<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
MARCH 31, 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
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 Exhange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the average of the bid and ask prices of the
Common Stock and Series A Convertible Preferred Stock as reported by the OTC
Bulletin Board on May 5, 2000 was approximately $4,236,122 for the Common Stock
and $183,758 for the Series A Convertible Preferred Stock. As of May 5, 2000,
47,068,021 shares of Common Stock, $0.01 par value per share, were outstanding
and 183,758 shares of Series A Convertible Preferred Stock, $0.01 par value per
share, were outstanding.
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements
Report of Independent Accountants - Livingston & Haynes, P.C. F-1
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999..................................................... F-2
Consolidated Statement of Operations - Three Month
periods ended March 31, 2000 and March 31, 1999........................... F-4
Consolidated Statement of Cash Flows - Three Month
periods ended March 31, 2000 and March 31, 1999.......................... F-5
Notes to Consolidated Financial Statements .................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 15
Item 2. Changes in Securities.......................................................... 16
Item 3. Default Upon Senior Securities................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............................ 17
Item 5. Other Information.............................................................. 17
Item 6. Exhibits and Reports on Form 8-K............................................... 17
SIGNATURES.............................................................................. 18
</TABLE>
i.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS - LIVINGSTON & HAYNES, P.C.
May 9, 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 March 31,
2000 and the related consolidated statement of operations, stockholders' equity
and cash flows for the three 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 months ended March 31, 1999 were
not audited or reviewed by us and we express no opinion or assurance on them.
/s/ Livingston & Haynes, P.C.
Livingston & Haynes, P.C.
Wellesley, Massachusetts
F-1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- ---------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash $ 6,303 $ 48,041
Accounts receivable, net 1,900,642 2,515,892
Inventories, net 2,436,727 2,697,056
Prepaid expenses and other current assets, net 77,787 30,138
----------- -----------
Total current assets 4,421,459 5,291,127
----------- -----------
Property and equipment, net 16,132,598 16,515,668
----------- -----------
Deposits - leases and equipment purchases 136,672 133,425
Loans to officers, net 6,480 6,807
Other assets 1,274,824 1,305,858
----------- -----------
1,417,976 1,446,090
----------- -----------
$21,972,033 $23,252,885
=========== ===========
</TABLE>
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------------ --------------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Note payable $ 2,636,259 $ 3,299,259
Accounts payable 4,133,168 3,285,453
Accrued expenses 1,497,770 1,943,034
Note payable to related party 2,873,585 1,873,585
------------ ------------
Total current liabilities 11,140,782 10,401,331
------------ ------------
Long - term liabilities
Capitalized lease obligations 7,052,000 6,902,000
Subordinated debt 2,720,000 2,720,000
Accounts payable long term 458,432 773,000
------------ ------------
Total long - term liabilities 10,230,432 10,395,000
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 673,936 673,936
Series C preferred stock, $0.01 par value 100 100
Common stock, $0.01 par value; shares authorized - 150,000,000; shares
issued and outstanding - 43,068,021 at
March 31, 2000 and 28,068,021 at December 31, 1999 430,682 280,682
Subscribed stock 37,480 37,480
Capital in excess of par value 46,022,946 45,589,623
Accumulated deficit (48,031,279) (45,592,221)
------------ ------------
600,819 2,456,554
------------ ------------
$ 21,972,033 $ 23,252,885
============ ============
</TABLE>
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
-------THREE MONTHS ENDED------
MARCH 31, MARCH 31,
2000 1999
------------------ ----------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 4,725,956 $ 3,340,984
Cost of goods sold 5,593,242 2,656,164
------------ ------------
Gross profit ( loss ) (867,286) 684,820
Operating expenses:
Selling, general and administrative 1,028,583 885,026
------------ ------------
Loss from operations (1,895,869) (200,206)
Other (expense) income:
Interest / other expense (543,189) (271,772)
Interest / other income -- 16,012
------------ ------------
Net loss before extraordinary income (2,439,058) (455,966)
Extraordinary income - gain on debt restructuring -- 1,731,762
------------ ------------
Net income/(loss) after extraordinary income $ (2,439,058) $ 1,275,796
============ ============
Loss per share before extraordinary income:
Basic and diluted net loss per share $ (0.08) $ (0.02)
Shares used in computing basic and diluted net
(loss) per share 28,727,562 21,495,621
Earnings (loss) per share after extraordinary income:
Basic and diluted net earnings (loss) per share $ (0.08) $ 0.06
Shares used in computing basic and diluted net earnings
(loss) per share 28,727,562 21,495,621
</TABLE>
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
--------THREE MONTHS ENDED ------
MARCH 31, MARCH 31,
2000 1999
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $(2,439,058) $ 1,275,796
----------- -----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 757,946 700,581
Gain on restructuring of accounts payable -- (1,730,054)
(Increase) decrease in accounts receivable - trade 615,250 (380,996)
