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
For the fiscal year ended JANUARY 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to _____________________
Commission file number 1-6339
UNIFLEX, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 11-2008652
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
383 West John Street, Hicksville, New York 11802
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(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
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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 14, 1999, the aggregate market value of the Registrant's
outstanding voting Common Stock held by non-affiliates of the Registrant was
approximately $15,981,742. For purposes of this calculation, shares owned by
officers, directors and 10% stockholders known to the Registrant have been
excluded. Such exclusion is not intended, nor shall it be deemed, to be an
admission that such persons are affiliates of the Registrant.
As of April 14, 1999, there were 4,300,352 shares outstanding of the
Registrant's Common Stock, $.10 par value.
<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 or the Company. 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.
On March 8, 1999, the Company announced that Uniflex and an acquisition
entity ("NEWCO") formed by RFE Investment Partners have signed an Agreement and
Plan of Merger and Recapitalization providing for the acquisition by NEWCO of
all of the outstanding shares of common stock and all the outstanding stock
options of Uniflex (exclusive of the shares of common stock to be retained as
described below). However, there can be no assurance that the transaction will
ultimately be consummated.
The transaction is subject to certain conditions, including the
successful completion of the necessary financing and obtaining the necessary
regulatory and corporate approvals, including the approval of the shareholders
of Uniflex. It is expected that the transaction will be consummated no later
than July 30, 1999.
The Merger Agreement provides for a statutory merger of Uniflex with
NEWCO pursuant to which the holders of Uniflex's issued and outstanding common
stock and stock options (exclusive of the shares of common stock to be retained
as described below) will be entitled to receive $7.57 per share of common stock
and an average of $4.09 per stock option for options the exercise price of which
is less than $7.57 per share based upon 128,700 such options currently
outstanding and a weighted average exercise price there of $3.48 per share. Upon
consummation of the merger, (i) CMCO, Inc. and its affiliates that currently own
300,158 shares of common stock of Uniflex will retain all of their shares of
common stock of Uniflex and (ii) certain officers, directors and employees of
Uniflex will retain no less than 322,000 shares of common stock of Uniflex owned
by them. The transaction is expected to be treated as a recapitalization for
financial reporting purposes.
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 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,
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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 was the Manager of Southwest and
owns 75% of its equity. In April 1995, Southwest commenced operations in
Albuquerque, New Mexico. In February 1998, the Registrant purchased the minority
equity holder'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 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
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
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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.
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,
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1999 1998 1997
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$ in thousands
<S> <C> <C> <C>
Plastic Specialty Bags (including handle, $18,682 $17,695 $17,404
drawstring, cut-out and litter bags)............. 47% 47% 50%
</TABLE>
The Registrant distributes approximately 41% of its products
to advertising specialty distributors as part of its bag advertising program.
The Registrant distributes approximately 17% 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, 1999, 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, 1999, the Registrant incurred
advertising expenditures of approximately $459,000. The Registrant mails a
complete catalogue of its merchandise, updated annually. For the year ended
January 31, 1999, the Registrant mailed approximately 75,000 catalogues. This
program 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
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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.
(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 Paper 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, 1999.
(viii) As of January 31, 1999, the Registrant had a
$5,821,000 backlog of firm orders, all of which the Registrant expects to fill.
As of January 31, 1998, the Registrant had a $4,934,000 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
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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.
(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 1999, 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 390
employees, including 14 salespersons and 11 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 warehouse space. The
property is encumbered by a mortgage in the principal amount outstanding at
January 31, 1999 of $1,915,326.
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, 1999, the Registrant
expensed costs of 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 $235,000 during the fiscal year ended January 31,
1999.
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The Registrant leases approximately 6,400 square feet of space
in a building at 460 Grand Boulevard, Westbury, New York 11590, all of which is
used solely for warehousing. The lease is month to month. During the fiscal year
ended January 31, 1999, the Registrant expensed costs of approximately $40,000
for the base annual rent of said premises.
Southwest leases a building at 2512 Madison N.E., Albuquerque,
New Mexico, containing approximately 22,000 square feet of space, of which
approximately 700 square feet is for office space and the balance of
approximately 21,300 square feet is for manufacturing. The expiration date of
Southwest's lease is July 31, 2005. During the fiscal year ended January 31,
1999, the Registrant paid approximately $60,690 for the base rent, real estate
taxes and insurance of said premises.
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 was July 31, 1998. The rent for the premises, inclusive of real estate
taxes, was $7,627 per month until July 31, 1997 and $7,794 per month thereafter
until the end of 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.
From time to time, the Registrant may be involved in
litigation relating to claims arising out of its operations in the normal course
of business. As of the date of this Annual Report on Form 10-K, the Registrant
is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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.
<TABLE>
<CAPTION>
HIGH(1) LOW(1)
Year Ended January 31, 2000:
<S> <C> <C>
First Quarter (through April 14, 1999).......... $7-1/8 $6-15/16
Year Ended January 31, 1999:
First Quarter................................... $6-7/16 $5-1/8
Second Quarter.................................. 6-1/8 5-1/8
Third Quarter................................... 6-1/6 3-7/8
Fourth Quarter.................................. 6-5/8 5
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
</TABLE>
On April 14, 1999, the last reported sale price of the
Registrant's Common Stock was $7 per share.
(b) Holders.
As of April 14, 1999, there were approximately 221 holders of
record, and approximately 1,000 beneficial holders of the Common Stock.
(c) Dividends.
The Registrant has not declared or paid 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.
