<PAGE>
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
SEPTEMBER 30, 1999 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, $0.01 PAR VALUE
SERIES A CONVERTIBLE PREFERRED STOCK, $0.01 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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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 the OTC
Bulletin Board on November 10, 1999 was approximately $1,899,185 for the Common
Stock and $183,758 for the Series A Convertible Preferred Stock. As of November
10, 1999, 27,131,221 shares of Common Stock, $0.01 par value per share, were
outstanding and 183,758 shares of Series A Convertible Preferred Stock, $0.01
par value per share, were outstanding.
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998............................................. 1
Consolidated Statements of Operations - Three Month
periods ended September 30, 1999 and September 30, 1998........... 3
Consolidated Statements of Operations - Nine Month
periods ended September 30, 1999 and September 30, 1998........... 4
Consolidated Statements of Cash Flows - Nine Month
periods ended September 30, 1999 and September 30, 1998.......... 5
Notes to Consolidated Financial Statements ............................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk............. 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 20
Item 2. Changes in Securities.................................................. 21
Item 3. Default Upon Senior Securities......................................... 21
Item 4. Submission of Matters to a Vote of Security Holders.................... 22
Item 5. Other Information...................................................... 22
Item 6. Exhibits and Reports on Form 8-K....................................... 22
SIGNATURES...................................................................... 23
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------------- -----------------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash $ 118,184 $ 73,116
Accounts receivable, net 1,773,853 882,389
Inventories 1,953,890 717,413
Prepaid expenses 89,419 51,420
--------------------- -----------------------
Total current assets 3,935,346 1,724,338
--------------------- -----------------------
Property and equipment, net 15,900,527 15,290,305
--------------------- -----------------------
Deposits - leases and equipment purchases 143,078 149,851
Loans to officers, net 6,617 6,072
Other assets 1,631,412 581,399
--------------------- -----------------------
1,781,107 737,322
--------------------- -----------------------
$ 21,616,980 $ 17,751,965
===================== =======================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------------- ---------------------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Note payable $ 2,395,022 $ 814,311
Trade notes payable - 584,433
Capital lease obligations due within one year - 3,800,286
Accounts payable 2,217,816 6,597,223
Accrued expenses 1,532,839 2,676,239
Note payable to related party 1,573,585 -
-------------------- ---------------------
Total current liabilities 7,719,262 14,472,492
-------------------- ---------------------
Long-term liabilities
Capitalized lease obligations 6,800,000 -
Subordinated debt 2,720,000 -
Accounts payable long term 869,246 -
-------------------- ---------------------
Total long-term liabilities 10,389,246 -
Stockholders' Equity
Series B convertible preferred stock, $0.01 par value 1,466,954 1,466,954
Series A convertible preferred stock, $0.01 par value 673,936 674,032
Series C redeemable preferred stock, $0.01 par value 100 -
Common stock, $0.01 par value; shares authorized -
150,000,000; shares issued and outstanding - 27,131,221 at
September 30, 1999 and 21,495,621 at December 31, 1998. 271,312 214,956
Subscribed Stock 74,960 -
Capital in excess of par value 45,561,513 44,912,833
Accumulated deficit (44,540,303) (43,989,302)
-------------------- --------------------
3,508,472 3,279,473
-------------------- ---------------------
$ 21,616,980 $ 17,751,965
-------------------- ---------------------
-------------------- ---------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------THREE MONTHS ENDED---------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
----------------------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 5,183,632 $ 2,927,730
Cost of goods sold 4,968,287 1,884,685
------------ ------------
Gross profit 215,345 1,043,045
Operating expenses:
Selling, general and administrative 1,078,423 972,641
------------ ------------
(Loss) income from operations (863,078) 70,404
Other (expense) income:
Interest / other expense (522,609) (66,967)
Interest / other income 10,093 7,046
------------ ------------
(512,516) (59,921)
Net income/(loss) before extraordinary income (1,375,594) 10,483
Extraordinary income - gain on debt restructuring 2,758 --
------------ ------------
Net income/(loss) after extraordinary income ($ 1,372,836) $ 10,483
============ ============
Earnings (loss) per share before extraordinary income:
Basic and diluted net earnings (loss) per share ($ 0.06) $ 0.00
Shares used in computing basic and diluted net
earnings (loss) per share 22,359,512 21,163,496
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share ($ 0.06) $ 0.00
Shares used in computing basic and diluted net
earnings (loss) per share 22,359,512 21,755,874
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------NINE MONTHS ENDED---------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---------------------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 12,655,596 $ 7,567,594
Cost of goods sold 10,963,520 6,406,468
------------ ------------
Gross profit 1,692,076 1,161,126
Operating expenses:
Selling, general and administrative 2,887,941 3,621,456
------------ ------------
(Loss) from operations (1,195,865) (2,460,330)
Other (expense) income:
Interest / other expense (1,354,713) (343,119)
Interest / other income 79,112 42,999
------------ ------------
(1,275,601) (300,120)
Net loss before extraordinary income (2,471,466) (2,760,450)
Extraordinary income - gain on debt restructuring 1,920,465 --
------------ ------------
Net loss after extraordinary income ($ 551,001) ($ 2,760,450)
============ ============
Earnings (loss) per share before extraordinary income:
Basic and diluted net earnings (loss) per share ($ 0.11) ($ 0.13)
Shares used in computing basic and diluted net
earnings (loss) per share 21,787,413 20,669,723
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share ($ 0.03) ($ 0.13)
Shares used in computing basic and diluted net
earnings (loss) per share 21,787,413 20,669,723
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------NINE MONTHS ENDED ----------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------- --------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 551,001) ($2,760,450)
----------- -----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,064,011 2,155,187
Gain on restructuring of accounts payable (1,920,465) --
(Increase) in accounts receivable - trade (891,464) (316,237)
(Increase) decrease in inventories (1,236,477) 199,503
(Increase) decrease in prepaid expenses and other current assets (37,999) 46,273
Increase (decrease) in accounts payable (2,174,129) 95,922
Increase in other accrued expenses 499,977 (187,637)
----------- -----------
Total adjustments (3,696,546) 1,993,011
----------- -----------
Net cash provided by (used in) by operating activities (4,247,547) (767,439)
----------- -----------
Cash flows from investing activities:
(Additions) deductions to property and equipment (939,365) 19,507
Reduction of deposits related to equipment refinancing 6,773 --
Decrease in investments -- 9,000
(Additions) to property and equipment debt refinancing (1,678,973) --
(Increase) in advance to officers (545) (485)
Decrease in other assets -- 82,328
----------- -----------
Net cash provided by (used in) by investing activities (2,612,110) 110,350
----------- -----------
Cash flows from financing activities:
Net proceeds (payments) under note payable - bank 1,580,711 (440,628)
Capitalized financing costs (1,105,908) --
Principal payments on capital lease obligations -- (252,353)
Refinance of capital and operating leases (5,443,763) --
Note payable to related party 1,573,585 --
Refinanced capital lease obligation 6,800,000 --
Subordinated debt addition 3,200,000 --
Net proceeds from sales of stock and exercise of warrants 300,100 1,403,151
----------- -----------
Net cash provided by (used in) financing activities 6,904,725 710,170
----------- -----------
Net increase in cash 45,068 53,081
Cash at beginning of period 73,116 125,220
----------- -----------
Cash at end of period $ 118,184 $ 178,301
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<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.
