF WE WILL BE ABLE TO DO SUCH.
We believe that current and future available capital resources,
including cash flow from operations, will be adequate to fund our working
capital requirements in the ordinary course of business for the next 12 months.
However, we can not be sure that future events will not cause the Company to
seek additional capital sooner. Historically, we have never been profitable nor
have we been successful in funding our operations from our operational cash
flow. In addition, we have been and intend to continue expanding our business
activities into new areas which will require additional sources of funding. To
the extent capital resources are required by us, there can be no assurance that
they will be available on favorable terms, or at all. To the extent that we
raise additional capital by selling stock or convertible debt securities, our
present shareholders' interest will be diluted. Should funds not be available to
us when we need them, this will negatively affect our operations and our ability
to expand and diversify our operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
WE HAVE A HISTORY OF NET LOSSES. IF WE ARE UNABLE TO BECOME PROFITABLE IT IS
UNLIKELY THAT WE WILL BE ABLE TO CONTINUE OUR OPERATIONS.
We have yet to show a net profit for any given fiscal year. We
sustained net losses of approximately $1,853,000; $1,720,000; and $1,824,000 for
the fiscal years ended December 31, 1999, 1998, and 1997, respectively that have
caused our Independent Certified Public Accountants to issue an explanatory
paragraph in their opinions which expresses substantial doubt about our ability
to continue as a going concern. We have also sustained net losses for the three
months ended March 31, 2000 and 1999 of $366,640 and $362,010 respectively. We
have required periodic infusions of capital to survive and remain solvent. There
can be no assurance that we will continue to be able to attract additional
capital and there can be no assurance that we will become profitable in the
foreseeable future.
WE MAY NOT BE ABLE TO MANAGE GROWTH
Management anticipates that we will be entering a period of significant
growth. This growth, if effected, will expose us to increased competition,
greater overhead, marketing, working capital, and support costs and other risks
associated with entry into new markets, development of new products, and
increased sales. To manage growth effectively, we will need to continue to
improve and expand our operational, financial and management information systems
and telecommunications systems and hire and manage additional personnel. We can
not give assurance that our management team and other new personnel will be able
to successfully manage our rapidly evolving business, and if we are unable to do
so this would have a material detrimental effect upon the Company's operating
results.
6
<PAGE>
IF WE FAIL TO COMPETE EFFECTIVELY IN OUR MARKET, WE WILL NOT BE ABLE TO GENERATE
SALES WHICH WILL HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our business is highly competitive. All aspects of our business, including
price, promptness of service, and product quality are significant competitive
factors and our ability to successfully compete with respect to each factor is
material to its profitability. We compete with a number of other businesses that
have greater market visibility and access. Such companies may develop products
or services that are more effective than our products or services and may be
more successful in marketing their products or services than us. Some of our
current and potential competitors have significantly greater market presence,
name recognition and financial and technical resources than the Company, and
many have longstanding market positions and established brand names in their
respective markets. To the extent that competitors compete on the basis of
price, this could result in lower margins for the Company's products. Although
we place a high value upon our demonstrated ability to provide a very high
quality product in a specialized niche, no assurance can be given that we will
be able to compete successfully in our markets, or to compete successfully
against current and new competitors as the our markets continue to evolve.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD BECOME
OBSOLETE AND WE WOULD LOSE CUSTOMERS.
We are engaged in a business that has experienced tremendous technological
change over the past few years. We face all risks inherent in businesses that
are subject to rapid technological advancement, such as the possibility that a
technology that we have invested heavily in, may become obsolete. Should this
happen we would be required to invest in new technology. The inability of the
Company to identify, fund the investment in, and commercially exploit such new
technology could have an adverse impact on the financial condition of the
Company. Our ability to implement our business plan and to achieve the results
projected by Management will be dependent, to some extent, upon Management's
ability to predict technological advances and implement strategies to take
advantage of such changes. Our future profitability will depend upon its ability
to adjust to such new developments.
OUR RELIANCE ON INTELLECTUAL PROPERTY CLAIMS
We rely on a combination of patent laws, copyright and trademark laws,
trade secrets, software security measures, license agreements and nondisclosure
agreements to protect our proprietary products. Despite all of our precautions,
it may be possible for unauthorized third parties to copy aspects of, or
otherwise obtain and use, our products. In addition, we cannot be certain that
others will not develop substantially equivalent or superseding products,
thereby substantially reducing the value of our proprietary rights.
We are not aware that any of our products infringe on the proprietary
rights of third parties, and are not currently engaged in any material
intellectual property litigation or proceedings. In this respect, we hold
patents on processes and related machines that should protect us from such
claims and provide some level of competitive edge. Nonetheless, there can be no
assurance that we will not become the subject of infringement claims or legal
proceedings by third parties with respect to current or future products. In
addition, we may initiate claims or litigation against third parties for
infringement of the our proprietary rights or to establish the validity of the
our proprietary rights. Any such claims could be time-consuming, result in
costly litigation, cause product shipment delays or lead us to enter into
royalty or licensing agreements rather than disputing the merits of such claims.
Moreover, an adverse outcome in litigation or similar adversarial proceedings
could subject us to significant liabilities to third parties, require
expenditure of significant resources to develop non-infringing technology,
require disputed rights to be licensed from others or require the us to cease
the marketing or use of certain products, any of which could have a material
adverse effect on our business and operating results. To the extent we wish or
are required to obtain licenses to patents or proprietary rights of others,
there can be no assurance that any such licenses will be made available on terms
acceptable to us, if at all.
SELLING PRODUCTS INTO FOREIGN MARKETS CAN BE RISKY.
Our growth strategy envisions supplying our product sales to foreign
customers and to domestic and foreign distributors of packaging products to
international markets. Accordingly, we may increase certain risks generally
associated with marketing products or services to different countries, such as
currency fluctuation, political instability and the political, legislative and
regulatory environment in foreign countries. We do not believe any of such risks
have had a material impact on its business operations or financial condition,
but there can be no assurance as to whether such risks will have a material
impact in the future.
7
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS
Our quarterly operating results may be affected by certain market cycles
and conditions that impact product shipments and economic fluctuations. Our
quarterly operating results may also fluctuate significantly depending on other
factors, including the introduction of new products by the our competitors,
market acceptance of the our products, adoption of new technologies, and
manufacturing costs and capabilities. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
WE HAVE NEVER PAID A DIVIDEND
We have never paid dividends on our Common Stock and see little probability
of the payment of dividends in the foreseeable future. In fact, we intend to
retain earnings for the foreseeable future for use in the operation and
expansion of its business. See "Dividend Policy".
THE MARKET PRICE OF OUR COMMON STOCK FLUCTUATES SUBSTANTIALLY. YOU MAY BE UNABLE
TO SELL YOUR COMMON STOCK QUICKLY AT THE CURRENT MARKET PRICE.
The market price of our common stock has been highly volatile and will
likely fluctuate significantly. Attempts to purchase or sell relatively small
amounts of our common stock could cause the market price of our common stock to
fluctuate significantly. Low trading volume levels may also affect our
stockholders' ability to sell shares of our common stock quickly at the current
market price.
IF OUR OUTSTANDING WARRANTS AND OPTIONS ARE EXERCISED THIS WILL DILUTE THE
SHAREHOLDER INTERESTS OF OUR PRESENT SHAREHOLDERS
As of June 15, 2000, we had outstanding 350,000 Common Stock Warrants and
667,500 options to purchase shares of our common stock, all of which are
exercisable at prices ranging from $.50 to $1.50 per share. The holders thereof
have, at nominal cost, the opportunity to profit from a rise in the market price
of the Common Stock without assuming the risk of ownership, with a resulting
dilution in the interest of other security holders. As long as these securities
remain unexercised or not converted, as the case may be, our ability to obtain
additional capital may be adversely affected. See "Description of Securities."
SHOULD WE ISSUE ADDITIONAL SHARES OF COMMON STOCK THIS COULD DILUTE THE
SHAREHOLDER INTERESTS OF OUR PRESENT SHAREHOLDERS
Our Articles of Incorporation currently authorize the Board of Directors to
issue up to 50,000,000 shares of Common Stock, par value $.01. The power of the
Board of Directors to issue shares of Common Stock or warrants to purchase
shares of Common Stock is subject to shareholder approval in only limited
instances. Accordingly, any additional issuance of the our Common Stock may have
the effect of further diluting the equity interest of our present shareholders.
See "Description of Securities."
THE LIMITED LIABILITY OF OUR OFFICERS AND DIRECTORS MAY NEGATIVELY AFFECT
SHAREHOLDERS' INTERESTS
Under Delaware law, we are required to indemnify our officers and directors
against liability to the Company or its stockholders in any proceeding in which
the officer or director wholly prevails on the merits. In addition, we may and
generally will indemnify our officers and directors against such liability if
the officer or director acted in good faith believing his or her actions to be
in the best interests of the Company, unless the director or officer is adjudged
to have breached his duty of loyalty to us, or, not to have acted in good faith
or engaged in intentional misconduct or a knowing violation of the law or
derived an improper personal benefit from an action. See "Management--Limitation
on the Liability of Directors".