(Increase) decrease in inventories 260,329 (447,808)
Increase in prepaid expenses and other current assets (47,649) (28,288)
Decrease in other assets, net -- 246,696
Increase (decrease) in accounts payable 533,147 (1,932,508)
Increase (decrease) in other accrued expenses (375,815) 90,314
----------- -----------
Total adjustments 1,743,208 (3,482,063)
----------- -----------
Net cash (used in) provided by operating activities (695,850) (2,206,267)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (318,876) (431,153)
(Increase) decrease in deposits related to equipment refinancing (3,247) 75,940
Additions (payments) to property and equipment debt refinancing 150,000 (1,678,973)
(Increase) decrease in advance to officers 327 (177)
----------- -----------
Net cash (used in) provided by investing activities (171,796) (2,034,363)
----------- -----------
Cash flows from financing activities:
Net increase (payments) under note payable - bank (663,000) 486,229
Capitalized financing costs (24,966) (1,208,324)
Refinance of capital and operating leases -- (5,443,663)
Note payable to related party 930,551 --
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 583,323 100
----------- -----------
Net cash (used in) provided by financing activities 825,908 4,353,007
----------- -----------
Net increase in cash (41,738) 112,377
Cash at beginning of period 48,041 73,116
----------- -----------
Cash at end of period $ 6,303 $ 185,493
=========== ===========
</TABLE>
See "Report of Independent Accountants"
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
BPI PACKAGING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
consolidated financial statements.
Revenue is recognized upon the shipment of products and the passage of
title to customers.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair statement of the
interim financial data have been included. Results from operations for the three
month period ended March 31, 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 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 March 31, 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.
6
<PAGE>
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 is treated as long-term debt. The
combined monthly payments under the retired leases were reduced from
approximately $305,000 per month to $102,000 per month under the new 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 April 2000, or $816,000 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. As
of April 30, 2000, DGJ has indicated a willingness to defer exercising its
rights and remedies upon default pending discussion with the Company regarding
how the equipment lease default is to be cured.
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 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 March 31,
2000, the balance outstanding under this agreement is $2,636,259.
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 in the original principal amount of
$4,773,585 and 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 $342,000 during the period of September 1999 through April 2000.
As this has caused an event of default, as defined in the amended
7
<PAGE>
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. As of April 30, 2000, DGJ has
indicated a willingness to defer exercising its rights and remedies upon default
pending discussion with the Company regarding how the amended promissory note
default is to be cured.
During the period of September 1, 1999 through March 31, 2000, DGJ made
additional advances to the Company totaling $1,300,000. 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 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 the 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 $600,000 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 periods ended March 31, 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,
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:
8
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Accounts receivable-trade $ 2,001,095 $ 2,646,344
Allowance for doubtful accounts (55,453) (55,452)
Allowance for credits (45,000) (75,000)
----------- -----------
$ 1,900,642 $ 2,515,892
=========== ===========
</TABLE>
NOTE 5: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Raw materials $ 853,173 $1,133,963
Finished goods 1,583,554 1,563,093
---------- ----------
$2,436,727 $2,697,056
========== ==========
</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.
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 March 31, 2000, the balances outstanding under this
agreement were $3,299,259 and $2,636,259, respectively. (Note 2).
9
<PAGE>
NOTE 8: NOTE PAYABLE--RELATED PARTY
On January 27, 1999 the Company issued a promissory note in the
aggregate principal amount of $3,200,000 to DGJ (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 "Amended Note"), which
restates the Note and includes $1,573,585, representing subsequent advances
made to the Company, an equipment loan made in March 1999 and past due
interest on obligations of the Company to DGJ. The Amended Note bears
interest at 10% per annum. The addition to the Note is payable on demand. An
intercreditor agreement with the bank providing credit line financing as of
August 19, 1999, provides certain terms that must be met by the Company
before DGJ can collect on its obligations. The Company failed to make
interest payments to DGJ of $296,000 as of March 31, 2000 and $46,000 in
April 2000 or $342,000 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. As of April 30,
2000, DGJ has indicated a willingness to defer exercising its rights and
remedies upon default pending discussion with the Company regarding how the
Amended Note default is to be cured. DGJ made additional advances to the
Company totaling $1,300,000 covering the period of September 1, 1999 through
March 31, 2000.