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The Registrant does not intend to pay any cash dividends on
its Common Stock in the foreseeable future. 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,
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1999 1998 1997 1996 1995
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SELECTED INCOME
STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net Sales $39,722,000 $37,999,000 $34,466,000 $31,510,000 $30,133,000
Gross Profit $14,507,000 $13,609,000 $13,087,000 $11,187,000 $11,151,000
Net Income $2,108,000 $1,496,000 $1,917,000 $1,459,000 $ 1,166,000
Earnings
Per Share: Note(1)(2) $0.50 $0.35 $0.43 $0.35 $ 0.29
SELECTED BALANCE
SHEET DATA:
Working Capital $8,670,000 $8,304,000 $8,434,000 $6,699,000 $5,822,000
Total Assets $23,548,000 $22,185,000 $18,693,000 $16,283,000 $15,318,000
Long-Term Debt(3) $2,293,000 $3,956,000 $1,493,000 $2,170,000 $3,847,000
Stockholders' Equity $15,806,000 $12,832,000 $12,946,000 $10,245,000 $7,285,000
</TABLE>
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(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.
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<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
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<S> <C> <C> <C> <C>
Net sales $9,755,000 $9,757,000 $10,763,000 $9,447,000
Gross Profit $3,657,000 $3,426,000 $3,989,000 $3,435,000
Net income $492,000 $424,000 $674,000 $518,000
Net income per share (fully $0.12 $0.10 $0.16 $0.12
diluted)(1)
Net income per share (basic)(1) $0.12 $0.10 $0.16 $0.12
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ----------------------------------------------------------------------------------------------------------------------------
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
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ----------------------------------------------------------------------------------------------------------------------------
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 diluted)(1) $0.12 $0.08 $0.16 $0.07
Net income per share(basic)(1) $0.13 $0.08 $0.17 $0.07
</TABLE>
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(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 Annual Report on Form 10-K may contain projections,
estimates and other 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, the Registrant's expansion
into new markets, competition, technological advances and availability of
managerial personnel.
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SUMMARY:
The following table, which should be read together with the
Financial Statements and Notes to Financial Statements appearing elsewhere in
this Annual Report on Form 10-K, 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
----------------------------------------- -------------------------------
1999 1998 1997 1998-1999 1997-1998
---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 4.5% 10.3%
Cost of Sales 63.5 64.2 62.0 3.4 14.1
Gross Profit 36.5 35.8 38.0 6.6 4.0
Operating Expenses:
Shipping, Selling, General
and Administrative Expenses 27.1 27.9 28.2 1.5 9.4
Interest 1.1 1.4 0.6 (6.4) 140.9
Gain on Sale of Equipment -- -- -- -- --
Total 28.2 29.3 28.8 0.5 12.3
Income Before
Provision For
Income Taxes 8.3 6.5 9.2 38.2 (22.0)
Provision For
Income Taxes 3.0% 2.4 3.6 33.8 (28.1)
Net Income 5.3% 3.9% 5.6% 40.9% (22.0)%
</TABLE>
RESULTS OF OPERATIONS:
SALES:
Sales for the years ended January 31, 1999, January 31, 1998
and January 31, 1997 were $39,722,000, $37,999,000 and $34,466,000,
respectively. Sales for the year ended January 31, 1999 increased $1,723,000 or
4.5%, compared to the prior year as a result of increased sales of Paper and
Paper Laminate products through the Specialty Advertising Division. The
Registrant continues its efforts to market its Medical Packaging Division's
products to a variety of customers in the healthcare industry, while adding new
products to its Specialty Paper and Paper Laminate Division in an attempt to
increase market share in both the advertising specialty and retail industries.
Sales for the year ended January 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.
The Registrant continues to investigate possible acquisitions.
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COST AND EXPENSES:
JANUARY 31, 1999
Cost of sales, as a percentage of sales, decreased to 63.5%
for the year ended January 31, 1999, compared to 64.2% for the year ended
January 31, 1998. Management continues to maximize its cash position enabling
the Registrant to discount payments to certain of its vendors of raw materials
and obtain lower prices by purchasing in bulk, especially polyethlene film and
resin. Gross profit increased approximately $900,000 or 6.6% compared to the
year end January 31, 1998. This increase was primarily due to increased sales
and lower raw material costs.
Shipping, Selling, General and Administrative expense for the
year ended January 31, 1999 increased 1.5% compared to the year ended January
31, 1998. The expenses for the fiscal year ended January 31, 1999 amounted to
approximately $10,778,000, or 27% of net sales, compared to $10,618,000, or 28%
of net sales, for the prior year. This indicates that while variable costs such
as commissions, freight-out and advertising cost rise in proportion to the
increase in net sales, management was able to control its other SG & A costs.
As a result of refinancing its mortgage in February 1998, the
Registrant used a portion of the proceeds to repay in full its working capital
debt under its credit facility, thereby reducing its interest expense.
Throughout the entire fiscal year, excess cash was invested in short term
financial instruments helping to offset interest costs.
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 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.
INCOME BEFORE PROVISION FOR INCOME TAXES:
Income before provision for income taxes for the year ended
January 31, 1999, increased approximately $917,000, or 38%, to approximately
$3,313,000 compared to approximately $2,396,000 for the year ended January 31,
1998. This increase was primarily attributable to increased sales, efficient
purchasing of raw materials, the purchase of the minority interest in Southwest
and the controlling of Shipping, Selling, General and Administrative expenses.
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.
