<PAGE>
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
MARCH 31, 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, $.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 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 May 7 , 1999 was approximately $3,439,299 for the Common Stock and
$212,258 for the Series A Convertible Preferred Stock. As of May 7, 1999,
21,495,621 shares of Common Stock, $.01 par value per share, were outstanding
and 212,258 shares of Series A Convertible Preferred Stock, $.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 March 31, 1999
and December 31, 1998.................................... 1
Consolidated Statement of Operations - Three Month
periods ended March 31, 1999 and March 31, 1998.......... 3
Consolidated Statement of Cash Flows - Three Month
periods ended March 31, 1999 and March 31, 1998......... 4
Notes to Consolidated Financial Statements ................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 14
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
</TABLE>
i.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash $ 185,493 $ 73,116
Accounts receivable, net 1,263,385 882,389
Inventories 1,165,221 717,413
Prepaid expenses and other current assets, net 79,708 51,420
----------- -----------
Total current assets 2,693,807 1,724,338
----------- -----------
Property and equipment, net 16,731,059 15,290,305
----------- -----------
Deposits - leases and equipment purchases 73,911 149,851
Loans to officers, net 6,249 6,072
Other assets 1,511,818 581,399
----------- -----------
1,591,978 737,322
----------- -----------
$21,016,844 $17,751,965
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
1
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Note payable $ 1,300,540 $ 814,311
Trade notes payable -- 584,433
Capital lease obligations due within one year -- 3,800,286
Accounts payable 2,180,158 6,597,223
Accrued expenses 1,123,176 2,676,239
------------ ------------
Total current liabilities 4,603,874 14,472,492
------------ ------------
Long - term liabilities
Capitalized lease obligations 7,018,665 --
Subordinated debt 2,720,000 --
Accounts payable long term 1,339,036 --
------------ ------------
Total long - term liabilities 11,077,701 --
Stockholders' Equity
Series B convertible preferred stock, $.01 par value 1,466,954 1,466,954
Series A convertible preferred stock, $.01 par value 674,032 674,032
Series C redeemable preferred stock, $.01 par value 100 --
Common stock, $.01 par value; shares authorized -
60,000,000; shares issued and outstanding - 21,495,621 at
March 31, 1999 and at December 31, 1998 214,956 214,956
Subscribed stock 300,000 --
Capital in excess of par value 45,392,733 44,912,833
Accumulated deficit (42,713,506) (43,989,302)
------------ ------------
5,335,269 3,279,473
------------ ------------
$ 21,016,844 $ 17,751,965
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
-------THREE MONTHS ENDED----
MARCH 31, MARCH 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 3,340,984 $ 2,232,897
Cost of goods sold 2,656,164 2,233,039
------------ ------------
Gross profit ( loss ) 684,820 (142)
Operating expenses:
Selling, general and administrative 885,026 1,095,071
------------ ------------
(Loss) income from operations (200,206) (1,095,213)
Other (expense) income:
Interest / other expense (271,772) (144,935)
Interest / other income 16,012 17,355
------------ ------------
Net loss before extraordinary income (455,966) (1,222,793)
Extraordinary income - gain on debt restructuring 1,731,762 --
------------ ------------
Net income/(loss) after extraordinary income $ 1,275,796 $ (1,222,793)
------------ ------------
------------ ------------
Earnings (loss) per share before extraordinary income:
Basic and diluted net earnings (loss) per share $ (0.02) $ (0.06)
Shares used in computing basic and diluted net earnings
(loss) per share 21,495,621 19,839,052
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share $ 0.06 $ (0.06)
Shares used in computing basic and diluted net earnings
(loss) per share 21,495,621 19,839,052
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
----THREE MONTHS ENDED ----
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $ 1,275,796 $(1,222,793)
----------- -----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 700,581 637,177
Inventory reserve -- (215,000)
Warrants granted for lease extension -- 120,200
(Increase) in accounts receivable - trade (380,996) (42,346)
(Increase) decrease in inventories (447,808) 692,572
(Increase) decrease in prepaid expenses and other current assets (28,288) 3,433
Decrease in other assets, net -- 88,636
Increase (decrease) in accounts payable (1,932,508) 45,923
Increase (decrease) in other accrued expenses 90,314 (16,591)
----------- -----------
Total adjustments (1,998,705) 1,314,004
----------- -----------
