SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 2000 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
455 SOMERSET AVENUE, NORTH DIGHTON, MASSACHUSETTS 02764
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 824-8636
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
COMMON STOCK, $0.01 PAR VALUE
SERIES A CONVERTIBLE PREFERRED STOCK, $0.01 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___.
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, based upon the average of the
bid and ask prices of the Common Stock and Series A Convertible
Preferred Stock, as reported by the OTC Bulletin Board on November
8, 2000 was approximately $734,270 for the Common Stock and
$183,358 for the Series A Convertible Preferred Stock. As of
November 8, 2000, 47,068,621 shares of Common Stock, $0.01 par
value per share, were outstanding, and 183,358 shares of Series A
Convertible Preferred Stock, $0.01 par value per share, were
outstanding.
BPI PACKAGING TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Report of Independent Accountants - 1
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 . . . . . .- 2
Consolidated Statement of Operations - Three Month
periods ended September 30, 2000 and September 30,
1999............- 4
Consolidated Statement of Operations - Nine Month
periods ended September 30, 2000 and September 30,
1999.....- 5
Consolidated Statement of Cash Flows
periods ended September 30, 2000 and September 30,
1999.....- 6
Notes to Consolidated Financial Statements
...................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
....................
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 1. Legal
Proceedings.............................................
Item 2. Changes in Securities and Use of
Proceeds.........
Item 3. Default Upon Senior
Securities................................
Item 4. Submission of Matters to a Vote of Security
Holders...........
Item 5. Other
Information....................................
21
Item 6. Exhibits and Reports on Form 8-K....................
SIGNATURES............................................
22
REPORT OF INDEPENDENT ACCOUNTANTS
November 3, 2000
To the Board of Directors and Stockholders
of BPI Packaging Technologies, Inc.
We have reviewed the accompanying consolidated balance sheets
of BPI Packaging Technologies, Inc. (the "Company") and
subsidiaries as of September 30, 2000 and the related consolidated
statement of operations,and cash flows for the three and nine months
then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American
Institute of Certified Public Accountants. All information
included in these financial statements is the representation of
the management of the Company.
A review consists principally of inquiries of Company
personnel and analytical procedures applied to financial data. It
is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
statements in order for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheets of the
Company and its subsidiaries as of December 31, 1999, and the
related statements of operations, stockholders' equity and cash
flows for the year ended (not presented herein); and in our report
dated March 14, 2000, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31,
1999, is fairly stated in all material respects in relation to the
consolidated balance sheet from which is has been derived.
The financial statements for the three and nine months ended
September 30, 1999 were not audited or reviewed by us and we
express no opinion or assurance on them.
As discussed in Note 2, certain conditions indicate that the
Company may be unable to continue as a going concern. The accompanying
financial statements do not include any adjustments to the financial
statements that might be necessary should the Company be unable to
continue as a going concern.
/s/ Livingston & Haynes, P.C.
Livingston & Haynes, P.C.
Wellesley, Massachusetts
F-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED)
Current assets
Cash $ 17,838 $ 48,041
Accounts receivable, net 1,880,269 2,515,892
Inventories, net 1,448,163 2,697,056
Prepaid expenses and other
current assets, net 111,862 30,138
---------- ----------
Total current assets 3,458,132 5,291,127
Property and equipment, net 15,006,333 16,515,668
Deposits - leases and equipment purchases 257,673 133,425
Loans to former officers, net 6,668 6,807
Other assets 1,322,275 1,305,858
---------- ----------
1,586,616 1,446,090
---------- ----------
$20,051,081 $23,252,885
========== ==========
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER DECEMBER
30, 31,
2000 1999
(UNAUDITED)
Current liabilities
Note payable $ 2,835,066 $ 3,299,259
Accounts payable 4,525,555 3,285,453
Accrued expenses 695,312 1,943,034
Notes payable - related party 4,925,267 1,873,585
Capitalized lease obligations 7,052,000 6,902,000
Subordinated debt 2,920,000 2,720,000
---------- ----------
Total current liabilities $22,953,200 $20,023,331
Long-term liabilities
Accounts payable long term 183,373 773,000
---------- ---------
Total long-term liabilities 183,373 773,000
Stockholders' Equity
Series B convertible preferred
stock,$0.01 par value 1,466,954 1,466,954
Series A convertible preferred
stock,$0.01 par value 673,932 673,936
Series C redeemable preferred
stock,$0.01 par value 100 100
Common stock, $0.01 par value;
shares authorized - 150,000,000.