Revenue is recognized upon the shipment of products and the passage of
title to customers.
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 nine
month period ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
For further information, refer to the consolidated financial statements
and the footnotes included in Amendment No. 4 to the Annual Report on Form
10-K/A for BPI Packaging Technologies, Inc. (the "Company") for the year ended
December 31, 1998 and Current Reports on Form 8-K filed on February 11, 1999 and
August 19, 1999 related to the January 1999 Financial Restructuring and
refinancing of the Company.
NOTE 2: FINANCIAL RESTRUCTURING
On January 27, 1999, the Company entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") with DGJ, L.L.C. ("DGJ") (the
"January 1999 Financial Restructuring"), whereby the Company agreed to issue and
sell to DGJ, and DGJ agreed to purchase from the Company the following:
1. a Promissory Note in the aggregate principal amount of
$3,200,000 (the "Note");
2. a Common Stock Purchase Warrant for the purchase of up to
80,000,000 shares of the Company's common stock, $0.01 par
value per share (the "Common Stock"), at an exercise price of
$0.04 per share, exercisable until January 27, 2009; and
3. 1,629,930 shares of Series C Preferred Stock of the Company
for $100.
The Note matures on February 1, 2004 or earlier if the Company enters
into a merger agreement, completes a public offering in excess of $10,000,000,
defaults on the payment of interest or sells 50% or more of its shares in the
Company to a stockholder not previously an investor in the Company. The Note had
an interest rate of 6% per annum.
6
<PAGE>
As part of the new financing agreement obtained with a bank on
August 19, 1999, the Company entered into an amended loan agreement with DGJ
(the "Amended Note"), which restates the Note and includes $1,573,585,
representing subsequent advances made to the Company, an equipment loan made
in March 1999 and past due interest on obligations of the Company to DGJ. The
Amended Note bears interest at 10% per annum. The addition to the Note is
payable on demand. An intercreditor agreement with the bank providing credit
line financing as of August 19, 1999, provides certain terms that must be met
by the Company before DGJ can collect on its obligations. The Company failed
to make interest payments to DGJ of $54,366 as of September 30, 1999 and
$40,347 in each of October and November 1999, or $135,060 in total on its
obligation. As this has caused an Event of Default, as defined in the Amended
Note, DGJ, the holder of the Amended Note, is entitled to various rights and
remedies under the Amended Note and the Securities Purchase Agreement,
including, but not limited to, the right to declare all or any part of the
unpaid principal amount of the Amended Note outstanding to be due and
payable. As of November 10, 1999, DGJ has indicated a willingness to defer
exercising its rights and remedies upon default pending discussion with the
Company regarding how the Amended Note default is to be cured.
In conjunction with the January 1999 Financial Restructuring, DGJ
required certain members of the Company's management, C. Jill Beresford, James
F. Koehlinger, Richard H. Nurse, Hanspeter Schulz and Ivan J. Hughes, to invest,
in the aggregate, $300,000 in the Company's warrants. As of September 30, 1999,
5,626,000 of the 7,500,000 issued warrant shares were converted into Common
Stock.
The shares of the Series C Preferred Stock were purchased by DGJ for an
aggregate purchase price of $100. Some of the rights and restrictions of Series
C Preferred Stock include the following: (i) the holders of Series C Preferred
Stock have no voting rights; provided, however, upon an Event of Default, as
defined in the Securities Purchase Agreement, holders of the Series C Preferred
Stock will be entitled to vote with the holders of the Common Stock as a single
class on each matter submitted to a vote to the Company's stockholders, with
each share of the Series C Preferred Stock having 30 votes; (ii) if the Note has
been retired in its entirety, the Company, at its option, may elect to redeem
all or a portion of the outstanding Series C Preferred Stock, at an aggregated
redemption price of $100 plus accrued interest at a rate of 6% per annum
commencing on January 27, 1999; and (iii) the shares of the Series C Preferred
Stock are not convertible into shares of Common Stock.
