SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended Commission File Number
August 29, 1997 1-10648
BPI Packaging Technologies, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware 04-2997486
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
455 Somerset Avenue, Dighton, Massachusetts 02764
(Address of Principal Executive Offices) (Zip Code)
(508) 824-8636
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceeding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of August 29, 1997, there were issued and outstanding 15,775,270 shares of
Common Stock.
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ ---------
Item 1. Financial Statements (Unaudited)
Balance Sheets - August 29, 1997 and February 28, 1997....... 1-2
Statements of Operations - Three/Six Months Ended
August 29, 1997 and August 23, 1996..................... 3A-3B
Statements of Cash Flows - Six Months Ended
August 29, 1997 and August 23, 1996....................... 4
Notes to Financial Statements - August 29, 1997.............. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities........................................ 15
Item 3. Default Upon Senior Securities............................... 15
Item 4. Submission of Matters to a Note of Security Holders.......... 15
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 15
SIGNATURES................................................................. 16
<PAGE>
Part I. Financial Information
Item I. Financial Statements
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Balance Sheet
Assets
August 29, February 28,
1997 1997
----------------------- ----------------------
(unaudited)
<S> <C> <C>
Current assets
Cash $974,826 $58,134
Accounts receivable, net 1,822,958 2,093,760
Inventories 1,849,108 4,534,453
Prepaid expenses and other assets 1,245,636 1,387,824
----------------------- ----------------------
Total current assets 5,892,528 8,074,171
----------------------- ----------------------
Property and equipment, net 18,536,070 19,803,337
----------------------- ----------------------
Deposits - leases and equipment purchases 152,180 128,461
Loans to officers 531,859 479,797
Other assets 683,165 761,465
----------------------- ----------------------
1,367,204 1,369,723
----------------------- ----------------------
$25,795,802 $29,247,231
======================= ======================
The accompanying notes are an integral part
of these consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
August 29, February 28,
1997 1997
----------------------- ----------------------
(unaudited)
<S> <C> <C>
Current liabilities
Revolving line of credit $1,790,341 $3,733,477
Capital lease obligations due within one year 2,132,496 2,109,718
Accounts payable 8,865,026 7,090,283
Other accrued expenses 739,544 959,837
----------------------- ----------------------
Total current liabilities 13,527,407 13,893,315
----------------------- ----------------------
Capital lease obligations-long-term portion 2,730,665 3,809,241
----------------------- ----------------------
Stockholders' Equity
Series B convertible preferred stock, $.01 par value 1,466,954 1,466,954
Series A convertible preferred stock, $.01 par value 1,184,384 1,213,584
Common stock, $.01 par value; shares authorized -
30,000,000; shares issued and outstanding - 15,775,270 at
August 29, 1997 and 14,074,428 at February 28, 1997 157,753 140,745
Capital in excess of par value 39,841,996 38,134,612
Accumulated deficit (33,113,357) (29,411,220)
----------------------- ----------------------
9,537,730 11,544,675
----------------------- ----------------------
Commitments and contingencies
$25,795,802 $29,247,231
======================= ======================
The accompanying notes are an integral part
of these consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Operations
----------------Three Months Ended --------------
August 29, August 23,
1997 1996
---------------------- -----------------------
(unaudited)
<S> <C> <C>
Net sales $4,194,359 $9,315,341
Cost of goods sold 4,387,141 8,732,170
---------------------- -----------------------
Gross (loss) profit (192,782) 583,171
---------------------- -----------------------
Operating expenses
Selling, general and administrative 1,505,682 2,049,715
---------------------- -----------------------
1,505,682 2,049,715
---------------------- -----------------------
Loss from operations (1,698,464) (1,466,544)
---------------------- -----------------------
Other income (expense):
Interest expense (215,285) (279,488)
Interest income 14,709 967
---------------------- -----------------------
(200,576) (278,521)
---------------------- -----------------------
Net loss ($1,899,040) ($1,745,065)
====================== =======================
Earnings per common share
Loss per share ($0.13) ($0.14)
Weighted average common shares outstanding 14,102,949 12,227,599
The accompanying notes are an integral part
of these consolidated financial statements.
