SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For Quarterly Period Ended Commission File Number
June 30, 1998 1-10648
BPI PACKAGING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2997486
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 Somerset Avenue, North Dighton, Massachusetts 02764
(Address of principal executive offices) (Zip Code)
(508) 824-8636
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $.01 par value
Series A Convertible Preferred Stock, $.01 par value
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 Exhange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 60 days. Yes X No___.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the average of the bid and ask prices of the Common Stock
and Series A Convertible Preferred Stock as reported by NASDAQ/NMS on August 13,
1998 was approximately $13,140,872 for the Common Stock and $133,489 for the
Series A Convertible Preferred Stock. As of August 13, 1998, 21,460,396 shares
of Common Stock, $.01 par value per share, were outstanding and 223,375 shares
of Series A Convertible Preferred Stock, $.01 par value per share, were
outstanding.
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997......................................... 2-3
Consolidated Statements of Operations for the three/six month
periods ended June 30, 1998 and August 29, 1997............... 4A-4B
Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1998 and August 29, 1997.............. 5
Notes to Consolidated Financial Statements ..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 10
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 Vote of Security Holders............. 15
Item 5. Other Information............................................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 15
SIGNATURES............................................................... 16
i
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<TABLE>
<CAPTION>
Part I. Financial Information
Item I. Financial Statements
BPI Packaging Technologies, Inc.
Consolidated Balance Sheet
Assets
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
Current assets
<S> <C> <C>
Cash $ 52,472 $ 125,220
Accounts receivable, net 906,934 721,239
Inventories, net 713,799 1,057,866
Prepaid expenses and other current assets, net 47,396 52,948
----------- -----------
Total current assets 1,720,601 1,957,273
----------- -----------
Property and equipment, net 16,560,951 17,828,860
----------- -----------
Deposits - leases and equipment purchases 141,284 141,284
Loans to officers, net 5,734 5,416
Other assets 959,487 1,037,907
----------- -----------
1,106,505 1,184,607
----------- -----------
$19,388,057 $20,970,740
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
2
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<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
June 30, December 31,
1998 1997
------------- ------------
(unaudited)
Current liabilities
<S> <C> <C>
Note payable $ 381,404 $ 1,162,349
Trade note payable 584,433 584,433
Capital lease obligations due within one year 4,351,205 4,426,205
Accounts payable 7,272,984 6,714,870
Accrued expenses 3,050,278 2,967,348
------------ ------------
Total current liabilities 15,640,304 15,855,205
------------ ------------
Capital lease obligations-long-term portion -- --
Stockholders' Equity
Series B convertible preferred stock, $.01 par value 1,466,954 1,466,954
Series A convertible preferred stock, $.01 par value 1,126,932 1,126,932
Common stock, $.01 par value; shares authorized -
60,000,000; shares issued and outstanding - 21,163,496 at
June 30, 1998 and 19,513,496 at December 31, 1997 211,635 195,135
Capital in excess of par value 44,463,254 43,076,603
Accumulated deficit (43,521,022) (40,750,089)
------------ ------------
3,747,753 5,115,535
------------ ------------
Commitments and contingencies
$ 19,388,057 $ 20,970,740
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Operations
------Three Month Period Ended-------
June 30, August 29,
1998 1997
------------ -------------
(unaudited)
<S> <C> <C>
Net sales $ 2,406,967 $ 4,194,359
Cost of goods sold 2,561,729 4,387,141
------------ ------------
Gross profit (loss) (154,762) (192,782)
------------ ------------
Operating expenses:
Selling, general and administrative 1,280,759 1,505,682
------------ ------------
1,280,759 1,505,682
------------ ------------
(Loss) income from operations (1,435,521) (1,698,464)
------------ ------------
Other (expense) income:
Interest expense (131,217) (215,285)
Interest income 18,598 14,709
------------ ------------