In conjunction with the January 1999 Financial Restructuring, the
Company entered into agreements with most of its unsecured creditors that
provided a discounted payment in February 1999 or a non-interest bearing
agreement to pay the entire balance over a three-year period. The unsecured
creditor agreements, together with the January 1999 Financial Restructuring
referred to above, allowed the Company to restructure trade notes payable of
$584,000 and accounts payable of $6,597,000, or a total of $7,181,000, compared
to $1,874,000 of current accounts payable and $1,426,000 of long-term debt, or a
total of $3,300,000 after refinancing. Unsecured creditors of the Company owed
approximately $3,009,000 as of January 27, 1999 selected the discounted payment
plan resulting in extraordinary income of $1,920,465 during the first nine
months of 1999. This gain of $1,920,465 was recorded as extraordinary income
amounting to $0.08 per share. The tax effect of this gain reduced the net
operating tax loss carry-forward from
7
<PAGE>
prior years which has been fully reserved and, therefore, has no impact on
current operations. The balance of the unsecured creditors either selected the
three-year payment plan, are currently negotiating with the Company or did not
reach discounted or deferred agreements with the Company. The Company did not
recognize any gain under the three-year payment arrangement.
At December 31, 1998, the Company had a $2,000,000 revolving line of
credit secured by accounts receivable. Borrowings under the line of credit were
subject to 70% of qualifying accounts receivable, less the aggregate amount
utilized under all commercial and standby letters of credit and bank
acceptances. The line of credit bore interest at prime plus 6% (14.5% at
December 31, 1998). In addition, the Company paid 2% interest on all new
invoices submitted for financing. The credit line was for one year and subject
to renewal annually. At December 31, 1998, the balance under the line of credit
was $814,311, which was the maximum available based on the qualifying accounts
receivable. Subsequent to December 31, 1998, the Company repaid this note
payable in full in connection with its January 1999 Financial Restructuring
(Note 7).
The gain on the restructuring of trade notes payable and accounts
payable was accounted for as an extraordinary item in the Company's Consolidated
Statements of Operations for the nine month period ended September 30, 1999. The
creditors who selected the long-term debt agreement are being paid their
balances due over a 36-month period in 36 equal installments with no interest.
The Company was involved in a patent infringement suit and reached a settlement
on January 27, 1999 to pay the balance due of $200,000 as part of the
restructuring of the Company's debt described above.
On August 19, 1999, the Company entered into a credit line agreement
with a bank that provides the Company with $4,000,000 of financing secured by
the Company's accounts receivables, inventory and other certain assets. The loan
facility bears interest at a rate of 1.5% above the bank's prime rate. At
September 30, 1999, the balance outstanding under this agreement was $2,395,022
(Note 7).
On October 12, 1999, DGJ advanced an additional $102,000 to the
Company, for the purchase of additional equipment, pursuant to a promissory note
providing for a single principal payment on February 1, 2004. The annual
interest rate is 10%, and interest is due monthly. The note is secured, subject
to the same subordination terms as the Amended Note, as reflected in the
intercreditor agreement, described above.
The Company's previous equipment, capital and operating leases were
replaced with a new equipment lease with DGJ in January 1999. Obligations of
$3,800,000 and accrued lease obligations of $1,643,000 were retired and
$1,679,000 of equipment previously treated as operating leases were added to the
property and equipment accounts. The new lease carries no debt reduction
obligation and is treated as long-term debt. The Company's combined monthly
payments under the retired leases were reduced from approximately $305,000 per
month to $102,000 per month under the new lease agreement with DGJ. The lease
obligation is a ten-year lease with monthly payments of $102,000 representing
interest only. The total principal amount of the lease is $6,800,000 and is due
at the end of the lease term. The lease was recorded as a
8
<PAGE>
capital lease during the quarter ended March 31, 1999 and is being treated as
such on an on-going basis. The lease requires the Company to meet certain
financial covenants, including, but not limited to, earnings targets and
debt-to-equity ratios.
The Company is in default on the equipment lease with DGJ as it
failed to make lease payments of $102,000 per month for the months of
September, October and November 1999 or $306,000 in total. As this has caused
an Event of Default, as defined in the equipment lease, DGJ is entitled to
various rights and remedies under the equipment lease and the Securities
Purchase Agreement, including, but not limited to, the right to have any and
all remaining sums under the lease become immediately due and payable and the
right to repossess the leased equipment. As of November 10, 1999, DGJ has
indicated a willingness to defer exercising its rights and remedies upon
default pending discussion with the Company regarding how the equipment lease
default is to be cured.
The note payable, warrants and Series C Preferred Stock purchased by
DGJ for $3,200,200 were valued using a discounted cash flow analysis, at an
assumed rate of 14%. Net cash proceeds after fees were assigned to the various
components of this transaction based upon the discounted value of the note
payable at 14%. Of the $3,200,200, $480,000 has been recorded as additional
capital in excess of par value related to the warrants. The Series C Preferred
Stock is determined to have no value separate from the warrants because it is
not convertible to Common Stock and its redemption price is the same as its
purchase price, $100 plus accrued interest at 6% per annum beginning on January
27, 1999. Also, the Series C Preferred Stock has no preference in liquidation,
although, it has a voting preference. The fair market value of the Common Stock
on January 27, 1999 was $0.28 per share. The warrants have an exercise price of
$0.04 per share.
Accounts payable long term consists of amounts due to vendors who
selected a 36-month payment plan as part of the Company's financial
restructuring. The payment plan current portion is included in current
liabilities.
NOTE 3: 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.
For the nine month periods ended September 30, 1999 and 1998, the
Company had recorded a net loss before extraordinary income. Therefore, basic
and diluted earnings per share are the same due to the anti-dilutive effect of
potential common shares outstanding. Anti-dilutive potential common shares
excluded from the computation include common shares
9
<PAGE>
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 4: ACCOUNTS RECEIVABLE-NET
Accounts receivable-net consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Accounts receivable-trade $ 1,904,306 $ 1,066,841
Allowance for doubtful accounts (54,553) (109,452)
Allowance for credits (75,900) (75,000)
----------- -----------
$ 1,773,853 $ 882,389
=========== ===========
</TABLE>
NOTE 5: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -----------
<S> <C> <C>
Raw materials $ 799,304 $ 296,427
Finished goods 1,154,586 420,986
------------- -----------
$1,953,890 $ 717,413
=========== ===========
</TABLE>
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, which includes costs of
assets constructed or purchased, related delivery and installation costs and
interest incurred on significant capital projects during their construction and
installation periods. Property under capital leases is recorded at the lower of
the present value of future minimum rental payments or the fair value of the
property at the beginning of the lease term. Maintenance and repairs that do not
extend the useful life of the asset or improve capacity are charged to expense
when incurred. Machinery and equipment are depreciated using the straight-line
method over a period of eleven years. Leasehold improvements consist of costs
relating to buildings and equipment under lease and are amortized using the
straight-line method over the shorter of the life of the asset or the remaining
life of the lease.