THE LACK OF LIQUIDITY FOR OUR STOCK AND THE PENNY STOCK RULE MAY MAKE IT
DIFFICULT FOR SHAREHOLDERS TO SELL THEIR SHARES WHEN THEY DESIRE TO DO SUCH
Our Common Stock is currently traded on the OTC Bulletin Board, operated by
the NASD, Inc. The stock is subject to the "penny stock" rules that impose
additional sales practice and market making requirements on broker-dealers who
sell and/or make a market in such securities. Application of this rule does, by
its nature, adversely affect the ability or willingness of the purchasers of
Common Stock to sell their shares in the secondary market.
8
<PAGE>
Unless and until the price of the our Common Stock is more than $5.00
per share, such securities will likely be subject to the low priced security or
so-called "penny stock" rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors. For any transaction involving a penny stock,
unless exempt, the rule requires: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must:
(i) obtain financial information and investment experience and objectives of the
person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlighted form: (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading, and about commissions
payable to both the broker-dealer and the investor in cases of fraud in penny
stock transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
THE MARKET PRICE OF OUR STOCK COULD BE NEGATIVELY AFFECTED BY THE SALE OF
RESTRICTED SHARES.
Of the 10,758,358 shares of our Common Stock currently outstanding
5,718,210 are "restricted securities," as that term is defined in Rule 144 as
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended. As restricted shares, these 5,718,210 Shares may be resold
only pursuant to an effective registration or under the requirements of Rule 144
or other applicable exemption from registration under the Act.
Rule 144 provides in essence that a person not affiliated with the issuer
who has held restricted securities for a period of one year, under certain
conditions, may sell every three months, in brokerage transactions, a number of
Shares which does not exceed the greater of one percent of a corporation's
outstanding Common Stock or the average weekly trading volume during the four
calendar weeks prior to the sale. There is no limit on the amount of restricted
securities that may be sold by a non-affiliate after the restricted securities
have been held by the owner for a period of two years. A sale under Rule 144 or
any other exemptions from the Act, if available, or subsequent registrations of
Common Stock of the current shareholders, could easily have a depressive effect
upon the price of the Common Stock in any market that may develop. See "Shares
Eligible for Future Sale."
This registration statement is being filed to register for sale up to
3,622,943 of these restricted shares.
WE PRODUCE A LIMITED NUMBER OF PRODUCTS
Our profitability and viability may depend, in part, upon the our
ability to expand our product line and the application of our proprietary
technology. Successful expansion of the product line may be dependent on the
marketing and exposure of the present product line to additional industries
which have not been targeted to date. Our ability to expand our marketing
efforts and our product base may have a direct impact upon the profitability and
overall viability of the Company. We cannot be sure that we will be successful
in expanding its product line.
THE COMPANY
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 to provide a cushion of air around products during
shipment. Its Air Box(R) 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. In addition, in the year
2000 we have been agressively targeting the promotion packaging market and
focusing on the lower priced, higher volume packaging market with new products.
9
<PAGE>
APTI'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.
In April of 1994, APTI's common stock commenced trading on the NASD Bulletin
Board.
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 numberis (661) 294-0947.
APTI has one wholly-owned subsidiary: Puff Pac Industries Canada
Inc. ("Canco"), a British Columbia corporation.
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of the common
stock to be registered hereunder.
DILUTION
As set-forth in Regulation S-K, no substantial disparity between the
public offering price and the effective cash cost to the insiders exists in this
transaction. Accordingly, no dilution will occur in this matter.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected financial data for the
periods presented for the Company. The data as of and for the years ended
December 31 1999, 1998 and 1997 should be read in conjunction with the more
detailed audited Consolidated Financial Statements and Notes thereto for such
years presented elsewhere herein. Information pertaining to March 31, 2000 and
1999 and for the periods then ended have been derived from the Company's
unaudited interim Consolidated Financial Statements and should be read in
conjunction with the notes thereto included elsewhere in this prospectus. The
share numbers and income or loss per share figures have been modified to reflect
the 10 to 1 reverse stock split which occurred earlier this year.
<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)
Loss per Common Share:
Loss before
Extraordinary item (.25) (.43) (.59) (.61) (.99)
Extraordinary item - - .05 -- --
Net loss (.25) (.38) (.59) (.61) (.99)
Dividends Per Share n/a n/a n/a n/a n/a
Weighted Average Shares
Outstanding (1) 7,249,585 4,506,608 3,069,362 1,931,376 1,801,987
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>
10
<PAGE>
FOR THE THREE MONTHS ENDED MARCH 31
2000 1999
----------- ------------
Revenues $ 147,452 $ 199,029
Loss: Continuing Operations (366,640) (362,010)
Loss per Common Share:
Net loss (.05) (.05)
Dividends Per Share n/a n/a
Weighted Average Shares
Outstanding 7,520,415 6,789,255
BALANCE SHEET DATA 3/31/2000
-----------
Total Assets $ 2,440,048
Long-term Obligations 1,500,000
Total Liabilities 1,747,229
(1) Weighted average shares reflects the 10 for 1 reverse split of the
outstanding shares of the Company which became effective January 4, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes and "Selected Consolidated
Financial Data" included above in this Prospectus.
GENERAL
Air Packaging Technologies, Inc. (APTI) manufactures and markets a line
of industrial packaging products under the name "Air Box" (R). The Air Box (R)
provides reusable protective packaging during shipping and storage for a wide
range of higher value items. It provides vastly superior protection from ESD
(electro static discharge) damage and moisture. It also provides see-through
transparency for visual inspection of the product during shipment and upon
receipt.
11
<PAGE>
The Company has an aggressive on-going plan to increase its sales
activity and achieve a profitable business level of sales. In past time periods,
the Company's sales activities have been limited by a lack of funds, incomplete
designs and poor manufacturing quality. Management believes it possesses the
necessary capital to build the sales levels to a profitable level in the year
2000. All of the known design and quality problems of the Company were resolved
successfully in the fourth quarter of fiscal 1998. It's only since January, 1999
that the Company has been able to concentrate on developing future sales with
major customers.
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 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.
RESULTS OF OPERATIONS
Three Months Ended March 31. 2000, Compared to Three Months Ended
March 31, 1999.
Net sales for the three months ended March 31, 2000 were $147,452
compared to net sales of $199,029 for the comparable period of the preceding
year. This represents a decrease of $51,577 or 26%. The net decrease is
primarily due to sales of the SDS Air Box product line which were made to one
customer during the first quarter of fiscal 1999 and were not repeated during
the first quarter of fiscal 2000. This decrease is partially offset by an
increase in sales of the Air Box product line during the three months ended
March 31, 2000 from the comparable period of the preceding year.
Cost of sales decreased $55,569 or 30% for the three months ended March
31, 2000. The decrease is due to the related decrease in sales. Any increase in
sales will require additional working capital to fund inventory and work in
process. As a result of these factors, the Company has an ongoing and urgent
need for infusion of additional working capital.
General, administrative and selling expenses decreased by $12,204 or 3%
during the three months ended March 31, 2000 as compared to the three months
ended March 31, 1999. The net decrease is primarily due to a decrease in legal
professional fees during the first quarter of fiscal 2000.
Interest expense (income) was $17,996 at March 31, 2000 and $(3,507) at
March 31, 1999. Interest expense increased approximately $26,000 for the three
months ended March 31, 2000 as compared to the three months ended March 31,
1999, which is related to the 7% interest-bearing Convertible Senior Notes which
were issued during the third and fourth quarters of fiscal 1999. Interest income
increased approximately $6,800 during the three months ended March 31, 2000 from
the comparable period of the prior year as the Company had an increase in cash
placed in an interest-earning account.
As a result of the above, net loss for the three month period ended
March 31, 2000 decreased by $4,630 to $366,640 from $362,010.
The Company is currently in a loss carry-forward position. The net
operating loss carry-forward balance as of March 31, 2000 was approximately
$18,600,000 compared to $18,200,000 as of December 31, 1999. The net operating
loss carry-forward is available to offset future taxable income through 2019.
The Company's net operating loss carry-forwards may be limited due to ownership
changes as defined under Section 382 of the Internal Revenue Code of 1986.
At March 31, 2000, the Company had a deferred tax asset, which
primarily related to the net operating losses. A 100% valuation allowance has
been established as management cannot determine whether it's more likely than
not that the deferred tax assets will be realized.
12
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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 operate 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.
13
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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(R) 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, 1997, 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 of
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 expenses 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 expensed
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.(See discussion under "Litigation").
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.
14
<PAGE>
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 carry-forward position. The net
operating loss carry-forwards 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 carry-forward is available to offset future taxable income through 2018.
The Company's net operating loss carry-forwards may be limited due to ownership
changes as defined under Section 382 of the Internal Revenue Code of 1986.