(111,869) (200,576)
------------ ------------
Net loss ($ 1,548,140) ($ 1,899,040)
============ ============
Basic and diluted net loss per share ($ 0.07) ($ 0.13)
Shares used in computing basic and diluted
net loss per share 20,987,122 14,102,949
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4A
<PAGE>
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Operations
--------Six Month Period Ended-------
June 30, August 29,
1998 1997
------------ -------------
(unaudited)
<S> <C> <C>
Net sales $ 4,639,864 $ 11,206,504
Cost of goods sold 4,794,768 11,292,536
------------ ------------
Gross profit (loss) (154,904) (86,032)
------------ ------------
Operating expenses:
Selling, general and administrative 2,375,830 3,128,189
------------ ------------
2,375,830 3,128,189
------------ ------------
(Loss) income from operations (2,530,734) (3,214,221)
------------ ------------
Other (expense) income:
Interest expense (276,152) (514,815)
Interest income 35,953 26,899
------------ ------------
(240,199) (487,916)
------------ ------------
Net loss ($ 2,770,933) ($ 3,702,137)
============ ============
Basic and diluted net loss per share ($ 0.14) ($ 0.26)
Shares used in computing basic and diluted
net loss per share 20,012,639 14,099,733
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4B
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<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Cash Flows
------Six Month Period Ended-----
June 30, August 29,
1998 1997
------------ -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,770,933) ($3,702,137)
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,269,439 1,421,893
Decrease (increase) in accounts receivable - trade (185,695) 270,800
Decrease in inventories 344,067 2,685,345
Decrease in prepaid expenses and other current assets 5,552 142,189
Increase in accounts payable 558,114 1,774,744
Increase (decrease) in other accrued expenses 82,930 (220,293)
----------- -----------
Total adjustments 2,074,407 6,074,678
----------- -----------
Net cash provided by (used in) operating activities (696,526) 2,372,541
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (1,530) (136,947)
(Increase) decrease in advances to officers (318) (52,062)
(Increase) decrease in deposits, net -- (23,719)
Decrease (increase) in other assets, net 78,420 64,911
----------- -----------
Net cash provided by (used in) investing activities 76,572 (147,817)
----------- -----------
Cash flows from financing activities:
Net payments on revolving line of credit (780,945) (1,943,136)
Principal payments on capital lease obligations (75,000) (1,055,798
Net proceeds from sales and issuances of stock
and exercise of warrants 1,403,151 1,690,902
----------- -----------
Net cash provided by (used in) financing activities 547,206 (1,308,032)
----------- -----------
Net (decrease) increase in cash (72,748) 916,692
Cash at beginning of period 125,220 58,134
----------- -----------
Cash at end of period $ 52,472 $ 974,826
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
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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 June 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 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 December 31, 1997.
Note 2. Recent Material Developments
On June 27, 1998, the Company suspended funding operations of its' two
wholly-owned subsidiaries: RC America, Inc., which purchases surplus inventory
from manufacturers of consumer products and markets and sells the products to
mass merchandise retailers and other retail chains and Market Media, Inc., which
sells and markets in-store advertising and promotion programs. The Company also
terminated the employment of Ronald V. Caulfield, former Chief Executive Officer
and President of RC America, Inc. Unless otherwise indicated, the term "Company"
refers to BPI Packaging Technologies, Inc.
On July 2, 1998, the Company accepted the resignation of Dennis N.
Caulfield, the former Chairman and Chief Executive Officer of the Company. Mr.
Caulfield was also the Acting Chief Financial Officer of the Company. C. Jill
Beresford, the former Chief Operating Officer of the Company was elected as
Chairman and Chief Executive Officer to replace Mr. Caulfield. The Company is
currently in discussions with a potential Chief Executive Officer candidate and
intends to hire this person in the third quarter of 1998.
On July 13, 1998, the Board of Directors re-elected Mr. Ivan J. Hughes
as a member of the Board. Mr. Hughes had resigned from the Board in February
1998.
