SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, 1998
----------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to ________________________
Commission file number 1-6339
------
UNIFLEX, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-2008652
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
383 West John Street, Hicksville, New York 11802
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 932-2000
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of April 3, 1998, the aggregate market value of the Registrant's
outstanding voting Common Stock held by non-affiliates of the Registrant was
$18,304,588.
As of April 3, 1998, there were 4,066,160 shares outstanding of the
Registrant's Common Stock, $.10 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference to a
definitive proxy statement to be filed by the Registrant not later than June 1,
1998 pursuant to Regulation 14A.
<PAGE>
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS. Uniflex, Inc. (a Delaware
corporation organized in 1973) is the successor by merger to the business and
assets of Uniflex, Inc. (a New York corporation organized in 1963). Uniflex,
Inc., its predecessor and subsidiaries are hereinafter collectively referred to
as the Registrant. The Registrant designs, manufactures and markets a broad line
of customized plastic packaging for sales and advertising promotions, clear bags
for apparel and soft goods manufacturers and specialized, recyclable bags and
other products for use in hospitals, medical laboratories and emergency care
centers and has been so engaged for more than the past five years.
In February 1997, the Registrant acquired substantially all of
the assets and assumed certain of the liabilities of Merrick Packaging
Specialists, Inc. a New York corporation ("Merrick") engaged in the distribution
of high quality paper, paper laminate and plastic shopping bags and boxes.
In February 1997, the Registrant formed Uniflex, UK, Ltd., a
wholly-owned subsidiary of the Registrant to market and distribute the
Registrant's products in the United Kingdom.
In January 1996, the Registrant formed Uniflex Southeast
L.L.C., a Delaware limited liability company ("Southeast") to market and
distribute health and safety products and services primarily to the dental
industry. In July 1997, the Registrant, through Uniflex Southeast, Inc., a
Delaware corporation and wholly-owned subsidiary of the Registrant which was the
-2-
<PAGE>
Manager of Southeast and owned 80% of its equity sold its equity interest in
Southeast to Safelink, Inc.
In January 1995, the Registrant formed Uniflex Southwest
L.L.C., a Delaware limited liability company ("Southwest"). Southwest produces
and markets jumbo flexible loop handle bags, double drawstring bags and
reclosable, resealable, Trac-Loc bags. These products are sold to retailers,
cosmetic firms, food packing companies and medical/healthcare supply firms. The
Registrant is the Manager of Southwest and owns 75% of its equity. In April
1995, Southwest commenced operations in Albuquerque, New Mexico. As of the date
hereof, an agreement in principle has been reached between the Registrant and
the minority equityholder pursuant to which the Registrant will purchase the
minority equityholder's entire equity interest in Southwest for consideration
consisting of 50,000 shares of the Registrant's Common Stock, $100,000 in cash
and a $400,000 promissory note payable ratably in four years at 7% interest.
In July 1993, the Registrant acquired certain of the assets of
Haran Packaging Co., Inc., a New York corporation engaged in the business of
manufacturing, distributing and selling packaging materials ("Haran").
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Not
applicable.
(c) (1) NARRATIVE DESCRIPTION OF BUSINESS. The information
specified in paragraphs (i)-(xiii) below is included in accordance with Item
101(c)(1) of Regulation S-K.
(i) The Registrant's principal product is a flexible
plastic bag with an attached plastic handle or other closure or carrying device,
known as a "specialty bag." The bag is made of polyethylene and comes in various
sizes. The bag is printed from artwork (e.g., the user's product and logo)
prepared either by the Registrant's in-house art and production
-3-
<PAGE>
department or supplied to the Registrant by the user or its advertising agency.
Injection molded rigid polyethylene handles, in various sizes and shapes, with
reusable snap-closures, are affixed to the bags by a heat-sealing process. Other
specialty bags produced and marketed by the Registrant include die-cut bags,
drawstring bags, patch bags and litter bags. The Registrant's specialty bags are
used primarily for promotional purposes including, for example, at trade shows
and exhibitions. The Registrant's specialty bags are sold and marketed primarily
to a network of promotional products distributors.
The Registrant manufactures a line of specialized bags used in various
segments of the healthcare industry including hospitals, clinical laboratories
and radiology departments. For this industry the Registrant manufactures a clear
bag used as a secondary container for the safe transport of clinical laboratory
specimens, under the trademark "Speci-Gard(R)." The Registrant markets this
product primarily to healthcare and laboratory supply companies. The Registrant
believes that the bag meets or exceeds applicable OSHA standards. The bag is a
liquid-tight, disposable specimen transport bag with a patented one step sealing
system that is approved as a secondary container for specimen transport. The
Registrant manufactures and markets a clear, radiolucent, disposable, protective
cover for X-Ray cassettes under the trademark "Protex-Ray(TM)" to the healthcare
market.
The Registrant manufactures and markets a variety of conventional
polyethylene bags without carrying attachments, many of which are also printed
from artwork, for use in packaging principally by various apparel and soft goods
manufacturers. The Registrant manufactures and markets flexible plastic
envelopes with pressure sensitive adhesive closures for use in the air
-4-
<PAGE>
courier industry as a document handling pouch. The Registrant also sells molded
plastic handles for plastic bags to other manufacturers.
The Registrant manufactures and markets a highly tamper-evident cash
handling bag under the trademarks "Ultravault(TM) and Univault(TM)." The
disposable bags are constructed of high strength polymer film, provide thermal
protection from tampering, and are constructed with the Registrant's patented
one step Press and Close(R) sealing system. The Registrant markets the products
to cash intensive businesses including financial institutions, retail
establishments and fast food chains, for the safe transport of cash and other
valuables.
The Registrant, through Southwest, produces and markets a soft loop
handle bag with applications ranging from retail shopping bags to functional
"pick it yourself" produce bags. Other products include a double drawstring bag,
which is marketed primarily to cosmetic related firms and a reclosable,
resealable, Trac-Loc bag, which is marketed to healthcare and laboratory supply
companies, food packaging firms and promotional products distributors.
The Registrant also distributes high quality paper, paper laminate and
plastic shopping bags and boxes for the retail industry.
During the first quarter of fiscal 1998, the Registrant, through its
wholly-owned subsidiary, Uniflex, U.K., commenced operations in Chester,
England, introducing patented medical products to hospitals, pharmacies and
medical laboratories in the European market.
The Registrant continues to market its Ultravault(TM) "tamper evident"
security bags which provide the user with visual evidence of tampering with the
bag's contents. The Ultravault(TM) bags are being introduced into markets, such
as banks, retailers, casino operators, stockbrokers and courier firms, which
have security concerns for cash and other valuables.
-5-
<PAGE>
The following table sets forth the amount and percentage of sales
contributed by each class of similar products for the last three fiscal years
which contributed fifteen percent or more of total sales in any of such fiscal
years.
<TABLE>
<CAPTION>
Fiscal Years ended January 31,
--------------------------------------------------------
1998 1997 1996
---- ---- ----
$ in thousands
Plastic Specialty Bags (including
<S> <C> <C> <C>
handle, drawstring, cut-out and litter $17,695 $17,404 $17,931
bags)........................................... 47% 50% 57%
</TABLE>
The Registrant distributes approximately 44% of its products
to advertising specialty distributors as part of its bag advertising program.
The Registrant distributes approximately 21% of its products, including
Speci-Gard(TM) and other hospital related products, to hospital supply houses,
laboratories, nursing homes and directly to certain hospitals. The Registrant
also sells its products to various distributors for resale. Less than 14% of the
Registrant's sales are directly with major retailers, chain stores, industrial
concerns and other large end-users. The Registrant's products are sold through
eighteen salespeople which include thirteen salespeople and five of the
Registrant's officers. During the fiscal year ended January 31, 1998, the
Registrant's sales staff accounted for approximately 98% of sales while
approximately 2% of sales were made through manufacturers' representatives.
The Registrant's sales office, including its showroom, is
located at its principal executive offices in Hicksville, New York (see Item 2
below). During the fiscal year ended January 31, 1998, the Registrant incurred
advertising expenditures of approximately $434,000. The Registrant mails a
complete catalogue of its merchandise, updated annually. For the year ended
January 31, 1998, the Registrant mailed approximately 70,000 catalogues. This
program
-6-
<PAGE>
develops substantial leads for the Registrant. In addition, the Registrant
receives unsolicited inquiries, referrals and leads from existing customers,
which are actively pursued by the Registrant's salespersons. The Registrant also
displays its merchandise at various trade shows, such as premium shows and
soft-goods shows. Additionally, the Registrant mails a catalogue designed
specifically for hospital supply houses and hospitals to promote its
Speci-Gard(TM) products and other hospital products.
(ii) Not applicable.
(iii) The raw materials essential to the business of
the Registrant (primarily polyethylene plastic) are readily available. The
Registrant's products are manufactured principally at the plant it leases in
Westbury, New York (see Item 2 below). The Registrant owns the molds used in
producing its handles, and, in addition, owns seven injection molding machines
which produce all of its requirements for such plastic handles.