PROVISION FOR INCOME TAXES:
Provision for income taxes for the year ended January 31,
1999, was $1,204,000 compared to $900,000 for the prior year primarily due to
the increase of $917,000 in income before 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.
LIQUIDITY AND CAPITAL COMMITMENTS:
Working Capital increased to $8,670,000 at January 31, 1999
from $8,304,000 at January 31, 1998, an increase of $366,000 or 4.4%. The
Registrant's working capital ratio was 3.3 to 1 at January 31, 1999 and January
31, 1998. The Registrant's 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.
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<PAGE>
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.
YEAR 2000 PROGRAM:
Many computer systems experience difficulty processing dates
beyond the Year 1999 and, as such, come computer hardware and software will need
to be modified prior to the Year 2000 to remain functional. The Company's core
internal systems that have been recently implemented are Year 2000 compliant.
The remaining core internal systems are scheduled to be replaced by the third
quarter of 1999 and will be Year 2000 compliant when installed.
The Company is also completing a preliminary assessment of
Year 2000 issues not related to it core systems, including issues surrounding
systems that interface with external third parties. Based on its initial
evaluation, the Company does not believe that the costs of remedial actions will
have a material adverse effect on the Company's results of operations and
financial condition. There can be no assurance, however, that there will not be
a delay in, or increased costs associated with, the implementation of changes as
the program progresses, and failure to implement such changes could have an
adverse effect on future results of operations.
SUBSEQUENT EVENT:
On March 8, 1999, the Company announced that Uniflex and an
acquisition entity ("NEWCO") formed by RFE Investment Partners have signed an
Agreement and Plan of Merger and Recapitalization providing for the acquisition
by NEWCO of all of the outstanding shares of common stock and all the
outstanding stock options of Uniflex (exclusive of the shares of common stock to
be retained as described below). However, there can be no assurance that the
transaction will ultimately be consummated.
The transaction is subject to certain conditions, including
the successful completion of the necessary financing and obtaining the necessary
regulatory and corporate approvals, including the approval of the shareholders
of Uniflex. It is expected that the transaction will be consummated no later
than July 30, 1999.
The Merger Agreement provides for a statutory merger of
Uniflex with NEWCO pursuant to which the holders of Uniflex's issued and
outstanding common stock and stock options (exclusive of the shares of common
stock to be retained as described below) will be entitled to receive $7.57 per
share of common stock and an average of $4.09 per stock option for options the
exercise price of which is less than $7.57 per share based upon 128,700 such
options currently outstanding and a weighted average exercise price there of
$3.48 per share. Upon consummation of the merger, (i) CMCO, Inc. and its
affiliates that currently own 300,158 shares of common stock of Uniflex will
retain all of their shares of common stock of Uniflex and (ii) certain officers,
directors and employees of Uniflex will retain no less than 322,000 shares of
common stock of
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<PAGE>
Uniflex owned by them. The transaction is expected to be treated as a
recapitalization for financial reporting purposes.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
At January 31, 1999, the Registrant had no outstanding
derivative financial instruments. The majority of the Registrant's transactions
occur in U.S. dollars. Therefore, the Registrant is not subject to significant
foreign currency exchange risk.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data are included
under Item 14 of this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.*
The directors and executive officers of the Registrant, their
ages and present positions with the Registrant are as follows:
NAME AGE POSITION(S)
- ---- --- -----------
Herbert Barry 62 Chairman of the Board, Chief Executive
Officer and Director
Robert K. Semel 61 President, Chief Operating Officer,
Secretary and Director
Kurt Vetter 55 First Vice President - Engineering and
Director
Steven Wolosky 43 Director
Warner J. Heuman 74 Director
Erich Vetter 76 Director
Martin Brownstein 57 Senior Vice President and Director
Martin Gelerman 62 Director
Lee Cantor 39 Vice President - Sales
Herbert Barry has been the Chairman of the Board and Chief
Executive Officer of the Registrant since January 1995 and a director of the
Registrant since 1968. He was President of the Registrant from 1971 to January
1995.
Robert K. Semel has been the President and Chief Operating
Officer since January 1995. He was Executive Vice President of the Registrant
from December 1990 to January 1995, Secretary of the Registrant since April 1993
and a director of the Registrant since December 1990.
Mr. Semel is also a director of Pentech International, Inc.
Kurt Vetter has been First Vice President - Engineering of the
Registrant since January 1995. He was Vice President - Engineering of the
Registrant from 1971 to January 1995 and a director of the Registrant since
1970.
Steven Wolosky has been a director of the Registrant since
February 1994. For more than the past five years, Mr. Wolosky has been a partner
of Olshan Grundman Frome Rosenzweig
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<PAGE>
& Wolosky LLP, counsel to the Registrant. Mr. Wolosky is also Assistant
Secretary of WHX Corporation, a New York Stock Exchange listed company.
Warner J. Heuman has been Chairman Emeritus of the Registrant
since January 1995 and a director of the Registrant since 1968. Mr. Heuman was
Chairman of the Board of the Registrant from 1971 to January 1995.
Erich Vetter has been a director of the Registrant since 1968.
Mr. Vetter was the Secretary of the Registrant from 1975 to April 1993.
Martin Brownstein has been Senior Vice President of the
Registrant since January 1995 and a director of the Registrant since June 1991.
Mr. Brownstein was the Vice President Advertising Specialty Sales from 1977 to
January 1995.
Martin Gelerman has been a director of the Registrant since
August 1993. Since February 1997, Mr. Gelerman has been President - Human
Resource Consulting Group, and Director - Corporate Development of Lloyd
Creative Staffing Inc. From 1990 to October 1996, Mr.