The Company is currently operating with limited working capital and
continues to be in default of its agreements with lenders, lessor under
operating and capital leases and with trade creditors. As of June 30, 1998,
approximately $1,488,000 was past due under capital and operating leases and
approximately $7,000,000 was past due to trade creditors, a number of whom have
filed suits and received judgments against the Company. The Company has retained
Newport Capital, a financial services firm, to assist the Company in negotiating
with trade creditors and lessors and to assist the Company in obtaining working
capital.
6
<PAGE>
On August 10, 1998, the Company obtained a new revolving line of credit
arrangement with a lender providing the borrowing of up to $2 million against
eligible accounts receivable. The Company used proceeds of the line to repay
amounts owed to the lender of its existing revolving credit facility. In
addition, the Company is currently in discussions with potential lenders to
buy-out approximately $5 million of existing operating and capital leases, which
would result in a reduction of monthly lease payments from $350,000 per month to
$150,000 per month. To date, no agreement has been signed and there can be no
assurance that such financing will be obtained on terms acceptable to the
Company. The Company has also entered into forbearance agreements with certain
suppliers pursuant to which the Company has deferred payments of outstanding
payables until at least January 1, 1999. The Company continues to receive
supplies from these venders on a C.O.D. basis.
On August 10, 1998, the Company re-hired Mr. James Koehlinger as Chief
Financial Officer. Mr. Koehlinger served as the Company Chief Financial Officer
from February 1988 and resigned in October 1996.
On August 13, 1998, the Company received notification from the Nasdaq
Listing Qualifications Panel (the "Panel") of the Nasdaq Stock Market ("Nasdaq")
that effective as of the close of business on August 13, 1998, the Company's
securities would be delisted from Nasdaq. As a result of the delisting, the
Company's Common Stock and Class A Preferred Stock will be traded on the OTC
Bulletin Board. It is the Company's intention to appeal the Panel's decision to
the Nasdaq Listing and Hearing Review Council.
Note 3. Going Concern and Management's Plan
As shown in the accompanying consolidated financial statements, the
Company has suffered recurring net losses, and has working capital deficiencies.
Additionally, significant trade credit balances are past due and operating and
capital lease obligations are in default at the balance sheet date.
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
adjustments related to the recoverability and the classification of recorded
assets and liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Company exited the production of its traditional T-shirt bag
product lines during the 10 month period ended December 31, 1997. Increased
competition from large domestic and overseas competitors with significant
production economies of scale caused the Company to incur substantial losses on
these products during the past several years. The Company has shifted its
resources to the production of proprietary bag and plastic film product lines
which have the potential to have higher profit margins. In February 1998, one of
the five largest supermarket chains in the United States decided to use the
Fresh-Sac(R) Produce Profit Builder marketing program after successful in-store
testing and presently there are 17 other supermarket chains in various stages of
in-store testing. On March 31, 1998, the Company entered into a Five-year
Purchase Agreement to sell exclusively to an international company thin, clear
plastic film for tissue overwrap in North America and in certain foreign
countries. In the second quarter of 1998, the Company received net proceeds from
the sale of Common Stock of $526,051. The Company plans to continue raising
additional equity in 1998.
Note 4: Basic and Diluted Net Loss Per Share
The Company is required to present "basic" and "diluted" earnings per
share. Basic earnings per share is computed by dividing the income available to
common stockholders by the weighted average number of common shares outstanding
for the period. For the purposes of calculating diluted earnings per share, the
denominator includes both the weighted average number of common shares
outstanding and potential dilutive common shares outstanding for the period.
7
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For each of the periods presented, the Company has recorded a net loss.
Therefore, basic and diluted earnings per share are the same due to the
antidilutive effect of potential common shares outstanding. Antidilutive
potential common shares excluded from the computation include common shares
issuable upon the exercise of stock options, common shares issuable upon the
conversion of redeemable convertible preferred stock or upon the exercise of
warrants.