The carrying value of property and equipment is periodically reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying values may not be recoverable.
10
<PAGE>
NOTE 7: NOTE PAYABLE
At December 31, 1998, the Company had a $2,000,000 revolving line of
credit secured by accounts receivable. Borrowings under the line of credit were
subject to 70% of qualifying accounts receivable, less the aggregate amount
utilized under all commercial and standby letters of credit and bank
acceptances. The line of credit bore interest at prime plus 6% (14.5% at
December 31, 1998). In addition, the Company paid 2% interest on all new
invoices submitted for financing. The credit line was for one year and subject
to renewal annually. At December 31, 1998, the balance under the line of credit
was $814,311, which was the maximum available based on the qualifying accounts
receivable. Subsequent to December 31, 1998, the Company repaid this note
payable in full in connection with its financial restructuring (Note 2).
On August 19, 1999, the Company entered into a credit line agreement
with a bank that provides the Company with $4,000,000 of financing secured by
the Company's accounts receivables, inventory and other certain assets. The loan
facility bears interest at a rate of 1.5% above the bank's prime rate. At
September 30, 1999, the balance outstanding under this agreement was $2,395,022
(Note 2).
NOTE 8: NOTE PAYABLE - RELATED PARTY
On January 27, 1999 the Company issued a promissory note in the
aggregate principal amount of $3,200,000 to DGJ, L.L.C. ("DGJ") (Note 2). The
Note matures at the latest on February 1, 2004, had an interest rate of 6%
per annum payable monthly in arrears and is secured by all assets of the
Company. As part of the new financing agreement obtained with a bank on
August 19, 1999, the Company entered into an amended loan agreement with DGJ
(the "Amended Note"), which restates the Note and includes $1,573,585,
representing subsequent advances made to the Company, an equipment loan made
in March 1999 and past due interest on obligations of the Company to DGJ. The
Amended Note bears interest at 10% per annum. The addition to the Note is
payable on demand. An intercreditor agreement with the bank providing credit
line financing as of August 19, 1999, provides certain terms that must be met
by the Company before DGJ can collect on its obligations. The Company failed
to make interest payments to DGJ of $54,366 as of September 30, 1999 and
$40,347 in each of October and November 1999, or $135,060 in total on its
obligation. As this has caused an Event of Default, as defined in the Amended
Note, DGJ is entitled to various rights and remedies under the Amended Note
and the Securities Purchase Agreement, including, but not limited to, the
right to declare all or any part of the unpaid principal amount of the
Amended Note outstanding to be due and payable. As of November 10, 1999, DGJ
has indicated a willingness to defer exercising its rights and remedies upon
default pending discussion with the Company regarding how the Amended Note
default is to be cured.
11
<PAGE>
NOTE 9: CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1999
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SERIES B CONVERTIBLE SERIES A CONVERTIBLE SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
---------- ----------------------------------- -----------------------
---------- ----------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 146,695 $1,466,954 212,258 $674,032 0 $0
Subscribed stock
Net loss for the nine months
ending September 30, 1999
Ascribed value of Series C preferred
stock under refinancing of 1/27/99
Issuance of stock during financial 1,629,930 $100
restructuring
Conversion of Series A Convertible (9,600) ($96)
Preferred Stock to Common Stock
Warrants exercised subscribed stock
Balance at September 30, 1999 146,695 $1,466,954 202,658 $673,936 1,629,930 $100
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK SUBSCRIBED STOCK CAPITAL IN
----------------------- --------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT TOTAL
------ ------ ------ ------ --------- ------- -----
---------- ------------ ---------- ------------------------------------- ------------
---------- ------------ ---------- ------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 21,495,621 $214,956 0 $0 $44,912,833 ($43,989,302) $3,279,473
Subscribed stock 7,500,000 $300,000 $300,000
Net loss for the nine months
ending September 30, 1999 ($551,001) ($551,001)
Ascribed value of Series C preferred
stock under refinancing of 1/27/99 $480,000 $480,000
Issuance of stock during financial ($100) $0
restructuring
Conversion of Series A Convertible 9,600 $96 $0
Preferred Stock to Common Stock $0
Warrants exercised subscribed stock 5,626,000 $56,260 (5,626,000) ($225,040) $168,780 $0
Balance at September 30, 1999 27,131,221 $271,312 1,874,000 $74,960 $45,561,513 ($44,540,303) $3,508,472
</TABLE>
NOTE 10: RELATED PARTY TRANSACTIONS
Ivan J. Hughes, Chairman of the Board of Directors of the Company, is
the President of the Plastic's Division, and a director and a member of the
Executive and Compensation Committees of Duro Bag Manufacturing Company ("Duro
Bag"). During the first, second and third quarters, Duro Bag issued purchase
orders for $591,848, $605,748 and $665,486, respectively, to the Company to
purchase bags for Duro Bag customers. Orders from Duro Bag represented 18% of
sales during the first quarter period ended March 31, 1999, 15% of sales during
the second quarter period ended June 30, 1999 and 13% of sales during the third
quarter period ended September 30, 1999. The Company expects similar orders from
Duro Bag during the fourth quarter of 1999. The Company manufacturers these
products on behalf of Duro Bag for its customers. The Company sells these
products on terms as contracted between Duro Bag and its customers, which terms
are equal, if not better, than the Company could obtain from its other customers
for these products.