3A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Operations
-----------------Six Months Ended----------------
August 29, August 23,
1997 1996
---------------------- -----------------------
(unaudited)
<S> <C> <C>
Net sales $11,206,504 $15,830,074
Cost of goods sold 11,292,536 14,300,224
---------------------- -----------------------
Gross (loss) profit (86,032) 1,529,850
---------------------- -----------------------
Operating expenses
Selling, general and administrative 3,128,189 3,683,269
---------------------- -----------------------
3,128,189 3,683,269
---------------------- -----------------------
Loss from operations (3,214,221) (2,153,419)
---------------------- -----------------------
Other income (expense):
Interest expense (514,815) (567,967)
Interest income 26,899 3,351
---------------------- -----------------------
(487,916) (564,616)
---------------------- -----------------------
Net loss ($3,702,137) ($2,718,035)
====================== =======================
Earnings per common share:
Loss per share ($0.26) ($0.22)
Weighted average common shares outstanding 14,099,733 12,210,271
The accompanying notes are an integral part
of these consolidated financial statements.
3B
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Cash Flows
-----------------Six Months Ended-----------------
August 29, August 23,
1997 1996
------------------------ ------------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($3,702,137) ($2,718,035)
------------------------ ------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,421,893 1,646,860
Decrease (increase) in accounts receivable - trade 270,800 (669,260)
Decrease (increase) in inventories 2,685,345 (17,378)
Decrease (increase) in prepaid expenses and other current assets 142,189 (178,180)
Increase in accounts payable 1,774,744 1,100,253
Decrease in other accrued expenses (220,293) (96,916)
------------------------ ------------------------
Total adjustments 6,074,678 1,785,379
------------------------ ------------------------
Net cash provided by (used in) operating activities 2,372,541 (932,656)
------------------------ ------------------------
Cash flows from investing activities:
Additions to property and equipment (136,947) (856,533)
Cost of patents 0 (33,360)
(Increase) decrease in deposits, net (23,719) 43,017
(Increase) decrease in advance to officers (52,062) 11,425
Decrease (increase) in other assets, net 64,911 (82,165)
------------------------ ------------------------
Net cash used in investing activities (147,817) (917,616)
------------------------ ------------------------
Cash flows from financing activities:
Net payments under note payable - bank 0 (485,614)
Net payments on revolving line of credit (1,943,136) 0
Principal payments on capital lease obligations (1,055,798) (944,222)
Net proceeds from sales of stock and exercise of warrants 1,690,902 3,286,919
------------------------ ------------------------
Net cash (used in) provided by financing activities (1,308,032) 1,857,083
------------------------ ------------------------
Net (decrease) increase in cash 870,942 6,811
Cash at beginning of period 58,134 109,093
------------------------ ------------------------
Cash at end of period $974,826 $115,904
======================== ========================
The accompanying notes are an integral part
of these consolidated financial statements.
4
</TABLE>
<PAGE>
BPI Packaging Technologies, Inc.
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
consolidated financial statements.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair statement of the
interim financial data have been included. Results from operations for the six
month period ended August 29, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending February 28, 1998.
For further information, refer to the consolidated financial statements
and the footnotes included in the annual report on Form 10-K for BPI Packaging
Technologies, Inc. (the "Company") for the year ended February 28, 1997.
Note 2. Going Concern and Management's Plan
As shown in the accompanying consolidated financial statements, the
Company has suffered recurring net losses, has recorded a gross loss for the six
months ended August 29, 1997 and has working capital and operating cash flow
deficiencies. Further, as discussed in Note 6, the Company's revolving credit
facility is renewable annually. While covenant violations have been waived as of
August 29, 1997, no assurances can be given that the lender will renew the line
on November 25, 1997. Furthermore, significant trade credit balances are past
due at the balance sheet date, including amounts due to certain lessors for
building and equipment leases.
The Company's ability to continue as a going concern is dependent on
its ability to successfully implement its business and financial plans as
discussed below. However, there can be no assurances the Company will be able to
successfully complete these plans. The financial statements do not include any
additional adjustments related to the recoverability and the classification of
recorded assets and liabilities, other than those recorded for the year ended
February 28, 1997, that might be necessary should the Company be unable to
continue as a going concern.