Net cash (used in) provided by operating activities (722,909) 91,211
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (431,153) --
Deposits related to equipment refinancing 75,940 --
Additions to property and equipment debt refinancing (1,678,973) --
(Increase) in advance to officers (177) (157)
Decrease in other assets, net 246,696 --
----------- -----------
Net cash (used in) provided by investing activities (1,787,667) (157)
----------- -----------
Cash flows from financing activities:
Net increase (payments) under note payable - bank 486,229 (821,687)
Refinancing costs (1,208,324) --
Refinance of capital and operating leases (5,443,663) --
Refinancing of debt gain on reduction of accounts payable (1,730,054) --
Refinanced capital lease obligation 7,018,665 --
Subordinated debt addition 3,200,000 --
Subscribed stock 300,000 --
Net proceeds from sales of stock and exercise of warrants 100 756,900
----------- -----------
Net cash (used in) provided by financing activities 2,622,953 (64,787)
----------- -----------
Net increase in cash 112,377 26,267
Cash at beginning of period 73,116 125,220
----------- -----------
Cash at end of period $ 185,493 $ 151,487
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<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 three month
period ended March 31, 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 the Annual Report on Form 10-K and Amendment
No. 1 to the Annual Report on Form 10-K/A for BPI Packaging Technologies,
Inc. (the "Company") for the year ended December 31, 1998 and the Form 8-K
filed on February 11, 1999 related to the financial restructuring of the
Company.
NOTE 2: FINANCIAL RESTRUCTURING
On January 27, 1999, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement") with an investor, DGJ, L.L.C., a
Delaware limited liability company, ("DGJ") 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;
2. a Common Stock Purchase Warrant for the purchase of up to 80,000,000
shares of the Company's common stock, $.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 $3,200,000 subordinated note has terms of payment due February 1, 2004
or earlier if the Company enters into a merger agreement, into 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 has an interest rate of 6% per annum payable monthly in
arrears. The note is secured by all assets of the Company.
In addition, Company management invested $300,000 in warrant exercises that
appear as subscribed stock on the Company's financial statements. The Common
Stock represented by the warrants cannot be issued until approval for an
increase in the authorized number of shares of Common Stock is obtained at the
next annual meeting of stockholders.
5
<PAGE>
A factoring agreement with a company related to DGJ provides the Company
with $2,000,000 of financing secured by the Company's accounts receivable and
$1,000,000 secured by its inventory. The term for both accounts receivable and
inventory financing is six months, subject to automatic renewal unless the
Company gives at least 90 days written notice of termination. Written notice of
termination regarding this factoring agreement was given by the Company on March
30, 1999. The financing bears interest at the prime rate plus 5% on the
outstanding balance on the inventory loan and the prime rate plus 2% on all
accounts receivable submitted for financing. The Company may borrow up to 85% of
its qualified accounts receivable and 33% of its qualified inventory.
In conjunction with the refinancing, the Company entered into agreements
with most of its unsecured creditors that provided for 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
financing 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.
The Company's equipment, capital and operating leases were funded by a
new equipment lease with DGJ. Current obligations of $3,800,000 and accrued
lease obligations of $1,643,000 were retired and $1,679,000 of equipment
previously under 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 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. The Company was in arrears on one monthly
lease payment as of March 31, 1999.
The note payable, warrants and Series C Preferred Stock purchased by DGJ
for $3,200,200 were valued at the discounted fair market value at an assumed
rate of 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. The Series C Preferred
Stock is not convertible and has no preference in liquidation, although, it has
a voting preference. This financial restructuring will be deemed a related party
transaction (Note 9).
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 periods ended March 31, 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 issuable upon the exercise of stock options, common shares
issuable upon the conversion of redeemable convertible preferred stock or upon
the exercise of warrants.