Gelerman was Senior Vice president of The Olsten Corporation.
Lee Cantor has been Vice President - Sales of the Registrant
since January 1995. He was Vice President - Packaging Sales from January 1993 to
January 1995 and Sales Manager from 1988 to 1995.
* The Directors of the Company, by virtue of certain family relationships and
aggregate stockholdings, may be considered control persons of the Company.
The Board of Directors of the Registrant consists of eight
members. The Registrant has a standing Audit Committee, currently comprised of
Erich Vetter, Martin Gelerman and Steven Wolosky (with Warner J. Heuman serving
as an alternate). The Audit Committee met twice during the fiscal year ended
January 31, 1999. The Audit Committee reviews, analyzes and makes
recommendations to the Board of Directors with respect to the Company's
compensation and accounting policies, controls and statements and coordinates
with the Company's independent public accountants. The Company does not have a
standing Nominating Committee or a committee which serves nominating functions.
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<PAGE>
Item 11. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The following table sets forth, for the fiscal years
indicated, all compensation awarded to, earned by or paid to the chief executive
officer ("CEO") of the Company (Mr. Herbert Barry, the Chairman of the Board and
Chief Executive Officer of the Company) and the four most highly compensated
executive officers of the Company other than the CEO whose salary and bonus
exceeded $100,000 with respect to the fiscal year ended January 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
COMPENSATION
ANNUAL COMPENSATION AWARDS
Other Annual All Other
Name and Compensation Compensation
Principal Position Year Salary($) Bonus($) ($)(1) Options(#) ($)(2)
- --------------------------------- ---------- --------------- ------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Herbert Barry 1999 660,116 178,395 -- -- 1,900
Chairman of the Board, 1998 605,000 71,961 -- -- 1,900
Chief Executive Officer 1997 599,000 160,155 -- -- 1,900
Robert K. Semel 1999 325,000 292,906 29,907 -- 1,900
President, 1998 300,000 175,136 54,361 -- 1,900
Chief Operating Officer 1997 275,000 237,465 55,895 -- 1,900
Martin Brownstein 1999 228,500 2,500 -- -- 1,900
Senior Vice President - 1998 462,500 12,500 -- 15,000 1,900
Advertising Specialty Sales 1997 380,000 12,000 -- -- 1,900
Lee Cantor 1999 265,000 6,500 -- -- 1,900
Vice President - Sales 1998 217,000 10,000 -- -- 1,900
1997 253,000 9,188 -- -- 1,900
Kurt Vetter 1999 148,858 9,000 -- -- 1,900
First Vice President - 1998 151,435 18,000 -- -- 1,900
Engineering 1997 150,697 17,500 -- -- 1,900
</TABLE>
(1) Consists of payments of $29,907, $24,161 and $21,195 relating to
automobile and insurance expenses in 1999, 1998 and 1997, respectively,
and the discharge of indebtedness relating to the purchase of the
Company's common stock of $0, $30,200 and $34,700 in 1999, 1998 and
1997, respectively. See Item 13 - "Certain Relationships and Related
Transactions."
(2) Amounts shown reflect Company contributions to 401(k) Plan.
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<PAGE>
The following table sets forth certain information regarding
stock option exercises by each of the Executive Officers named in the Summary
Compensation Table during the fiscal year ended January 31, 1999 and unexercised
stock options held by such Executive Officers as of January 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-the-Money
Unexercised Options at
Options at January 31,
January 31, 1999(#) 1999($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#)(2) Realized($) Unexercisable Unexercisable
- ----------------------- ---------------------- --------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
Herbert Barry -- -- 0/0 0/0
Erich Vetter 60,000 341,300 0/0 0/0
Robert K. Semel 15,000 65,888 0/0 0/0
Kurt Vetter -- -- 300/0 1,988/0
Martin Brownstein -- -- 10,000/5,000 66,250/33,125
Warner J. Heuman -- -- 60,000/0 352,500/0
Lee Cantor 300 631 0/0 0/0
</TABLE>
(1) On January 31, 1999, the last reported sales price of the Company's
Common Stock as reported by the American Stock Exchange was $6.625 per
share.
(2) Adjusted to give effect to a 50% stock dividend paid in October 1996.
Board of Directors Compensation
The Company pays each non-employee Director a fee of $500 for
each Board of Directors' meeting attended.
Long-Term Incentive and Pension Plans.
The Company does not have any long-term incentive or defined
benefit pension plans.
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<PAGE>
Stock Option Plans
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
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.
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 98,400 shares remain unexercised at January 31, 1999.
In 1996 the Company adopted the Outside Directors' Stock
Option Plan (the "Outside Directors Plan"), which was subsequently approved by
the stockholders. There are 60,000 shares of the Company's common stock reserved
for issuance under the Outside Directors Plan. Pursuant to the Outside Directors
Plan, each current Outside Director (Messrs. Gelerman and Wolosky) initially
received an option to purchase 4,500 shares of Common Stock and as long as
shares of Common Stock remain available for the grant of options under the
Outside Directors' Plan, each year on the date of the Company's annual meeting
of stockholders, each Outside Director shall be granted an option to purchase
4,500 shares of Common Stock. Options granted under the Outside Directors' Plan
are exercisable in three equal installments beginning on the first anniversary
of the date of grant and subject to such terms and conditions as are determined
by the Board of Directors at grant.
