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 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

(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)

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

Series A Convertible Series B Convertible Common Stock Preferred Preferred Shares Amount Shares Amount Shares Amount Balance at December 31, 1999 28,068,221 $280,682 202,658 $673,936 146,695 $1,466,954 Net loss for the six months ending June 30, 2000 Issuance of 15,000,000 shares of Common Stock @ $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 June 30, 2000 47,068,621 $470,686 202,258 $673,932 146,695 $1,466,954 ========== ======= ======= ======= ======= =========

Series C Preferred Subscribed Stock Capital in Accumulated Shares Amount Shares Amount Excess/par Deficit Total Balance at December 31, 1999 1,629,930 $100 937,000 $37,480 $45,589,623 $(45,592,221) $2,456,554 Net loss for six months ending June 30, 2000 (3,850,491) (3,850,491) Issuance of 15,000,000 shares of Common Stock @ $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 June 30, 2000 1,629,930 $100 937,000 $37,480 $45,971,593 $(49,442,712) $(821,967) ========= === ======= ====== ========== ========== ========

Series A Convertible Series B Convertible Common Stock Preferred Preferred Shares Amount Shares Amount Shares Amount Balance at March 31, 2000 43,068,221 $430,682 202,658 $673,936 146,695 $1,466,954 Net loss for the three months ending June 30, 2000 Additional issuance costs of 15m shares issued Q 1 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 June 30,2000 47,068,621 $470,686 202,258 $673,932 146,695 $1,466,954 ========== ======= ======= ======= ======= =========

Series C Preferred Subscribed Stock Capital in Accumulated Shares Amount Shares Amount Excess/par Deficit Total Balance at March 31, 2000 1,629,930 $100 937,000 $37,480 $46,022,946 $(48,031,279) $600,819 Net loss for the three months ending June 30, 2000 (1,411,434) (1,411,434) Additional issuance costs of 15m shares issued Q 1 (11,352) (11,352) 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 0 --------- --- ------- ------ ---------- ---------- -------- Balance at June 30,2000 1,629,930 $100 937,000 $37,480 $45,971,594 $(49,442,713) $(821,967) ========= === ======= ====== ========== ========== ========

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