The Company is implementing its plan to exit the production of its
traditional T-shirt bag product lines during Fiscal 1998. The Company is
shifting its production to principally proprietary bag and plastic film product
lines which have higher profit margins. In the second quarter of Fiscal 1998,
the Company received gross proceeds from the sale of Common Stock of $1,690,902.
In the third quarter of Fiscal 1998 through October 22, 1997, the Company
received additional gross proceeds from the sale of Common Stock of
$1,375,800.12. The total gross proceeds from the sale of Common Stock in the
second and third quarters was $3,066,702.12. The proceeds were used to pay past
due amounts owed on capital leases, operating leases, and real estate leases.
5
<PAGE>
Management believes that the completion of the equity financing in the
second and third quarters, together with the current revolving line of credit
and anticipated cash flow, should be sufficient to fund the Company's current
operations. However, management intends to further increase its liquidity in the
third and fourth quarters of Fiscal 1998 through debt or equity financing with
long-term institutional investors subject to financial market conditions.
Management expects that the Company will have improved operating
results in the third and fourth quarters because of sales increases and adequate
working capital. Management believes that the going concern issues which were
present in the first six months of Fiscal 1998 have been addressed.
Note 3: Earnings Per Share
Earnings per share is calculated based upon the weighted average common
shares outstanding during the period including dilutive employee stock options,
underwriter warrants, Class A and B warrants, using the treasury stock method as
applicable, and Series A and B Preferred Stock. Common stock equivalents are not
reflected in the calculation in periods in which they would have an
anti-dilutive effect.
Note 4: Accounts Receivable
Accounts receivable, net consists of the following:
August 29, February 28,
1997 1997
------------- ------------
Accounts receivable $ 1,987,184 $ 2,268,760
Allowance for doubtful accounts (89,226) (100,000)
Allowance for credits (75,000) (75,000)
----------- -----------
$ 1,822,958 $ 2,093,760
=========== ===========
Note 5: Inventories
Inventories consist of the following:
August 29, February 28,
1997 1997
------------- ------------
Raw materials $ 478,942 $1,020,902
Finished goods 1,370,166 3,513,551
---------- ----------
$1,849,108 $4,534,453
========== ==========
Note 6: Loans
The Company has an $ 8,000,000 revolving line of credit secured by
accounts receivable and inventory and all other assets except for equipment.
Availability of borrowings under the line of credit is determined by calculation
of the borrowing base, as specifically defined in the loan and security
agreement, but generally means 80% of qualifying accounts receivable and 35% of
eligible
6
<PAGE>
inventories, less the aggregate amount of all outstanding commercial and standby
letters of credit. The line of credit bears interest at 5.0% above the variable
interest rate quoted by Norwest Bank of Minnesota with a minimum rate of 8.0%
(11.5% at August 29, 1997) and provides for a 1/2 of 1% unused line fee. The
credit line is for 5 years and is subject to renewal annually. At August 29,
1997, the balance under the line of credit is $1,790,341 which is the maximum
available. The line of credit includes certain financial covenants that the
Company must maintain to avoid a default including current ratio, debt to
equity, maintaining a net worth of $ 14 million, limitation on capital spending,
and profitability. At August 29, 1997 the financial covenants were not met. The
lender waived all conditions of default at August 29, 1997.
Note 7: Consolidated Statement of Changes in Stockholders' Equity for the
three months ended August 29, 1997
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For The Six Months Ended August 29, 1997
Series A Series B
Convertible Convertible
Common Stock Preferred Stock Preferred Stock Capital in
------------------- ------------------ ------------------ Excess of Accumulated
Shares Amount Shares Amount Shares Amount Par Value Deficit Total
---------- -------- ------- ---------- ------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1997 14,074,428 $140,745 347,146 $1,213,584 146,695 $1,466,954 $38,134,612 ($29,411,220) $11,544,675
Issuance of common stock based on
RC America's FY97 results ....... 2,640 26 4,264 4,290
Conversion of Series A convertible
preferred stock to common stock.. 7,300 73 (7,300) (29,200) 29,127 0
Sale of common stock pursuant to
Regulation S and Regulation D
private placement offerings...... 1,690,902 16,909 1,673,993 1,690,902
Net loss for the six months ended
August 29, 1997 ................. (3,702,137) (3,702,137)
========== ======== ======= ========== ======= ========== =========== ============ ============
Balance at August 29, 1997 15,775,270 $157,753 339,846 $1,184,384 146,695 $1,466,954 $39,841,996 ($33,113,357) $9,537,730
========== ======== ======= ========== ======= ========== =========== ============ ============
</TABLE>
Note 8: RC America, Inc.