The exercise price of each option is the fair market value for
each share of Common Stock subject to an option. Fair Market Value means the
closing sales price of the Common Stock as quoted on the American Stock Exchange
on the date of grant of any option. The term of each option is 10 years from the
date of grant. The Outside Directors' Plan also provides for the earlier
termination of options in the event an Outside Director's membership on the
Board of Directors terminates.
Employment Agreements
Mr. Herbert Barry is employed under an employment agreement
expiring January 31, 2001 which provides for Mr. Barry to be paid (i) an annual
base salary of $110,000 with yearly increases of $12,000, (ii) a sum equal to 1%
of all of the Company's sales subject to certain limitations and (iii) regular
commissions computed in accordance with the Company's usual practice on all
sales which he generates. In addition, Mr. Barry receives a profit incentive
cash bonus based upon the consolidated pre-tax profits of the Company. The
employment agreement is subject to two
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<PAGE>
two year renewals at the end of the current term or any renewal thereof at the
option of Mr. Barry. The employment agreement also provides that in the event of
a Change of Control (as such term is defined in the employment agreement) that
results in his termination, Mr. Barry is entitled to receive a severance payment
equal to the product of 2.99 times the average total annual compensation of any
kind paid to Mr. Barry by the Company during the Company's last five full fiscal
years prior to the date of termination of employment.
Mr. Robert K. Semel is employed under an employment agreement
expiring January 31, 2001 which provides for (i) an annual base salary of
$275,000 with yearly increases in annual compensation ranging from $25,000 to
$50,000, (ii) a profit incentive bonus based upon the consolidated pre-tax
profits of the Company and (iii) a sales incentive bonus based upon the
consolidated net sales of the Company, subject to certain limitations, in excess
of $30 million (other than net sales for which Mr. Herbert Barry is not entitled
to an override commission) of the Company. The employment agreement is subject
to two two year renewals at the end of the current term or any renewal thereof
at the option of Mr. Semel. The employment agreement also provides that in the
event of a Change of Control (as such term is defined in the employment
agreement) that results in his termination, Mr. Semel is entitled to receive a
severance payment equal to the product of 2.99 times the average total annual
compensation of any kind paid to Mr. Semel by the Company during the Company's
last five full fiscal years prior to the date of termination of employment.
The Company has an employment agreement with Martin Brownstein
that expired on January 31, 1998 and was renewed for a period of one year. The
employment agreement initially provided for Mr. Brownstein to be paid (a)
commissions at the Company's standard commission rates then in effect on all
sales of the Company's products which he generates plus (b) commissions (the
"Override Commissions") equal to 1% of the Company's sales to companies listed
in the Advertising Specialty Institute Directory up to and including $1,500,000
and 1 1/4% of all such sales in excess of $1,500,000. Upon the renewal of Mr.
Brownstein's employment agreement, the Override Commissions provision was
eliminated.
The Company has an employment agreement with Lee Cantor that
expired on October 31, 1997. The employment agreement is subject to an automatic
one year renewal unless either the Company or Mr. Cantor gives a termination
notice at least 90 days prior to the expiration of the then current term.
Pursuant to the provisions of the employment agreement, Mr. Cantor is paid a
salary of $500 per week and commissions at the Company's standard commission
rates then in effect on all sales of the Company's products which he generates.
The Company had an employment agreement with Kurt Vetter that
expired on January 31, 1997, but which had been extended for a period of one
year. Mr. Vetter was paid $160,000 during fiscal 1999 and 1998.
In addition, the Company has entered into deferred
compensation, and amended and restated employment, consulting and
non-competition agreements with each of Manfred Heuman,
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<PAGE>
Warner J. Heuman and Erich Vetter dated as of April 28, 1991, which provide that
after termination of the employment agreement, each shall be engaged as a
consultant for a period of seven years thereafter. Mr. Manfred Heuman retired in
June 1992, Mr. Erich Vetter retired in February 1993 and Mr. Warner Heuman
retired in January 1995. In addition, each shall be entitled to deferred
compensation benefits for the balance of his lifetime, and certain death and
other fringe benefits. Each of Manfred Heuman, Warner Heuman and Erich Vetter
has received an aggregate payment of $101,800 for each of 1999, 1998 and 1997
pursuant to such agreements. See "Certain Relationships and Related
Transactions."
Board of Directors Interlocks and Insider Participation in Compensation
Decisions
Other than Messrs. Gelerman and Wolosky, all of the members of
the Board of Directors were officers or former officers of the Company during
the fiscal year ended January 31, 1999 and participated in the decisions of the
Company's Board of Directors concerning executive officer compensation. However,
each Director abstained from decisions concerning his own compensation.
Board of Directors Report on Executive Compensation
General
The Board of Directors determines the cash and other incentive
compensation, if any, to be paid to the Company's Executive Officers and key
employees.
Compensation Philosophy
The Board of Directors' executive compensation philosophy is
to base management's pay, in part, on the achievement of the Company's annual
and long-term performance goals by (a) setting levels of compensation designed
to attract and hold superior executives in a competitive business environment,
(b) providing incentive compensation that varies directly with the Company's
financial performance and individual initiative and achievement, (c) linking
compensation to the Company's annual and long-term performance, (d) evaluating
the competitiveness of executive compensation programs based upon information
drawn from a variety of sources, and (e) establishing salary levels and bonuses
intended to be consistent with competitive practice and level of responsibility,
with salary increases and bonuses reflecting competitive trends, the overall
financial performance of the Company, the performance of the individual
executive and the contractual arrangements that may be in effect with the
individual executive. Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), prohibits a publicly held corporation, such as the
Company, from claiming a deduction on its federal income tax return for
compensation in excess of $1 million paid for a given fiscal year to the chief
executive officer (or person acting in that capacity) at the close of the
corporation's fiscal year and the four most highly compensated officers of the
corporation, other than the chief executive officer, at the end of the
corporation's fiscal year. The $1 million compensation deduction limitation does
not apply to "performance-based
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<PAGE>
compensation." The Company has not yet established a policy with regard to
Section 162(m) of the Code since the Company has not paid compensation in excess
of $1 million per annum to any employee.