Shares issued and outstanding
47,068,6216 at September 30, 2000 470,686 280,682
and 28,068,2212 at December 31, 1999
Subscribed Stock 37,480 37,480
Capital in excess of par value 45,971,594 45,589,623
Accumulated deficit (51,706,238) (45,592,221)
----------- -----------
(3,085,492) 2,456,554
----------- -----------
$ 20,051,081 $ 23,252,885
=========== ===========
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
-------THREE MONTHS ENDED------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
(UNAUDITED)
Net sales $ 3,509,281 $ 5,183,632
Cost of goods sold 4,169,882 4,968,287
---------- ----------
Gross profit (loss) (660,601) 215,345
Operating expenses:
Selling, general and
administrative 1,051,491 1,078,423
---------- ----------
Loss from operations (1,712,092) (863,078)
Other (expense) income:
Interest / other expense (551,433) (522,609)
Interest / other income - 10,093
---------- ---------
(551,433) (512,516)
Net loss before extraordinary income (2,263,525) (1,375,594)
Extraordinary income - gain on
debt restructuring - 2,758
--------- ---------
Net loss after extraordinary income ($ 2,263,525) ($ 1,372,836)
========= =========
Loss per share before extraordinary
income:
Basic and diluted net loss per share ($ 0.05) ($ 0.06)
Shares used in computing basic and
diluted net earnings (loss) per share 47,068,621 22,359,512
Loss per share after extraordinary
income:
Basic and diluted net loss per share ($ 0.05) ($ 0.06)
Shares used in computing basic and
diluted net earnings (loss) per share 47,068,621 22,359,512
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
-------NINE MONTHS ENDED------
---
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
(UNAUDITED)
Net sales $ 11,995,713 $ 12,655,596
Cost of goods sold 13,418,696 10,963,520
---------- ----------
Gross profit (loss) (1,422,983) 1,692,076
Operating expenses:
Selling, general and
administrative 3,053,703 2,887,941
--------- ---------
(Loss) from operations (4,476,686) (1,195,865)
Other (expense) income:
Interest / other expense (1,637,331) (1,354,713)
Interest / other income - 79,112
--------- ---------
(1,637,331) (1,275,601)
Net loss before extraordinary
income (6,114,017) (2,471,466)
Extraordinary income - gain on
debt restructuring - 1,920,465
--------- ---------
Net loss after extraordinary
income ($6,114,017) ($551,001)
Loss per share before
extraordinary income:
Basic and diluted net loss per
share ($ 0.15) ($ 0.11)
Shares used in computing basic and
diluted net earnings (loss)
per share 40,874,790 21,787,413
Loss per share after extraordinary
income:
Basic and diluted net loss per
share ($ 0.15) ($ 0.03)
Shares used in computing basic and
diluted net earnings (loss)
per share 40,874,790 21,787,413
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
----NINE MONTHS ENDED ----
SEPTEMBER SEPTEMBER
30, 30,
2000 1999
(UNAUDITED)
Cash flows from operating activities:
Net loss ($6,114,017) ($ 551,001)
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities:
Depreciation and amortization 2,162,838 2,064,011
Gain on restructuring of accounts
payable - (1,920,465)
(Increase) decrease in accounts
receivable - trade 635,623 (891,464)
(Increase) decrease in inventories 1,248,893 (1,236,477)
Increase in prepaid expenses and
other current assets (81,724) (37,999)
Increase (decrease) in accounts
payable 650,475 (2,174,129)
Increase (decrease) in other
accrued expenses (1,247,722) 499,977
--------- ---------
Total adjustments 3,368,383 (3,696,546)
--------- ---------
Net cash provided by (used in)
operating activities (2,745,634) (4,247,547)
Cash flows from investing activities:
Additions to property and equipment (596,502) (939,365)
(Increase) decrease in deposits (124,248) 6,773
(Additions) payments to property and
equipment debt refinancing 150,000 (1,678,973)
Decrease (Increase) in loans to
former officer 139 (545)
--------- ---------
Net cash provided by (used in)
investing activities (570,611) (2,612,110)
Cash flows from financing activities:
Net proceeds (payments) under note
payable - bank (464,193) 1,580,711
Capitalized financing costs (73,417) (1,105,908)
Refinance of capital and operating
leases - (5,443,763)
Notes payable to related party 3,051,682 1,573,585
Refinanced capital lease obligation - 6,800,000
Subordinated debt addition 200,000 3,200,000
Net proceeds from sales of stock
and exercise of warrants 571,970 300,100
--------- ---------
Net cash provided by (used in)
financing activities 3,286,042 6,904,725
--------- ---------
Net (decrease) increase in cash (30,203) 45,068
Cash at beginning of period 48,041 73,116
--------- ---------
Cash at end of period $ 17,838 $ 118,184
========= =========
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles
for complete consolidated financial statements.
Revenue is recognized upon the shipment of products and the
passage of title to customers.
In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) considered necessary for a
fair statement of the interim financial data have been included.
Results from operations for the nine-month period ended September
30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
For further information, refer to the consolidated financial
statements and the footnotes included in the Annual Report on
Form 10-K for BPI Packaging Technologies, Inc. (the "Company") for
the year ended December 31, 1999.