At 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.
LIQUIDITY AND CAPITAL RESOURCES
During the Company's operating history it has yet to show a net profit
for any given fiscal year. The Company sustained net losses of approximately
$1,853,000; $1,724,000; and $1,824,000 for the fiscal years ended December 31,
1999, 1998, and 1997, respectively that have caused the Company's Independent
Certified Public Accountants to issue an explanatory paragraph in their opinions
which expresses substantial doubt about the Company's ability to continue as a
going concern. The Company has required periodic infusions of capital to survive
and remain solvent. There can be no assurance that the Company will continue to
be able to attract additional capital and there can be no assurance that the
Company will become profitable in the foreseeable future.
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 March 31, 2000, the Company's working capital was $1,104,883
compared to $1,416,212 as of December 31, 1999. The decrease is primarily due to
the increase in cash outflows during the first three months of fiscal 2000.
The net receivables were $108,658 at March 31, 2000 compared $57,603 at
December 31, 1999 and $96,852 at December 31, 1998.
Net inventory at March 31, 2000 was $681,987 compared to $577,389 and
$408,643 at December 31, 1999 and December 31, 1998, respectively. The net
increases are primarily due to the increases in raw materials purchased for
upcoming orders and increases in finished goods manufactured for upcoming
orders.
Advances and prepaids at March 31, 2000, December 31, 1999 and December
31, 1998 were $50,339, $41,895 and $75,134, respectively. The increase at March
31, 2000 is primarily due to a loan receivable of approximately $9,000 that was
made during the first three months of fiscal 2000. The decrease during fiscal
1999 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.
15
<PAGE>
The Company recognized a 12% gross profit during the three months ended
March 31, 2000 compared to a 7% gross profit during the three months ended March
31, 1999. 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 $614,955 from operating activities for
the three months ended March 31, 2000 compared to cash outflows of $492,840 for
the three months ended March 31, 1999. The change in net outflows of $122,115
from the operating activities between the two comparable quarters primarily
resulted from the decrease in trade receivables of $21,093, the decrease in
advances and prepaids of $58,710 and the decrease in accounts payable and
accrued expenses of $128,080, which was partially offset by the increase in
inventories of $72,872, the increase in deferred revenue of $6,285 and the
decrease in the net loss from operations after adjustments for non-cash items of
$6,611. 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 an
increase in trade receivables of $84,035, an 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 $24,068 for the three months
ended March 31, 2000 compared to $26,749 for the three months ended March 31,
1999. The net decrease is due to the reduction in patent expenditures during the
first quarter of fiscal 2000, offset by increases in property and equipment
expenditures. Net cash used in investing activities was $189,018 during the 1999
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 $0 during the three months
ended March 31, 2000 compared to $615,000 during the three months ended March
31, 1999. During the three months ended March 31, 1999, the Company received
proceeds from the exercise of warrants totaling $615,000. There were no warrants
exercised during the three months ended March 31, 2000. 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.
16
<PAGE>
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
had to be received by April 30, 2000 and had to include all accrued interest
through May 31, 2000. The entire $1,500,000 in debentures plus accrued interest
were converted. As a result, during the second quarter of fiscal 2000, the
Company will record an expense of approximately $900,000 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 had to be received by April 30, 2000. A total of 50,000 warrants
and 40,000 options were exercised and paid for by June 16, 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.
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, Givigest agreed that it would raise up to $500,000 on
or before April 30, 2000, depending on the Company's financial needs. Givigest
Fiduciaria SA did in fact raise $225,000 by April 30th, through the issuance of
equity securities.
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.
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
known 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.
BUSINESS
APTI manufactures and markets a line of industrial packaging products
under the name "Air Box"(R).
The Air Box(R) provides reusable protective packaging during shipping
and storage for a wide range of higher value items. It provides vastly superior
protection from ESD (electrostatic discharge) damage, and moisture. It also
provides see-through transparency for visual inspection of the product during
shipment and upon receipt.
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.
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17
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(R) can be reusable, allowing the package to be deflated and
reused. In this manner, the Air Box (R) can be 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(R). This product is designed for electronic products requiring
static-discharge protection (i.e., Wafers and Integrated Circuits). The SDS Air
Box(R) 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(R) 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(R) for shipment of their wafer
and integrated circuits.
Air Box(R) products are made in five standard sizes, and are also
available in custom sizes as required by customers.
Air Box(R) quilting is an additional process developed by the Company
which allows the Air Box(R) 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(R) 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. Note that 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. In addition, the absence of corrugated dust permits the
product to remain sealed in the package in customer plants right up to point of
use; with other packing materials corrugated dust must be removed upon arrival
so as not to travel into clean rooms, eliminating a considerable degree of
protection during in-plant handling.
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. During inflation, the two chambers, sealed together at the
edges, swell against one another, immobilizing the product trapped between.
The open end may then be 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 1/2 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 successfully withstood a 20,000 V discharge while containing integrated
circuits that were only rated at 150v maximum.
18
<PAGE>
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. Customers may ship used bags back
to APTI, who in turn will refurbish and test them, and return them to the
customer.
In summary, the Company's Air Box(R) 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
- Re-usable
- Cost effective
- Environmentally friendly
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.
In the year 2000 began diversifying its business by aggressively
targeting the promotional packaging market and by focusing on the lower priced,
high volume packaging market with new products like the Suspend-A-Pak packaging
system which, because of its reduced material costs, can effectively compete
against lower priced traditional packaging materials. It is too early, at this
point in time, to determine the affect that these new areas will have on the
Company.
MARKETING
The Company has identified and has focused upon four key industries
which management believes can immediately benefit from its products. These are:
- Static Discharge Shielding (SDS)
- Medical
- Dental
- Military
In addition, the Company is continually seeking additional commercial
opportunities for the sale of its Air Box(R) Products in all markets.
19
<PAGE>
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(R) 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(R) 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.
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(R) 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 experiencing
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, it had to be hand carried to the customer. In all cases, it was
substantially more expensive to ship the Photomask safely prior to the
introduction of the SDS Air Box. APTI has been selling the Photomask Air Box to
Photronics for one year, 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(R) 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.
The Company is still working to develop tape and reel SDS Air Box(R)
Products which meet MIL spec for MVTR (moisture vapor transmission rate), a
major requirement of this market.
Medical
APTI recently successfully designed and sold an Air Box to ship, from
the laboratory to the hospital, living human skin in a Petrie dish, combining a
temperature controlled environment with Air Box cushion packaging. This skin is
called Apligraf (R), and is made by Organogenises of New England. If the
Apligraf (R) is subject 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 apparatuses 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,
each way, per shipment on freight 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. In addition, the
environmental effect is positive and important to the industry; the Air Box is
95% less tonnage going into the land fill, and if used four times is 98% less
tonnage.
20
<PAGE>
U.S. Military
APTI recently completed a series of ISTA (International Safe Transit
Association) transportation tests for the U S Military for several items with
excellent results. The U S Military has expressed an interest in purchasing the
Air Box to ship sensitive items for the Navy between the ships and repair
depots. APTI is pursuing this at the present time, and although the potential
opportunity is substantial, there is no guarantee APTI will obtain a contract
with the U S Military in the near future.
Discontinued Gift Wraps Line of Products
Formerly, APTI also manufactured a line of gift wrap, utilizing many of
the features of the Air Box(R), under the name "Puff Pac" Gift Wrap. The wrap
was a two-chambered inflatable packaging product resembling a mylar balloon,
that served as a unique alternative to conventional gift wrap. The gift was
inserted in a Puff Pac which was then inflated. As a result, the gift was
suspended and surrounded by air. Puff Pac Gift Wrap was produced in a number of
colorful designs, including holiday and special greetings.
In March of 1995, as a result of a comprehensive study by management and
outside consultants of APTI, its products, markets, patents and business plan,
management determined to terminate the Gift Wrap business, and to focus the
entire energies of the Company on the Air Box(R). In late 1996, APTI liquidated
its inventory of Gift Wrap, and realized nonrecurring sales and profits
therefrom.
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.
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.
21
<PAGE>
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
U.S. and foreign patents have various expiration dates from August 25, 2007
through September 15, 2014. As noted the Company believes that the patents
represent a formidable barrier to competition and are, as a result, important to
the Company's financial operations. Under 35 U.S.C. Section 382, United States
Patents are presumed to be valid and the Company is not aware of any facts or
circumstances which would bring this presumption into question. Under U.S. law,
both trademarks owned by the Company are of perpetual duration. The Company has
no reason to believe that its application for trademark protection for the name
"Airenviro" will not be granted but such protection is not, in the opinion of
the Company, of material importance. 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 $3,154 for the nine
months ending September 30, 1999, $3,991 for the year of 1998 and $0 for the
nine months ending September 30,1998, $1,726 for the year of 1997 and $7,674 for
the year of 1996. 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.