(iv) The Registrant has registered trademarks
protecting its logo and the names "Uniflex(TM)", "Texture-Flex(TM)", "Jet
Pouch(TM)", "Tri-Flex(TM)", "Speci-Gard(TM)", "Hand-L-Bag(TM), Protex-Ray(TM),
"Slip-Free(TM)", "Press and Close(TM)", "Special Air Tuff(TM)", "Uni- Box(TM)",
"Micro-Tex(TM)", "Opti-Pouch(TM)", "UF(TM)", "Econovault(TM)", "Univault(TM)",
"Ultravault(TM)", "Univault and Logo Design(TM)", "Bagvertising(TM)", "UF
Line(TM)" and "The Bagvertising Company(TM)." The name "Uniflex(TM)" and the
Uniflex logo trademark are also registered with the U.S. Patent and Trademark
Office. The Registrant markets certain of its products utilizing its trademarks.
The Registrant believes that the loss of one or more of its trademarks would not
materially adversely affect its business.
-7-
<PAGE>
(v) The Registrant's business is not affected by
seasonal trends, however, approximately 50% to 55% of its sales are
traditionally made during the second half of the fiscal year. This is due to
slightly higher demand during the late summer and fall seasons. The Registrant
expects that approximately 50% of sales at its Merrick Division will be made
during the second half of the fiscal year.
(vi) The Registrant's inventory consists primarily of
raw materials. The Registrant maintains sufficient material on hand to expedite
orders and properly service its customers.
(vii) The Registrant has approximately 9,300
customers, none of which accounted for more than 10% of its sales during the
fiscal year ended January 31, 1998.
(viii) As of January 31, 1998, the Registrant had a
$4,934,000 backlog of firm orders, all of which the Registrant expects to fill.
As of January 31, 1997, the Registrant had a $5,315,000 backlog of firm orders,
substantially all of which have been filled.
(ix) Not applicable.
(x) The plastic bag industry is highly competitive
and is comprised of many concerns making products similar to those of the
Registrant. A number of these concerns are larger than the Registrant in terms
of total assets, personnel, sales and financial resources. The Registrant
believes that competition in the industry is based upon price, service and
quality of product.
(xi) The Registrant did not expend material amounts
on Registrant sponsored research and development during the last three fiscal
years.
-8-
<PAGE>
(xii) In addition to the disposal of waste solvents
through an authorized waste disposer, the Registrant monitors its approaches to
the disposal of waste solvents in order to comply with the Federal Clean Air
Act, the provisions of which restrict the emission of V.O.C. (Volatile Organic
Compounds).
The Registrant, with the assistance of independent
consultants, constantly monitors compliance with Federal, state and local
environmental provisions. During fiscal 1998, the Registrant's expenditures on
such compliance were insignificant and estimates that approximately $25,000 will
be expended in the current fiscal year. The Registrant believes that such
capital expenditures are not material to its operations.
(xiii) The Registrant has approximately 350
employees, including 12 salespersons and 13 officers. The Registrant's factory
personnel are employed under contracts executed in February 1998 with Local 3485
of the United Food & Commercial Workers Union AFL-CIO, which contracts expire on
January 31, 2001.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES. Not applicable.
Item 2. PROPERTIES.
The Registrant owns a 44,255 square foot building at 383 West
John Street, Hicksville, New York 11802, which serves as the Registrant's
principal executive offices. The Registrant uses approximately 9,900 square feet
at this property for executive offices, sales, accounting, computers and
showroom space. Approximately 34,400 square feet is used as
-9-
<PAGE>
warehouse space. The property is encumbered by a mortgage in the principal
amount outstanding at January 31, 1998 of $1,325,197.
The Registrant leases a building at 474 Grand Boulevard, Westbury, New
York 11590, containing approximately 72,000 square feet of space, of which
approximately 14,000 square feet are used for warehousing, approximately 42,000
square feet for manufacturing, approximately 10,000 square feet for shipping and
receiving and approximately 6,000 square feet for executive and clerical
offices. The expiration date of the Registrant's lease is April 30, 2003. During
the fiscal year ended January 31, 1998, the Registrant paid approximately
$165,000 for the base annual rental of said premises. In addition, the
Registrant pays the cost of real estate taxes, insurance and other expenses of
maintaining the building, which expenses amounted to approximately $245,000
during the fiscal year ended January 31, 1998.
Southwest leases a building at 2512 Madison N.E., Albuquerque, New
Mexico, containing approximately 10,000 square feet of space, of which
approximately 700 square feet is for office space and the balance of
approximately 9,300 square feet is for manufacturing. The expiration date of
Southwest's lease is December 7, 2004 with a base rent of $4,090 monthly,
including taxes and insurance.
In connection with the acquisition of Merrick, as of February 1, 1997
the Registrant assumed Merrick's lease for a building at 70 Austin Boulevard,
Commack, New York, containing approximately 18,000 square feet of warehouse
space and 2,000 square feet of office space. The expiration date of the lease is
July 31, 1998. The rent for the premises, inclusive of real estate taxes, is
$7,627 per month until July 31, 1997 and $7,794 per month thereafter until the
end of
-10-
<PAGE>
the term of the lease. The Registrant has surrendered the entire premises in
consideration of a payment of $18,971.16.
Item 3. LEGAL PROCEEDINGS.
The Registrant is not a party to any material legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-11-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
-------------------------------------
(a) Market Information.
The Registrant's Common Stock, $.10 par value, trades on the
American Stock Exchange (the "AMEX") under the symbol "UFX".
The following table sets forth the high and low closing sales
prices of the Common Stock on the AMEX for the periods indicated.
HIGH(1) LOW(1)
---- ---
Year Ended
January 31, 1998
First Quarter 8-1/4 6-1/2
Second Quarter 7 5-15/16
Third Quarter 7 1/2 5-7/8
Fourth Quarter 7 5
Year Ended
January 31, 1997
First Quarter 7 5
Second Quarter 6 5
Third Quarter 9-13/16 5-1/4
Fourth Quarter 9-15/16 7-1/8
(1) The Registrant declared a 50% stock dividend effective October 15, 1996
to holders of record as of September 26, 1996. The high and low sales
prices have been adjusted to reflect such dividend.
(b) Holders.
Title of Class Approximate Number of Record Holders (as
of April 3, 1998
-----------------------------------------
Common Stock, Par Value $.10 Per Share 279
The Registrant believes that there are approximately 1,000 beneficial
holders of the Common Stock.
-12-
<PAGE>
(c) Dividends.
The Registrant has not declared any cash dividends on its
Common Stock during the two most recent fiscal years. The Registrant declared a
50% stock dividend effective October 15, 1996 to holders of record as of
September 26, 1996.
Payment of cash dividends is within the discretion of the
Registrant's Board of Directors and will depend on, among other factors,
earnings, capital requirements and the operating and financial condition of the
Registrant. In addition, the Registrant's revolving credit facility limits the
payment of cash dividends in any fiscal year to 10% of the Registrant's
consolidated pretax profit.
Item 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
For the Years Ended January 31,
--------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
SELECTED INCOME
STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net Sales $37,999,000 $34,466,000 $31,510,000 $30,133,000 $25,660,000
Gross Profit $13,609,000 $13,087,000 $11,187,000 $11,151,000 $ 9,469,000
Net Income $ 1,496,000 $ 1,917,000 $ 1,459,000 $ 1,166,000 $ 941,000
Earnings $ .35 $ .43 $ .35 $ .29 $ .23
Per Share: Note(1)(2)
SELECTED BALANCE
SHEET DATA:
Working Capital $ 8,304,000 $ 8,434,000 $ 6,699,000 $ 5,822,000 $ 5,136,000
Total Assets $22,185,000 $18,693,000 $16,283,000 $15,318,000 $13,394,000
Long-Term Debt(3) $ 3,566,000 $ 1,493,000 $ 2,170,000 $ 3,847,000 $ 3,968,000
Stockholders' Equity $12,832,000 $12,946,000 $10,245,000 $ 7,285,000 $ 6,186,000
</TABLE>
- ------------------
(1) Computation of earnings per share is based on the weighted average
number of shares actually outstanding plus the shares that would be
outstanding assuming the exercise of dilutive stock options, all of
which are considered to be common stock equivalents. Common stock
equivalents were calculated by the use of the treasury stock method.
(2) The Registrant declared a 50% stock dividend effective October 15, 1996
to holders of record as of September 26, 1996. Earnings per share have
been adjusted to reflect this dividend.
(3) Exclusive of current portion of long-term debt.