In April, 1997, the Company issued 2,640 shares to Ronald Caulfield as
part of the February 26, 1994 agreement providing for the issuance of up to an
additional 100,000 shares of the Company's Common Stock over a five year period
based on RC America, Inc. attaining certain levels of pre-tax earnings. The
Agreement also contains demand and piggy-back registration rights for the
shares.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements or Information
Certain statements contained in this Form 10-Q are not based on
historical facts, but are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, that are based upon a number
of assumptions concerning future conditions that may ultimately prove to be
inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve the
results anticipated in any forward-looking statements is subject to certain
risks and uncertainties, including, but not limited to, the general economy,
product demand, market acceptance of products, fluctuations in operating
results, competition, continued availability of capital and financing, and other
factors affecting the Company's business beyond the Company's control.
Results of Operations
Second Quarter of Fiscal Year 1998 Compared to Second Quarter
of Fiscal Year 1997
For the second quarter of Fiscal 1998, ended August 29, 1997, the
Company had sales totaling $4,194,359 as compared to sales of $9,315,341 for the
second quarter of Fiscal 1997, ended August 23, 1996, a decrease of 55% as a
result of the Company's previously announced decision to discontinue the
traditional plastic carryout bags and MAXI-SACTM product lines.
Sales of the Company's core bag and film business (traditional plastic
grocery carryout bags and proprietary plastic carryout bags of "T-shirt sack"
design and plastic film products) totaled $3,931,020 in the second quarter of
Fiscal 1998 as compared to sales totaling $7,821,906 in the second quarter of
Fiscal 1997, a decrease of 49.7%.
Sales of the Company's proprietary bag products (FRESH-SAC(R) T-shirt
sack produce bag, HANDI-SACTM) and film products were $2,831,759 in the second
quarter of Fiscal 1998 compared to sales of $2,810,394 in the second quarter of
Fiscal 1997, an increase of 0.8%. Management expects that sales of proprietary
bag and film products will increase significantly in Fiscal 1998 and that the
0.8% increase in the second quarter, in the opinion of management, is not
indicative of the trend for the second half of the fiscal year. Sales of
traditional products (including MAXI-SACTM, which has been discontinued) were
$1,099,451 in the second quarter of Fiscal 1998 compared to sales of $5,011,519
(including MAXI-SACTM) in the second quarter of Fiscal 1997, a decrease of 78%,
in line with the Company's decision to discontinue these product lines.
Sales from RC America, Inc. were $282,509 in the second quarter of
Fiscal 1998 compared to sales of $1,434,916 in the second quarter of Fiscal
1997, a decrease of 80.3%.
8
<PAGE>
RC America's sales may fluctuate significantly from quarter to quarter due to
the nature of its business and the timing of transactions. RC America's growth
is being materially and negatively impacted by present operating constraints,
which require RC America to sell any inventory before it is purchased. In order
to increase sales, RC America is planning to become independently capitalized
and the Company has made the decision not to further increase its investment in
this market segment. RC America's management is exploring both private and
public financing alternatives and the Company has indicated that it will
consider remaining as a minority investor in any newly capitalized independent
RC America.
Cost of goods sold for the second quarter of Fiscal 1998 was $4,387,141
compared to $8,732,170 in the second quarter of Fiscal 1997. Cost of goods sold
as a percentage of sales was 105% for the second quarter of Fiscal 1998,
compared to 94% for the second quarter of Fiscal 1997. The increase in cost of
goods sold as a percentage of sales was due to an increase in manufacturing and
material costs relative to the selling prices of the Company's products.
Manufacturing costs included in costs of goods sold increased as a percentage of
sales principally as a result of lower production and under absorbed labor and
overhead of $245,926 compared to production in excess of inventory reduction and
over absorbed labor and overhead of ($524,703) in the prior year. The under
absorbed labor and overhead was primarily caused by inadequate working capital
in the second quarter. Working capital increased during the quarter but the
increase did not occur until the end of the quarter.