METHODS OF SALES
The marketing of the Company's products are handled by in house
employees as to US sales and marketed through two independent distributors
throughout Asia and Europe
Air Packaging (Europe) Ltd., England
Dou Yee Enterprises, Singapore
COMPETITION
APTI has two distinct types of competitors, one in the standard Air
Box(R) market and one in the SDS Air Box(R) market. The Standard Air Box(R)
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(R).
The Company's SDS Air Box(R) is competitively priced, and management expects to
increase its share of this market.
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 two 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.
22
<PAGE>
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.
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 was leased on a long-term lease which expired May 31, 2000.
In January of this year, 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.
EMPLOYEES
The Company has 19 full-time employees. Nine of these are in management,
sales, product development, or administration positions and ten 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.
LEGAL PROCEEDINGS
A former employee of the Company was seeking a severance payment of
$101,500 alleging he was entitled to such a payment under terms of an employment
agreement, which was voluntarily terminated in November 1998. The dispute was
settled in May 2000 with the Company contributing $50,000 towards the
settlement, which was fully accrued for at December 31, 1999.
Aside from the above, there is no litigation outstanding, and
management is not aware of any potential claims which might be asserted.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers and their respective ages
are as follows:
Name Age Position Since
---- --- -------- -----
Donald Ochacher* 62 Chairman, CEO & a Director 6/99
Janet Maxey 37 Chief Financial Officer 7/97
Garry Newman 50 Vice President 6/97
Elwood C. Trotter 57 Vice President 11/98
Carl Stadelhofer 46 Director 11/98
Marco Calmes 52 Director 5/00
---------------------
* Member Audit Committee
23
<PAGE>
The Directors serve until the next annual meeting of shareholders, or until
their successors are elected.
DONALD M. 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 recently was appointed Vice President of Sales. 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.
MARCO CALMES - Since March of 2000, Mr. Calmes has been coordinator of
portfolio management at SCF Societa Di Consulenza Finanziaria SA. From 1990
until 2000 he had been employed by Banca Adamas Lugano as a portfolio manager
and responsible for the development of institutional clients. He has been in the
banking business in Switzerland since 1978. In 1968 he received a Bachelors
degree. In 1969 he received a Masters in Business Administration from Michgan
State University.
Compensation of Directors
None of the Company's Directors received any compensation during the most
recent fiscal year for serving in their position as a director. No plans have
been adopted to compensate Directors in the future. The Company's Board of
Directors may in the future, at its discretion, compensate Directors for
attending Board and Committee meetings and reimburse the Directors for
out-of-pocket expenses incurred in connection with attending such meetings.
Executive Compensation
None of the Company's Executive Officers received any compensation
during the most recent fiscal year for serving in their position as a Director.
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
-----------------------
(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)$81,000 was paid in stock through the issuance of 81,000 shares of Common
Stock of the Company.
</TABLE>
<TABLE>
<CAPTION>
Options/SAR Grants in Last Fiscal Year
--------------------------------------
Potential Realized Value
At Assumed Rates of Stock
Individual Price Appreciation for
Grants Option Term(b)
------ ---------------------------------
No. Of Sec. % of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted (a) In Fiscal Price Expiration
Name (#) Year ($/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 - -
<PAGE>
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 - -
----------------------
(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.
</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 $1.50 per share exercise price per resolutions adopted
by the Board of Directors on June 4, 1999, and the aggregate gains that would
have been realized had these options been exercised on December 31, 1999, even
though these options were not exercised, and the unexercisable options could not
have been exercised, on December 31, 1999. The Company did not issue stock
appreciation rights.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises
in Last Fiscal Year and
Fiscal Year-End Options/SAR Values
Number of Value of Unexercised
Securities Underlying in-the-Money
Shares Unexercised Options/SARs
Acquired Value Options/SARs at at Fiscal Year End (a)
on Exercise Realized FY-End (#) ($)
Name $ $ Exercisable Unexercisable Exercisable Unexercisable
---- - - --------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald Ochacher - - 40,000 - - -
Elwood Trotter - - 75,000 - - -
Garvin McMinn - - 115,000 - - -
<PAGE>
(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.
</TABLE>
The Company has no Long-Term Incentive Plans and no Awards were made in its Last
Fiscal Year
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
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.
</TABLE>
27
<PAGE>
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.
CERTAIN TRANSACTIONS
1. In September and October of 1999, the Company successfully undertook
the placement of $1,500,000 of 7% Senior Convertible Debentures due 2003. Each
debenture, after the January 4, 2000 10 for 1 reverse split, provides for 7%
annual interest payable in annual payments beginning June 30, 2000; are as a
class senior in rights as to payment of interest and in liquidation rights to
all other debentures, whether presently outstanding or issued in the future; are
convertible into common stock of the Company at $1.50 per share through and
including September 30, 2001 and $2.50 per share thereafter until maturity; and
are due and payable in full, if not converted prior to, on September 30, 2003.
The terms of the debentures also provide that, subject to certain conditions, at
the election of the holder, yearly interest payments may be taken in common
stock of the Company at a 20% discount to the average closing price, as defined
in the debenture, of the Company's common stock for the 30 days prior to a
payment or record date. If the Company elects to file a registration statement
covering these shares there shall be no discount. The Company also agreed to
file an appropriate registration statement to register the common shares
issuable upon conversion and to maintain that registration until certain events
had taken place.
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
had to be received by April 30, 2000 and had to include all accrued interest
through May 31, 2000. The entire $1,500,000 in debentures plus accrued interest
were converted into 3,137,943 shares of the Company's common stock. As a result,
the Company will record an expense related to reduction in conversion price.
The majority of the common stock offered with this registration is the
stock issued pursuant to the conversion of the 7% Senior Convertible Debentures
discussed hereinabove.
2. 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 had to be received by April 30, 2000. A total of 50,000 warrants
and 40,000 options were exercised and paid for by June 16, 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.
THE REFERENCES TO SHARE HOLDINGS, AS NOTED BELOW, REFLECT THE 10 FOR 1
REVERSE STOCK SPLIT WHICH BECAME EFFECTIVE JANUARY 4, 2000.
3. 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. Shares of the
Company's Common Stock, on a fully diluted basis, represent 16.1% of the
Company's outstanding Common Stock.
4. In December 1998, the Company issued 81,000 shares of its common
stock in settlement of $81,000 of debt owed to Garvin McMinn.
5. 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.
28
<PAGE>
6. 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 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. 135,000 options were issued in 1999. In 2000, 100,000 of these
options were cancelled and an additional 375,000 options were issued to officers
and employees.
7. 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 $0.15 per
share and with other terms and conditions as provided in the Company's 1999 Non
Qualified Key Man Stock Options Plan. No formal written agreement has been
entered into between the Company and Don Ochacher.
8. The Value of Warrant Exercise Price. During 1998, 1997 and 1996, the
Company issued 1,011,250, 1,037,504 and 747,778 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 1998 and 1997, the Company issued a total of 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 (price adjusted to reflect the impact of the 10 for
1 reverse split) per share up to the expiration date. From November 1998 to June
30, 1999, 1,315,000 Warrants were exercised.
Other than discussed above, the Company has no knowledge of any
transaction or series of transactions, since January 1, 1997, 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.
DESCRIPTION OF SECURITIES OF THE COMPANY
Common Stock
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, par value $0.01, of which 10,758,358 shares were
outstanding as of June 15, 2000.
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. 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 non-assessable.
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 determined such a reverse split
would be in the interest of the Company. In addition, 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 December of 1999 the Board determined that these
actions were appropriate and they became effective January 4, 2000.
29
<PAGE>
Options to Purchase Common Stock
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. As of
June 15, 2000,there were a total of 667,500 options outstanding each entitling
the holder to purchase one share of the common stock of the company at a price
ranging $.50 to $1.50 per share. The options expire at various dates beginning
on December 18, 2000 and ending on December 31, 2004.
Warrants
During 1998, 1997 and 1996, the Company issued 1,011,250, 1,037,504 and
747,778 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. In September of 1999 the majority of the
outstanding warrants were surrendered to the Company for cancellation by the
remaining warrant-holders as a condition for the Company placing the below
described debentures. Additional Warrants were issued in 2000 pursuant to the
Company's Investment Banking agreement with Givigest Fiduciaria SA. As of June
15, 2000 there were a total of 350,000 warrants outstanding with exercise prices
ranging from $.50 to $1.50 per share.
Debentures
In September and October of 1999, the Company successfully undertook
the placement of $1,500,000 of 7% Senior Convertible Debentures due 2003. Each
debenture provided for 7% annual interest payable in annual payments beginning
June 30, 2000; were as a class senior in rights as to payment of interest and in
liquidation rights to all other debentures, whether presently outstanding or
issued in the future; were, after the 10 for 1 reverse split, convertible into
common stock of the Company at $1.50 per share through and including September
30, 2001 and $2.50 per share thereafter until maturity; and were due and payable
in full, if not converted prior to, on September 30, 2003. The terms of the
debentures also provided that, subject to certain conditions, at the election of
the holder, yearly interest payments may be taken in common stock of the Company
at a 20% discount to the average closing price, as defined in the debenture, of
the Company's common stock for the 30 days prior to a payment or record date. If
the Company elects to file a registration statement covering these shares there
shall be no discount. The Company also agreed to file an appropriate
registration statement to register the common shares issuable upon conversion
and to maintain that registration until certain events had taken place.