-13-
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,257,000 $ 9,486,000 $10,527,000 $ 8,729,000
Gross Profit 3,332,000 3,420,000 4,007,000 2,850,000
Net income $ 305,000 $ 356,000 $ 652,000 $ 183,000
Net income per share (fully $ 0.07 $ 0.08 $ 0.16 $ 0.04
diluted)(1)
Net income per share (basic)(1) $ 0.07 $ 0.08 $ 0.16 $ 0.05
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $8,554,965 $8,642,013 $9,339,319 $7,929,965
Gross Profit $3,232,393 $3,214,915 $3,688,695 $2,951,286
Net income $ 522,572 $ 352,490 $ 738,097 $ 303,779
Net income per share (fully $ 0.12 $ 0.08 $ 0.16 $ 0.07
diluted)(1)
Net income per share (basic)(1) $ 0.13 $ 0.08 $ 0.17 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $7,960,409 $7,567,787 $8,754,093 $7,227,674
Gross Profit 2,933,740 2,490,956 3,319,257 2,443,058
Net income $ 374,629 $ 221,439 $ 600,778 $ 261,735
Net income per share(fully $ 0.09 $ 0.05 $ 0.15 $ 0.06
diluted)(1)
Net income per share(basic)(1) $ 0.11 $ 0.07 $ 0.17 $ 0.07
</TABLE>
- -----------------------
(1) The Registrant declared a 50% stock dividend effective October 15, 1996
to holders of record as of September 26, 1996. Net income per share has
been adjusted to reflect this dividend.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Registrant's actual results could differ materially from
those anticipated in these forward- looking statements. Factors that may cause
such differences include, but are not limited to,
-14-
<PAGE>
the Registrant's expansion into new markets, competition, technological advances
and availability of managerial personnel.
SUMMARY:
The following table, which should be read together with the
Financial Statements and Notes to Financial Statements appearing elsewhere in
this Report, sets forth for the periods indicated (i) percentages which certain
items reflected in the financial data bear to net sales of the Registrant and
(ii) the percentage increase (decrease) of such items as compared to the
indicated prior period:
<TABLE>
<CAPTION>
Relationship To Total Revenues For the Period to Period Increase
Years Ended January 31, (Decrease) Years Ended
------------------------------------------------- ---------------------------------
1998 1997 1996 1997-1998 1996-1997
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 10.3% 9.4%
Cost of Sales 64.2 62.0 64.4 14.1 5.2
Gross Profit 35.8 38.0 35.6 4.0 17.0
Operating Expenses:
Shipping, Selling, General
and Administrative Expenses 27.9 28.2 26.9 9.4 14.7
Interest 1.4 .6 1.3 140.9 (47.9)
Gain on Sale of Equipment - -- -- - --
Total 29.3 28.8 28.2 12.3 11.8
Income Before
Provision For
Income Taxes 6.5 9.2 7.4 (22.0) 36.8
Provision For
Income Taxes 2.4 3.6 2.8 (28.1) 45.9
Net Income 3.9% 5.6% 4.6% (22.0)% 31.4%
</TABLE>
RESULTS OF OPERATIONS:
SALES:
Sales for the years ended January 31, 1998, January 31, 1997
and January 31, 1996 were $37,999,000 $34,466,000 and $31,510,000, respectively.
Sales for the year ended January
-15-
<PAGE>
31, 1998 increased $3,533,000 or 10.3%, compared to the prior year as a result
of increased sales in Merrick Packaging Division, Advertising Specialty Division
and Cycle Plastics. Sales for the year ended January 31, 1997, increased
$2,956,000 or 9.4%, primarily from the Registrant's Medical Package Division.
The Registrant continues its efforts to market its Medical
Packaging Division's products to a variety of healthcare industries. New
strategies to market its newly acquired division of Specialty Paper and Paper
Laminate products, include producing and mailing 7000 catalogs to this industry.
The Registrant strives constantly for new products and avenues of distribution
to maximize its production facilities.
COST AND EXPENSES:
JANUARY 31, 1998
Cost of sales, as a percentage of sales, increased to 64.2%
for the year ended January 31, 1998, compared to 62.0% for the year ended
January 31, 1997. This increase was primarily due to the increase in raw
materials and start up time needed to effectuate the Merrick Packaging Specialty
absorption into the Registrant's systems.
Shipping, selling, general and administrative expenses for the
year ended January 31, 1998 increased approximately $916,000 or 9.4%, compared
to year ended January 31, 1997. This increase was due primarily to increase in
commissions, selling, advertising and promotion and freight out. These increases
were primarily attributable to increased net sales. Interest expense for the
year ended January 31, 1998 increased approximately $303,000 or 140.9% as
compared to the year ended January 31, 1997. This increase was primarily
attributable to the
-16-
<PAGE>
increased borrowings to acquire the assets of Merrick Packaging Specialty and to
repurchase outstanding shares of the Registrants Common Stock. During the fiscal
year ended January 31, 1998, the Registrant, in private transactions,
repurchased and retired 397,508 shares of its Common Stock for an aggregate
purchase price of $2,034,455. In addition, the Registrant repurchased options to
purchase 17,755 shares of Common Stock (exercisable at a price of $.69 per
share) for an aggregate purchase price of $76,228.
JANUARY 31, 1997
Cost of sales, as a percentage of sales, decreased to 62.0%
for the year ended January 31, 1997, compared to 64.4% for the year ended
January 31, 1996. This decrease was primarily due to the Registrant's continued
emphasis on purchasing, manufacturing and systems controls. During fiscal 1997,
the prices of raw material increased but began to stabilize during the fourth
quarter. Certain anticipated raw material price increases have been reflected in
the prices of products in the Registrant's new catalogs. As a result of the
decrease in cost of sales, as a percentage of sales, gross profit for the year
ended January 31, 1997, as compared to the year ended January 31, 1996,
increased to 38.0% from 35.6%.
Shipping, selling, general and administrative expenses for the
year ended January 31, 1997, increased approximately $1,246,000, or 14.7%,
compared to the year ended January 31, 1996. This increase was due primarily to
increases in commissions, selling, advertising, promotion and freight out. These
increases were primarily attributable to increased net sales.
Interest expense for the year ended January 31, 1997,
decreased approximately $198,000, or 48%, as compared to the year ended January
31, 1996. On February 13, 1996, the Registrant repaid in full its working
capital debt under its credit facility thereby reducing its
-17-
<PAGE>
interest expense. Throughout substantially the entire fiscal year, excess cash
was invested in short term financial instruments helping to offset mortgage
interest costs and other interest expense.
INCOME BEFORE PROVISION FOR INCOME TAXES:
Income before provision for income taxes for the year ended
January 31, 1998, decreased approximately $773,000, or 24%, to approximately
$2,396,000 compared to approximately $3,169,000 for the year ended January 31,
1997. This decrease was primarily related to start up costs relating to the
Merrick Package Specialty acquisition and decreased gross margins due to
increased raw material costs.
Income before provision for income taxes for the year ended
January 31, 1997, increased approximately $852,000, or 37%, to approximately
$3,169,000 compared to approximately $2,317,000 for year ended January 31, 1996.
This increase was primarily attributable to increased sales, efficient
purchasing of raw materials and continued improvements in manufacturing
operations.
PROVISION FOR INCOME TAXES:
Provision for income taxes for the year ended January 31,
1998, was $900,000 compared to $1,252,000 for the prior year primarily due to
the decrease of $773,000 in income before provision for income taxes.
Provision for income taxes for the year ended January 31,
1997, was $1,252,000 compared to $858,000 for the prior year primarily due to
the increase of $852,000 in income before provision for income taxes.
-18-
<PAGE>
LIQUIDITY AND CAPITAL COMMITMENTS:
Working capital decreased to $8,304,000 at January 31, 1998
from $8,434,000 at January 31, 1997, a decrease of $130,000 or 1.5%, primarily
as a result of the retirement of 397,508 shares of its Common Stock and the
repurchase of then outstanding options to purchase 17,755 shares of its Common
Stock. The Registrant's working capital ratio was 3.3 to 1 at January 31, 1998.
The Registrant's line of credit (the "Line of Credit") allows for the Registrant
to borrow up to $3,500,000, payable interest only at the prime rate or at LIBOR
plus 1 1/2% through May 1, 2000, at which time any outstanding balance is
payable in full. At January 31, 1998 and 1997 there were $1,500,000 and $0
outstanding, respectively, against the Line of Credit. The Registrant on
February 2, 1998 paid down all outstanding borrowings on its Line of Credit.
The Registrant believes it has sufficient working capital and
unused lines of credit to meet its expected liquidity and capital expenditure
requirements for the foreseeable future.
SUBSEQUENT EVENT:
On February 4, 1998, the Registrant closed a mortgage loan
(the "1998 Mortgage") which replaced the Registrant's then existing mortgage.