6
<PAGE>
NOTE 4: ACCOUNTS RECEIVABLE-TRADE
Accounts receivable-trade consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Accounts receivable-trade $ 1,442,938 $ 1,066,841
Allowance for doubtful accounts (104,553) (109,452)
Allowance for credits (75,000) (75,000)
----------- -----------
$ 1,263,385 $ 882,389
----------- -----------
----------- -----------
</TABLE>
NOTE 5: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Raw materials $ 329,156 $ 296,427
Finished goods 836,065 420,986
---------- ----------
$1,165,221 $ 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.
7
<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 January 27, 1999, the Company entered into a factoring agreement, which
provides the Company with up to $2,000,000 of financing secured by the Company's
accounts receivables and $1,000,000 secured by its inventory. At March 31, 1999,
the balance under this agreement was $1,300,540 (Note 2).
NOTE 8: CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 1999
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
SERIES B CONVERTIBLE SERIES A CONVERTIBLE SERIES C REDEEMABLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 146,695 $ 1,466,954 212,258 $ 674,032 0 $ 0 21,495,621 $ 214,956
Subscribed stock
Net income for the three months
ending March 31, 1999
Ascribed value of Series C
Redeemable Preferred Stock
under refinancing of 1/27/99
Issuance of stock during
financial restructuring 1,629,930 $ 100
Balance at March 31, 1999 146,695 $ 1,466,954 212,258 $ 674,032 1,629,930 $ 100 21,495,621 $ 214,956
</TABLE>
<TABLE>
<CAPTION>
CAPITAL IN
SUBSCRIBED STOCK EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT TOTAL
------ ------ --------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 0 $ 0 $ 44,912,833 ($43,989,302) $ 3,279,473
Subscribed stock 7,500,000 $ 300,000 $ 300,000
Net income for the three months
ending March 31, 1999 $ 1,275,796 $ 1,275,796
Ascribed value of Series C
Redeemable Preferred Stock
under refinancing of 1/27/99 $ 480,000 $ 480,000
Issuance of stock during
financial restructuring ($100) $ 0
Balance at March 31, 1999 7,500,000 $ 300,000 $ 45,392,733 ($42,713,506) $ 5,335,269
</TABLE>
8
<PAGE>
NOTE 9: RELATED PARTY TRANSACTIONS
Ivan J. Hughes, a director 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, Inc. ("Duro Bag"). In
January, February and March, Duro Bag issued purchase orders for $192,000,
$190,335 and $209,513 to the Company to purchase bags for Duro Bag customers.
The Company expects similar monthly orders from Duro Bag throughout 1999.
These orders represent 18% of sales during the first quarter period ended
March 31, 1999.
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. As the Company has suffered recurring net
losses and operating cash flow deficiencies, a reserve of $586,978 was
established as of December 31, 1997 for this loan and additional loans the
Company made to Mr. Caulfield. In addition, the Company paid, on behalf of the
former Chairman, approximately $36,000 of a $200,000 levy in exchange for an
interest bearing note due on or before June 30, 1998, which has not yet been
repaid and was reserved as of March 31, 1999.
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
years ending 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 financial restructuring described in Note 2 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 a partner with the Chicago-based law firm of Holleb & Coff, which is
now providing legal services to the Company.
In February 1999, the Company borrowed approximately $219,000 from DGJ to
purchase additional pieces of equipment. This loan bears interest at a rate of
18% per annum and matures in September 1999.
9
<PAGE>
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.
RESULTS OF OPERATIONS
FIRST QUARTER OF 1999 COMPARED TO THE FIRST QUARTER OF 1998
For the first quarter ended March 31, 1999, the Company had sales of
$3,340,984 compared to sales of $2,232,897 for the first quarter ended March 31,
1998.
Sales of the Company's proprietary bag products (FRESH-SAC-Registered
Trademark-) T-shirt sack produce bag and HANDI-SAC-TM-) and film products were
$2,367,295 in the first quarter of 1999, compared to sales of $1,989,170 in the
first quarter of 1998, an increase of 19%. Sales of traditional plastic
carry-out bags were $973,689 in the first quarter of 1999, compared to sales of
$243,727 in the first quarter of 1998, an increase of 299%.