On March 24, 2000, the Board of Directors of the Company approved a
temporary reduction in the conversion price on the 7% Senior Convertible
Debenture into common stock. The conversion price was reduced from $1.50 to the
average bid price of the Company's common stock for the twenty-five trading days
immediately prior to the receipt of a notice of conversion, with a minimum
conversion price of $0.50. The notice of conversion for the temporary reduction
had to be received by April 30, 2000 and had to include all accrued interest
through May 31, 2000. As a result, the Company will record an expense related to
the reduction in conversion price. During April 2000, the Company received
notices of conversion from all of the debenture holders.
The majority of common stock offered with this registration is the
stock issued pursuant to the conversion of the 7% Senior Convertible Debentures
discussed hereinabove.
In addition, each of the options, warrants, and debentures contain
anti-dilution provisions that protect the holders thereof against dilution in
certain events, including but not limited to stock dividends, stock splits,
reclassification, or merger.
30
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK
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 July 24, 2000, was $0.4844.
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 and the first three quarters of 1999. 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. Quotations represent inter-dealer prices, do not
include retail markups, markdowns or commissions and may not represent actual
prices at which transactions have taken place.
High Low
Period Bid Bid
------ ----- ------
2nd Quarter 2000 $0.61 $0.56
1st Quarter 2000 0.61 0.55
Please note that all of the below figures reflect the bid information
prior to the effectiveness of the 10 to 1 reverse split on January 4, 2000.
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
4th Quarter 1997 0.46 0.20
3rd Quarter 1997 0.36 0.17
2nd Quarter 1997 0.22 0.16
1st Quarter 1997 0.23 0.15
At June 15, 2000, the Company had approximately 567 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.
31
<PAGE>
Dividend Policy
The Company did not pay any cash dividends during its last fiscal year
and the Board of Directors does not contemplate doing so in the near future. The
Company currently intends to retain all earnings, to finance the development and
expansion of its operations, and does not anticipate paying cash dividends on
its shares of Common Stock in the foreseeable future. The Company's future
dividend policy will be determined by its Board of Directors on the basis of
various factors, including results of operations, financial condition, business
opportunities and capital requirements. The payment of dividends will also be
subject to the requirements of Delaware Law, as well as restrictive financial
covenants which may be required in future credit agreements.
Transfer Agent
The transfer agent and registrar for the Common Stock and Warrants is
Interwest Transfer Co., Inc., 1981 East 4800 South, Suite 100, Salt Lake City,
Utah 84117.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of June 15, 2000, the Company had 10,758,358 Common Shares
outstanding. The Company also have warrants and options issued and outstanding
which, if exercised in full, would require the Company to issue up to an
additional 1,017,500 Shares of its Common Stock which would result in the
Company having 11,775,858 Shares of its Common Stock issued and outstanding. Of
the outstanding shares on June 15, 2000 5,718,210 were restricted securities as
discussed below. If all the options and warrants above were exercised this would
increase the number of restricted securities by 1,017,500 to 6,735,710 shares.
3,622,943 of the restricted shares are being registered for sale pursuant to
this registration statement.
The shares of Common Stock which are "restricted securities" (as that
term is defined in Rule 144 promulgated under the Securities Act) may be
publicly sold only if registered under the Securities Act or if sold in
accordance with an applicable exemption from registration, such as Rule 144. In
general, under Rule 144 subject to the satisfaction of certain other conditions,
a person, including an affiliate of the Company, who has beneficially owned
restricted securities for at least one year, is entitled to sell (together with
any person with whom such individual is required to aggregate sales) within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or, if the Common
Stock is quoted on the Nasdaq Stock Market or another national securities
exchange, the average weekly trading volume during the four calendar weeks
preceding the sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements, and the availability of current public
information regarding the Company. A person who has not been an affiliate of the
Company for at least three months, and who has beneficially owned restricted
securities for at least two years, is entitled to sell such restricted shares
under Rule 144(k) ("Rule 144(k) Shares") without regard to any of the
limitations described above.
In addition, Rule 144A as currently in effect, in general, permits
unlimited resale's of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a discretionary basis
at least $100 million in securities or is a registered broker-dealer that owns
and invests $10 million in securities. Rule 144A allows the existing
stockholders of the Company to sell their shares of Common Stock to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.
No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will have
on the market price of the Common Stock prevailing from time to time.
SELLING PERSONS AND PLAN OF DISTRIBUTION
All of the shares of Common Stock of the Company covered by this
Prospectus are being registered for sale for the account of the selling Persons
named in the table below under "Shares of Common Stock Offered by Selling
Persons (the "Selling Persons"). 3,137,943 of the shares being offered by the
Selling Persons were received when they converted all of their debentures plus
accrued interest into common stock in the Company. Although the Company will
receive the benefit of exchanging long term debt for equity from the conversion
of the outstanding debentures, the Company will not receive any of the proceeds
from the sale of shares by the Selling Stockholders offered hereby. For further
information regarding the terms of the Debentures, see "Description of
Securities."
32
<PAGE>
The shares of Common Stock offered by the Selling Persons may be offered
for sale from time to time at market prices prevailing at the time of sale or at
negotiated prices, and without payment of any underwriting discounts or
commissions except for usual and customary selling commissions paid to brokers
or dealers. This Prospectus has been prepared so that future sales of the shares
of Common Stock by the Selling Persons will not be restricted other than as set
forth herein. In connection with any sales, the Selling Stockholders and any
brokers participating in such sales may be deemed to be "underwriters" within
the meaning of the Securities Act.
Pursuant to rules promulgated under the Exchange Act, a Selling Person
who is neither affiliated nor directly or indirectly acting in concert with the
issuer or with any other Selling Stockholder will be required to observe the
appropriate "cooling off" period and other restrictions only prior to the
individual Person's distribution and until such distribution ends or the shares
are withdrawn from registration. Conversely, a Selling Person who is affiliated
or acting in concert with the issuer or another Selling Person will be required
to observe the appropriate "cooling off" period and other restrictions under
Regulation M under the Exchange Act with respect to all offers and sales by
affiliated persons.
Except as described above or in the footnotes to the Selling Persons
Table below, no Selling Person has had any material relationship with the
Company or an affiliate of the Company, including its predecessors, within the
past three years.
The shares of Common Stock sold for the account of the Selling Persons
may be sold in one or more of the following transactions: (a) block trades in
which the broker or dealer so engaged will attempt to sell such shares as agent
but may position and resell a portion of the block as principal to facilitate
any transaction, (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers,
or (d) in private transactions. In effecting sales, brokers and dealers engaged
by Selling Persons may arrange for other brokers or dealers to participate.
Brokers or dealers will receive commissions or discounts from Selling Persons in
amounts to be negotiated (and, if such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser). Broker-dealers may agree with
the Selling Persons to sell a specified number of such shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for a Selling Person, to purchase as principal any unsold shares
at the price required to fulfill the broker-dealer commitment to such Selling
Person. Broker-dealers who acquire such shares as principals may thereafter
resell such shares from time to time in transactions (which may involve crosses
and book transactions and which may involve sales to and through other
broker-dealers, including transaction, of the nature described above) in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices, and in connection with such resales may pay to or receive from the
purchasers of such shares commissions as described above.
Listed below are the names of each selling Person (the "Selling
Persons"), the total number of shares owned, assuming their debentures are
converted in full at $1.50 per share, the number of shares to be sold in this
offering by each Selling Person, and the percentage of Common Stock owned by
each Selling Person after this Offering:
33
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of
Common Shares of
Shares of Stock to be Common Stock
Common Stock Offered for Beneficially Owned
Beneficially Owned Selling After
Prior to Person's Completion of
Name Offering Account Offering
---- ------------- --------------- --------------
<S> <C> <C> <C>
Number Percent
-------- --------
Fidulex Management Inc . 418,667 418,667 - -
Innovative Investments Network Limited 529,167 529,167 - -
OTC Opportunities, Inc. 526,250 526,250 - -
SCF Societa Di Consulenza Finanziaria
SA 521,876 521,876 - -
SG Ruegg Banca SA 722,694 722,694 - -
Strategic Investors Limited 419,289 419,289 - -
Finter Bank 485,000 (1) 485,000 (1) - -
(1) Finter Bank 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 disclaims any individual interest in these shares.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law, under which the Company is
incorporated, gives a corporation the power to indemnify any of its directors,
officers, employees, or agents who are sued by reason of their service in such
capacity to the corporation provided that the director, officer, employee, or
agent acted in good faith and in a manner he believed to be in or not opposed to
the best interests of the corporation. With respect to any criminal action, he
must have had no reasonable cause to believe his conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF
THE REGISTRANT PURSUANT TO THE FOREGOING PROVISIONS OR OTHERWISE, THE REGISTRANT
HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS,
THEREFORE, UNENFORCEABLE, IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION AGAINST
SUCH LIABILITIES (OTHER THAN THE PAYMENT BY THE REGISTRANT OF EXPENSES INCURRED
OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON OF THE REGISTRANT IN THE
SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING
REGISTERED, THE REGISTRANT WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER
HAS BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE
JURISDICTION THE QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION OF
SUCH ISSUE.