Proceeds of the 1998 Mortgage were $2,040,000, of which $1,335,842 was used to
pay off the then-existing mortgage. The 1998 Mortgage is secured by a first
mortgage lien on the Registrant's property at 383 West John Street, Hicksville,
New York, and is guaranteed by the Registrant's subsidiaries. The 1998 Mortgage
is payable in monthly installments of $11,334 per month commencing on March 4,
1998. Interest on the 1998 Mortgage is fixed at 7.56% per annum until February
4, 2008, at which time the rate becomes adjustable at the Registrant's option to
either: (i) variable at the lender's prime rate; (ii)
-19-
<PAGE>
fixed at the lender's prime rate; or (3) variable at LIBOR plus 1.75%. The 1998
Mortgage contains various covenants and restrictions relating to net worth,
financial ratios and rentals of the mortgaged property.
As of the date hereof, an agreement in principle has been
reached between the Registrant and the minority equityholder pursuant to which
the Registrant will purchase the minority equityholder's entire equity interest
in Southwest for consideration consisting of 50,000 shares of the Registrant's
Common Stock, $100,000 in cash and a $400,000 promissory note payable ratably in
four years at 7% interest.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data are included under Item
14 of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On April 9, 1996, the Audit Committee of the Board of Directors of the
Registrant dismissed Miller, Ellin & Co. ("Miller Ellin") as independent
accountants to the Registrant and appointed Patrusky Mintz & Semel as the new
independent accountants to the Registrant. Miller Ellin's accountant's report on
the financial statements of the Registrant for the fiscal years ended January
31, 1994 and 1995 did not contain an adverse opinion or a disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope, or accounting
principles. There were no other reportable events or disagreements with Miller
Ellin to report in response to Item 304(a) of Regulation S-K, Section
229.304(a).
-20-
<PAGE>
PART III
The information required by Items 10, 11, 12 and 13 of this
Part III is incorporated by reference from the Registrant's definitive proxy
statement to be filed not later than June 1, 1998 pursuant to Regulation 14A.
-21-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-k
(a) (1) FINANCIAL STATEMENTS
The following financial statements of Uniflex, Inc., otherwise includable under
Item 8, are included in this Item 14:
INDEX PAGE
- ----- ----
Reports of Independent Auditors F-1
Balance Sheets at January 31,
1998 and 1997 F-2
Statements of Income for the
years ended January 31, 1998,
1997 and 1996 F-3
Statements of Changes in
Stockholders' Equity for the years
ended January 31, 1998, 1997
and 1996 F-4
Statements of Cash Flows for the
years ended January 31, 1998,
1997 and 1996 F-5
Notes to Financial Statements F-7
(2) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II Valuation and Qualifying Accounts
and Reserves F-22
Other schedules are omitted because of the absence of
conditions under which they are required or because the required information is
given in the financial statements or notes thereto.
-22-
<PAGE>
Separate financial statements and supplemental schedules of
the Registrant are omitted since the Registrant is primarily an operating
company and its subsidiaries, included in the financial statements being filed,
do not have a minority equity interest or indebtedness to any person other than
the Registrant in an amount which exceeds five percent of the total assets as
shown by the financial statements as filed herein.
(3) EXHIBITS
NO. REFERENCE
- --- ---------
3. (a) Articles of Incorporation (as filed with the Secretary of State
of Delaware on April 16, 1973) and By-laws (1)
(b) Certificate of Amendment of Certificate of Incorporation as
filed with the Secretary of State of the State of
Delaware on June 29, 1987 (2)
(c) Amended and Restated By-Laws adopted on June 29, 1989 (3)
4. See Articles of Incorporation included herein as Exhibit 3 (1)
10.(a) Stock Option Agreement of Warner J. Heuman dated February 1, 1987 (2)
(b) Stock Option Agreement of Manfred M. Heuman dated February 1, 1987 (2)
(c) Stock Option Agreement of Erich Vetter dated February 1, 1987 (2)
(d) Lease dated August 12, 1977 between the Registrant, as Tenant,
and Harold R. Abrams, Rosalie Abrams Katz, Ira Parris and Annette
Parris, as Landlord, for the Registrant's manufacturing facility
in Westbury, New York (1)
(e) Registrant's Profit Sharing Plan and Trust dated January 22,
1976, as amended (1)
(f) Stock Option Agreement of Robert K. Semel dated December 21, 1990 (4)
(g) Deferred Compensation and Consulting and Non-Competition
Agreements of Erich Vetter dated as of April 28, 1991 (4)
(h) Deferred Compensation and Consulting and Non-Competition
Agreements of Manfred M. Heuman dated as of April 28, 1991 (4)
-23-
<PAGE>
(i) Deferred Compensation and Consulting and Non-Competition
Agreements of Warner J. Heuman dated as of April 28, 1991 (4)
(j) Amended Stock Option Agreement of Erich Vetter dated
August 29, 1990 (4)
(k) Amended Stock Option Agreement of Manfred M. Heuman dated
August 29, 1990 (4)
(l) Amended Stock Option Agreement of Warner J. Heuman dated
August 29, 1990 (4)
(m) Profit Sharing 401(k) Plan of the Registrant (5)
(n) Lease Extension and Modification Agreement dated December 5,
1992 between the Registrant, as Tenant, and Ira Parris,
Annette Parris, Rosalie Abrams Katz, and David S. Rhine and
Howard M. Abrams, Trustees of Trust B under the Last Will and
Testament of Samuel Abrams, as Landlord, for the Registrant's
manufacturing facility in Westbury, New York (6)
(o) Asset Purchase Agreement dated as of July 1, 1993, by and among
the Registrant, Haran Packaging Co., Inc. and Neil Sklar (7)
(p) Credit Agreement dated as of April 24, 1995 between the Registrant
and The Chase Manhattan Bank, N.A. (8)
(r) Promissory Note in the maximum principal amount of $3,500,000
between the Registrant and The Chase Manhattan Bank, N.A. (8)
(s) Guaranty of Uniflex Southwest L.L.C. in favor of The Chase
Manhattan Bank, N.A. (8)
(t) Guaranty of Hantico, Inc. in favor of The Chase Manhattan
Bank, N.A. (8)
(u) Employment Agreement of Herbert Barry dated as of February 1, 1996 (9)
(v) Second Amended and Restated Employment of Robert K. Semel dated
as of February 1, 1996 (9)
(w) Employment Agreement of Martin Brownstein dated as of February
1, 1996 (9)
(x) Asset Purchase Agreement dated as of February 1, 1997, by and
among the Registrant, Merrick Packaging Specialists, Inc.,
Jeffrey Gold, Lawrence Gold and Steven Braverman (10)
-24-
<PAGE>
23.1 Consent of Patrusky Mintz & Semel.
27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K
None.
- -------------------------
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1981.
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1987.
(3) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1988.
(4) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1991.
(5) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1992.
(6) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1993.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1994.
(8) Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended January 31, 1995.
(9) Incorporated by reference to the Registrant's Annual Report Form 10-K
for its fiscal year ended January 31, 1996.
(10) Incorporated by reference to the Registrant's Current Report on Form
8-K dated February 5, 1997.
-25-
<PAGE>
POWER OF ATTORNEY
Uniflex, Inc. and each of the undersigned do hereby appoint Herbert
Barry and Robert K. Semel, and each of them severally, its or his true and
lawful attorneys to execute on behalf of Uniflex, Inc. and the undersigned any
and all amendments to this Report and to file same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission. Each of such attorneys shall have the power to act hereunder with or
without the other.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 30th day of
April, 1998.
UNIFLEX, INC.
(Registrant)
By:/s/ Herbert Barry
-----------------------
Herbert Barry, Chairman
of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Warner J. Heuman
- --------------------- Director April 30, 1998
Warner J. Heuman
/s/ Herbert Barry Chairman of the Board, Chief April 30, 1998
- -------------------- Executive Officer and Director
Herbert Barry
/s/ Erich Vetter
- -------------------- Director April 30, 1998
Erich Vetter
/s/ Robert K. Semel President, Secretary and Director April 30, 1998
- -------------------
Robert K. Semel
/s/ Kurt Vetter First Vice President-Engineering April 30, 1998
- -------------------- and Director
Kurt Vetter
/s/ Robert Gugliotta Vice President-Finance, Treasurer April 30, 1998
- -------------------- and Controller
Robert Gugliotta
/s/ Martin Brownstein Senior Vice President and Director April 30, 1998
- ---------------------
Martin Brownstein
/s/ Martin Gelerman
- --------------------- Director April 30, 1998
Martin Gelerman
/s/ Steven Wolosky
- --------------------- Director April 30, 1998
Steven Wolosky
-26-
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
UNIFLEX, INC.