In November 1990, the Company established an officer's loan
receivable to Dennis N. Caulfield, its Chairman for $132,197. The note was
amended in April 1998 and the interest rate changed to 6% effective from
November 1990 and is now payable on or before January 1, 2001. Interest on
the loan, along with advances for travel not offset by expense records,
caused the loan balance to equal $586,978 as of December 31,1997. Mr.
Caulfield did not make any payments against the loan from the period
beginning 1990 through December 31, 1997. Accordingly, the Company reserved
the full amount of this loan on that date. Also, no payments were made in
1998. In addition, the Company paid, on behalf of the former Chairman,
approximately $36,000 of a $200,000 personal income tax levy imposed by the
Massachusetts Department of Revenue on Mr. Caulfield in exchange for an
interest bearing note due on or before June 30, 1998, which has not yet been
repaid. This note was reserved for as of September 30, 1999.
12
<PAGE>
Effective February 26, 1994, Ronald Caulfield exchanged his 49,500
shares of common stock of RC America 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 "Exchange Agreement"). The Exchange 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 year period based on RC
America attaining certain levels of pre-tax earnings. No shares of Common Stock
were issued in 1998 or for the 10 month period ended December 31, 1997. As a
result of RC America's earnings for the fiscal year ended February 28, 1997 and
February 23, 1996, 2,649 and 2,550 shares, respectively, of the 100,000 shares
of Common Stock were issued to Mr. Ronald Caulfield. The Exchange Agreement
contains demand and piggy-back registration rights for the shares.
Four of the Company's directors, Gary R. Edidin, Allen S. Gerrard,
Theodore L. Koenig and Bruce M. Fleisher, are either related to DGJ or have been
designated by DGJ. The January 1999 Financial Restructuring and loan described
in Note 2, Note 8 and all other transactions between the Company and DGJ will be
deemed to be related party transactions due to the relationships of these
directors with DGJ. Also, Mr. Koenig is counsel to the Chicago-based law firm of
Holleb & Coff, which provides legal services to the Company.
NOTE 11: RECLASSIFICATIONS
Certain distribution costs in the Consolidated Statements of Operations
for the period ended September 30, 1999 have been reclassified to conform with
current presentation.
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.
13
<PAGE>
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.
RESULTS OF OPERATIONS
THIRD QUARTER OF 1999 COMPARED TO THE THIRD QUARTER OF 1998
For the third quarter ended September 30, 1999, the Company had
sales of $5,183,632 compared to sales of $2,927,730 for the third quarter
ended September 30, 1998, an increase of 77%. Sales of the traditional
plastic carry-out bag market accounted for approximately $2.4 million of this
increase. The Company re-entered this market during the fourth quarter of
1998 and expects continued sales increases in this segment in future quarters.
To meet the increased sales demand, the Company went from a 3-shift,
5 day production schedule to a 4-shift, 7 day production schedule. Due to the
dilution of experience and know-how, this change resulted in a temporary
decrease in productivity. In addition, the Company's scrap rate increased
above standard and resin prices increased by 60% resulting in higher material
costs. The Company was unable to pass all of the increased material costs to
its customers due to competitive pricing pressures. These difficulties were
overcome late in the third quarter. Productivity in the fourth quarter, to
date, has increased by 29% over the third quarter. For these reasons, costs
of goods sold was $4,968,287 or 96% of sales, compared to $1,884,685 or 65%
of sales in the third quarter of 1998.
Selling, general and administrative expense for the third quarter of
1999 was $1,078,423, or 21% of sales, compared to $972,641, or 33% of sales, in
the third quarter of 1998. The decrease in selling, general and administrative
expense, as a percentage of sales, is due to the reduction of fixed expenses,
offset by an increase in variable expenses, which resulted from an increase in
sales volume. The decrease in fixed expenses is due to overhead reductions,
including the closing of operations of its two subsidiaries.
For the third quarter of 1999, interest expense was $522,609, compared
to $66,967 for the third quarter of 1998. The increase in interest expense is
due to the conversion of operating leases to capital leases as a result of the
Company's January 1999 Financial Restructuring.
14
<PAGE>
The net loss before extraordinary income was $1,375,594 in the third
quarter of 1999 compared to a net income of $10,483 in the third quarter of
1998. The combined income and loss change was primarily due to the increase
in cost of goods sold from a loss of productivity, an increase in material
costs and an increase in interest expense due to the conversion of operating
leases to capital leases. Cost of goods sold would have been approximately
$75,000 greater in the third quarter of both 1999 and 1998 had the Company
not recorded a write-down of plant and equipment during the fiscal year ended
February 28, 1997.
Extraordinary income of $2,758 in the third quarter of 1999 was the
result of the January 1999 Financial Restructuring and the resulting discounts
from settlements with unsecured creditors. No extraordinary income was reported
for the third quarter of 1998.
Net loss after extraordinary income was $1,372,836 for the third
quarter of 1999, compared with a net income of $10,483 in the third quarter
of 1998. The combined income and loss change was primarily due to the
increase in cost of goods sold from a loss of productivity, an increase in
material costs and an increase in interest expense due to the conversion of
operating leases to capital leases. Cost of goods sold would have been
approximately $75,000 greater in the third quarter of both 1999 and 1998 had
the Company not recorded a write-down of plant and equipment during the
fiscal year ended February 28, 1997.
The Company had basic and diluted net loss before extraordinary income
of $0.06 per share in the third quarter of 1999 compared to a net income of
$0.00 per share in third quarter of 1998.
FIRST NINE MONTHS OF 1999 COMPARED TO THE FIRST NINE MONTHS OF 1998
For the first nine months ended September 30, 1999, the Company had
sales of $12,655,596 compared to sales of $7,567,594 for the first nine months
ended September 30, 1998, an increase of 67%.