34
<PAGE>
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company appointed BDO Seidman, LLP, as independent accountants and
dismissed its former accountants, Hein + Associates LLP on November 30, 1998.
Both the former auditor's report and the current auditor's report contain a
going concern qualification. There were no other disclaimers or qualifications.
The decision to change accountants was made by the Company's Board of
Directors.
During the Company's two most recent fiscal years, and any subsequent
interim period preceding such resignation of its former outside accountants,
there were no disagreements with such former accountant on any matter.
The Company did not consult with BDO Seidman, LLP regarding the
application of accounting principles to a specified transaction or the type of
audit opinion that might be rendered or any other accounting, auditing or
financial reporting issues during the Company's two most recent fiscal years and
any subsequent interim period prior to engaging BDO Seidman, LLP.
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for
the Company by J. Garry McAllister, Esq., 1487 E. Thistle Downs Drive, Sandy,
Utah 84092.
EXPERTS
The consolidated Financial Statements included in this Prospectus and
in the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the period set forth in
their report (which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern) appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report upon the
authority of such firm as an expert in auditing and accounting.
The consolidated financial statements of the Company for the year ended
December 31, 1997, and the related financial statement schedule included in this
Prospectus and Registration Statement have been audited by Hein & Associates,
LLP, independent auditors as set forth in their report appearing elsewhere
herein and have been included in this Registration Statement in reliance upon
such report upon the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D. C. 20549, a Registration Statement on Form S-1 under the Act,
with respect to the securities to be registered hereunder. This Prospectus,
filed as a part of the Registration Statement, does not contain certain
information set forth in or annexed as exhibits to the Registration Statement,
and reference is made to such exhibits to the Registration Statement, as well as
to the Registration Statement previously filed by the Company on Form 10, and to
the Exhibits filed as a part thereof, which may be inspected at the office of
the Securities and Exchange Commission without charge, or copies thereof may be
obtained therefrom upon payment of a fee prescribed by the Securities and
Exchange Commission.
35
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Air Packaging Technologies Inc.
And Subsidiary
Index to Financial Statements and Exhibits
-------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS
<S> <C>
Consolidated financial statements
-December 31, 1998 and 1997
Report of Independent Certified Public Accountants F-1
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-25
Consolidated financial statements (unaudited)
-March 31, 200 and 1999
Balance Sheets (Unaudited) F-26
Statements of Operations(Unaudited) F-27
Statements of Cash Flows (Unaudited) F-28
Notes to Consolidated Financial Statements F-29
</TABLE>
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
--------------------------------------------------------------------------------
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>
Air Packaging Technologies Inc.
And Subsidiary
--------------------------------------------------------------------------------
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 Technologies,
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>
<TABLE>
<CAPTION>
Air Packaging Technologies Inc.
And Subsidiary
Consolidated Balance Sheets
-------------------------------------------------------------------------------------------------------------
December 31, 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $1,150,151 $ 1,125,799
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>
<TABLE>
<CAPTION>
Air Packaging Technologies Inc.
And Subsidiary
Consolidated Balance Sheets
-------------------------------------------------------------------------------------------------------------
---------------------------------
December 31, 1999 1998
--------------- ---------------
<S> <C> <C>
Liabilities and Stockholder' 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
--------------- ----------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Air Packaging Technologies Inc.
And Subsidiary
Consolidated Statements of Operations
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------
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 (1,853,012) (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
--------------- ---------------- ---------------
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Air Packaging Technologies Inc.
And Subsidiary
Consolidated Statements of Stockholders' Equity
-------------------------------------------------------------------------------------------------------------------
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.
F-6
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Air Packaging Technologies Inc.
And Subsidiary
Consolidated Statements of Cash Flows
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
<PAGE>
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 non employees (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
inter-company 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.
F-9
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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.
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.
F-10
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Stock-based Compensation (Continued)
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.
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%.
F-11
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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).
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.
F-12
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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-13
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
Note 4 - Inventories
Inventories consist of the following at:
--------------------------------
December 31, 1999 1998
---------------- -------------
Raw materials $ 450,583 $ 350,147
Work-in-process 21,385 23,703
Finished goods 105,421 34,793
---------------- -------------
$ 577,389 $ 408,643
---------------- -------------
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:
------------------------------------
December 31, 1999 1998
---------------- --------------
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
---------------- --------------
F-14
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Note 5 - Property and Equipment (Continued)
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.
Note 6 - Intangible Assets
Intangible assets consist of the following at:
------------------------------
1999 1998
December 31,
-------------- ------------
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
-------------- ------------
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.
F-15
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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.
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).
F-16
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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.
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.
F-17
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Note 12 - Stockholders' Equity (Continued)
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.
Option activity is as follows:
Weighted Average
Number of
Shares Exercise Price
----------------- -------------------
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
----------------- -------------------
F-18
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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
Per Share (Months) Exercise Exercise
Shares 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.
F-19
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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 $ (1,853,012) (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-20
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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:
Year ending December 31, Amount
------------------------------- -------------------------------
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
-------------------------------
F-21
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Note 13 - Income Taxes (continued)
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.
Note 14 - Commitments and Contingencies
Lease Commitments
Minimum lease commitments under noncancelable operating lease agreements are as
follows:
Year ending
December 31, Amount
------------------------------- ---------------------
2000 $ 130,354
2001 134,625
2002 134,625
2003 134,625
2004 132,656
Thereafter 55,000
---------------------
Total $ 721,885
---------------------
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 450,000 shares of the Company's common
stock were placed in escrow. The shares were entitled to be released from escrow
based on the performance of the Company as measured by cash flow (as defined by
the agreement) and certain other conditions. 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 cancelled 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.
F-22
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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.
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:
December 31,
------------------------------------------
1999 1998 1997
------------------------------------------
Customer
A 16 % 15 % 22
B - - % 13
C 17 % 31 % - %
D 24 % 18 % -
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.
F-23
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
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.
F-24
<PAGE>
Air Packaging Technologies Inc.
And Subsidiary
Notes to Consolidated Financial Statements
Note 17 - Subsequent Events (Continued)
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.
Schedule II - Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
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
(a) Write-off of obsolete inventory.
</TABLE>
F-25
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
3/31/00 12/31/99
(Unaudited) (Audited)
---------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash $ 511,128 $ 1,150,151
Trade receivables, net of allowance of
$22,630 and $22,630 108,658
57,603
Inventories, net of reserve of $33,000
and $33,000 681,987 577,389
Advances and prepaids 50,339
41,895
Total current assets 1,352,112 1,827,038
Property and equipment, net of depreciation
of $1,556,258 and $1,498,949 676,655 714,186
Intangible assets, net of amortization of
of $588,656 and $575,960 220,973 229,378
Deferred financing costs, net of amortization
of $19,792 and $10,417 130,208 139,583
Deposits 60,100 60,100
------------------- -------------------
Total assets $ 2,440,048 $ 2,970,285
==================== ===================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses $ 232,237 $ 402,031
Deferred revenue 14,992
8,795
-------------------- -------------------
Total current liabilities 247,229 410,826
Senior convertible notes 1,500,000 1,500,000
-------------------- -------------------
Total long term liabilities 1,500,000 1,500,000
Common stock, $.01 par value per share.
Authorized - 50,000,000 shares;
Issued and outstanding 7,520,415 at
March 31, 2000 and 7,966,408 at
December 31, 1999 75,204
79,664
Additional paid in capital 20,794,247 20,789,787
Accumulated deficit (20,176,632) (19,809,992)
Total stockholders' equity 692,819 1,059,459
Total liabilities & stockholders' equity $ 2,440,048 $ 2,970,285
==================== ===================
See notes to consolidated financial statements.