Note 5: Accounts Receivable-Trade
Accounts receivable-trade consists of the following:
June 30, December 31,
1998 1997
----------- -----------
Accounts receivable-trade $ 1,196,439 $ 1,071,239
Allowance for doubtful accounts (214,505) (275,000)
Allowance for credits (75,000) (75,000)
----------- -----------
$ 906,934 $ 721,239
=========== ===========
Note 6: Inventories
Inventories, net of valuation reserves, consist of the following:
June 30, December 31,
1998 1997
----------- -----------
Raw materials $ 317,648 $ 285,058
Finished goods 471,151 1,062,808
Reserves (75,000) (290,000)
----------- -----------
$ 713,799 $ 1,057,866
=========== ===========
Note 7: Loans
As of December 31, 1997, the Company had 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, bearing interest at 5.0%
above the variable interest rate quoted by Norwest Bank of Minnesota with a
minimum rate of 8.0% (17.5% at June 30, 1998), and provides for a 1/2 of 1%
unused line fee. At June 30, 1998, the balance under the line of credit was
$381,404. 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. As of and during the six month period ended June
30, 1998, the Company failed to meet several of the financial covenants. This
line of credit was repaid in full on August 10, 1998. (See Note 2 - Recent
Material Developments).
8
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Note 8: Consolidated Statement of Changes in Stockholders' Equity for the
six month period ended June 30, 1998
<TABLE>
<CAPTION>
BPI Packaging Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
For the six month period ended June 30, 1998
Series A Convertible Series B 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 December 31,
1997 19,513,496 $195,135 325,483 $1,126,932 146,695 $1,466,954 $43,076,603 ($40,750,089) $5,115,535
Sale of common stock
pursuant to Regulation S
and Regulation D private
placement offerings, net
of issuance costs 1,650,000 16,500 1,266,457 1,282,951
Warrants granted for
lease extension 120,200 120,200
Net loss for six months
ended June 30, 1998 (2,770,933) (2,770,933)
----------- -------- ------- ---------- ------- ---------- ----------- ------------ ----------
Balance at June 30, 1998 21,163,496 $211,635 325,483 $1,126,932 146,695 $1,466,954 $44,463,254 ($43,521,022) $3,747,753
=========== ======== ======= ========== ======= ========== =========== ============ ==========
</TABLE>
Note 9. Related Party Transactions
In March 1998, the Company received a notice from the Massachusetts
Department of Revenue requiring the Company to garnish the wages of the former
Chairman of the Company. The amount subject to the levy totaled approximately
$200,000. For the period through May 16, 1998, the Company did not comply with
the terms of the levy. Subsequently, the Company paid, on behalf of the former
Chairman, approximately $36,000 of the levy and established an interest bearing
note due on or before June 30, 1998. As of June 30, 1998, the Company has not
received payment on the above referenced Note. As of the date of this report,
the Company has ceased to be required to comply with the levy as a result of the
former Chairman's resignation from the Company on July 1, 1998.
9
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements or Information
This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-Q which address
activities, events and developments that the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), expansion and other development
trends of industry segments in which the Company is active, business strategy,
expansion and growth of the Company's business and operations and other such
matters are forward-looking statements. Although the Company believes the
expectations expressed in such forward-looking statements are based on
reasonable assumptions within the bounds of its knowledge of its business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by or
on behalf of the Company. Many of these factors have previously been identified
in filings of statements made by or on behalf of the Company.
All phases of the Company's operations are subject to influences
outside its control. Any one, or a combination, of these factors could
materially affect the results of the Company's operations. These factors
include: sales, competition, inflation, raw material price increases, rate of
market penetration for products, new product development and market acceptance,
litigation, interest rate fluctuations, availability of equity financing,
availability of capital and operating lease financing, availability of bank or
other financial institution lines of credit and other capital market conditions.
Forward-looking statements made by or on behalf of the Company are based on a
knowledge of its business and the environment in which it operates, but because
of the factors listed above, actual results may differ from those in the
forward-looking statements. Consequently, all of the forward-looking statements
made are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on the Company or its business or operations.
General
On December 2, 1997, the Board of Directors of the Company adopted a
change of fiscal year, effective immediately, from a 52-53 week fiscal year
ending on the Friday closest to February 28 to a calendar year ending on
December 31. The Company's last fiscal year ended February 28, 1997. As a result
of the change, the Company filed a transition report on Form 10-K for the 10
month period ended December 31, 1997.