Selling, general and administrative expenses for the second quarter of
Fiscal 1998 was $1,505,682 compared to $2,049,715 in the second quarter of
Fiscal 1997.
Net Interest expense for the second quarter of Fiscal 1998 was $200,576
compared to $278,521 for the second quarter of Fiscal 1997. The decrease
reflects reduced borrowing activity under the Company's revolving line of credit
as sales decreased.
The Company incurred a net loss of $1,899,040 for the second quarter of
Fiscal 1998 compared to a net loss of $1,745,065 for the second quarter of
Fiscal 1997. The net loss was due primarily to increased cost of goods sold
caused in significant part by the decision to exit the traditional T-shirt
plastic carryout bag product line coupled with decreases in the volume of
production and inadequate working capital. The net loss of $1,899,040 included a
non-cash charge for depreciation and amortization of $724,647 compared to
$823,480 in the previous year.
9
<PAGE>
Operating profits (loss) for the various business segments are as
follows:
Second Quarter
Fiscal 1998 Fiscal 1997
----------- -----------
Proprietary, traditional and film products ($1,491,492) ($ 985,446)
RC America, Inc. 57,875 (162,290)
Market Media, Inc. (75,957) (171,482)
Unallocated corporate overhead (188,890) (471,906)
----------- -----------
Operating (loss) profit (1,698,464) (1,466,544)
Interest expense, net (200,576) (278,521)
----------- -----------
Net (loss) income ($1,899,040) ($1,745,065)
=========== ===========
First Six Months of Fiscal Year 1998 Compared to First Six Months of Fiscal Year
1997
For the first six months of Fiscal 1998, ended August 29, 1997, the
Company had sales totaling $11,206,504 as compared to sales of $15,830,074 for
the first six months ended August 23, 1996, a decrease of 29%, as a result of
the Company's previously announced decision to discontinue the traditional
plastic grocery carryout bag and MAXI-SACTM product lines.
Sales of the Company's core bag and film business (traditional plastic
grocery carryout bags of "T-shirt sack" design and plastic film products)
totaled $10,291,235 for the first six months of Fiscal 1998 as compared to sales
of $13,968,932 for the six months of Fiscal 1997, a decrease of 26.4%.
Sales of the Company's proprietary carryout T-shirt bag products
(FRESH-SAC(R) T-shirt produce bag and HANDI-SAC(TM) ) were $3,882,642 in the
first six months of Fiscal 1998 compared to sales of $3,395,970 in the first six
months of Fiscal 1997, an increase of 14.3%. Sales of the traditional grocery
carryout T-shirt bags decreased from $8,954,597 (including MAXI-SAC(TM)) in the
first six months of Fiscal 1997 to $4,582,551 (including MAXI-SAC(TM)) in the
first six months of Fiscal 1998, a decrease of 48.8%. The sales decrease is
directly related to the decision to exit the traditional plastic grocery
carryout bag and MAXI-SACTM product lines. Sales of proprietary and other
plastic film products for the first six months of Fiscal 1998 were $1,826,044
compared to sales of $1,618,360 in the first six months of Fiscal 1997, an
increase of
10
<PAGE>
12.8%. RC America, Inc., sales for the first six months of Fiscal 1998 were
$934,270 compared to $1,802,623 in the first six months of Fiscal 1997. RC
America, Inc's., sales may fluctuate significantly from quarter to quarter due
to the nature of its business.
Cost of goods sold for the first six months of Fiscal 1998 was
$11,292,536 compared to $14,300,224 in the previous year. Cost of goods sold as
a percentage of sales was 101% for the first six months of Fiscal 1998, compared
to 90% for the first six months of Fiscal 1997. The increase in cost of goods
sold as a percentage of sales was due primarily to an increase in material costs
relative to the selling prices of the Company's products, inadequate working
capital and production being less than sales, resulting in under absorption of
manufacturing overhead.
In the second half of Fiscal 1998, manufacturing productivity is
expected to increase and it is expected that proprietary bag and film sales will
increase as a percentage of sales. The impact of both of these expected trends
will be to reduce the cost of goods sold as a percentage of sales and increase
gross profits.