Salaries
Salaries for the Company's Executive Officers are determined
by the terms of their employment contracts which are based upon the factors
described in the "Compensation Philosophy" paragraph above. Annual salary
adjustments are determined consistent with the Company's compensation policy, by
the terms of the employment contracts and by evaluating the competitive
marketplace, the performance of the Company, the performance of the executive
particularly with respect to the ability to manage growth of the Company or to
generate sales of the Company's products, length of service to the Company and
any increased responsibilities assumed by the executive.
Annual Bonuses and Incentive Compensation
The Company from time to time considers the payment of bonuses
to its Executive Officers although no formal plan currently exists. Bonuses
would be determined based, first, upon the level of achievement by the Company
of its strategic and operating goals and, second, upon the level of personal
achievement by participants. The achievement of personal goals includes the
actual performance of the Company for which the Executive Officer has
responsibility as compared to the planned performance thereof, the ability to
manage and motivate reporting employees and the achievement of assigned
projects. Bonuses are determined annually after the close of each fiscal year.
In connection with increased net sales and stockholders' equity for the fiscal
year ended January 31, 1999, the Company awarded bonuses to Messrs. Brownstein,
Cantor and Kurt Vetter in the amounts of $2,500, $6,500 and $9,000,
respectively. Pursuant to the terms of his employment agreement, Mr. Semel was
awarded a bonus of $292,906.
Compensation of Chief Executive Officer
Mr. Barry's compensation during the fiscal year ended January
31, 1999 was based upon the terms of his employment agreement which is weighted
heavily toward performance criteria. Mr. Barry received a base salary of
$136,000 for the fiscal year ended January 31, 1999 and his total compensation
was a result of the increase in sales of the Company during the fiscal year. Net
sales for the fiscal year ended January 31, 1999 were Company records. Net sales
were $39,722,000, compared to $37,999,000 for the fiscal year ended January 31,
1998, an increase of 4.5%. Net income was $2,108,000 compared to $1,496,000 for
the year ended January 31, 1998, an increase of 4.1%. The Company's financial
success and Mr. Barry's compensation is attributable to Mr. Barry's leadership
in providing strategic direction to the Company, in positioning the Company to
take advantage of emerging growth opportunities, in developing and maintaining
an effective management team for the Company and in communicating and
implementing a strong corporate culture and vision within and outside the
Company.
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<PAGE>
Stock Options
No Executive Officer named in the Summary Compensation Table
was awarded stock options during the fiscal year ended January 31, 1999. It is
the philosophy of the Board of Directors that stock options should be awarded
only to key employees of the Company to promote long-term interests between such
employees and the Company's stockholders and to assist in the retention of such
employees.
(Signed)
BOARD OF DIRECTORS: Herbert Barry
Martin Brownstein
Martin Gelerman
Warner J. Heuman
Robert K. Semel
Erich Vetter
Kurt Vetter
Steven Wolosky
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<PAGE>
Performance Graph
The following graph compares, for each of the fiscal years
indicated, the yearly percentage change in the Company's cumulative total
stockholder return on its common stock with the cumulative total return of (a)
the AMEX Market Index, a broad equity market index, and (b) the Media General
("MG") Group Index, a packaging and containers industry index, in each case
assuming reinvestment of dividends. In previous years, the Company has been
compared against the Plastic Packaging Materials Group. However, as a result of
an internal restructuring of the industry group classification system at Media
General Financial Services ("MGFS"), the organization which provides us with the
performance graph, MGFS no longer supports the Plastic Packaging Materials
Group, and the Company is now categorized in a similar industry group, Packaging
& Containers.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
RETURN AMONG UNIFLEX, INC., AMEX MARKET INDEX
AND MG GROUP PACKAGING & CONTAINERS INDEX
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
UNIFLEX, INC. 100.00 111.90 173.81 222.31 167.77 189.19
MG GROUP INDEX 100.00 93.92 98.93 103.33 96.92 87.27
AMEX MARKET INDEX 100.00 87.28 111.87 120.40 137.34 142.29
</TABLE>
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<PAGE>
Employee Benefits
The Company adopted a qualified profit-sharing plan in
January, 1976 and all of its employees (other than employees who are subject to
a union or collective bargaining agreement) are eligible to participate after
completing twelve months of continuous service and attaining age 21. The Company
is not required to make any minimum contributions and any contributions will be
from current or accumulated earnings and will not exceed the maximum amount
deductible by the Company under applicable provisions of the Internal Revenue
Code.
Participants may elect (but are not required) to contribute up
to 10% of their compensation. In general, the benefits payable to a participant
from contributions by the Company become fully vested at the earliest of (1) the
participant's normal retirement date, (2) the participant's earlier retirement
date if he has completed ten years of participation in the plan, or (3) the
participant's completion of fifteen years of service beginning on the effective
date of the plan; provided that partial vesting of benefits begins upon
completion of five years of service beginning on the effective date of the plan.