Results of Operations
Second Quarter of 1998 Compared to the Second Quarter of the 10 month period
ended December 31, 1997
For the second quarter ended June 30, 1998, the Company had sales of
$2,406,967 compared to sales of $4,194,359 for the second quarter ended August
29, 1997.
During the 10 month period ended December 31, 1997, the Company exited
the traditional plastic carry-out bag market. The exit occurred before the
Company's proprietary high performance tissue overwrap film and
Fresh-Sac(R)Produce Profit Builder, two major growth products for 1998 and
beyond, were ready to make the transition from marketing to sales. Sales are
expected to increase for these products in 1998.
10
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Sales of the Company's proprietary bag products FRESH-SAC(R) T-shirt
sack produce bag, HANDI-SAC(TM) and film products were $2,406,967 in the second
quarter of 1998 compared to sales of $4,194,359 in the second quarter of the 10
month period ended December 31, 1997, a decrease of 42.6%. The decrease in sales
was caused by exiting the Maxi-Sac market which had sales in the second quarter
of the 10 month period ended December 31, 1997 of $1,149,425 and a decrease in
film sales of $750,028 caused by exiting certain film markets. Sales of
traditional plastic carry-out bags decreased as planned and were $163,411 in the
second quarter of 1998 compared to sales of $1,149,425 in the second quarter of
the 10 month period ended December 31, 1997. Sales of traditional products will
remain at nominal levels. RC America, Inc. had no sales in the second quarter of
1998 compared to $282,339 in the second quarter of the 10 month period ended
December 31, 1997. As planned, Market Media, Inc. had no sales in both periods.
In the second quarter of 1998, cost of goods sold was $2,561,729 or
106% of sales compared to cost of goods sold in second quarter of the 10 month
period ended December 31, 1997 of $4,387,141 or 105% of sales. The increase in
cost of goods sold as a percentage of sales is due primarily to the Company's
inability to absorb fixed costs during periods of lower sales volume.
Selling, general and administrative expense for the second quarter of
1998 was $1,280,759 or 53% of sales compared to selling, general and
administrative expense of $1,505,682 or 36% of sales in the second quarter of
the 10 month period ended December 31, 1997.
For the second quarter of 1998, interest expense was $131,217 compared
to $215,285 for the second quarter of the 10 month period ended December 31,
1997.
The net loss was ($1,548,140) in the second quarter of 1998 compared to
a net loss of ($1,899,040) in the second quarter of the 10 month period ended
December 31, 1997. The non-cash expense of depreciation and amortization was
$632,262 in the second quarter of 1998 compared to $727,647 for the second
quarter of the 10 month period ended December 31, 1997.
The Company incurred a loss of ($.07) per share in the second quarter
of 1998 compared to a loss of ($.13) per share in the second quarter of the 10
month period ended December 31, 1997.
11
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Operating profits (loss) for the various business units are as follows:
<TABLE>
<CAPTION>
Second Quarter
Second Quarter Ten Month Period
1998 Ended December 31, 1997
---- -----------------------
<S> <C> <C>
Proprietary, traditional and film products $ (878,429) $(1,491,492)
RC America, Inc. (64,752) 57,875
Market Media, Inc. (37,125) (75,957)
Unallocated corporate overhead (455,215) (188,890)
Operating profit (loss) $(1,435,521) $ (698,464)
Interest expense, net (112,619) (200,576)
Net loss $(1,548,140) $ (189,040)
</TABLE>
First Six Months of 1998 Compared to the First Six Months of the 10 month period
ended December 31, 1997
For the six months ended June 30, 1998, the Company had sales of
$4,639,864 compared to sales of $11,206,504 for the first six months of the 10
month period ended December 31, 1997 a decrease of 59%, as a result of the
Company's previously announced decision to discontinue the traditional plastic
grocery carry-out bag and MAXI-SAC (TM) product line.