NOTE 9: CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE
MONTH PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE SERIES C
------------------------------------------------
COMMON STOCK PREFERRED PREFERRED PREFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/99 28,068,021 $280,682 202,658 $673,936 146,695 $1,466,954 1,629,930 $100
Net loss for the
three months ending
March 31, 2000
Issuance of 15,000,000
shares of Common Stock
@$0.04/share $15,000,000 $150,000
---------------------------------------------------------------------------------------
Balance @ 3/31/000 43,068,021 $430,682 202,658 $673,936 146,695 $1,466,954 1,629,930 $100
---------------------------------------------------------------------------------------
<CAPTION>
SUBSCRIBED STOCK CAPITAL IN ACCUMULATED
SHARES AMOUNT EXCESS/PAR DEFICIT TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at 12/31/99 937,000 $37,480.00 $45,589,623 ($45,592,222) $2,456,554
Net loss for the
three months ending
March 31, 2000 ($2,439,058) ($2,439,058)
Issuance of 15,000,000
shares of Common Stock
@$0.04/share $433,323 $583,323
---------------------------------------------------------------
Balance @ 3/31/000 937,000 $37,480.00 $46,022,946 ($48,031,279) $600,819
---------------------------------------------------------------
</TABLE>
NOTE 10: RELATED PARTY TRANSACTIONS
Ivan J. Hughes, the Company's Chairman of the Board, is the President
of the Plastic's Division, and a member of the Executive and Compensation
Committees of Duro Bag. For the three months ended March 31, 2000 and the month
ended April 30, 2000, Duro Bag issued purchase orders to the Company for
$733,457 and $422,927, 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, if not better, than 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 represent 16% of sales during the first quarter period ended
March 31, 2000.
10
<PAGE>
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 or 1999. 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 December
31, 1999.
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,
Theodore L. Koenig, was a partner with Holleb & Coff, a Chicago-based law firm,
from 1987 through June 1999. Holleb & Coff has been providing legal services to
the Company since February 1999.
NOTE 11: RECLASSIFICATIONS
Certain distribution costs in the Consolidated Statement of Operations
for the period ended March 31, 1999 have been reclassified to conform with
current presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-Q which address
activities, events and developments that the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), expansion and other development
trends of industry segments in which the Company is active, business strategy,
expansion and growth of the Company's business and operations and other such
matters are forward-looking statements. Although the Company believes the
expectations expressed in such forward-looking statements are based on
reasonable assumptions within the bounds of its knowledge of its business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by or
on behalf of the Company. Many of these factors have previously been identified
in filings of statements made by or on behalf of the Company.
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
11
<PAGE>
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 2000 COMPARED TO THE FIRST QUARTER OF 1999
For the first quarter ended March 31, 2000, the Company had sales of
$4,725,956 compared to sales of $3,340,984 for the first quarter ended March 31,
1999, an increase of 41%.
Cost of goods sold for the first quarter of 2000 was $5,593,242, or
118% of sales, compared to $2,656,164, or 80% of sales, in the first quarter of
1999. The increase in cost of goods sold, as a percentage of sales, was
primarily due to resin price increases of 60%.
Selling, general and administrative expense for the first quarter of
2000 was $1,028,583, or 22% of sales, compared to $885,026, or 26% of sales, in
the first quarter of 1999. The decrease in selling, general and administrative
expense, as a percentage of sales, is due to an increase in sales volume.
For the first quarter of 2000, interest expense was $543,189, compared
to $271,772 for the first quarter of 1999. 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, and increases in
credit line financing, subordinated debt and the note to related party.
The net loss before extraordinary income was $2,439,058 in the first
quarter of 2000 compared to a net loss of $455,966 in the first quarter of 1999.
The increase in the loss before extraordinary income was due to cost of goods
sold and interest expense.
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 2000.
The net loss after extraordinary income was $2,439,058 for the first
quarter of 2000, compared with a net income of $1,275,796 in the first quarter
of 1999. The change from net income to net loss was caused by an increase in
cost of goods sold and interest expense.
The Company had basic and diluted net loss before extraordinary income
of $0.08 per share in the first quarter of 2000 compared to a loss of $0.02 per
share in first quarter of 1999. The Company had basic and diluted net loss after
extraordinary income of $0.08 per share in the first quarter of 2000 compared to
an income of $0.06 per share in the first quarter 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.
12
<PAGE>
Currently, the Company does not have readily available sources of funds
for working capital. In the first quarter of 2000, it borrowed additional funds
and is currently in default on some of its borrowings and its equipment lease.
On January 27, 1999, the Company issued a promissory note in the
aggregate principal amount of $3,200,000 to DGJ. 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 $342,000 during the period of September 1999 through April 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. As of April 30, 2000, DGJ has indicated
a willingness to defer exercising its rights and remedies upon default pending
discussion with the Company regarding how the amended promissory note default is
to be cured. DGJ made additional advances to the Company totaling $1,300,000
during the period from September 1, 1999 through March 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 March 31, 2000, the
balance outstanding under this agreement was $2,636,259.