Effective February 1, 1990, the Company established a defined
contribution benefit plan pursuant to Section 401(k) of the Internal Revenue
Code (the "401(k) Plan"). Full-time employees who have completed twelve months
of service may contribute a percentage of their salaries to the 401(k) Plan,
subject to certain limits. The Company will match 20 percent of the employee's
contribution up to six percent of the employee's salary. The Company's
contributions vest at the rate of 20 percent per year of employment. During the
fiscal year ended January 31, 1999, the Company contributed $49,135 to the
401(k) Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5
with the Securities and Exchange Commission ("SEC"). Such officers, directors
and 10% stockholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons, the
Company believes that, during the fiscal year ended January 31, 1999, that there
was compliance with all Section 16(a) filing requirements applicable to its
officers, directors and 10% stockholders.
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<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information concerning
ownership of the Registrant's Common Stock outstanding as of April 14, 1999 by
(i) each person known by the Registrant to be the beneficial owner of more than
five percent (5%) of the Registrant's Common Stock, (ii) each director, (iii)
each of the executive officers named in the summary compensation table, and (iv)
all executive officers and directors of the Registrant as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(a) PERCENT OF CLASS(b)
---------------- ----------------------- -------------------
<S> <C> <C>
Herbert Barry 470,490 (c) 10.9%
383 W. John Street
Hicksville, NY 11802
Warner J. Heuman 455,520 (d, i) 10.4%
383 W. John Street
Hicksville, NY 11802
Erich Vetter 288,999 6.7%
383 W. John Street
Hicksville, NY 11802
Robert K. Semel 434,100 (e) 10.1%
383 W. John Street
Hicksville, NY 11802
Kurt Vetter 152,680 (f, i) 3.6%
383 W. John Street
Hicksville, NY 11802
Martin Brownstein 206,256 (i) 4.8%
383 W. John Street
Hicksville, NY 11802
Martin Gelerman 10,000 (i) *
383 W. John Street
Hicksville, NY 11802
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(A) PERCENT OF CLASS(B)
---------------- ----------------------- -------------------
<S> <C> <C>
Steven Wolosky 12,000 (i) *
505 Park Avenue
New York, NY 10022
Lee Cantor 74,501 (g) 1.7%
383 W. John Street
Hicksville, NY 11802
CMNY Capital, L.P. 300,158 (h) 7.0%
135 East 57th Street
New York, NY 10022
All Directors and Executive 2,104,546 (i) 48.0%
Officers as a group
(9 persons)
</TABLE>
- ------------
* Less than 1%
(a) Except as noted, shares are owned individually.
(b) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934 ("Rule 13d-3") and unless
otherwise indicated, represents shares for which the beneficial owner
has sole voting and investment power. The percentage of class is
calculated in accordance with Rule 13d-3 and includes options or other
rights to subscribe which are exercisable within sixty (60) days of
March 5, 1999.
(c) Includes 34,914 shares held individually by Betty Lou Barry, Herbert
Barry's wife.
(d) Includes 129,000 shares owned individually by Elaine Heuman, Warner J.
Heuman's wife.
(e) Includes 300 shares held individually by Frances M. Semel, Robert K.
Semel's wife, as custodian for her son.
(f) Includes 9,300 shares held individually by Stephanie Vetter, Kurt
Vetter's wife.
(g) Includes 45,603 shares owned jointly with Melissa Cantor, Lee Cantor's
wife, and 11,797 shares held individually by Melissa Cantor.
-27-
<PAGE>
(h) Includes 54,912 shares owned by CMCO, Inc., an affiliate of CMNY
Capital, L.P. and 2,946 shares owned by Robert Davidoff. Mr. Davidoff
is a general partner of CMNY Capital, L.P.
and an officer and director of CMCO, Inc.
(i) Includes shares issuable upon the exercise of currently exercisable
stock options as follows: Warner J. Heuman - 60,000 shares; Kurt Vetter
- 300 shares; Martin Brownstein - 15,000 shares; Martin Gelerman -
6,000 shares; Steven Wolosky - 6,000 shares.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant has entered into deferred compensation and
amended and restated employment, consulting and non-competition agreements with
each of Manfred Heuman, Warner J. Heuman and Erich Vetter dated as of April 28,
1991, which provide that after termination of the employment agreement, each
shall be engaged as a consultant for a period of seven years thereafter. Mr.
Manfred Heuman retired in June 1992, Mr. Erich Vetter retired in February 1993
and Mr. Warner Heuman retired in January 1995. In addition, each shall be
entitled to deferred compensation benefits for the balance of his lifetime, and
certain death and other fringe benefits. Each of Manfred Heuman, Warner Heuman
and Erich Vetter has received an aggregate payment of $101,800 for 1999, 1998
and 1997, respectively, pursuant to such agreements.
During the year ended January 31, 1998, the Company, in
private transactions, repurchased and retired 85,000, 10,000 and 4,004 shares of
its common stock from Kurt Vetter, Erich Vetter and Warner Heuman, respectively,
officers and/or directors of the Company for purchase prices of $423,300,
$82,500 and $28,028, respectively. The purchase price of the stock represented a
17% discount from market prices at the time of purchase. The aggregate purchase
price was partially financed by bank borrowings against the Company's credit
agreement.
In 1990, pursuant to an agreement (the "Officer Stock Purchase
Agreement") between the Company and Robert K. Semel, Mr. Semel purchased common
stock in exchange for cash and a note payable in the principal amount of
$198,000 (the "Stock Purchase Note") bearing interest at 8.66% per annum. In
accordance with the Officer Stock Purchase Agreement, since Mr. Semel 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 Mr. Semel. At January 31, 1998, the Stock Purchase
Note was paid in full.