We have audited the accompanying consolidated balance sheets of Uniflex, Inc.
and Subsidiaries as of January 31, 1998 and 1997 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years ended January 31, 1998, 1997 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uniflex, Inc. and
Subsidiaries as of January 31 1998 and 1997 and the results of their operations
and their cash flows for the years ended January 31, 1998, 1997 and 1996, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(1) (2) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
/S/PATRUSKY, MINTZ & SEMEL
- -----------------------------
PATRUSKY, MINTZ & SEMEL
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
March 24, 1997
F-1
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 1,676,749 $ 2,114,923
Accounts receivable (net of allowances
of $121,366 in 1998 and $160,061 in 1997) 4,577,324 4,084,710
Inventories (Notes 1 and 4) 4,555,298 3,618,893
Prepaid income taxes 128,509 279,791
Prepaid expenses and other current assets 653,978 565,263
Deferred tax asset (Notes 1 and 8) 310,400 291,200
------------ ------------
Total current assets 11,902,258 10,954,780
Property and equipment (Notes 1, 5 and 6) 7,028,692 6,786,936
Intangible assets (Note 1) 2,328,079 220,013
Other assets 925,681 731,590
------------ ------------
Total assets $ 22,184,710 $ 18,693,319
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Acquisition debt-current portion (Note 2) $ 600,000 $ --
Current maturities of long-term debt (Note 6) 423,000 171,000
Accounts payable 1,576,683 1,351,060
Accrued liabilities (Note 7) 998,238 998,888
------------ ------------
Total current liabilities 3,597,921 2,520,948
------------ ------------
Acquisition debt (Note 2) 390,000 --
Long-term debt (Note 6) 3,565,593 1,493,131
Deferred rent (Note 1) 145,000 141,246
Deferred compensation and postretirement
benefits (Note 14) 1,363,252 1,329,237
------------ ------------
Total liabilities 9,061,766 5,484,562
------------ ------------
Commitments and contingencies (Note 16)
Minority interest (Notes 11 and 18) 290,888 262,500
------------ ------------
Stockholders' Equity (Notes 3, 9, 10 and 12)
Common stock - par value $.10 per share
10,000,000 shares authorized; issued and
outstanding 4,066,160 in 1998 and
4,289,668 in 1997 406,616 428,966
Additional paid-in capital 847,175 2,448,379
Retained earnings and members' capital 11,578,265 10,096,340
------------ ------------
12,832,056 12,973,685
Less note receivable - stock purchase (Note 10) -- (27,428)
------------ ------------
12,832,056 12,946,257
------------ ------------
Total liabilities and stockholders' equity $ 22,184,710 $ 18,693,319
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 37,998,816 $34,466,262 $31,509,963
Cost of sales 24,390,224 21,378,973 20,322,952
------------- ----------- -----------
Gross profit 13,608,592 13,087,289 11,187,011
Shipping, selling, general and
administrative expenses 10,618,337 9,702,838 8,457,319
------------- ----------- -----------
Income before other expenses 2,990,255 3,384,451 2,729,692
------------- ----------- -----------
Interest - net 443,830 215,313 413,111
Loss on disposal of assets 73,612 - -
------------- ----------- -----------
517,442 215,313 413,111
------------- ----------- -----------
Minority interest in income of
consolidated subsidiary (76,499) - -
------------- ----------- -----------
Income before provision for income
taxes 2,396,314 3,169,138 2,316,581
Provision for income taxes
(Notes 1 and 8) 900,000 1,252,200 858,000
------------- ----------- -----------
Net income $ 1,496,314 $ 1,916,938 $ 1,458,581
============= =========== ===========
Basic net income per share $ .36 $ .46 $ .42
============= =========== ===========
Diluted net income per share $ .35 $ .43 $ .35
============= =========== ===========
Average shares outstanding 4,161,289 4,193,687 3,486,701
Dilutive effect of stock options 162,532 279,215 626,554
------------- ----------- -----------
Average shares outstanding assuming
dilutive effect of stock options 4,323,821 4,472,902 4,113,255
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Retained
Earnings Note
Common Stock Additional and Receivable -
------------ Paid-In Members Stock
Amount Shares Capital Capital Purchase Total
------ ------ ------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1995 $224,033 2,240,334 $ 424,695 $ 6,720,821 $ (84,428) $ 7,285,121
Exercise of stock options (Note 12) 42,400 424,000 219,420 -- -- 261,820
Tax benefit from exercise of stock
options (Note 12) -- -- 1,193,000 -- -- 1,193,000
Issuance of common stock as
compensation 205 2,050 17,608 -- -- 17,813
Amortization of note receivable
(Note 10) -- -- -- -- 28,500 28,500
Net income -- -- -- 1,458,581 -- 1,458,581
-------- ------------ ------------ ------------ ------------ ------------
Balance at January 31, 1996 266,638 2,666,384 1,854,723 8,179,402 (55,928) 10,244,835
Exercise of stock options (Note 12) 21,555 215,545 213,097 -- -- 234,652
Tax benefit from exercise of stock
options (Note 12) -- -- 499,402 -- -- 499,402
Issuance of common stock to effect a
3 for 2 stock split (Note 3) 140,484 1,404,841 (140,484) -- -- --
Issuance of common stock as
compensation 289 2,898 21,641 -- -- 21,930
Amortization of note receivable
(Note 10) -- -- -- -- 28,500 28,500
Net income -- -- -- 1,916,938 -- 1,916,938
-------- ------------ ------------ ------------ ------------ ------------
Balance at January 31, 1997 428,966 4,289,668 2,448,379 10,096,340 (27,428) 12,946,257
Exercise of stock options (Note 12) 19,176 191,755 67,953 -- -- 87,129
Tax benefit from exercise of stock
options (Note 12) -- -- 400,000 -- -- 400,000
Shares repurchased and retired (Note 9) (41,526) (415,263) (2,069,157) -- -- (2,110,683)
Amortization of note receivable (Note 10) -- -- -- -- 27,428 27,428
Capital transferred to minority interest
(Note 11) -- -- -- (14,389) -- (14,389)
Net income -- -- -- 1,496,314 -- 1,496,314
-------- ------------ ------------ ------------ ------------ ------------
Balance at January 31, 1998 $406,616 4,066,160 $ 847,175 $ 11,578,265 $ -- $ 12,832,056
======== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,496,314 $ 1,916,938 $ 1,458,581
Adjustments to reconcile net income to
net cash provided by operating
activities:
Deferred compensation, postretirement
medical benefits and related
interest 34,015 114,113 103,646
Depreciation and amortization 964,170 915,888 852,956
Equity issued as compensation - 21,930 17,815
Amortization of note receivable 27,428 28,500 28,500
Deferred rent 3,754 18,750 33,750
Deferred income taxes (126,600) (82,300) (85,260)
Changes in assets and liabilities:
Accounts receivable (90,644) (719,721) 822,974
Inventories (544,266) (918,945) 381,343
Prepaid expenses and other current
assets (70,776) 41,680 103,284
Other assets (79,846) (8,792) 81,748
Accounts payable (531,284) 116,573 (424,163)
Accrued liabilities (10,290) 46,870 86,726
Prepaid income taxes 551,282 1,118,221 3,235
Minority interest 76,499 - -
------------ ------------- ------------
Net cash provided by operating
activities 1,699,756 2,609,705 3,465,135
------------ ------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (903,475) (1,098,318) (1,109,829)
Acquisition of net assets of Merrick
Packaging Specialists, Inc., - net
of cash acquired (664,949) - -
Purchase of intangible assets (41,497) (76,059) (83,077)
------------ ------------- -------------
Net cash used in investing
activities (1,609,921) (1,174,377) (1,192,906)
------------ ------------- ------------
</TABLE>
F-5
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Cash flows from financing activities:
<S> <C> <C> <C>
Proceeds of long-term debt $ 2,912,000 $ -- $ 7,500
Proceeds from minority contribution -- -- 27,500
Payment of long-term debt (580,038) 751,650) (1,900,181)
Payment for retirement of common
stock (2,110,683) -- --
Proceeds from exercise of stock
options 87,129 234,652 261,820
Payment of acquisition debt (836,417) -- --
----------- ----------- -----------
Net cash used in financing
activities (528,009) (516,998) (1,603,361)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (438,174) 918,330 668,868
Cash and cash equivalents - beginning of
year 2,114,923 1,196,593 527,725
----------- ----------- -----------
Cash and cash equivalents - end of
year $ 1,676,749 $ 2,114,923 $ 1,196,593
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND CONCENTRATION OF CREDIT RISK
The Company designs, manufactures and sells a variety of plastic bags used in
packaging, promotion and retailing, primarily to advertising specialty
distributors, hospital supply houses, manufacturers and retailers located
throughout the United States. The Company extends credit to its customers and
historically has not experienced significant losses related to receivables and
individual customers or groups of customers in any particular industry or
geographic area.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Uniflex, Inc.
("Uniflex"), its majority owned subsidiaries, Uniflex Southwest L.L.C.,
("Southwest"), Uniflex Southeast L.L.C., ("Southeast"), which ceased operations
in July 1997, and its wholly owned subsidiary Hantico, Inc. (inactive). All
material intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to include highly liquid debt
instruments purchased with a maturity of three months or less. At times, such
investments may be in excess of federal insurance limits.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents and trade
receivables and payables for which carrying amounts approximate fair value.
Management estimates that the carrying amount of its long-term debt also
approximates fair value.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets or, in the case of leasehold improvements, over the life of the lease, if
shorter.