Selling, general and administrative expense for the first six months of
Fiscal 1998 was $3,128,189, or 27.9% of sales, compared to $3,683,269, or 23% of
sales for the first six months of Fiscal 1997. The decrease is primarily related
to decreased shipments (freight and related expenses are included in SG&A), and
decreases in sales and administration expense related to the decision to exit
the traditional plastic grocery carryout bag business.
Net Interest expense for the first six months of Fiscal 1998 was
$487,916 compared to $564,616 for the first six months of the previous year.
A net loss of $3,702,137 for the first six months of Fiscal 1998
compared to a net loss of $2,718,035 for the first six months of Fiscal 1997.
The increase in net loss was caused primarily by the decrease in gross profit.
(The non-cash expense of depreciation was $1,417,603 in the first six months of
Fiscal 1998 compared to $1,646,860 in the first six months of Fiscal 1997).
11
<PAGE>
Operating profits (loss) for the various business segments are as
follows:
Six Months
Fiscal 1998 Fiscal 1997
----------- -----------
Proprietary, traditional and film products ($2,261,338) ($1,198,851)
RC America, Inc. 81,100 (140,888)
Market Media, Inc. (218,604) (313,224)
Unallocated corporate overhead (815,379) (782,232)
----------- -----------
Operating (loss) profit (3,214,221) (2,153,419)
Interest expense, net (487,916) (564,616)
----------- -----------
Net (loss) ($3,702,137) ($2,718,035)
=========== ===========
Liquidity and Capital Resources
Loans
The Company has an $8,000,000 revolving line of credit secured by
accounts receivable and inventory. Borrowings under the line of credit are
subject to 80% of qualifying accounts receivable and 35% of qualifying
inventories, less the aggregate amount utilized under all commercial and standby
letters of credit and bank acceptances. The line of credit bears interest at
5.0% above the variable interest rate quoted by Norwest Bank of Minnesota with a
minimum rate of 8% (11.0% at August 29, 1997), and provides for a 1/2 of 1%
unused line fee. The credit line is for 5 years and is subject to renewal
annually (November). At August 29, 1997, the balance under the line of credit
was $1,790,341 which was the maximum available under the lending formula. The
line of credit includes certain financial covenants that the Company must
maintain to avoid a default, including current ratio, debt to equity ratio,
maintaining a net worth of $14 million, limitation on capital spending, and
profitability. At August 29, 1997 the Company was in default under the financial
covenants. The lender waived these conditions of default at August 29, 1997 by
amending the loan and security agreement.
Sales of Securities
In the second quarter of Fiscal 1998, the Company received gross
proceeds from the sale of Common Stock of $1,690,902. In the third quarter of
Fiscal 1998 through October 22, 1997, the Company received additional gross
proceeds from the sale of Common Stock of $1,375,800.12. The total gross
proceeds from the sale of Common Stock in the second and third quarters was
$3,066,702.12. The Company intends to place additional equity and/or debt with
institutional investors, subject to market conditions, in the third and fourth
quarters of Fiscal 1998 to further strengthen the balance sheet.
12
<PAGE>
Equipment and Lease Financing
From March 1994 through August 1998, the Company acquired through
purchase or lease approximately $19.7 million in additional equipment to
increase manufacturing capacity and efficiency and to expand the Company's
product line. The equipment was financed from the sale of equity securities and
from equipment lease financing and bank loans.
The Company currently has outstanding commitments to purchase an
additional $275,000 in machinery and equipment. The Company expects to purchase
and install this equipment during the third quarter of Fiscal 1998. The Company
intends to purchase an additional $3.0 million in capital equipment in the
fourth quarter of Fiscal 1998, subject to appropriate contracts and the
availability of lease financing.
Capital leases contain provisions that give the lessor the right to
accelerate lease payments in the event of default. All capital leases were in
default at the end of the second quarter of Fiscal 1998. Subsequent to the end
of the second quarter of Fiscal 1998, the Company paid substantially all past
due amounts on its capital leases, operating leases and real-estate leases.
Cash Flow
During the first six months of Fiscal 1998, the Company generated
$1,421,893 from depreciation and amortization, $270,800 from reduction in
accounts receivable trade; $2,685,345 from reduction in inventory levels;
$1,774,744 from an increase in accounts payable and $142,189 from reduction in
prepaid taxes and other current assets. The Company also received net proceeds
of $1,690,902 from the sale of Common Stock.