NOTE 2: FINANCIAL RESTRUCTURING
On January 27, 1999, the Company entered into a Securities
Purchase Agreement (the "Agreement") with DGJ, L.L.C, a Delaware
limited liability company ("DGJ") (the "January 1999 Financing"),
under which the Company issued and sold to DGJ:
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, 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.
In connection with the January 1999 Financing, DGJ required
certain members of the Company's then management, C. Jill
Beresford, James F. Koehlinger, Hanspeter Schulz, Richard H. Nurse
and Ivan J. Hughes, to invest $300,000, in the aggregate, in the
Company's warrants. As of September 30, 2000, 6,563,000 of the
7,500,000 issued warrant shares were converted into Common Stock.
As part of the January 1999 Financing, the Company entered
into a factoring agreement with Franklin Capital Corporation
("Franklin"), an entity affiliated with Gary Edidin, one of the
Company's Directors and a member of DGJ, whereby the Company, with
full recourse, assigned and sold to Franklin its entire interests
in all of its present and future accounts and similar rights and
instruments arising from its sales of goods, then existing or
created thereafter.
The Company also refinanced its equipment, capital and
operating leases in January 1999 when it entered into an equipment
lease with DGJ. The new lease carries no debt reduction obligation
and was 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 equipment lease with
DGJ. The term of the lease is ten years and its monthly payment of
$102,000 represents interest only.
The Company is in default on the equipment lease with DGJ as
it failed to make lease payments of $102,000 per month for the
months of September 1999 through October 2000, or $1,428,000 in
total. As this has caused an event of default, as defined in the
equipment lease, DGJ is entitled to various rights and remedies
under the equipment lease and the Agreement including, but not
limited to, the right to have any and all remaining sums under the
lease become immediately due and payable and the right to repossess
the leased equipment. Since no formal agreement has been executed
between the Company and DGJ to cure the event of default, this
obligation has been reclassified as a current liability as of
September 30, 2000.
Also in January 1999, the Company entered into agreements with
most of its unsecured creditors that provided for a discounted
payment in February 1999 or permitted the Company to pay the entire
balance without interest over a three-year period.
On August 19, 1999, the Company entered into a series of
transactions with LaSalle Business Credit, Inc. ("LaSalle") and DGJ
to refinance the indebtedness incurred as part of the January 1999
Financing. The Company's loan agreement with LaSalle provides the
Company with a $4,000,000 revolving line of credit. This credit
facility is secured by a first priority security interest in its
accounts receivable, inventory and certain other assets. DGJ is the
lessor of substantially all the equipment that the Company uses,
under a capital lease, and holds a first priority security interest
in its equipment. LaSalle received a second priority security
interest in the Company's equipment. Certain of the proceeds of
this credit facility were used to retire existing indebtedness the
Company owed to Franklin, including the factoring agreement and
revolving note described above, while the remaining proceeds were
used to retire some of the Company's other indebtedness and for
working capital purposes. This credit facility bears interest at a
fluctuating rate equal to 1.5% per annum above the prime rate of
LaSalle in effect from time to time and matures in three years. As
of September 30, 2000, the balance outstanding under this agreement
is $2,835,066. The loan is in default as of September 30, 2000, as
the Company failed to meet certain loan covenants. The Company is
currently under-collateralized in its obligation with the bank.
In addition, the Company and DGJ amended and restated the Note
since the Company was unable to fulfill the financial obligations
under the terms of the loan and lease documents with DGJ. To cure
the defaults, the Company restated the Note to include, in addition
to the original principal and interest accrued thereunder at 6%,
all amounts outstanding under: (i) an equipment loan made by DGJ to
the Company as of March 1, 1999 in the original principal amount of
$218,665; (ii) a series of advances made to the Company by Franklin
during the second quarter of 1999 (which totaled approximately
$900,000, and were reduced to approximately $660,000 after
application of proceeds of the credit facility), rights to
repayment of which were subsequently assigned by Franklin to the
Company; (iii) delinquent payments under the DGJ lease of
approximately $570,000; and (iv) interest on the foregoing. The
resulting balance of $4,773,585 was restated as the principal
amount of a new amended promissory note. The amended promissory
note is payable as follows: $3,200,000 of principal is due and
payable on February 1, 2004, or earlier by acceleration, as
described in the Agreement, or otherwise, and $1,573,585 is due and
payable pursuant to the terms of an intercreditor agreement between
DGJ and LaSalle. The amended promissory note bears interest at a
rate of 10% per annum, and is secured by all Company assets,
subordinated to LaSalle except as to equipment.
The Company failed to make interest payments to DGJ totaling
approximately $610,000 during the period of September 1999 through
October 2000. As this has caused an event of default, as defined in
the amended promissory note, DGJ is entitled to various rights and
remedies under the amended promissory note and the Agreement
including, but not limited to, the right to declare all or any part
of the unpaid principal amount of the amended promissory note
outstanding to be due and payable. Since no formal agreement has
been executed between the Company and DGJ to cure the event of
default, this obligation has been reclassified as a current
liability as of September 30, 2000.