F-26
</TABLE>
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended Three months ended
3/31/00 3/31/99
(Unaudited) (Unaudited)
----------------- -------------------
<S> <C> <C>
Net sales $ 147,452 $ 199,029
Cost of sales
129,343 184,912
Gross profit
18,109 14,117
Operating expenses:
General, administrative and selling expenses
366,753 378,957
Research and development
- 677
Total operating expenses
366,753 379,634
Loss from operations
(348,644) (365,517)
Interest expense/(income)
17,996 (3,507)
Net loss $ (366,640) $ (362,010)
================= ==================
Loss per common share:
Basic and diluted $ (0.05) $ (0.05)
================= ==================
Weighted average number of common
shares outstanding:
Basic and diluted
7,520,415 6,789,255
================= ==================
</TABLE>
F-27
<PAGE>
AIR PACKAGING TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended Three months ended
3/31/00 3/31/99
(Unaudited) (Unaudited)
----------------------- -----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (366,640) $ (362,010)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization
79,379 68,138
Increase (decrease) from changes in:
Trade receivables
(51,055) (29,962)
Inventories
(104,598) (177,470)
Advances and prepaids
(8,444) 50,266
(Decrease) increase from changes in:
Accounts payable & accrued liabilities
(169,794) (41,714)
Deferred revenue
6,197 (88)
----------------------- ----------------------
Net cash used in operating activities
(614,955) (492,840)
Cash flows from investing activities:
Purchases of property and equipment
(19,778) (12,504)
Patent expenditures
(4,290) (14,245)
Net cash used in investing activities
(24,068) (26,749)
Cash flows from financing activities:
Proceeds from exercise of warrants
- 615,000
----------------------- ----------------------
Net cash provided by financing activities
- 615,000
Net (decrease) increase in cash
(639,023) 95,411
Cash, beginning of period
1,150,151 125,799
Cash, end of period $ 511,128 $ 221,210
======================= ======================
Supplemental disclosure of
cash flow information:
Cash paid during the three months for:
Income taxes
Interest $ - $ 800
$ - $ -
See notes to consolidated financial statements.
</TABLE>
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
Note 1 - Statement of Information Furnished
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position as of March 31, 2000, and the
results of operations and cash flows for the three month periods ended March 31,
2000 and 1999. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with those
used in the preparation of the Company's Annual Report and the Form 10-K for the
fiscal year ended December 31, 1999.
The results of operations for the three month period ended March 31, 2000 are
not necessarily indicative of the results to be expected for any other period or
for the entire year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto included in this registration statement.
Note 2 - Earnings (Loss) Per Common Share
The Company computes loss per common share under SFAS No. 128, "Earnings Per
Share," which requires presentation of basic and diluted earnings (loss) per
share. Basic earnings (loss) per common share is computed by dividing income or
loss available to common shareholders by the weighted average number of common
shares outstanding for the reporting period. Diluted earnings (loss) per common
share reflects the potential dilution that could occur if securities or other
contracts, such as stock options, to issued common stock were exercised or
converted into common stock. Common stock options were not included in the
computation of diluted loss per common share for the three months ended March
31, 2000 and 1999 because the effect would be antidilutive.
Note 3 - Stock Split
In January 2000, the Board of Directors declared a one-to-ten reverse stock
split. All stock-related data in the consolidated financial statements reflect
the stock split for all periods presented.
Note 4 - Exercise of Warrants And Options
The Company issued 410,000 shares of its common stock at $1.50 per share upon
the exercise of warrants by a shareholder during the three months ended March
31, 1999.
On March 24, 2000, the Board of Directors approved a temporary reduction in the
exercise price of all warrants and options outstanding. The exercise price was
reduced from $1.50 to the average bid price of the Company's common stock for
the twenty-five trading days immediately prior to the receipt of a notice of
conversion with a minimum conversion price of $0.50. The notice of exercises
must be received by April 30, 2000.
During the three months ended March 31, 2000, the Company cancelled 100,000
stock options outstanding to officers and issued an additional 375,000 stock
options, which expire December 31, 2004 and are subject to certain vesting
terms. F-29
During the three months ended March 31, 2000, a warrant holder submitted 40,000
warrants to purchase common stock for cancellation by the Company.
Note 5 - Senior Convertible Notes
During the year ended December 31, 1999, the Company issued $1,500,000 in Senior
Convertible Notes with interest payable annually on June 30 at 7% per annum. The
Senior Convertible Notes are unsecured and due on September 30, 2003. At the
option of the holder, the holder may convert the principal amount of such Note
at any time before September 30, 2003, into shares of common stock. The
conversion price is equal to or greater than the fair value of the stock on the
date the Senior Convertible Notes were issued.
At the holder's option, the holder may elect to receive any annual interest
payment in common stock of the Company at a 20% discount. The difference between
the fair market value of the stock on date of conversion and the conversion
price will be recorded as additional interest expense.
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.
On March 24, 2000, the Board of Directors of the Company approved a temporary
reduction in the conversion price on the 7% Senior Convertible Debenture into
common stock. The conversion price was reduced from $1.50 to the average bid
price of the Company's common stock for the twenty-five trading days immediately
prior to the receipt of a notice of conversion, with a minimum conversion price
of $0.50. The notice of conversion for the temporary reduction must be received
by April 30, 2000 and must include all accrued interest through May 31, 2000.
During April 2000, the Company received notices of conversion from all of the
debenture holders. As a result, during the second quarter of the year 2000 the
Company will record an expense of approximately $900,000 related to the
reduction in conversion price.
Note 6 - Liquidity and Going Concern
The financial statements as of March 31, 2000 have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
However, there is substantial doubt about the Company's ability to continue as a
going concern because of the magnitude of the Company's losses during the past
three years of ($1,853,012), ($1,723,647) and ($1,824,199) in 1999, 1998, and
1997, respectively and a net loss of ($366,640) for the three months ended March
31, 2000 and an accumulated deficit of ($20,176,632) at March 31, 2000. The
Company's continued existence is dependent upon its ability to raise additional
capital, to increase sales, to significantly improve operations, and ultimately
become profitable.
The Company believes that future investments and certain sales-related efforts
will provide sufficient cash flow for it to continue as a going concern in its
present form. However, there can be no assurance that the Company will achieve
such results. Accordingly, the consolidated financial statements do not include
any adjustments related to the recoverability and classification of recorded
asset amounts or the amount and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern.
On March 27, 2000, the Company entered into a one-year investment banking
agreement with Givigest Fiduciaria SA "Givigest" to raise equity capital. As of
April 30, 2000, the Company has been advised that $225,000 has been raised
pursuant to the agreement and the subscription agreement is being prepared and
the funds will be forwarded to the Company during the second quarter of fiscal
2000.
F-30
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Estimated expenses payable in connection with the sale of the
Securities covered hereby are as follows:
Registration fee $ 418.45
NASD filing fee $ -0-
Printing and engraving expenses $ 1,000.00
Legal fees and expenses $ 35,000.00
Accounting fees and expenses $ 7,000.00
Blue Sky fees and expenses
(including legal fees) -0-
Transfer agent and registrar
fees and expenses nil
Miscellaneous -0-
============
Total $ 43,418.45
Item 14. Indemnification of Directors and Officers
Delaware General Corporation Law. The Registrant has statutory
authority to indemnify its officers and directors. The applicable portions of
the Delaware General Corporation Law (the "DOCL") state that, to the extent such
person is successful on the merits or otherwise, a corporation may indemnify any
person who was or is a party or who is threatened to be made a party to any
threatened, pending or completed action. suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise ("such
Person"), against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such Person, if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding. had no reasonable cause to believe his conduct
was unlawful. In any threatened, pending or completed action by or in the right
of the corporation, a corporation also may indemnify any such Person for costs
actually and reasonably incurred by him in connection with that action's defense
or settlement, if he acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the corporation; however, no
indemnification shall be made with respect to any claim or matter as to which
such Person shall have been adjudged to be liable to the corporation, unless and
only to the extent that a court shall determine such indemnity is proper.
II-1
<PAGE>
Under the applicable provisions of the DGCI- any indemnification shall
be made by the Registrant only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct. Such determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum consisting of
directors who are not parties to such action, suit or proceeding; or
(2) If such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion; or
(3) By the affirmative vote of a majority of the shares entitled to vote
thereon.
Certificate of Incorporation and Bylaws. The Registrant's Certificate
of Incorporation eliminates the personal liability of the Registrant's directors
for monetary for breach of their fiduciary duty of care as directors to the
Registrant and its stockholders notwithstanding any provision of law imposing
such liability. The Registrant's Certificate of Incorporation, however, does not
eliminate liability of the Registrant's directors for (t) breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) for the unlawful payments of dividends or unlawful stock
repurchase or redemption as provided in Section 174 of the DGCI, or (iv) for any
transaction from which the director derived an improper personal benefit if such
persons are parties to, or are threatened to be made parties to, certain
proceedings by reason of their position as officers or directors of the
Registrant. Article IV of the Registrant's By-Laws provides for the
indemnification of the Registrant's directors, officers, employees and other
agents. . The Registrant's Certificate of Incorporation and By-Laws, which are
filed as Exhibit 3.1 and Exhibit 3.2 of the Registrant's Form 10, dated July 23,
1999, are hereby incorporated by reference.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
In September and October of 1999, the Company successfully undertook
the placement of $1,500,000 of 7% Senior Convertible Debentures due 2003. Each
debentures provides for 7% annual interest payable in annual payments beginning
June 30, 2000; are as a class senior in rights as to payment of interest and in
liquidation rights to all other debentures, whether presently outstanding or
issued in the future; are convertible, after the January 5, 2000 1 for 10
reverse split, into common stock of the Company at $1.50 per share through and
including September 30, 2001 and $2.50 per share thereafter until maturity; and
are due and payable in full, if not converted prior to, on September 30, 2003.