The Company used $136,947 of cash to purchase equipment and for plant
improvements; an additional $1,055,798 of cash was used to make principal
payments on capital leases, operating lease and real-estate lease obligations
and $1,943,131 of cash was used to reduce the revolving line of credit. At
August 29, 1997, stockholders' equity was $9,491,980 as compared to $20,342,954
at August 23, 1997. The Company's current ratio decreased from 0.76:1 at August
23, 1996 to 0.43:1 at August 29, 1997.
To date, the Company has generated cash flows from income, including
depreciation, financing activities, including sales of equity securities, lines
of credit, term loan facilities, equipment leasing arrangements and loans from
raw material suppliers.
Management believes that the completion of the equity financing in the
second and third quarters, together with the current revolving line of credit
and anticipated cash flow, should be sufficient to fund the Company's current
operations. However, management intends to further increase its liquidity
through debt or equity financing in the third and fourth quarters, subject to
market conditions. These anticipated improvements in the Company's cash flow
resources may enable similar improvements in the current ratio and in working
capital. Management also believes that upon the completion of the anticipated
financing, fixed asset or lease financing will be available at competitive rates
from banks and leasing companies to finance a substantial part of the planned
$3.0 million (subject to
13
<PAGE>
appropriate contracts) increase in capacity at the Dighton facility during the
fourth quarter of Fiscal 1998. No assurance can be given that additional
financings will be successfully completed or that such financing will be
available or, if available, will be on terms favorable to the Company.
RC America, Inc.
On April 23, 1997, the Company issued 2,640 shares of Common Stock to
Ronald Caulfield as a part of the February 26, 1994 purchase agreement providing
for the issuance of up to an additional 100,000 shares of the Company's Common
Stock over a five year period based on RC America, Inc. attaining certain levels
of pre-tax earnings. The Agreement also contains demand and piggy-back
registration rights for the shares.
Impact of Inflation
Inflation during the last three fiscal years has not had a significant
effect on the Company's activities.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On December 4, 1995, Mobil Oil Corporation ("Mobil") filed suit against
the Company in the U.S. District Court for the District of Delaware, Civil
Action No. 95-737. Mobil also named Inteplast Corporation and Integrated Bagging
Systems Corporation as defendants in this matter. Mobil has alleged that the
Company has infringed on Mobil's rights under U.S. Patent No. Re. 34,019 (the
"Patent"), regarding the manufacture of plastic carrying bags know as "T-shirt
bags." Subsequently, the Company filed a counter claim against Mobil for patent
infringement. In December 1996, Mobil and the Company settled this patent
litigation by mutual agreement.
The Company is involved in pending commercial legal proceedings that
the Company does not consider to be material except for a suit in the
approximate amount $1.3 million by Lyondell Petrochemical Company, a former raw
material supplier. In this litigation, the Company has filed counter claims
against the supplier for violation of the anti-trust laws.
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BPI PACKAGING TECHNOLOGIES, INC.
Date: October 22, 1997 By /s/ Dennis N. Caulfield
Dennis N. Caulfield, Chairman and
Chief Executive Officer
Date: October 22, 1997 By /s/ Paul J. DeCristofaro
Paul J. DeCristofaro, Chief Financial
Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Aug-29-1997
<CASH> 974,826
<SECURITIES> 0
<RECEIVABLES> 1,987,184
<ALLOWANCES> 164,226
<INVENTORY> 1,849,108
<CURRENT-ASSETS> 5,892,528
<PP&E> 28,539,730
<DEPRECIATION> 10,003,660
<TOTAL-ASSETS> 25,795,802
<CURRENT-LIABILITIES> 13,527,407
<BONDS> 0
0
2,651,338
<COMMON> 157,753
<OTHER-SE> 39,841,996
<TOTAL-LIABILITY-AND-EQUITY> 25,795,802
<SALES> 4,194,359
<TOTAL-REVENUES> 4,194,359
<CGS> 4,387,141
<TOTAL-COSTS> 1,505,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,576
<INCOME-PRETAX> (1,899,040)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,899,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,899,040)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