During the period of September 1, 1999 through September 30,
2000, DGJ made additional advances to the Company totaling
$1,802,000. These loans bear interest at the rate of 10% per annum
with interest payable monthly, and the principal is due and payable
on the same date as the maturity date of the amended promissory
note discussed above.
The Series C Preferred Stock is redeemable in the Company's
discretion if the amended promissory note payable to DGJ has been
retired in its entirety. The shares of the Series C Preferred
Stock are not convertible into shares of Common Stock and have no
preferences upon liquidation, dissolution, winding up or
insolvency. The holders of the Series C Preferred Stock have no
voting right; provided, however, upon an event of default, as
defined in the Agreement, holders of the Series C Preferred Stock
will be entitled to vote with holders of Common Stock as a single
class in each matter submitted to a vote of the Company's
stockholders, with each share of the Series C Preferred Stock
having 30 votes.
At the Company's annual meeting of stockholders on August 24,
1999, its stockholders approved an increase in its authorized
number of shares of Common Stock from 60,000,000 to 150,000,000
shares. The Company utilized some of these newly authorized shares
to complete a rights offering of 15,000,000 shares of its Common
Stock in March 2000 resulting in the Company receiving $571,970 of
gross proceeds for working capital and other corporate-related
purposes.
NOTE 3: BASIC AND DILUTED NET LOSS PER SHARE
The Company is required to present "basic" and "diluted"
earnings per share. Basic earnings per share is computed by
dividing the income available to common stockholders by the
weighted average number of common shares outstanding for the
period. For the purposes of calculating diluted earnings per
share, the denominator includes both the weighted average
number of common shares outstanding and potential dilutive
common shares outstanding for the period.
For the nine-month periods ended September 30, 2000 and 1999,
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
and common shares issuable upon the conversion of redeemable
convertible preferred stock or upon the exercise of warrants.
NOTE 4: ACCOUNTS RECEIVABLE-NET
Accounts receivable-trade
consists of the following:
September 30, December 31,
2000 1999
Accounts receivable-trade $2,085,721 $2,646,344
Allowance for doubtful accounts (55,452) (55,452)
Allowance for credits (150,000) (75,000)
--------- ---------
$1,880,269 $2,515,892
NOTE 5: INVENTORIES
Inventories consist of the following:
September 30, December 31,
2000 1999
Raw materials $ 469,078 $1,133,963
Finished goods 979,085 1,563,093
---------- ---------
$1,448,163 $2,697,056
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.
NOTE 7: NOTE PAYABLE
On August 19, 1999, the Company entered into a credit line
agreement with a bank that provides the Company with $4,000,000 of
financing secured by the Company's accounts receivables, inventory
and other certain assets. The loan facility bears interest at a
rate of 1.5% above the bank's prime rate. At December 31, 1999 and
September 30, 2000, the balances outstanding under this agreement
were $3,299,259 and $2,835,066, respectively. The loan is in
default as of September 30, 2000 as the Company failed to meet
certain financial covenants.
NOTE 8: NOTES PAYABLE
On January 27, 1999 the Company issued a promissory note in
the aggregate principal amount of $3,200,000 to DGJ (Note 2). The
Note matures on February 1, 2004, had an interest rate of 6% per
annum payable monthly in arrears and is secured by all assets of
the Company. As part of the new financing agreement obtained with
a bank on August 19, 1999, the Company entered into an amended loan
agreement with DGJ (the
On August 11, 2000, a director of the Company advanced $88,000 for a
deposit on an equipment purchase on behalf of the Company. On August 11, 2000,
the Company issued a promissory note in the principal amount of $88,000 to the
director. This note is unsecured and is payable on demand and bears interest at
10% per annum payable monthly in arrears. The Company is in default on this
loan as of September 30, 2000 as the Company failed to make interest payments of
$4,889 as of September 30, 2000.