Sale of the Company's core bag and film business (traditional plastic
grocery carry-out bags of "T-shirt sack" design and plastic film products)
totaled $4,639,864 for the first six months of 1998 as compared to sales of
$10,291,235 for the first six months of the 10 month period ended December 31,
1997.
Sales of the Company's proprietary bag products FRESH-SAC(R) T-shirt
sack produce bag, HANDI-SAC(TM) and film products were $3,771,323 in the first
six months of 1998 compared to sales of $3,882,642 in the first six months of
the 10 month period ended December 31, 1997, a decrease of 2.8%. The decrease in
sales was caused by exiting the Maxi-Sac market which had sales in the first six
months of the 10 month period ended December 31, 1997 of $1,149,425 and a
decrease in film sales of $934,270 caused by exiting certain film markets. Sales
of traditional plastic carry-out bags decreased as planned and were $163,411 in
the first six months of 1998 compared to sales of $1,149,425 in the first six
months of the 10 month period ended December 31, 1997. Sales of traditional
products will remain at nominal levels. RC America Inc. had no sales in the
first six months of 1998 compared to $934,270 in the first six months of the 10
month period ended December 31, 1997. As planned, Market Media, Inc. had no
sales in both periods.
In the first six months of 1998, cost of goods sold was $4,794,768 or
103% of sales compared to cost of goods sold in the first six months of the 10
month period ended December 31, 1997 of $11,292,536 or 100% of sales. 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 Calender 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 cost of good sold as a percentage of sales and increase gross
profits.
Selling, general and administrative expense for the first six months of
1998 was $2,375,830 or 51% of sales compared to selling, general and
administrative expense of $3,128,189 or 28% of sales in the first six months of
the 10 month period ended December 31, 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 carry-out bag business.
For the first six months of 1998, interest expense was $276,152
compared to $514,815 for the first six months of the 10 month period ended
December 31, 1997.
The net loss was ($2,770,933) in the first six months of 1998 compared
to a net loss of ($3,702,137) in the first six months of the 10 month period
ended December 31, 1997. The non-cash expense of depreciation and amortization
was $1,269,439 in the first six months of 1998 compared to $1,421,893 for the
first six months of the 10 month period ended December 31, 1997.
The Company incurred a loss of ($.14) per share in the first six months
of 1998 compared to a loss of ($.26) per share in the first six months of the 10
month period ended December 31, 1997.
12
<PAGE>
Liquidity and Capital Resources
Since its initial public offering in October 1990, the Company has
generated funds to finance its activities through both public sales and private
placements of its securities, as well as bank loans, equipment lease financing
and cash from operations.
Sales of Securities
The Company received net proceeds from the sale of Common Stock from
April 1, 1998 to June 30, 1998 of $1,509,551. Management intends to further
increase its liquidity in the remaining quarters of 1998 through debt or equity
financing with long-term institutional investors subject to financial market
conditions. However, the Company has no commitments for such financing, and no
assurance can be given that additional financing will be successfully completed
or that such financing will be available on terms favorable to the Company, if
at all.
Equipment and Lease Financing
From March 1994 through August 1997, 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 lines. The equipment was financed from the sale of equity securities,
equipment lease financing and bank loans.
The Company currently has outstanding commitments to purchase an
additional $275,000 in machinery and equipment.
As of December 31, 1997 and June 30, 1998, the Company was in default
on all of its capital and operating leases. In March and April 1998, the Company
entered into settlement agreements with three lessors to remedy the defaults.
The terms of the agreements are as follows:
For one lessor, with which the Company has both capital and operating
leases, a payment of $517,000 was due upon execution of the settlement agreement
in April 1998 and interest only payments were scheduled from March to June 1998.
The $517,000 payment represented four months of past due payments plus interest
and late fees. Commencing in July 1998, the Company's monthly payment schedule
under the leases would revert to the amounts identified in the original leases.
In consideration for the lease extension, the Company granted the lessor 200,000
warrants at an exercise price of $1.25 and a three year term. In addition, the
terms of the agreement require the Company to make three additional monthly
payments.