10
<PAGE>
In the first quarter of 1999, cost of goods sold was $2,656,164 or 79.5%
of sales, compared to $2,233,039, or 100% of sales, in the first quarter of
1998. The decrease in cost of goods sold as a percentage of sales is due to a
decrease in fixed costs, increased sales volume and a reduction in variable
costs as a percentage of sales. Cost of goods sold would have been
approximately $75,000 greater in the first quarter 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 quarter of 1999
was $885,026, or 26.5% of sales, compared to $1,095,071, or 49.1% of sales, in
the first 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.
For the first quarter of 1999, interest expense was $271,772, compared to
$144,935 for the first quarter of 1998. The increase in interest expense is due
to the conversion of operating leases to capital leases as a result of the
financial restructuring in January 1999, described below.
The net loss before extraordinary income was $455,966 in the first quarter
of 1999 compared to a net loss of $1,222,793 in the first quarter of 1998. The
decrease in the loss before extraordinary income was due to a decrease in fixed
expenses and an increase in sales volume.
Extraordinary income of $1,731,762 in the first quarter of 1999 was the
result of the financial restructuring in January 1999 and the resulting
discounts from settlements with unsecured creditors. No extraordinary income was
reported for the first quarter of 1998.
Net income after extraordinary income was $1,275,796 for the first
quarter of 1999, compared with a loss of $1,222,793 in the first quarter of
1998. The change from net loss to net income was caused by a decrease in
fixed expenses, an increase in sales volume and the financial restructuring
during the first quarter of 1999. Net income after extraordinary income
during the first quarter of 1999 would have been approximately $75,000 lower
and the loss for 1998 higher 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 earnings of $0.06 per share in the
first quarter of 1999 compared to a loss of $0.06 per share in first quarter
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.
SALES OF SECURITIES
The Company received net proceeds from the privately placed sale of Common
Stock from January 1, 1998 to June 30, 1998 of $1,282,951. The proceeds were
used for general corporate purposes.
No Common Stock was issued by the Company from January 1, 1999 through
March 31, 1999. In connection with the financial restructuring of the Company
in January 1999, 1,629,930 shares of Series C Preferred Stock were issued to
DGJ, L.L.C. ("DGJ") for $100. Also, in connection with the January 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.
11
<PAGE>
EQUIPMENT AND LEASE FINANCING
Pursuant to the Securities Purchase Agreement between the Company and
DGJ dated January 27, 1999 (the "Purchase Agreement"), the Company entered
into a ten year Equipment Lease with DGJ (the "Equipment Lease"), whereby the
Company agreed to lease certain equipment for $1,224,000 (interest only at
18%) per year, payable in equal monthly installments. The 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.
In February 1999, the Company borrowed approximately $219,000 from DGJ
to purchase additional pieces of equipment. This loan bears interest at a
rate of 18% per annum and has the same maturity as the Equipment Lease (see
Financial Restructuring, below).
LIQUIDITY
The Company's cash flow was enhanced by $700,581 from depreciation and
amortization non-cash charges in the first quarter of 1999. Inventory and
accounts receivable increased by a total of $828,804 during the first quarter of
1999. The current asset ratio was 0.59:1 at March 31, 1999 and 0.12:1 at
December 31, 1998. The debt to equity ratio was 2.9:1 at March 31, 1999 and
4.4:1 at December 31, 1998.
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 T-shirt 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 T-shirt
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 T-shirt 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).
12
<PAGE>
A patent infringement suit settlement of $512,648, including legal defense
costs, was recorded during the fiscal year ended February 28, 1997.
FINANCIAL RESTRUCTURING
On January 27, 1999, the Company entered into the Purchase Agreement,
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;
2. a Common Stock Purchase Warrant for the purchase of up to 80,000,000
shares of the Company's common stock, $.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 $3,200,000 subordinated note with a term of payment due February 1,
2004 or earlier if the Company enters into a merger agreement, into 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 has an interest rate of 6% per annum payable
monthly in arrears. The note is secured by all assets of the Company.
In addition, Company management invested $300,000 in warrant exercises that
appear as subscribed stock on the Company's financial statements. The Common
Stock represented by the warrants cannot be issued until approval for an
increase in the authorized number of shares of Common Stock is obtained at the
next annual meeting of stockholders.