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 April 2000, or $816,000 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. As
of April 30, 2000, DGJ has indicated a willingness to defer exercising its
rights and remedies upon default pending discussion with the Company regarding
how the equipment lease default is to be cured.
13
<PAGE>
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. As
of April 30, 2000, DGJ has indicated a willingness to defer exercising its
rights and remedies upon default pending discussion with the Company regarding
how the amended promissory note default is to be cured.
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 March 31, 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 $600,000 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 "Purchase Agreement"), the Company entered into
a ten year Equipment Lease with DGJ (the "Equipment Lease"), whereby the Company
agreed to lease certain equipment for $1,224,000 (interest only at 18%) per
year, payable in equal monthly installments. The Equipment Lease replaced
existing equipment leases, which have been terminated, in which the Company was
in default or which were subject to judgments due to past due payments owed by
the Company.
In February 1999, the Company borrowed approximately $219,000 from DGJ
to purchase additional pieces of equipment. This loan bears interest at a rate
of 18% per annum and has the same maturity as the Equipment Lease (Note 2).
LIQUIDITY
The Company's cash flow was enhanced by $757,946 from depreciation and
amortization non-cash charges in the first quarter of 1999. Inventory and
accounts receivable decreased by a total of $875,579 during
14
<PAGE>
the first quarter of 2000. The current asset ratio was 0.40:1 at March 31, 2000
and 0.51:1 at December 31, 1999. The debt to equity ratio was 35.57:1 at March
31, 2000 and 8.5:1 at December 31, 1999.
IMPACT OF INFLATION
Inflation during the first quarter of 2000 did have an impact on
operating results and had a significant impact on the last three quarters.
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.
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 SEC. 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
March 31, 2000.
15
<PAGE>
On October 4, 1999, Professional Edge Fund, L.P. ("Pro Edge"), one of
the group of investors, described above, filed suit against the Company in the
Court of Common Pleas of Philadelphia County Trial Division, Action No. 000147.
Pro Edge also named as defendants C. Jill Beresford, our Vice President of
Marketing, Dennis N. Caulfield, our former Chief Executive Officer and our
former Chairman of the Board of Directors, and Newport Capital Partners in this
matter. Pro Edge has alleged that we have breached a contract in regards to the
registration of shares it purchased in a private placement of our shares in
November 1997 and that we have 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 March 31, 2000, no further action has been
taken.
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
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 $296,000 as of March 31, 2000 and $46,000 in April
2000 or $342,000 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 Securities Purchase Agreement,
including, but not limited to, the right to declare all or
any part of the unpaid principal amount of the Amended Note
outstanding to be due and payable. As of April 30, 1999, DGJ
has indicated a willingness to defer exercising its rights
and remedies upon default pending discussion with the
Company regarding how the Amended Note default is to be
cured.
16
<PAGE>
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 April 2000, or
$816,000 in total. As this has caused an Event of Default,
as defined in the equipment lease, DGJ is entitled to
various rights and remedies under the equipment lease and
the Securities Purchase Agreement, including, but not
limited to, the right to have any and all remaining sums
under the lease become immediately due and payable and the
right to repossess the leased equipment. As of April 30,
1999, DGJ has indicated a willingness to defer exercising
its rights and remedies upon default pending discussion with
the Company regarding how the equipment lease default is to
be cured.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the first quarter of 2000, through the solicitation
of proxies or otherwise.
ITEM 5. OTHER EVENTS None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b) The Company filed the following report on Form 8-K during
the three month period ended March 31, 2000:
1. Report on Form 8-K, dated February 23, 2000, to report
an extension of stockholder rights offering,
resignation of Hanspeter Schulz as President and
promotion of James F. Koehlinger to Acting Chief
Operating Officer.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BPI PACKAGING TECHNOLOGIES, INC.
Date: May 15, 2000 By: /s/ James F. Koehlinger
-----------------------
Acting Chief Operating Officer,
Chief Financial Officer and Treasurer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,303
<SECURITIES> 0
<RECEIVABLES> 2,001,095
<ALLOWANCES> 100,453
<INVENTORY> 2,436,727
<CURRENT-ASSETS> 4,421,459
<PP&E> 32,962,591
<DEPRECIATION> 16,829,993
<TOTAL-ASSETS> 21,972,033
<CURRENT-LIABILITIES> 11,140,782
<BONDS> 0
2,140,890
100
<COMMON> 430,682
<OTHER-SE> (1,970,853)
<TOTAL-LIABILITY-AND-EQUITY> 21,972,033
<SALES> 4,725,956
<TOTAL-REVENUES> 4,725,956
<CGS> 5,593,242
<TOTAL-COSTS> 5,593,242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 543,189
<INCOME-PRETAX> (2,439,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,439,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,439,058)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