The Company constructs certain machinery and equipment for its own use. When
completed, the material, labor and other costs related to construction are
capitalized and depreciated over the estimated useful life of the asset.
F-7
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Goodwill and other intangible assets are stated on the basis of cost and are
amortized principally on a straight-line basis, over the estimated periods of
future benefit (not exceeding 40 years). Goodwill and other intangible assets
are periodically reviewed for impairment based on an assessment of future
operations to ensure they are appropriately valued. At January 31, 1998, the net
book value of goodwill and other intangible assets was $2,012,420 and $315,658,
respectively. Accumulated amortization was approximately $339,000 and $243,000
on January 31, 1998 and 1997, respectively.
LONG-LIVED ASSETS
It is the Company's policy to evaluate and recognize an impairment to its
long-lived assets if it is probable that the recorded amounts are in excess of
anticipated undiscounted future cash flows.
DEFERRED RENT
Deferred rent payable represents the excess of recognized rent expense over
scheduled lease payments, which amount will be credited to future operations.
DEFERRED INCOME TAXES
Deferred income taxes reflect temporary differences in reporting assets and
liabilities for income tax and financial accounting purposes. The principal
sources of temporary differences are different methods used for depreciation
provisions, deferred compensation and New York State investment tax credits.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted
average number of shares outstanding. Diluted net income per share includes the
dilutive effect of stock options.
REVENUE RECOGNITION
Revenue is recognized when orders are shipped.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Catalog costs are
accounted for as a prepaid expense and are amortized over a twelve month period.
Advertising expenses inclusive of catalog costs charged to operations for the
years ended January 31, 1998, 1997 and 1996 were approximately $434,000,
$482,000 and $294,000, respectively.
F-8
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses. Actual
results could differ from those estimates.
RECLASSIFICATION OF PRIOR YEAR'S BALANCES
Certain amounts in the prior year's consolidated financial statements were
reclassified to conform with the current year's presentation.
NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS
No. 128"), "Earnings per Share," in the year ended January 31, 1998. In
accordance with SFAS No. 128, the Company has presented both basic net income
per share and diluted net income per share in the consolidated financial
statements.
NOTE 2. ACQUISITION
On February 5, 1997, the Company purchased substantially all of the assets and
assumed certain liabilities of Merrick Packaging Specialists, Inc. ("Merrick").
Merrick is a distributor of high quality paper, paper laminate and plastic
shopping bags and boxes for the retail industry. For the fiscal years ended
December 31, 1996 and 1995, Merrick reported unaudited revenues of approximately
$3,600,000 and $3,600,000, respectively. Net income for the fiscal years ended
December 31, 1996 and 1995 was not material. The acquisition has been accounted
for as a purchase, and accordingly, its results have been included in the
Company's results of operations from the effective date of the acquisition,
February 1, 1997. The excess of acquisition cost over the fair value of
Merrick's net tangible assets approximates $2,264,000 and has been allocated to
intangible assets and is being amortized over periods ranging from 15 to 40
years. Of the purchase price of $2,370,000, $780,000 was paid at closing,
$600,000 was paid August 1, 1997, and the balance is payable in promissory notes
as follows:
DUE DATE AMOUNT INTEREST RATE
-------- ------ -------------
August 1, 1998 $ 600,000 7.5% per annum
March 1, 1999 390,000 7.5% per annum
---------
$ 990,000
=========
Interest expense charged to operations was $91,100, for the year ended January
31, 1998.
F-9
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 3. STOCK DIVIDEND
On October 15, 1996, the Company effected a three for two stock split recorded
in the form of a stock dividend payable to stockholders of record at September
25, 1996. As a result, common stock was increased by $140,484 and additional
paid-in capital was decreased by the same amount. All references in the
accompanying financial statements to the number of common shares and per share
amounts have been restated to reflect the stock dividend.
NOTE 4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials and supplies $ 2,928,334 $ 2,255,078
Work-in-process 133,008 147,343
Finished goods 1,493,956 1,216,472
------------ -------------
$ 4,555,298 $ 3,618,893
============ =============
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------ -------------
<S> <C> <C>
Land $ 860,000 $ 860,000
Building and improvements 2,759,080 2,743,941
Machinery and equipment 10,616,307 9,751,492
Leasehold improvements 645,516 614,993
Plates and engravings 598,348 692,964
Furniture and fixtures 622,164 618,935
Delivery equipment 34,462 34,462
------------ -------------
16,135,877 15,316,787
Less accumulated depreciation and amortization 9,107,185 8,529,851
------------- -------------
$ 7,028,692 $ 6,786,936
============ =============
</TABLE>
Depreciation and amortization expense, for the assets above, charged to
operations for the years ended January 31, 1998, 1997 and 1996 amounted to
$836,719, $833,438 and $770,930, respectively.
F-10
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 5. PROPERTY AND EQUIPMENT (CONTINUED)
Assets held under capitalized leases, included above, are as follows
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
----------- --------
<S> <C> <C>
Machinery and equipment $ 163,683 $ 163,683
Furniture and fixtures 126,762 126,762
---------- ----------
290,445 290,445
Less accumulated depreciation 72,870 48,558
---------- ----------
$ 217,575 $ 241,887
========== ==========
</TABLE>
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------ --------
<S> <C> <C>
Credit agreement (A) $1,500,000 $ --
Term note payable - bank (B) 1,000,000 --
Mortgage payable - bank - payable in monthly installments
of $9,245 plus interest at prime plus 1/4% to 2009 -
secured by land, building and improvements (C) 1,325,197 1,436,137
Note payable - minority interest - payable
on January 1, 2000 with interest at 7% per annum -
unsecured -- 7,500
Capital lease obligations (Note 16) 163,396 220,494
---------- ----------
3,988,593 1,664,131
Less current maturities 423,000 171,000
---------- ----------
$3,565,593 $1,493,131
========== ==========
</TABLE>
Interest expense on long-term debt, charged to operations for the years ended
January 31, 1998, 1997 and 1996 amounted to $329,190, $157,416 and $323,963,
respectively.
F-11
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 6. LONG-TERM DEBT (CONTINUED)
Following are the maturities of long-term debt as of January 31, 1998, and for
each of the next five years and in the aggregate:
CREDIT TERM NOTE MORTGAGE CAPITAL LEASE
AGREEMENT PAYABLE PAYABLE OBLIGATIONS TOTAL
--------- ------- ------- ----------- -----
1999 $ -- $ 261,910 $ 110,940 $ 50,150 $ 423,000
2000 -- 285,720 110,940 54,795 451,455
2001 1,500,000 285,720 110,940 33,646 1,930,306
2002 -- 166,650 110,940 22,796 300,386
2003 -- -- 110,940 2,009 112,949
Thereafter -- -- 770,497 -- 770,497
---------- ---------- ---------- ---------- ----------
$1,500,000 $1,000,000 $1,325,197 $ 163,396 $3,988,593
========== ========== ========== ========== ==========
(A) The Company has a credit agreement with its lending bank. The credit
agreement provides for borrowings of up to $3,500,000, payable interest only at
the prime rate or LIBOR plus 1-1/2% through May l, 2000, at which time any
balance outstanding is payable in full. The credit agreement is unsecured. As of
February 17, 1998 the outstanding principal balance of the credit agreement had
been paid in full, partially with the proceeds of the term note payable and the
balance from the Company's working capital.
The credit agreement is subject to a 1/4% commitment fee on the average unused
loan portion. The credit agreement contains covenants and restrictions relating
to net worth, working capital, indebtedness, financial ratios, dividends,
capital expenditures, investments, acquisitions, earnings and continuity of
management.
(B) In January 1998, the Company obtained $1,000,000 under a term note payable
to its lending bank. The term note is payable in 42 monthly installments of
$23,800 plus interest at the prime rate or LIBOR plus 1-1/2% commencing in March
1998. The term note is unsecured and is subject to the same covenants and
conditions as the credit agreement (See "A" above).
(C) Refinanced in February 1998 (Note 17).
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
JANUARY 31,
1998 1997
-------- ---------
Accrued commissions $321,908 $333,492
Accrued payroll and bonuses 320,425 392,864
Accrued vacation 198,900 212,158
Other 157,005 60,374
-------- --------
$998,238 $998,888
======== ========
F-12
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-----------------------------------------------
1998 1997 1996
---- ---- ----
Current
<S> <C> <C> <C>
Federal $ 957,000 $ 1,185,800 $ 859,000
State 69,600 148,700 84,000
---------- ----------- ----------
1,026,600 1,334,500 943,000
---------- ----------- ----------
Deferred:
Federal (20,700) (34,300) (69,000)
State (9,900) (22,000) (16,000)
---------- ----------- ----------
(30,600) (56,300) (85,000)
Change in valuation allowance (96,000) (26,000) -
---------- ----------- -----------
(126,600) (82,300) (85,000)
---------- ----------- ----------
Total $ 900,000 $ 1,252,200 $ 858,000
========== =========== ==========
At Federal statutory rates $ 815,000 $ 1,077,500 $ 788,000
Effect of:
Permanent differences 1,300 12,600 22,000
Over/under accruals (64,200) 54,500 (25,000)
State income taxes, net of federal
benefits 104,100 98,600 64,000
State investment tax credits, net of
federal benefit (58,200) (15,000) (19,000)
Change in valuation allowance (96,000) (26,000) -
Assessments for prior years and other 198,000 50,000 28,000
---------- ----------- ----------
Total $ 900,000 $ 1,252,200 $ 858,000
========== =========== ==========
</TABLE>
At January 31, 1998, the Company has available for state income tax purposes
unused investment tax credits of approximately $350,000 expiring through the
year 2008.