At September 30, 2000, Notes Payable
NOTE 9: CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A Convertible Series B Convertible Series C
Common Stock Preferred Preferred Preferred
Shares Amount Shares Amount Shares Amount Shares Amount
Balance at 12/31/99 28,068,221 $280,682 202,658 $673,936 146,695 $1,466,954 1,629,930 $ 100
Net loss for the nine months
ended September 30, 2000
Issuance of 15,000,000 shares of
Common Stock at $0.04\share 15,000,000 $150,000
Issuance of 4,000,000 shares
of Common Stock @ par upon
exercise of warrants 4,000,000 $40,000
Conversion of 400 shares of
Series A Convertible Preferred
Stock to Common Stock 400 $4 (400) $ (4)
Balance at 9/30/00 47,068,621 $470,686 202,658 $673,932 146,695 $1,466,954 1,629,930 $ 100
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(Continued) Subscribed Stock Capital in Accumulated
Shares Amount Excess/par Deficit Total
Balance at 12/31/99 937,000 $37,480 $45,589,623 $(45,592,221) $2,456,554
Net loss for the nine months
ended September 30, 2000 $(6,114,017) $(6,114,017)
Issuance of 15,000,000 shares of
Common Stock at $0.04\share $421,970 $571,970
Issuance of 4,000,000 shares
of Common Stock @ par upon
exercise of warrants $(40,000) $ 0
Conversion of 400 shares of
Series A Convertible Preferred
Stock to Common Stock
Balance at 9/30/00 937,000 $37,480 $45,971,594 $(51,706,238)$(3,085,492)
</TABLE>
NOTE 10: RELATED PARTY TRANSACTIONS
Ivan J. Hughes, the Company's Chairman of the Board and Acting
Chief Executive Officer, is a member of the Executive Committee and
Board of Directors of Duro Bag. For the three and nine month
periods ended September 30, 2000 and the month ended October 31,
2000, Duro Bag issued purchase orders to the Company for $140,553,
$2,680,883 and $20,180, respectively, to purchase bags for Duro Bag
customers. The Company manufactures 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 to, if not better than, the price the Company could
obtain from its other customers for these products. There are no
assurances that the Company will receive similar orders from Duro
Bag during the remainder of this year. These orders represented 22%
of sales during the nine-month period ended September 30, 2000.
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 on 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 on the loan from the period beginning 1990 through
December 31, 1997. Accordingly, the Company reserved the full
amount of this loan on that date. Also, no payments were made in
1998. In addition, the Company paid, on behalf of the former
Chairman, approximately $36,000 of a $200,000 personal income tax
levy imposed by the Massachusetts Department of Revenue on Mr.
Caulfield in exchange for an interest bearing note due on or
before June 30, 1998, which has not yet been repaid. This note was
reserved for as of December 31, 1999.
Three of the Company's directors, Gary R. Edidin, Allen S.
Gerrard and Theodore L. Koenig, 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, Theodore L. Koenig, was a
partner with Holleb & Coff, a Chicago-based law firm, from 1987
through June 1999. Holleb & Coff provided legal services to the
Company from February 1999 through May 2000.
On August 11, 2000, Ivan J. Hughes, a director of the Company,
advanced $88,000 for a deposit on an equipment purchase on behalf
of the Company. On August 11, 2000, the Company issued a
promissory note in the principal amount of $88,000 to Mr. Hughes.
This note is unsecured and is payable on demand and bears interest
at 10% per annum payable monthly in arrears. The Company is in
default on this loan as of September 30, 2000 as the Company failed
to make interest payments of $4,889 as of September 30, 2000.
NOTE 11: RECLASSIFICATIONS
Certain items in the income statements for the three and nine
months ended September 30, 1999 have been reclassified to conform
to current presentation. These items were expenses that had been
included in cost of goods sold on the income statements for the
three and nine months ended September 30, 1999, which have been
reclassified in selling, general and administrative expenses. This
reclassification had no effect on the loss from operations as
previously reported for the three and nine months ended September
30, 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
THIRD QUARTER OF 2000 COMPARED TO THE THIRD QUARTER OF 1999
For the third quarter ended September 30, 2000, the Company had sales of
$3,509,281 compared to sales of $5,183,632 for the third quarter ended
September 30, 1999, a decrease of 32%.
Costs of goods sold for the third quarter of 2000 was $4,169,882 or 119%
of sales, compared to $4,968,287 or 96% of sales, in the third quarter of
1999.
The increase in cost of goods sold, as a percentage of sales, was partially
due to lower sales resulting in higher fixed costs as a percentage of sales. An
inventory conducted after quarter end revealed a $660,000 adjustment that is
included in cost of goods for the quarter. The inventory adjustment represented
19% of sales for the quarter.
Selling, general and administrative expense for the third
quarter of 2000 was $1,051,491, or 30% of sales, compared to
$1,078,423, or 21% of sales, in the third quarter of 1999. The
increase in selling, general and administrative expense, as a
percentage of sales, is due primarily to decreased sales and higher
fixed costs as a percentage of sales.
For the third quarter of 2000, interest expense was $551,433,
compared to $522,609 for the third quarter of 1999. The increase
in interest expense is due to an increase in credit line financing.
The net loss before extraordinary income was $2,263,525 in
the third quarter of 2000 compared to a net loss before
extraordinary income of $1,375,594 in the third quarter of 1999.
The increase in the loss before extraordinary income was primarily
due to an increase in cost of goods sold and selling, general and
administrative expense, as a percentage of sales.
No extraordinary income was reported for the third quarter of
2000. Extraordinary income of $2,758 in the third quarter of 1999
was the result of the January 1999 Financial Restructuring and the
resulting discounts from settlements with unsecured creditors.
Net loss after extraordinary income was $2,263,525 for the
third quarter of 2000, compared with a net loss after extraordinary
income of $1,372,836 in the third quarter of 1999. The increase in
net loss was primarily caused by an increase in costs of goods sold
and selling, general and administrative expense, as a percentage of
sales.