In the first nine months of 1999, cost of goods sold was
$10,963,520, or 87% of sales, compared to $6,406,468, or 85% of sales, in the
first nine months of 1998. The increase in cost of goods sold, as percentage
of sales, was primarily due to a temporary loss of productivity and an
increase in material costs in the third quarter, offset by increased volume
and productivity in the first two quarters of 1999. Cost of goods sold would
have been approximately $225,000 greater in the first nine months of 1999 and
1998 had the Company not recorded a write-down of plant and equipment during
the fiscal year ended February 28, 1997.
Selling, general and administrative expense for the first nine months
of 1999 was $2,887,941, or 23% of sales, compared to $3,621,456, or 48% of
sales, in the first nine months of 1998. The decrease in selling, general and
administrative expense, as a percentage of sales, is due to the reduction of
fixed expenses, offset by an increase in variable expenses, which resulted from
an increase in sales volume. The decrease in fixed expenses is due to overhead
reductions, including the closing of operations of its two subsidiaries.
15
<PAGE>
For the first nine months of 1999, interest expense was $1,354,713,
compared to $343,119 for the first nine months of 1998. The increase in interest
expense is due to the conversion of operating leases to capital leases as a
result of the January 1999 Financial Restructuring.
The net loss before extraordinary income was $2,471,466 in the first
nine months of 1999 compared to a net loss of $2,760,450 in the first nine
months of 1998. Cost of goods sold would have been approximately $225,000
greater in the first nine months of 1999 and 1998 had the Company not recorded a
write-down of plant and equipment during the fiscal year ended February 28,
1997.
Extraordinary income of $1,920,465 in the first nine months of 1999 was
the result of the January 1999 Financial Restructuring and the resulting
discounts from settlements with unsecured creditors. No extraordinary income was
reported for the first nine months of 1998.
The net loss after extraordinary income was $551,001 for the first nine
months of 1999, compared with a net loss of $2,760,450 in the first nine months
of 1998. The loss was primarily due to the increase in cost of goods sold from a
loss of productivity and an increase in interest expense due to the conversion
of operating leases to capital leases. Cost of goods sold would have been
approximately $225,000 greater in the first nine months of 1999 and 1998 had the
Company not recorded a write-down of plant and equipment during the fiscal year
ended February 28, 1997.
The Company had basic and diluted net loss before extraordinary income
of $0.11 per share in the first nine months of 1999 compared to a loss before
extraordinary income of $0.13 per share in the first nine months of 1998.
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.
Currently the Company does not have readily available sources of funds
for working capital. In the second and third quarters of 1999, it borrowed
additional funds and is currently in default on some of its borrowings and its
equipment lease.
On January 27, 1999 the Company issued a promissory note in the
aggregate principal amount of $3,200,000 to DGJ, L.L.C. ("DGJ") (the "Note").
The Note matures at the latest on February 1, 2004, had an interest rate of 6%
per annum payable monthly in arrears and is secured by all assets of the
Company. As part of the new financing agreement obtained with a bank on August
19, 1999, the Company entered into an amended loan agreement with DGJ (the
"Amended Note"), which restates the Note and includes $1,573,585, representing
subsequent advances made to the Company, an equipment loan made in March 1999
and past due interest on obligations of the Company to DGJ. The Amended Note
bears interest at 10% per annum. The addition to the Note is payable on demand.
An intercreditor agreement with the bank providing
16
<PAGE>
credit line financing as of August 19, 1999, provides certain terms that must
be met by the Company before DGJ can collect on its obligations. The Company
failed to make interest payments to DGJ of $54,366 as of September 30, 1999
and $40,347 in each of October and November 1999, or $135,060 in total on its
obligation. As this has caused an Event of Default, as defined in the Amended
Note, DGJ is entitled to various rights and remedies under the Amended Note
and the Securities Purchase Agreement, including, but not limited to, the
right to declare all or any part of the unpaid principal amount of the
Amended Note outstanding to be due and payable. As of November 10, 1999, DGJ
has indicated a willingness to defer exercising its rights and remedies upon
default pending discussion with the Company regarding how the Amended Note
default is to be cured.
On August 19, 1999, the Company entered into a credit line agreement
with a bank that provides the Company with $4,000,000 of financing secured by
the Company's accounts receivables, inventory and other certain assets. The loan
facility bears interest at a rate of 1.5% above the bank's prime rate. At
September 30, 1999, the balance outstanding under this agreement was $2,395,022.
The Company's previous equipment, capital and operating leases were
replaced with a new equipment lease with DGJ in January 1999. Obligations of
$3,800,000 and accrued lease obligations of $1,643,000 were retired and
$1,679,000 of equipment previously treated as operating leases were added to the
property and equipment accounts. The new lease carries no debt reduction
obligation and is treated as long-term debt. The Company's combined monthly
payments under the retired leases were reduced from approximately $305,000 per
month to $102,000 per month under the new lease agreement with DGJ. The lease
obligation is a ten-year lease with monthly payments of $102,000 representing
interest only. The total principal amount of the lease is $6,800,000 and is due
at the end of the lease term. The lease was recorded as a capital lease during
the quarter ended March 31, 1999 and is being treated as such on an on-going
basis. The lease requires the Company to meet certain financial covenants,
including, but not limited to, earnings targets and debt-to-equity ratios.
The Company is in default on the equipment lease with DGJ as it
failed to make lease payments of $102,000 per month for the months of
September, October and November 1999 or $306,000 in total. As this has caused
an Event of Default, as defined in the equipment lease, DGJ is entitled to
various rights and remedies under the equipment lease and the Securities
Purchase Agreement, including, but not limited to, the right to have any and
all remaining sums under the lease become immediately due and payable and the
right to repossess the leased equipment. As of November 10, 1999, DGJ has
indicated a willingness to defer exercising its rights and remedies upon
default pending discussion with the Company regarding how the equipment lease
default is to be cured.