The net current and non-current components of deferred income taxes recognized
in the balance sheet are as follows:
JANUARY 31,
1998 1997
----------- ----------
Net current assets $310,400 $291,200
Net non-current assets 354,800 247,400
-------- --------
$665,200 $538,600
======== ========
F-13
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 8. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset are as follows:
JANUARY 31,
-------------------------------
1998 1997
----------- ------------
Deferred tax assets:
Accounts receivable allowances $ 50,800 $ 67,200
Inventory - uniform capitalization 58,800 58,800
Vacation pay accrual 83,000 89,000
Deferred rent 60,900 59,200
Stock option compensation 41,200 41,200
Deferred compensation and post-retirement
medical benefits 572,500 558,200
Investment tax credit carryforwards 350,000 345,000
----------- -----------
1,217,200 1,218,600
Valuation allowance (17,000) (113,000)
----------- -----------
1,200,200 1,105,600
Deferred tax liability:
Depreciation 535,000 567,000
----------- -----------
Net deferred tax asset $ 665,200 $ 538,600
=========== ===========
NOTE 9. REPURCHASE AND RETIREMENT OF COMMON STOCK AND STOCK OPTIONS
During the year ended January 31, 1998, the Company in private transactions,
repurchased and retired 397,508 shares of its common stock for a purchase price
of $2,034,455. In addition, the Company repurchased options to purchase 17,755
shares of its common stock (exercisable at a price of $.69 per share) for a
purchase price of $76,228. The purchase price of the stock and options
represented a 17% discount from market prices at the time of purchase.
The aggregate purchase price of $2,110,683 was partially financed by bank
borrowings of $1,912,000 against the Company's credit agreement (See Note 6).
NOTE 10. NOTE RECEIVABLE - STOCK PURCHASE
In 1990, pursuant to an agreement (the "Officer Stock Purchase Agreement")
between the Company and an officer of the Company, such officer purchased common
stock in exchange for cash and a note payable (the "Stock Purchase Note")
bearing interest at 8.66% per annum. In accordance with the Officer Stock
Purchase Agreement, since the officer has fulfilled the terms of his employment
contract, the seven annual installments required by the Stock Purchase Note have
been forgiven annually by the Company as additional compensation to the officer.
At January 31, 1998, the Stock Purchase Note receivable balance was $-0-.
F-14
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 11. MINORITY INTEREST
In January 1995, Uniflex acquired an 80% interest in Southwest for $600,000 in
cash. Additionally, a minority member purchased a 20% interest in Southwest for
$27,500 in cash, and equipment having a fair value of $165,000.
Under the terms of the operating agreement of Southwest, all losses are
allocated to Uniflex until Southwest has net income for two consecutive fiscal
quarters. All net income reported by Southwest will then be allocated to Uniflex
until the cumulative net income allocated to Uniflex equals the cumulative net
losses previously allocated to Uniflex. Afterwards, net income and losses will
be allocated 45% to Uniflex and 55% to the minority member. The minority member
is required to contribute 60% of its allocated net income to Southwest,
receiving an additional 1% ownership for each $7,500 it contributes. When the
minority member's ownership interest reaches 49%, net income and losses will be
allocated in relation to the members' ownership interest in Southwest. Uniflex
has reached an agreement to purchase the minority interest in Southwest (Note
18).
In March 1996, Uniflex acquired an 80% interest in Southeast. Uniflex provided
an initial capital contribution of $50,000 along with additional advances of
approximately $330,000 through January 31, 1998. Intangible assets valued at
$70,000 were used by a minority member to purchase a 20% interest in Southeast.
Southeast ceased operations in July 1997 and is presently inactive.
NOTE 12. STOCK OPTIONS
The Company adopted the 1993 Stock Option Plan (the "Plan"), which provides for
the granting of options to purchase up to 360,000 shares of the Company's common
stock to employees of the Company. The exercise price for non-qualified options
can be no less than 75% of the fair market value of the Company's common stock
at the date of grant. The exercise price for incentive stock options can be no
less than the fair market value of the Company's common stock at the date of
grant with the exception of an employee who, prior to the granting of the
option, owns stock representing more than 10% of the voting rights for which the
exercise price can be no less than 110% of the fair market value of the
Company's common stock at the date of grant. The Plan is administered by the
Stock Option Committee (the "Committee") of the Board of Directors. The
Committee determines when the options are exercisable and the term of the
option, up to ten years. To date, options to purchase 195,500 shares have been
granted under the Plan at prices ranging from $1.42 to $9.75. During the year
ended January 31, 1998, options to purchase 29,000 shares were granted.
The Company has granted a third party options to purchase 180,000 shares of the
Company's common stock at a price of $1.08 per share. The options are
exercisable with respect to a maximum of 36,000 shares per year for five years,
commencing on September 1, 1992. Each option expires five years from the
commencement date with the last option expiring on August 31, 2000. To date,
options to purchase 120,000 shares have been exercised.
Pursuant to separate stock option agreements, the Company has granted to
eighteen officers and directors options to purchase a total of 1,122,000 shares
of the Company's common stock at prices ranging from $.33 to $.92 per share.
Such options expire at various dates through December 31, 2000. Options to
purchase 126,000 shares remain unexercised at January 31, 1998.
F-15
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 12. STOCK OPTIONS (CONTINUED)
The following table provides information regarding stock option activity for the
years ended January 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
------------------------
NUMBER OF SHARES RANGE WEIGHTED AVERAGE
---------------- ----- ----------------
Balance January 31, 1995
<S> <C> <C> <C> <C>
(1,239,000 exercisable) 1,370,400 .33 - 3.92 .67
Granted 4,800 3.92 - 4.83 4.26
Exercised (636,000) .33 - .50 .42
Forfeited (2,700) .50 .50
-----------
Balance January 31, 1996
(617,700 exercisable) 736,500 .38 - 3.58 .90
Granted 46,500 5.50 - 7.33 6.10
Exercised (287,195) .54 - 5.38 .82
-----------
Balance January 31, 1997
(456,505 exercisable) 495,805 .38 - 7.33 1.43
-----------
Granted 29,000 6.25 - 9.75 7.89
Exercised 191,755 .38 - 2.34 .45
-----------
Balance January 31, 1998
(300,550 exercisable) 333,050 .69 - 9.75 2.51
===========
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." SFAS 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument. As
permitted by SFAS 123, the Company has elected to continue to measure cost for
its stock-based compensation plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25. "Accounting for Stock Issued to
Employees." The effect of determining compensation cost for stock options
granted for the years ended January 31, 1998, 1997 and 1996, based upon the fair
value at the grant date consistent with the methodology prescribed under SFAS
No. 123 would not have been material to the financial statements. This effect
may not be representative of the pro forma effect on net income to future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to February 1, 1995.
The status of all options outstanding at January 31, 1998 is summarized as
follows:
RANGE OF WEIGHTED AVERAGE YEARS WEIGHTED AVERAGE
EXERCISE PRICES SHARES REMAINING CONTRACTUAL LIFE EXERCISE PRICE
- --------------- ------ -------------------------- ----------------
$.69 to $.92 126,000 1.8 $ .70
1.09 to 1.88 99,000 2.9 1.33
3.00 - 4.83 32,550 1.1 3.23
5.50 to 9.75 75,500 5.5 6.79
------- ---- -------
Total 333,050 2.9 $ 2.51
======= ==== =======
F-16
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 13. PROFIT SHARING PLAN
The Company maintains a profit sharing plan which covers all full-time,
non-union employees. Contributions to the plan are made at the discretion of the
Board of Directors, but may not exceed 15% of participants' compensation.
Amounts charged to operations were $200,000, for the years ended January 31,
1998, 1997 and 1996, respectively.