These securities were sold pursuant to an exemption provided by Section 4(2) of
the Securities Act of 1933, as amended, and/or Regulation D and/or Regulation S
promulgated thereunder.
II-2
<PAGE>
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
had to be received by April 30, 2000 and had to include all accrued interest
through May 31, 2000. The entire $1,500,000 in debentures plus accrued interest
were converted into 3,137,943 shares of the Company's common stock. As a result,
the Company will record an expense related to reduction in conversion price.
The majority of the common stock offered with this registration is the
stock issued pursuant to the conversion of the 7% Senior Convertible Debentures
discussed hereinabove.
Pursuant to the terms of the Investment Banking Agreement between he
Company and Givigest Fiduciaria SA ("Givigest") signed March 27, 2000, the
Company issued to Givigest 100,000 shares of its common stock containing a
restrictive legend valued at $42,000 and 250,000 warrants to purchase common
stock at $.50 per share for three years from the date of issue valued at
$11,300. The shares and warrants were issued pursuant to an exemption from
registration under Sections 4(2) of the Securities Act of 1933.
On May 31, 2000, the Company issued 450,000 Shares of its common stock
and 450,000 Warants to purchase common stock at $.50 per share for three years
to Zandano, Gabbrielli & Partners SA in return for the sum of $225,000. Pursuant
to the terms of the Investment Banking Agreement with Givigest, 22,500 warrants
with terms identical to the warrants issued to Zandano were issued to Givigest
as a finders fee. The shares and warrants were issued pursuant to an exemption
from registration under Sections 4(2) of the Securities Act of 1933.
In addition to the foregoing, the Company has sold the following
unregistered securities:
<TABLE>
<CAPTION>
Class of Nature Amount
Amount Persons to of of Exemption
Dates Title Sold (4) Whom Sold Consideration Consideration Claimed
----- ----- ------------ -------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
6/11/99 Common 3,350,000 1 Offshore Cash $ 502,500 Reg S
Stock(3) Accredited
Investor
4/26/99 Common 1,600,000 1 Offshore Cash $ 240,000 Reg S
Stock(3) Accredited
Investor
1/28/99 Common 2,466,667 1 Offshore Cash $ 370,000 Rule 504
Stock(3) Accredited and/or
Investor Reg S
1/28/99 Common 33,333 1 Offshore Cash $ 5,000 Reg S
Stock Accredited
Investor
1/15/99 Common 1,500,000 1 Offshore Cash $ 150,000 Reg S
Stock & Warrants Accredited
(On a 1 for 1 Investors
basis)
1/15/99 Common 500,000 1 Accredited Cash $ 68,000 Section
4(2) Stock & Warrants U.S. Investor
(On a 1 for 1
basis)
-------------------------------------------------------------------------------------------------------------------
<PAGE>
12/21/98 Common 4,200,000 1 Offshore Cash $ 630,000 Rule 504
Stock (3) Accredited
Investor
9/98 -
12/98 Common 10,431,561 Ten Conversion of $ 1,066,572 Reg S
Stock Offshore Debt to Equity
Accredited
Investors
9/98 Common 208,387 1 Accredited Conversion of $ 25,000 Section 4(2)
Stock U.S. Investor Debt to Equity
9/11/98 Common 1,000,000 1 Offshore Cash $ 125,475 Reg S
Stock(3) Accredited
Investor
1/98 - Common 8,112,500 4 Offshore Cash $ 985,657 Reg S
12/98 Stock & Warrants Accredited
(On a 1 for 1 Investors
basis)
-------------------------------------------------------------------------------------------------------------------
11/4/97 Common 369,209 1 U.S. Cash $ 99,723 Section 4(2)
Stock & Warrants(2) Accredited
(On a 1 for 1 Investor
basis)
5/97 - Common 2,250,000 3 Offshore Cash $ 365,117 Reg S
11/97 Stock(3) Accredited
Investors
1/97 - Common 1,809,580 3 Offshore Conversion of $ 288,907 Reg S
7/97 Stock Accredited Debt to Equity
Investors
1/97 - Options to 57,500 4 Sophisticated Bonus $ 9,539 Section 4(2)
12/97 Acquire Employees Consideration
Common Stock to Employees
5/97 Convertible 2,300,000 1 Offshore Cash $ 1,250,000 Reg S
Debenture(1) Accredited
Investor
<PAGE>
1/97 - Common 10,005,830 4 Offshore Cash $ 834,645 Reg S
11/97 Stock & Accredited
Warrants(2) Investors
(On a 1 for 1
basis)
--------------------------------------------------------------------------------------------------------------------
5/96 Common 7,477,778 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 293,743 2 Offshore Conversion of $ 108,555 Reg S
Stock Accredited Debt to Equity
Investors
(1) 1,250,000 of the debt was converted on May 29, 1997, to 2,300,000 shares
of Common Stock plus 2,300,000 Warrants exercisable at $0.15 per share,
and expiring on May 29, 1999.
(2) Each Warrant provides the right to acquire one share of Common Stock at
$0.15, and has a two year term.
(3) Issued in connection with the exercise of Warrants previously placed
with offshore investors.
(4) Number of shares does not reflect the 10 for 1 reverse split that became
effective January 4, 2000.
</TABLE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
The following exhibits are submitted herewith or incorporated by
reference as indicated:
Exhibit
Number Description
--------- -----------
3.1*** - Articles of Incorporation
3.2* - Bylaws
4.1 - Included in Exhibits 3.1 and 3.2
4.2** - Form of Debenture
5.1 - Opinion Letter from J. Garry McAllister as to legality of
shares being registered.
10.1****- (a) Lease Agreement for plant facilities
(b) Renewal of lease agreement
10.2* - (a) 1. Employment Agreement with Garvin McMinn
(a) 2. Amendment to Employment Contract with Garvin McMinn
(b) 1. Employment Contract with CFO Janet Maxey
(b) 2. Amendment to Employment Contract with CFO Janet
Maxey
(c) 1. Senior Executive Contract with Vice President
Elwood Trotter
(c) 2. Amendment to Employment Contract with Vice
President Elwood Trotter
10.3* - Form of Option Certificate delivered to certain Key
Employees in connection with the Grant of
Individual Options to said Employees
10.4* - Patent Royalty Agreement between Puff Pac, Ltd.
(the Company's predecessor), and Puff Pac People.
10.5* - 1999 Non-Qualified Key Man Stock Option Plan
10.6# - Givigest Fiduciaria SA Investment Banking Agreement
16** - Letter re Change in Certifying Accountant
22 - Subsidiaries of the Registrant
Name Domicile
Puff Pac Industries (Canada) Inc. (inactive) Canada
23.1 - Independent Auditor's Consent and Report on Schedules - Hein &
Associates LLP
23.2 - Consent of Independent Certified Public Accountants - BDO Seidman LLP
24.2 - Consent of J. Garry McAllister (included in Exhibit 5.1) 25.1** - Power
of Attorney is contained on Page II-8 of the Registration Statement.
--------------
* Documents previously filed by the Registrant on Amended Form 10, filed July
23, 1999, and incorporated by this reference. ** Documents previously filed on
November 17, 1999, and incorporated by reference. *** Documents previously filed
July 23, 1999 and January 13, 2000, and incorporated by reference. ****
Documents previously filed on July 23, 1999 and incorporated by reference and on
this date. # Document previously filed in Form 10-K, filed April 14, 2000, and
incorporated by this refernce,
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933. as amended (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise. the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes:
(1)to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include
any prospectus required by Section 10(a)(3) of the Act; (ii) to reflect in
the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement; (iii)
to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in such information in the registration statement;
(2)that, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof;
(3)to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering;
(4)that for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and.
(5)that for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on Its
behalf by the undersigned, thereunto duly authorized in the City of Valencia,
State of California, on the 28th day of July, 2000
/s/ Donald Ochacher
--------------------------
Donald Ochacher, President
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Donald Ochacher and Janet Maxey, and each of
them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments and amendments thereto) to this
Registration Statement on Form S- I of Air Packaging Technologies, Inc., and
to file the same, with all exhibits thereto and other documents In
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary fully to all Intents and purposes as he might or could do in
person thereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the Following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Donald Ochacher
____________________ President and Director 7/28/2000
Donald Ochacher
/s/ Janet Maxey
____________________ Chief Financial Officer 7/28/2000
Janet Maxey
/s/ Wayne Case
____________________ Director 7/28/2000
Wayne Case
/s/ Carl Stadelhofer
____________________ Director 7/28/2000
Carl Stadelhofer
