<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2 TO 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, $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 July 6, 1999 was approximately
$5,590,135 for the Common Stock and $188,458 for the Series A Convertible
Preferred Stock. As of July 6, 1999, 21,500,521 shares of Common Stock, $0.01
par value per share, were outstanding and 188,458 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>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998..................................................... 1
Consolidated Statements of Operations - Three Month
periods ended March 31, 1999 and March 31, 1998........................... 3
Consolidated Statements 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....................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 19
Item 2. Changes in Securities..................................................... 19
Item 3. Default Upon Senior Securities............................................ 19
Item 4. Submission of Matters to a Vote of Security Holders....................... 19
Item 5. Other Information......................................................... 19
Item 6. Exhibits and Reports on Form 8-K.......................................... 19
SIGNATURES......................................................................... 20
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
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 SHEETS
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 STATEMENTS 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 STATEMENTS 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 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 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 "Securities Purchase Agreement") with DGJ, L.L.C. ("DGJ") (the
"January 1999 Financing"), 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 has an interest rate of 6% per annum payable monthly in
arrears and is secured by all assets of the Company. The Note is subordinated
to the equipment lease and the factoring agreement, described below.
5
<PAGE>
In conjunction with the January 1999 Financing, DGJ required certain
members of the Company's management, Ms. Beresford, Mr. Koehlinger, Dr.
Nurse, Dr. Schulz and Mr. Hughes, to invest, in the aggregate, $300,000 in
the Company's warrants. The Common Stock represented by the warrants cannot
be issued until approval for an increase in the Company's authorized shares
of Common Stock is obtained at the next annual meeting of stockholders.
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 Financing, 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 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. 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 $1,731,762 during the first quarter of
1999. The balance of the unsecured creditors selected the three year payment
plan or 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. This gain of
$1,731,762 was recorded as extraordinary income amounting to $0.08 per share.
The tax effect of this gain reduced the net operating tax loss carryforward
from prior years which has been fully reserved and, therefore, has no impact
on current operations.
The gain on the restructuring of trade notes payable and accounts
payable was accounted for as an extraordinary item in the Company's
Consolidated Statement of Operations for the three month period ended March
31, 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.
A factoring agreement with a company related to DGJ now 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 the
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
6
<PAGE>
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.
The Company's equipment, capital and operating leases are now 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 treated as operating leases was 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 has been recorded as a capital
lease during the quarter ended March 31, 1999 and will be treated as such in
future periods. The lease requires the Company to meet certain financial
covenants, including, but not limited to, earnings targets and debt-to-equity
ratios.
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 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
7
<PAGE>
stock options, common shares issuable upon the conversion of redeemable
convertible preferred stock or upon the exercise of warrants.
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.
8
<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
9
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
Consolidated Statement of Changes in
Stockholder's 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
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
<CAPTION>
Subscribed Stock Capital in
---------------------- 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
three months ending
March 31, 1999 $1,275,796 $1,275,796
Ascribed value of
Series C Redeemable $480,000 $480,000
Preferred Stock under
refinancing of
1/27/99
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>
10
<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 Company ("Duro Bag"). In
January, February, March, April, May and June, Duro Bag issued purchase
orders for $192,000, $190,335, $209,513, $255,729, $0 and $350,019 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. The Company expects similar orders from Duro Bag to those received in
the first six months of 1999 during the remainder of the year. 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 from Dennis N. Caulfield, its then 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 Mr. Caulfield,
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 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 Fiscal Year
1997 and Fiscal Year 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.
11
<PAGE>
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.
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
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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%.
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.
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<PAGE>
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.
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 (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.
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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).
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 a Securities Purchase
Agreement (the "Securities Purchase Agreement") with DGJ (the "January 1999
Financing"), 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 has an interest rate of 6% per annum payable monthly in
arrears and is secured by all assets of the Company. The Note is subordinated
to the equipment lease and the factoring agreement, described below.
In conjunction with the January 1999 Financing, DGJ required certain
members of the Company's management, Ms. Beresford, Mr. Koehlinger, Dr.
Nurse, Dr. Schulz and Mr. Hughes, to invest, in the aggregate, $300,000 in
the Company's warrants. The Common Stock
15
<PAGE>
represented by the warrants cannot be issued until approval for an increase
in the Company's authorized shares of Common Stock is obtained at the next
annual meeting of stockholders.
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 Financing, 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 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. Approximately $3,009,000 of the total unsecured creditors
as of January 27, 1999 selected the discounted payment plan resulting in
extraordinary income of $1,731,762 during the first quarter of 1999. The
balance of the unsecured creditors selected the three year payment plan or
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. The gain of $1,731,762 was recorded
as extraordinary income amounting to $0.08 per share. The tax effect of the
above gain was to reduce the net operating tax loss carryforward from prior
years which has been fully reserved and, therefore, has no impact on current
operations.
The gain on the restructuring of trade notes payable and accounts
payable was accounted for as an extraordinary item in the Company's
Consolidated Statement of Operations for the three month period ended March
31, 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.
A factoring agreement with a company related to DGJ now 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 the
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
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<PAGE>
submitted for financing. The Company may borrow up to 85% of its qualified
accounts receivable and 33% of its qualified inventory.
The Company's equipment, capital and operating leases are now 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 treated as operating leases was 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 has been recorded as a capital
lease during the quarter ended March 31, 1999 and will be treated as such in
future periods. The lease requires the Company to meet certain financial
covenants, including, but not limited to, earnings targets and debt-to-equity
ratios.
The note payable, warrants and Series C Preferred Stock purchased by
DGJ for $3,200,200 were valued using a 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.
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.
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. In 1998, the Company did not have any costs
associated with Year 2000 compliance. In the first quarter of 1999, the
Company expended $25,000 on Year 2000 compliance.
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<PAGE>
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 is funding the upgrade out of working capital. The
finance and accounting system upgrade is currently in process and is expected
to be installed and tested by July 31, 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 June 9, 1999, the Company has contacted five significant
customers, which accounted for 50.3% of total sales for the first quarter of
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 June 9, 1999 the
Company received 163 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 most likely, worse-case scenario, 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. The Company's manufacturing contingency
plan is to accumulate a 30-day inventory excess of raw materials by December
31, 1999 to address vendor problems caused by Year 2000 issues.
The Company has not deferred any of its information technologies
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.
The Company is scheduled to be Year 2000 compliant as of July 31,
1999. The only remaining component, as of July 9, 1999, is the Company's
financial and accounting systems, described above. 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.
18
<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 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. No further action has been taken by this group of investors
as of July 6, 1999.
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.
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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: July 12, 1999 By: /s/ Hanspeter Schulz
--------------------------------------
President
Date: July 12, 1999 By: /s/ James F. Koehlinger
--------------------------------------
Chief Financial Officer and Treasurer
20