The Company had basic and diluted net loss before
extraordinary loss of $0.05 per share in the third quarter of 2000
compared to a net loss of $0.06 per share in third quarter of
1999.
FIRST NINE MONTHS OF 2000 COMPARED TO THE FIRST NINE MONTHS OF 1999
For the first nine months ended September 30, 2000, the
Company had sales of $11,995,713 compared to sales of $12,655,596
for the first nine months ended September 30, 1999, a decrease of
5%.
In the first nine months of 2000, cost of goods sold was
$13,418,696, or 112% of sales, compared to $10,963,520, or 87% of
sales, in the first nine months of 1999. The increase in cost of
goods sold, as percentage of sales, was primarily due to resin price
increases and higher fixed costs.
Selling, general and administrative expense for the first
nine months of 2000 was $3,053,703, or 25% of sales, compared
to $2,887,941, or 23% of sales, in the first nine months of 1999.
The increase, as a percentage of sales, was primarily due to higher
fixed and variable costs.
For the first nine months of 2000, interest expense was
$1,637,331, compared to $1,354,713 for the first nine months of
1999. The increase in interest expense is due to an increase in
borrowings from the bank and notes to related party.
The net loss before extraordinary income was $6,114,017 in
the first nine months of 2000 compared to a net loss of $2,471,466
in the first nine months of 1999. The increase in the loss before
extraordinary income was primarily due to an increase in cost of
goods sold.
No extraordinary income was reported for the first nine months
of 2000. Extraordinary income of $1,920,465 in the first nine
months of 1999 was the result of the January 1999 Financial
Restructuring and the resulting discounts from settlements with
unsecured creditors.
The net loss after extraordinary income was $6,114,017 for the
first nine months of 2000, compared with a net loss of $551,001 in
the first nine months of 1999. The loss was primarily due to an
increase in cost of goods sold, as a percentage of sales, and no
extraordinary income in the first nine months of 2000.
The Company experienced losses in prior years resulting in
operating loss carryforwards for federal and state income tax
purposes. Due to the Company's past history, no benefit was
recognized for net operating loss carryforwards because of the
uncertainty of realization.
The Company had basic and diluted net loss before
extraordinary income of $0.15 per share in the first nine months
of 2000 compared to a loss before extraordinary income of $0.11 per
share in the first nine months of 1999. The Company has basic and
diluted net loss after extraordinary income of $0.15 per share in
the first nine months of 2000 compared to a net loss of $0.03 per
share in the first nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since its initial public offering in October 1990, the
Company has generated funds to finance its activities through both
public sales and private placements of its securities, as well as
bank loans, equipment lease financing and cash from operations.
Currently the Company does not have readily available sources
of funds for working capital. In the third quarter of 2000, it
borrowed additional funds and is currently in default on some of
its borrowings and its equipment lease.
The Company has retained the consulting firm of Dresner
Investment Services, Inc., to assist in evaluating various
strategic alternatives available to the Company, including its
possible sale or merger.
On January 27, 1999, the Company issued a promissory note in
the aggregate principal amount of $3,200,000 to DGJ. This note
matures on February 1, 2004, had an interest rate of 6% per annum
payable monthly in arrears and is secured by all of the Company's
assets. As part of the new financing agreement obtained with a bank
on August 19, 1999, the Company entered into an amended loan
agreement with DGJ, which restates the original note and includes
$1,573,585, representing subsequent advances made to the Company,
an equipment loan made in March 1999 and past due interest on the
Company's obligations to DGJ. This amended promissory note bears
interest at 10% per annum. The addition to the original note is
payable on demand. An intercreditor agreement with the bank
providing credit line financing as of August 19, 1999, provides
certain terms that the Company must meet before DGJ can collect on
its obligations.
The Company failed to make interest payments to DGJ totaling
approximately $610,000 during the period of September 1999 through
October 2000. As this has caused an event of default, as defined in
the amended promissory note, DGJ is entitled to various rights and
remedies under the amended promissory note and the Agreement, as
defined below including, but not limited to, the right to declare
all or any part of the unpaid principal amount of the amended
promissory note outstanding to be due and payable. Since no formal
agreement has been executed between the Company and DGJ to cure the
event of default, this obligation has been reclassified as a
current liability as of September 30, 2000. DGJ made additional
advances to the Company totaling $1,802,000 during the period from
September 1, 1999 through September 30, 2000.
On August 19, 1999, the Company entered into a credit line
agreement with a bank that provides it with $4,000,000 of financing
secured by its accounts receivable, inventory and other certain
assets. The loan facility bears interest at a rate of 1.5% above
the bank's prime rate. At September 30, 2000, the balance
outstanding under this agreement was $2,835,066. The loan is in
default as of September 30, 2000, as the Company failed to meet
certain financial covenants. The Company is currently under-
collateralized in its obligation with the bank.
The Company's previous equipment, capital and operating leases
were replaced with a new equipment lease with DGJ in January 1999.