A factoring agreement with a company related to DGJ provides the Company
with $2,000,000 of financing secured by the Company's accounts receivable and
$1,000,000 secured by its inventory. The term for both accounts receivable and
inventory financing is six months, subject to automatic renewal unless the
Company gives at least 90 days written notice of termination. Written notice of
termination regarding this factoring agreement was given by the Company on March
30, 1999. The financing bears interest at the prime rate plus 5% on the
outstanding balance on the inventory loan and the prime rate plus 2% on all
accounts receivable submitted for financing. The Company may borrow up to 85% of
its qualified accounts receivable and 33% of its qualified inventory.
In conjunction with the financing, the Company entered into agreements with
most of its unsecured creditors that provided for 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
financing 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.
The Company's equipment, capital and operating leases were funded by a
new equipment lease with DGJ. Current obligations of $3,800,000 and accrued
lease obligations of $1,643,000 were retired and $1,679,000 of equipment
previously under 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 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. The Company was in arrears on one monthly
lease payment as of March 31, 1999.
13
<PAGE>
The note payable, warrants and Series C Preferred Stock purchased by DGJ
for $3,200,200 were valued at the discounted fair market value at an assumed
rate of 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. The Series C Preferred
Stock is not convertible and has no preference in liquidation, although, it has
a voting preference.This financial restructuring will be deemed a related party
transaction.
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.
IMPACT OF INFLATION
Inflation during the first quarter of 1999 did not have any impact on
operating results nor did it have any impact on the last three fiscal periods.
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. During the first quarter of 1999, the
Company spent $25,000 in connection with Year 2000 compliance.
As a result of the Year 2000 compliance project, the Company is upgrading
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 is currently in process and is expected to be completed by July
31, 1999. In manufacturing, the Company has completed approximately 65% of the
review process. The Company has not found, and does not presently expect to
find, any case in which the failure of a piece of operating equipment to be Year
2000 compliant would materially affect the operation of such equipment. The
Company does not expect that the cost of making any operating equipment Year
2000 compliant to be material.
The balance of the Year 2000 compliance review and contingency plan project
is anticipated to be completed by June 30, 1999. This portion of the plan
includes reviewing compliance for the Company's weight scales, telephone and
alarm systems, fax and copy machines, utilities, insurance providers, banking
institutions and key suppliers. The additional costs of achieving full Year 2000
compliance are expected to be $25,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required by the Company at this time.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At December 31, 1998, the Company was 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 27, 1999 financing on terms negotiated
between the Company and the lessors. The Company now has no pending significant
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 alleging that the Company's former
management made misrepresentations concerning registration rights attendant to
the securities purchased by them pursuant to Regulation D of the Securities Act
of 1933, as amended. The Company believes that any settlement in connection with
this potential claim will not have a material effect on its operations.
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
b) The Company filed the following reports on Form 8-K during the three
month period ended March 31, 1999:
(1) Report on Form 8-K, dated January 27, 1999, to report the
financial restructuring of the Company.
(2) Report on Form 8-K, dated March 31, 1999, to report the
employment of Peter W. Blackett as the Company's Senior Vice
President of Sales, which commenced on March 22, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BPI PACKAGING TECHNOLOGIES, INC.
Date: May 17, 1999 By: /S/ HANSPETER SCHULZ
--------------------
President
Date: May 17, 1999 By: /S/ JAMES F. KOEHLINGER
-----------------------
Chief Financial Officer and
Treasurer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 185,493
<SECURITIES> 0
<RECEIVABLES> 1,442,938
<ALLOWANCES> 179,553
<INVENTORY> 1,165,221
<CURRENT-ASSETS> 2,693,807
<PP&E> 30,862,324
<DEPRECIATION> 14,131,265
<TOTAL-ASSETS> 21,016,844
<CURRENT-LIABILITIES> 4,603,874
<BONDS> 0
0
2,141,086
<COMMON> 214,956
<OTHER-SE> 2,979,227
<TOTAL-LIABILITY-AND-EQUITY> 21,016,844
<SALES> 3,340,984
<TOTAL-REVENUES> 3,340,984
<CGS> 2,656,164
<TOTAL-COSTS> 2,656,164
<OTHER-EXPENSES> 885,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271,772
<INCOME-PRETAX> (455,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> (455,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,731,762
<CHANGES> 0
<NET-INCOME> 1,275,796
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