17
<PAGE>
On October 12, 1999, DGJ advanced an additional $102,000 to the
Company, for the purchase of additional equipment, pursuant to a promissory note
providing for a single principal payment on February 1, 2004. The annual
interest rate is 10%, and interest is due monthly. The note is secured, subject
to the same subordination terms as the Amended Note, as reflected in the
intercreditor agreement, described above.
SALES OF SECURITIES
The Company received net proceeds from the privately placed sale of
Common Stock and exercise of warrants from January 1, 1998 to September 30, 1998
of $1,403,151. The proceeds were used for general corporate purposes.
No Common Stock was issued from sales by the Company from January 1,
1999 through September 30, 1999. In connection with the January 1999 Financial
Restructuring of the Company, 1,629,930 shares of Series C Preferred Stock were
issued to DGJ for $100. Also, in connection with the January 1999 Financial
Restructuring, the Company reserved 30,937,500 shares of authorized but unissued
shares of Common Stock to meet its requirements under the financing terms of
such restructuring.
As of September 30, 1999, 5,626,000 of the 7,500,000 warrant shares
issued to management in connection with the January 1999 Financial Restructuring
were converted into Common Stock.
EQUIPMENT AND LEASE FINANCING
Pursuant to the Securities Purchase Agreement between the Company and
DGJ dated January 27, 1999, the Company entered into a ten year equipment lease
with DGJ, whereby the Company agreed to lease certain equipment for $1,224,000
(interest only at 18%) per year, payable in equal monthly installments. This
equipment lease replaced existing equipment leases, which have been terminated,
in which the Company was in default or which were subject to judgments due to
past due payments owed by the Company. The Company is in default on this
equipment lease (see "Liquidity and Capital Resources").
LIQUIDITY
The Company's cash flow was enhanced by $2,064,011 from depreciation
and amortization non-cash charges in the first nine months of 1999. Inventory
and accounts receivable increased by a total of $2,127,941 during the first nine
months of 1999. The current asset ratio was 0.51:1 at September 30, 1999 and
0.12:1 at December 31, 1998. The debt to equity ratio was 5.16:1 at September
30, 1999 and 4.4:1 at December 31, 1998.
18
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS AND PATENT INFRINGEMENT SETTLEMENT
During the fourth quarter of the fiscal year ended February 28, 1997,
the Company made the decision to exit the traditional plastic carry-out bag
business. The application of Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of," caused the Company to recognize a non-cash charge of $5,385,000 to
write down to fair value certain long-lived assets consisting principally of
machinery and equipment, patents and goodwill, together with other related
expenses. The method used to determine fair value was a discounted cash flow
approach. The assets consist of those related to the manufacture of the
traditional plastic carry-out bag business.
Description of impaired assets, patents, goodwill and plant assets
relating to bag making facilities:
<TABLE>
<S> <C>
Patents $1,044,577
Goodwill 620,353
Plant equipment 3,335,070
Reserve for agreement with bag-making
equipment vendor 285,000
Write-off of rubber plates used in
bag-making equipment 100,000
----------
Total $5,385,000
==========
</TABLE>
Fair value of all assets, except plant equipment, was determined to be
zero based upon the Company's decision to exit the traditional plastic carry-out
bag business. Fair value of the plant equipment was determined based upon
projected future cash flows for the remaining useful life, present book value
and residual value of assets at the end of its useful life, with cash flows both
discounted at 14% per year (average cost of secured debt financing).
A patent infringement suit settlement of $512,648, including legal
defense costs, was recorded during the fiscal year ended February 28, 1997.
IMPACT OF INFLATION
Resin prices increased by 10% during the third quarter of 1999 and did
have an unfavorable impact on cost of goods sold and increased the loss for the
quarter.
YEAR 2000
The Company implemented a Year 2000 compliance project in June 1998,
which addresses the internal risk, requirements and budgets for becoming Year
2000 compliant. The Company has completed an inventory of all of its internal
operations and currently is addressing Year 2000 compliance from its suppliers
and other constituents. In 1998, the Company did not have any costs associated
with Year 2000 compliance. During the first nine months of 1999, the Company
expended $25,000 on Year 2000 compliance.
19
<PAGE>
As a result of the Year 2000 compliance project, the Company has
upgraded its financial and accounting system at an investment of approximately
$25,000, and has funded the upgrade out of working capital. The finance and
accounting system upgrade was installed and tested as of October 22, 1999. The
Company has tested all of its manufacturing equipment, including its
manufacturing information systems, and all were determined to be Year 2000
compliant. The Company has not utilized any independent verification or
validation processes since the tests performed on the Company's manufacturing
systems determined the systems to be Year 2000 complaint. The Company does not
contract out its systems maintenance and design and, therefore, has no third
party risk in this regard.
As of November 10, 1999, the Company has contacted five significant
customers, which accounted for 66.8% of total sales for the nine month period
ended September 30, 1999 regarding their Year 2000 compliance status. All of
these customers have indicated that they are either already Year 2000 complaint
or are on schedule to be Year 2000 compliant by December 31, 1999. None of these
customers currently order from the Company through electronic systems.
The Company sent questionnaires to all 409 vendors as of May 14, 1999
regarding their Year 2000 compliance status. As of November 10, 1999 the Company
received 183 responses. All major vendors responded that they are currently Year
2000 compliant and the other vendors are either Year 2000 compliant or are on
schedule to be Year 2000 compliant by December 31, 1999.
In the worse-case scenario envisioned by the Company, Year 2000
compliance issues may cause the railroad systems in the United States to become
dysfunctional, which would cause the Company to obtain its resin and other
supplies by other means of transportation. The Company would be unable to
manufacture products and revenues would be impacted 60 days after the rail
system ceases to function. The Company's contingency plan is to implement a
manual system for its accounting and finance functions and accumulate a 30-day
inventory excess of raw materials by December 31, 1999.