Obligations of $3,800,000 and accrued lease obligations of
$1,643,000 were retired and $1,679,000 of equipment previously
treated as operating leases were added to the property and
equipment accounts. The new lease carries no debt reduction
obligation and is treated as long-term debt. The Company's combined
monthly payments under the retired leases were reduced from
approximately $305,000 per month to $102,000 per month under the
new lease agreement with DGJ. The lease obligation is a ten-year
lease with monthly payments of $102,000 representing interest only.
The total principal amount of the lease is $6,800,000 and is due at
the end of the lease term. The lease was recorded as a capital
lease during the quarter ended March 31, 1999 and is being treated
as such on an on-going basis. The lease requires the Company to
meet certain financial covenants including, but not limited to,
earnings targets and debt-to-equity ratios.
The Company is in default on the equipment lease with DGJ as
it failed to make lease payments of $102,000 per month for the
months of September 1999 through September 2000, or $1,428,000 in
total. As this has caused an event of default, as defined in the
equipment lease, DGJ is entitled to various rights and remedies
under the equipment lease and the Agreement including, but not
limited to, the right to have any and all remaining sums under the
lease become immediately due and payable and the right to repossess
the leased equipment. Since no formal agreement has been executed
between the Company and DGJ to cure the event of default, this
obligation has been reclassified as a current liability as of
September 30, 2000.
On October 12, 1999 and March 17, 2000, DGJ advanced an
additional $102,000 and $150,000, respectively, for the purchase of
additional equipment, pursuant to a promissory note providing for
a single principal payment on February 1, 2004. The annual interest
rate is 10%, and interest is due monthly. The note is secured and
is subject to the same subordination terms as the amended note, as
reflected in the intercreditor agreement, described above.
SALES OF SECURITIES
In connection with the January 1999 Financing, up to 5,000,000
shares of Common Stock, issuable upon the exercise of warrants
expiring January 27, 2009, were issued to consultants of the
Company, subject to adjustments. The holders of these warrants
exercised such warrants on April 7, 2000 and elected to utilize the
net issue option, resulting in the issuance of 4,000,000 shares.
As of September 30, 2000, 6,563,000 of the 7,500,000 warrant
shares issued to management in connection with the January 1999
Financing were converted into Common Stock.
On March 17, 2000, the Company completed a rights offering for
15,000,000 shares of its Common Stock to its stockholders of record
as of the close of business on December 2, 1999. Each non-
affiliated stockholder of the Company received one right for each
share of the Company's Common Stock, which it owned. Each of the
rights entitled stockholders to purchase 0.7 shares of Common Stock
at $0.04 per share. The rights offering was oversubscribed and the
Company used the $571,970 of gross proceeds for working capital and
other corporate-related purposes.
No common stock was issued from sales by the Company during
1999. In connection with the January 1999 Financing, 1,629,930
shares of Series C Preferred Stock were issued to DGJ for $100.
Also in connection with the January 1999 Financing, the Company
reserved 30,937,500 shares of authorized but unissued shares of
Common Stock to meet the Company's 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 "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 $218,665 from DGJ to
purchase additional pieces of equipment. This loan bears interest
at a rate of 10% per annum and has the same maturity as the
Equipment Lease (Note 2).
LIQUIDITY
The Company's cash flow was enhanced by $2,162,838 from
depreciation and amortization non-cash charges in the first nine
months of 2000. Inventory and accounts receivable decreased by a
total of $1,884,516 during the first nine months of 2000. The
current asset ratio was 0.15:1 at September 30, 2000 and 0.26:1 at
December 31, 1999. At September 30, 2000, total liabilities
exceeded total assets resulting in a deficit equity of $3,085,492.
IMPACT OF INFLATION
Inflation during the third quarter of 2000 did not have an
impact on operating results.
YEAR 2000
The Company implemented a Year 2000 compliance project in June
1998, which addressed the internal risk, requirements and budgets
for becoming Year 2000 compliant. The Company completed an
inventory of its internal operations and addressed Year 2000
compliance from its suppliers and other constituents.
As a result of the Year 2000 compliance project, the Company
has upgraded its financial and accounting system at an investment
of approximately $25,000, and funded the upgrade out of working
capital. The finance and accounting system upgrade was installed
and tested on October 22, 1999. The Company 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 its manufacturing systems
determined the systems to be Year 2000 compliant. The Company does
not contract out its systems maintenance and design and, therefore,
has no third party risk in this regard.
The Company has not deferred any of its information technology
projects due to its Year 2000 efforts. Furthermore, there has been
no impact from any deferred projects on the Company's financial
condition or results of operations.
The Company has not experienced any difficulties with its
financial and accounting systems as a result of Year 2000
compliance issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required by the Company at this time.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently, the Company 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. This
notice alleges that the Company's former management made
misrepresentations concerning registration rights attendant to the
securities purchased by them pursuant to Regulation D, Rule 144A
and Regulation S of the Securities Act of 1933, as amended. On
October 28, 1999, the securities held by this group of investors
were registered with the Securities and Exchange Commission. The
Company believes that any disposition in connection with this
potential claim will not have a material effect on its operations.