NOTE 14. DEFERRED COMPENSATION AND POSTRETIREMENT MEDICAL BENEFITS
DEFERRED COMPENSATION
On August 31, 1990, the Company entered into deferred compensation agreements
(the "Deferred Compensation Agreements") with three key employees (the
"Employees") who retired on various dates through December 31, 1994. The
Agreements provide for annual payments of $100,000 to each Employee for life and
$75,000 annually to their beneficiary or estate for three years after death,
with payments to commence seven years after retirement. Each Employee
simultaneously entered into seven year consulting and noncompetition agreements
which commenced upon retirement and which pays the Employees annual payments of
$75,000 in consideration of the noncompetition agreement and $25,000 in
consideration of the consulting agreement. In the event of the death of any of
the Employees after retirement but prior to the commencement of the Deferred
Compensation Agreement, the Company's obligation to make future payments under
these agreements will terminate.
The present value of the Deferred Compensation Agreements, calculated as of the
Employees' retirement dates and based upon their respective life expectancies,
approximates $840,000. For each Employee, the Company is recording as deferred
expense an amount equal to an annuity deposit necessary to yield the present
values of the Deferred Compensation Agreements as of the retirement dates.
Additionally, monthly charges of interest expense are being recorded such that
the deferred compensation payable will increase to the necessary level to meet
expected future payments.
The total deferred compensation charged to operations was $-0- for each of the
years ended January 31, 1998, 1997 and 1996, respectively. Related interest
expense charged to operations for the years ended January 31, 1998, 1997 and
1996 approximated $141,000, $124,000 and $110,000, respectively.
Deferred compensation payable at January 31, 1998 and 1997 was $1,248,483 and
$1,206,978, respectively.
POSTRETIREMENT MEDICAL BENEFITS
In addition, the Deferred Compensation Agreements require the Company to pay a
portion of each Employee's health insurance premiums from the date of retirement
to death. Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 106 "Employer's Accounting for Postretirement Benefits
Other Than Pension" which requires the Company to recognize the cost of
providing postretirement benefits over the Employees' service periods.
The net periodic postretirement benefit cost was $-0- for each of the years
ended January 31, 1998, 1997 and 1996, respectively. Related interest expense
charged to operations for the years ended January 31, 1998, 1997 and 1996
approximated $9,000, $9,000 and $10,000, respectively.
The recorded liabilities for these postretirement benefits, none of which have
been funded amounted to $114,769 and $122,259 at January 31, 1998 and 1997,
respectively. All participants were retired at January 31, 1998 and 1997,
respectively.
F-17
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 14. DEFERRED COMPENSATION AND POSTRETIREMENT MEDICAL BENEFITS (CONTINUED)
POSTRETIREMENT MEDICAL BENEFITS (CONTINUED)
The weighted average discount rate used in determining the liability was 7.5%.
There is no annual increase in health costs since the participants will be
responsible for any additional payments.
NOTE 15. SUPPLEMENTARY CASH FLOW INFORMATION
CASH TRANSACTIONS
Cash paid and received:
FOR THE YEARS ENDED JANUARY 31,
----------------------------------------------
1998 1997 1996
--------- --------- ---------
Interest $ 274,041 $165,121 $ 327,049
========= ======== =========
Income taxes paid $ 528,923 $650,000 $ 934,000
========= ======== =========
Income tax refunds received $ 23,653 $435,000 $ -
========= ======== =========
NON-CASH TRANSACTIONS
YEAR ENDED JANUARY 31, 1998
The Company purchased substantially all of the assets and assumed certain
liabilities of Merrick. Net assets acquired amounted to approximately
$2,370,000. Of the purchase price of $2,370,000, $780,000 was paid at closing
and acquisition debt of $1,590,000 was recorded.
YEAR ENDED JANUARY 31, 1997
The Company incurred capital lease obligations of $94,629 in connection with the
acquisition of certain equipment.
Intangible assets valued at $70,000 were recorded as a contribution to capital
from minority members.
YEAR ENDED JANUARY 31, 1996
During the year, the Company incurred $195,816 of capital lease obligations in
connection with the acquisition of certain equipment.
In March 1995, a minority member of Southwest contributed equipment with a fair
market value of $165,000 as capital.
F-18
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 16. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
The Company has the following lease commitments:
PREMISES EXPIRATION DATE BASE RENTAL AND EXPENSES
- -------- --------------- ------------------------
Plant, Westbury, NY April 30, 2003 Graduated from $91,000 and
$205,000 per annum plus
real estate taxes
Plant, Albuquerque, NM July 31, 2003 $37,500 per annum through July 1998,
$49,000 per annum thereafter, plus
real estate taxes
Future minimum lease payments are as follows:
YEARS ENDING JANUARY 31,
1999 $ 219,500
2000 236,600
2001 242,800
2002 247,800
2003 252,800
Thereafter 71,700
----------
$1,271,200
==========
Base rent and other occupancy costs charged to operations for the years ended
January 31, 1998, 1997 and 1996 amounted to approximately $415,000, $418,000 and
$389,000, respectively, including real estate taxes of $115,000, $194,000 and
$185,000, respectively.
CAPITAL LEASES
The Company leases certain equipment under capital leases expiring through
January 2002. Interest is imputed at rates ranging from 9% to 10%.
F-19
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under capital leases as of January 31, 1998 for
each of the next five years and in the aggregate are as follows:
YEARS ENDING JANUARY 31,
1999 $ 64,511
2000 63,199
2001 37,808
2002 24,295
2003 2,025
--------
Total minimum lease payments 191,838
Less amounts representing interest 28,442
Present value of net minimum lease payment (Note 6) $ 163,396
=========
LEGAL MATTERS
The Company is party to litigation arising in the ordinary course of business.
Management does not believe the results of such litigation, even if the outcome
is unfavorable to the Company, would have a material adverse effect on its
consolidated financial position or results of operations.
NOTE 17. SUBSEQUENT EVENT - MORTGAGE REFINANCING
On February 4, 1998, the Company closed on a mortgage loan (the "Mortgage Loan")
which replaced the Company's existing mortgage. Proceeds from the Mortgage Loan
were $2,040,000, of which $1,335,842 was used to pay off the then existing
mortgage. The Mortgage Loan is secured by a first mortgage lien on the Company's
property at 383 West John Street, Hicksville, New York, and is guaranteed by the
Company's subsidiaries. The Mortgage Loan is payable in monthly installments of
$11,334 per month commencing March 4, 1998. Interest is fixed at 7.56% per annum
until February 4, 2008 at which time the rate becomes adjustable at the
Company's option to one of the following rates:
1) Variable at the lenders prime rate 2) Fixed at the lenders fixed
rate 3) Variable at LIBOR plus 1.75%
The Mortgage Loan agreement contains various covenants and restrictions relating
to net worth, financial ratios and rentals of the mortgaged property.
F-20
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 18. SUBSEQUENT EVENT - PURCHASE OF MINORITY MEMBER'S INTEREST
On March 11, 1998, the Company announced an agreement to purchase the minority
interest in Southwest. Upon consummation of the agreement, Uniflex will pay
$793,750 to acquire the minority interest effective February 1, 1998. The
purchase price is payable as follows:
Cash at closing $100,000
Notes payable in 48 monthly installments
of $8,333, plus interest at 7% per annum
commencing April 1, 1998 400,000
Issuance of 50,000 shares of common stock 293,750
-------
$793,750
========
As part of the agreement, the seller may not sell, assign or transfer the common
stock until February 1, 2001.
The minority interest acquired consists of net assets with a book value of
$290,888. The excess of purchase price over assets acquired of $502,862 will be
assigned to goodwill and amortized over 40 years.
F-21
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
DESCRIPTION
Allowance for doubtful accounts
BALANCE AT
BEGINNING CHARGED TO
OF YEAR TO EXPENSES DEDUCTIONS (1)
------- ----------- --------------
January 31, 1998 $ 160,061 $ 44,081 $ 82,776
========= ======== ========
January 31, 1997 $ 174,500 $ 61,178 $ 75,617
========= ======== ========
January 31, 1996 $ 184,327 $ 75,284 $ 85,111
========= ======== ========
(1) Write-off of uncollectible accounts.
F-22
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of our report dated March 24, 1998 of Uniflex, Inc. and Subsidiaries
for the years ended January 31, 1998, 1997 and 1996 included in the 1998 Annual
Report to Shareholders of Uniflex, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-K for year ended January 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 1,676,749
<SECURITIES> 0
<RECEIVABLES> 4,577,324
<ALLOWANCES> 121,366
<INVENTORY> 4,555,298
<CURRENT-ASSETS> 11,902,258
<PP&E> 7,028,692
<DEPRECIATION> 9,364,459
<TOTAL-ASSETS> 22,184,710
<CURRENT-LIABILITIES> 3,597,921
<BONDS> 0
0
0
<COMMON> 406,616
<OTHER-SE> 12,425,440
<TOTAL-LIABILITY-AND-EQUITY> 22,184,710
<SALES> 37,998,816
<TOTAL-REVENUES> 37,998,816
<CGS> 24,390,224
<TOTAL-COSTS> 35,008,561
<OTHER-EXPENSES> 517,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 443,830
<INCOME-PRETAX> 2,396,314
<INCOME-TAX> 900,000
<INCOME-CONTINUING> 1,496,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,496,914
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