The second settlement agreement resulted in a reduction of the monthly
payments from $42,000 to $21,000 and an increase in the number of future monthly
payments. In consideration for the lease extension, a fee of $60,000 was built
into the remaining payments.
The third settlement agreement required a payment of $296,000 on or
before June 1, 1998. The payment represents past due amounts as well as interest
and late fees. Commencing in July 1998, the Company's monthly payment schedule
under the leases would revert to the amounts identified in the original leases.
In consideration for the lease extension, the Company granted the lessor 200,000
warrants at an exercise price of $1.25 and a three year term.
As of August 13, 1998, the Company had not made the required payments
under the terms of the three settlement agreements. Management plans to make
these payments from the funds expected to be provided by the receipt of a $6
million term loan. The Company is currently engaged in discussions with
potential lenders, however, as of the date of this report, no committments for
this funding have been received and there can be no assurance that the Company
will be successful in obtaining such financing on terms acceptable to the
Company, if at all.
Cash Flow
In the second quarter of 1998, the Company had non-cash charges of
$632,262 relating to depreciation and amortization and $509,551 from the sale of
Common Stock. The Company also raised $611,712 from an increase in accounts
payable and accrued expenses and $40,922 from advances received on revolving
line of credit. The Company used $133,505 for increase in inventories and
$1,548,140 to finance the net loss. At June 30, 1998, stockholders' equity was
$3,747,753 as compared to $5,115,535 at December 31, 1997. The Company's current
ratio was 0.11:1 at June 30, 1998 compared to 0.12:1 at December 31, 1997. The
net book value of property and equipment was $16,560,951 at June 30, 1998
compared to $17,828,860 at December 31, 1997.
At June 30, 1998, the Company had a working capital deficit of
$13,919,703, cash of $52,472 and was fully drawn on its revolving line of
credit. Although the Company has instituted significant reductions in operating
expenses in the second and third quarter of 1998, the Company continues to
operate on a negative cash flow basis and until the Company's revenues increase
to at least $1,500,000 per month, the Company will require additional debt or
equity financing to sustain its operations.
Historically, a significant portion of the Company's capital
requirements has been funded through the proceeds from the Company's three prior
public offerings, the exercise of warrants sold in these public offerings,
equity and subordinated debt investments by Beresford Box Company Ltd. (formerly
Beresford Packaging, Inc., subsequently converted into the Company's Series B
and Series C Preferred Stock), a principal stockholder, and private placements
of Common Stock and warrants. The Company has also utilized bank loan and line
of credit facilities, trade credit facilities and equipment leases.
Impairment of Long-Lived Assets
The Company exited the traditional plastic grocery carry-out bag market
in the 10 month period ended December 31, 1997. This market is highly
competitive and margins remained low for several years, covering variable
manufacturing costs, but making little contribution to manufacturing overhead,
SG&A, interest or profit. As discussed in Notes 1 and 6 to the Company's
consolidated financial statements, the Company adopted Statement of Financial
Account Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be disposed of," for the year ended February 28, 1997.
In conjunction with this exit strategy, certain write-downs of assets and
expenses related to the traditional T-shirt product line were recorded in the
fourth quarter of Fiscal Year 1997 amounting to $5,897,648 in order to reflect
these items, now considered impaired, at fair value. In addition, due to the
deterioration of the product lines' gross margin from intense competition,
approximately $1,165,000 of inventory reserves were established in the fourth
quarter of Fiscal Year 1997 to properly state the traditional T-shirt bag
product line inventory at net realizable value.
13
<PAGE>
Going Concern and Management's Plan
The Company has suffered recurring net loses and has net working
capital and operating cash flow deficiencies. Additionally, significant trade
credit balances are past due and operating and capital lease obligations are in
default at the balance sheet date.