Except as noted below, no further action has been taken by this
group of investors as of September 30, 2000.
On October 4, 1999, Professional Edge Fund, L.P. ("Pro Edge"),
one of the group of investors described above, filed suit against
the Company in the Court of Common Pleas of Philadelphia County
Trial Division, Action No. 000147. Pro Edge also named as
defendants C. Jill Beresford, the Company's former Vice President
of Marketing, Dennis N. Caulfield, the Company's former Chief
Executive Officer and former Chairman of the Board of Directors,
and Newport Capital Partners in this matter. Pro Edge has alleged
that the Company breached a contract in regards to the registration
of shares it purchased in a private placement of the Company's
shares in November 1997 and that the Company has been unjustly
enriched based on the sale of these unregistered shares. Pro Edge
sought damages in an amount of approximately $1,013,000, plus
interest, costs and expenses of the lawsuit. On February 28, 2000,
the Company was advised that this action was dismissed without
prejudice based upon improper venue. As of June 16, 2000, Pro Edge
re-filed suit against the Company in the United States District
Court for the District of Massachusetts, Action #CV-10568-RWZ.
On November 26, 1997, the estate of a former temporary worker,
Mr. John Dion, filed a wrongful death suit against the Company in
Bristol County (Massachusetts) Superior Court, Civil Action No. 97-
01688. The lawsuit alleges that the Company's actions caused or
contributed to Mr. Dion's December 7, 1994, fatal forklift accident
at the Company. Both parties continue to conduct discovery
regarding this accident. The Company's general liability insurance
carrier is vigorously defending the Company against these
allegations. The outcome of this lawsuit remains uncertain. The
Company has a total of $3 million in insurance coverage in place.
The Company believes the insurance coverage is sufficient to cover
its exposure.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
1. On October 25, 1999, securities acquired by a group of
investors pursuant to Regulation D and Rule 144A of
the Securities Act of 1933, as amended, were
registered with the Securities and Exchange
Commission.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a) On January 27, 1999 the Company issued a promissory
note in the aggregate principal amount of $3,200,000
to DGJ (the "Note"). The Note matures at the latest
on February 1, 2004, had an interest rate of 6% per
annum payable monthly in arrears and is secured by
all assets of the Company. As part of the new
financing agreement obtained with a bank on August
19, 1999, the Company entered into an amended loan
agreement with DGJ (the "Amended Note"), which
restated the Note and included $1,573,585,
representing subsequent advances made to the Company,
an equipment loan made in March 1999 and past due
interest on obligations of the Company to DGJ. The
Amended Note bears interest at 10% per annum. The
addition to the Note is payable on demand. An
intercreditor agreement with the bank providing
credit line financing as of August 19, 1999, provides
certain terms that must be met by the Company before
DGJ can collect on its obligations. The Company
failed to make interest payments to DGJ of $566,364
as of September 30, 2000 and $43,636 in October 2000,
or $610,000 in total on its obligation. As this has
caused an Event of Default, as defined in the Amended
Note, DGJ is entitled to various rights and remedies
under the Amended Note and the Agreement including,
but not limited to, the right to declare all or any
part of the unpaid principal amount of the Amended
Note outstanding to be due and payable. Since no
formal agreement has been executed between the
Company and DGJ to cure the event of default, this
obligation has been reclassified as a current
liability as of September 30, 2000.
b) The Company was in default on the equipment lease
with DGJ as it failed to make lease payments of
$102,000 per month for the months of September 1999
through October 2000, or $1,428,000 in total. As
this has caused an Event of Default, as defined in
the equipment lease, DGJ is entitled to various
rights and remedies under the equipment lease and the
Agreement including, but not limited to, the right
to have any and all remaining sums under the lease
become immediately due and payable and the right
to repossess the leased equipment. Since no formal
agreement has been executed between the Company and
DGJ to cure the event of default, this obligation has
been reclassified as a current liability as of
September 30, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of security holders
during the third quarter period ended September 30, 2000.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The Company filed a report on Form 8-K on September
21, 2000 announcing the retention of Dresner
Investment Services, Inc., as the exclusive
financial advisor to the Company to assist in
evaluating various strategic alternatives available
to the Company, including its sale.
b) The Company filed a report on Form 8-K on August 4,
2000 announcing the appointment of Ivan J. Hughes
as Acting Chief Executive Officer.
c) The Company filed a report on Form 8-K on July 19,
2000 announcing the retention of the consulting
firm, Brent I. Kugman and Associates.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
BPI PACKAGING TECHNOLOGIES, INC.
Date: November 17, 2000 By:/s/Ivan J. Hughes
Ivan J. Hughes
Acting Chief Executive Officer
By: /s/ James F. Koehlinger
James F. Koehlinger
Chief Financial Officer and
Treasurer