The Company has not deferred any of its information technology projects
due to its Year 2000 efforts. Furthermore, there has been no impact from any
deferred projects on the Company's financial condition or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required by the Company at this time.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At December 31, 1998, we were involved in various pending commercial
legal proceedings with equipment lessors and trade suppliers because of lease
defaults and overdue trade accounts. The debt of the equipment lessors was paid
in conjunction with the January 1999 Financial Restructuring on terms we
negotiated with the lessors. Currently, we have no significant pending
commercial legal proceedings with equipment lessors or trade suppliers.
A notice of potential claim has been sent by a group of investors to
both the Company and its insurance carrier. This notice alleges that our former
management made misrepresentations concerning registration rights attendant to
the securities purchased by them pursuant to Regulation D, Rule 144A and
Regulation S of the Securities Act. On October 25, 1999, the securities held by
this group of investors were registered with the SEC by prospectus and
registration statement. We believe that any settlement in connection with this
potential claim will not have a material effect on our operations. Except as
noted below, no further action has been taken by this group of investors as of
November 10, 1999.
On October 4, 1999, Professional Edge Fund, L.P. ("Pro Edge"), one
of the group of investors described above, filed suit against the Company in
the Court of Common Pleas of Philadelphia County Trial Division, Action No.
000147. Pro Edge also named as defendants C. Jill Beresford, our Vice
President of Marketing, Dennis N. Caulfield, our former Chief Executive
Officer and Chairman of the Board of Directors, and Newport Capital Partners
in this matter. Pro Edge has alleged that the Company has breached a contract
in regards to the registration of shares it purchased in a private placement
of shares in November 1997 and that we have been unjustly enriched based on
the sale of these unregistered shares. Pro Edge is seeking damages in an
amount of approximately $1,013,000 plus interest and costs and expenses of
the lawsuit. The Company intends to vigorously defend itself against these
allegations.
On November 26, 1997, the estate of a former temporary worker, Mr. John
Dion, has filed a wrongful death suit against the Company in Bristol County
(Massachusetts) Superior Court, Civil Action No. 97-01688. The lawsuit alleges
that the Company's actions caused or contributed to Mr. Dion's, December 7,
1994, fatal forklift accident at the Company. Both parties continue to conduct
discovery regarding this accident. The Company's general liability insurance
carrier is vigorously defending the Company against these allegations. The
outcome of this lawsuit remains uncertain. The Company has a total of $3 million
in insurance coverage in place. The Company believes the insurance coverage is
sufficient to cover the Company's exposure.
ITEM 2. CHANGES IN SECURITIES
1. On October 25, 1999, securities acquired by a group of
investors pursuant to Regulation D and Rule 144A of the
Securities Act of 1933, as amended, were registered with the
Securities and Exchange Commission.
21
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a) On January 27, 1999 the Company issued a promissory note in the
aggregate principal amount of $3,200,000 to DGJ (the "Note").
The Note matures at the latest on February 1, 2004, had an
interest rate of 6% per annum payable monthly in arrears and is
secured by all assets of the Company. As part of the new
financing agreement obtained with a bank on August 19, 1999, the
Company entered into an amended loan agreement with DGJ (the
"Amended Note"), which restated the Note and included
$1,573,585, representing subsequent advances made to the
Company, an equipment loan made in March 1999 and past due
interest on obligations of the Company to DGJ. The Amended Note
bears interest at 10% per annum. The addition to the Note is
payable on demand. An intercreditor agreement with the bank
providing credit line financing as of August 19, 1999, provides
certain terms that must be met by the Company before DGJ can
collect on its obligations. The Company failed to make interest
payments to DGJ of $54,366 as of September 30, 1999 and $40,347
in each of October and November 1999, or $135,060 in total on
its obligation. As this has caused an Event of Default, as
defined in the Amended Note, DGJ is entitled to various rights
and remedies under the Amended Note and the Securities Purchase
Agreement, including, but not limited to, the right to declare
all or any part of the unpaid principal amount of the Amended
Note outstanding to be due and payable. As of November 10,
1999, DGJ has indicated a willingness to defer exercising its
rights and remedies upon default pending discussion with the
Company regarding how the Amended Note default is to be cured.
b) The Company was in default on the equipment lease with DGJ as it
failed to make lease payments of $102,000 per month for the
months of September, October and November 1999 or $306,000 in
total. As this has caused an Event of Default, as defined in the
equipment lease, DGJ is entitled to various rights and remedies
under the equipment lease and the Securities Purchase Agreement,
including, but not limited to, the right to have any and all
remaining sums under the lease become immediately due and
payable and the right to repossess the leased equipment. As of
November 10, 1999, DGJ has indicated a willingness to defer
exercising its rights and remedies upon default pending
discussion with the Company regarding how the equipment lease
default is to be cured.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 24, 1999, the Company had its Annual Meeting of
Stockholders in which the following resolutions were adopted:
1. Livingston & Haynes, P.C. to serve as the independent
accountants for the Company for the year ending December 31,
1999.
22
<PAGE>
2. The number of authorized shares of common stock of the Company
be increased from 60,000,000 to 150,000,000 shares.
3. Ivan J. Hughes and Allen S. Gerrard serve as Class I directors
for term expiring in 2002.
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b) The Company filed the following report on Form 8-K during the
three month period ended September 30, 1999.
1. Report on Form 8-K, dated August 19, 1999, to report the new
financing agreement obtained with a bank on August 19, 1999 and
an amended loan agreement with DGJ, which restates the
subordinated note payable and includes an amount representing
advances made to the Company, an equipment loan and past due
interest on obligations of the Company to DGJ.
23
<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: November 15, 1999 By: /s/ Hanspeter Schulz
--------------------
President
Date: November 15, 1999 By: /s/ James F. Koehlinger
-----------------------
Chief Financial Officer and
Treasurer
24
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