The Company's ability to continue as a going concern is dependent on
its ability to successfully implement its business and financing plans described
below. However, there can be no assurances the Company will be able to
successfully complete these plans. The financial statements do not include any
adjustments related to the recoverability and the classification of recorded
assets and liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Company exited the production of its traditional T-shirt bag
product lines during the 10 month period ended December 31, 1997. Increased
competition from large domestic and overseas competitors with significant
production economies of scale caused the Company to incur substantial losses on
these products during the past several years. The Company has shifted its
resources to the production of proprietary bag and plastic film product lines
which have the potential to have the higher profit margins. In February 1998,
one of the five largest supermarket chains in the United States decided to use
the Fresh-Sac (R) Product Profit Builder (TM) marketing program after successful
in-store testing and presently there are 17 other supermarket chains in various
states of in-store testing. On March 31, 1998, the Company entered into a
Five-year Purchase Agreement to sell exclusively to an international company
thin, clear plastic film for tissue overwrap in North America and in certain
foreign countries.
On August 10, 1998, the Company entered into a new revolving line of
credit arrangement with a lender providing for the borrowing of up to $2 million
against eligible accounts receivable, part of the proceeds from which will be
used to repay the existing fully drawn line of credit. In addition, the Company
is in discussions with potential lenders for a $6 million term loan, the
proceeds of which would be used to buy-out capital leases. Even if the Company
secures the term loan, the Company will require additional financing to repay in
excess of $7 million in past due trade payables and in excess of $3 million in
accrued expenses. The Company has no commitments for such financing, and no
assurance can be given that the Company will be successful in obtaining such
additional financing or that such financing will be available on terms favorable
to the Company, if at all.
RC America, Inc.
Effective February 26, 1994, Ronald Caulfield exchanged his 49,500
shares of Common Stock of RC America, Inc. for 200,000 shares of the Company's
Common Stock, pursuant to the terms of a Stock Exchange Agreement by and between
the Company and Ronald Caulfield (the "RC Agreement"). As a result, RC America,
Inc. is now a wholly owned subsidiary of the Company. The RC Agreement also
provides for the issuance to Ronald Caulfield of up to an additional 100,000
shares of the Company's Common Stock over a five (5) year period based on RC
America, Inc. attaining certain levels of pre-tax earnings. For the 10 month
period ended December 31, 1997, no shares of Common Stock were issued. Based on
the operating results of RC America, Inc. for Fiscal year 1997, a total of 2,640
shares of Common Stock were earned and issued to Mr. Ronald Caulfield in April
1997. For Fiscal Year 1996 and Fiscal Year 1995, 2,550 and 17,400 shares,
respectively of the 100,000 shares of Common Stock were issued to Mr. Ronald
Caulfield. In June 1998, the Company ceased funding the operations of RC
America, Inc. (which historically operated on a negative cash flow basis) in
connection with the Company's efforts to reduce operating expenses.
Impact of Inflation
Inflation during the second quarter of 1998 did not have any impact on
operating results nor did it have any impact on operating results in the past
three fiscal periods.
Year 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations are a known risk. The
Company has not addressed this risk as to the availability and integrity of
financial systems and the reliability of operational systems. The cost of
achieving Year 2000 conversion has not been determined as of the date of this
filing.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in pending commercial legal proceedings with
equipment lessors and trade suppliers because of lease defaults and overdue
trade accounts. Management believes these legal proceedings will be settled by
negotiation; however, the failure to settle these proceedings by negotiation
could have material adverse effects on the Company's business.
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 Section 14 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BPI PACKAGING TECHNOLOGIES, INC.
Date: August 14, 1998
By: /s/ C. Jill Beresford
C. Jill Beresford, Chairman and
Chief Executive Officer
16
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 52,472
<SECURITIES> 0
<RECEIVABLES> 1,196,439
<ALLOWANCES> 289,505
<INVENTORY> 713,799
<CURRENT-ASSETS> 1,720,601
<PP&E> 28,753,404
<DEPRECIATION> 12,192,453
<TOTAL-ASSETS> 19,388,057
<CURRENT-LIABILITIES> 15,640,304
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2,593,886
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<OTHER-SE> 44,463,254
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<SALES> 4,639,864
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<CGS> 4,794,768
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