Steven Wolosky, a director of the Company, is a member of
Olshan Grundman Frome Rosenzweig & Wolosky LLP, which firm has been retained by
the Company as general counsel during the last fiscal year. Fees received from
the Company by such firm during the last fiscal year did not exceed 5% of such
firm's or the Company's gross revenues.
-28-
<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,
1999 and 1998 F-2
Statements of Income for the
years ended January 31, 1999,
1998 and 1997 F-3
Statements of Changes in
Stockholders' Equity for the years
ended January 31, 1999, 1998
and 1997 F-4
Statements of Cash Flows for the
years ended January 31, 1999,
1998 and 1997 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.
-29-
<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.
(b) REPORTS ON FORM 8-K.
Current report on Form 8-K dated November 17, 1998.
(c) EXHIBITS
NO. DESCRIPTION REFERENCE
2. Agreement and Plan of Merger and Recapitalization
between the Registrant and Uniflex Acquisition Corp.
dated March 5, 1999. (1a)
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)
-30-
<PAGE>
(h) Deferred Compensation and Consulting and Non-Competition
Agreements of Manfred M. Heuman dated as of April 28, 1991 (4)
(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
-31-
<PAGE>
Registrant, Merrick Packaging Specialists, Inc., Jeffrey Gold,
Lawrence Gold and Steven Braverman (10)
23.1 Consent of Patrusky Mintz & Semel.
24. Power of Attorney (included on the signature page to this Report).
27. Financial Data Schedule.
- -------------------------
(1a) Incorporated by reference to the Registrant's Current Report on Form
8-K dated March 8, 1999.
(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.
-32-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned thereunto duly authorized on
the 15th day of April, 1999.
UNIFLEX, INC.
(Registrant)
By: /s/ Herbert Barry
-----------------------------------------
Herbert Barry, Chairman
of the Board and Chief Executive Officer
POWER OF ATTORNEY
Uniflex, Inc. and each of the undersigned do hereby constitute appoint
Herbert Barry and Robert K. Semel, and each of them severally, its or his true
and lawful attorneys-in-fact 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-in-fact shall have
the power to act hereunder with or without the other.
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 15, 1999
Warner J. Heuman
/s/ Herbert Barry Chairman of the Board, April 15, 1999
- ------------------------ Chief Executive
Herbert Barry Officer and Director
/s/ Erich Vetter
- ------------------------ Director April 15, 1999
Erich Vetter
/s/ Robert K. Semel President, Secretary April 15, 1999
- ------------------------ and Director
Robert K. Semel
/s/ Kurt Vetter First Vice President- April 15, 1999
- ------------------------ Engineering and
Kurt Vetter Director
/s/ Thomas McPartland
- ------------------------ Acting Controller April 15, 1999
Thomas McPartland
/s/ Martin Brownstein Senior Vice President April 15, 1999
- ------------------------ and Director
Martin Brownstein
/s/ Martin Gelerman
- ------------------------ Director April 15, 1999
Martin Gelerman
/s/ Steven Wolosky
- ------------------------ Director April 15, 1999
Steven Wolosky
-33-
<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, 1999 and 1998 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years ended January 31, 1999, 1998 and 1997. 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 1999 and 1998 and the results of their operations
and their cash flows for the years ended January 31, 1999, 1998 and 1997, 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 5, 1999
F-1
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND 1998
ASSETS 1999 1998
---------- -----------
Current assets
Cash and cash equivalents (Note 1) $ 2,511,131 $ 1,676,749
Accounts receivable (net of allowances
of $121,131 in 1999 and $121,366 in 1998) 4,520,477 4,577,324
Inventories (Notes 1 and 4) 4,377,304 4,555,298
Prepaid income taxes 9,525 128,509
Prepaid expenses and other current assets 778,862 653,978
Deferred tax asset (Notes 1 and 8) 274,300 310,400
----------- -----------
Total current assets 12,471,599 11,902,258
Property and equipment (Notes 1, 5 and 6) 7,316,029 7,028,692
Intangible assets (Note 1) 2,879,684 2,328,079
Other assets (Note 8) 880,683 925,681
----------- -----------
Total assets $23,547,995 $22,184,710
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt (Note 6) $ 1,174,100 $ 1,023,000
Accounts payable 1,440,760 1,576,683
Accrued liabilities (Note 7) 1,187,621 998,238
----------- -----------
Total current liabilities 3,802,481 3,597,921
----------- -----------
Long-term debt (Note 6) 2,293,130 3,955,593
Deferred rent (Note 1) 133,750 145,000
Deferred compensation and postretirement
benefits (Note 14) 1,512,504 1,363,252
----------- -----------
Total liabilities 7,741,865 9,061,766
----------- -----------
Commitments and contingencies (Note 16)
Minority interest (Notes 2 and 11) -- 290,888
----------- -----------
Stockholders' Equity (Notes 3, 9 and 12)
Common stock - par value $.10 per share
10,000,000 shares authorized; issued and
outstanding 4,300,352 in 1999 and
4,066,152 in 1998 430,036 406,616
Additional paid-in capital 1,689,549 847,175
Retained earnings and members' capital 13,686,545 11,578,265
----------- -----------
Total stockholders' equity 15,806,130 12,832,056
----------- -----------
Total liabilities and stockholders' equity $23,547,995 $22,184,710
=========== ===========
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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------
<S> <C> <C> <C>
Net sales $ 39,721,744 $ 37,998,816 $ 34,466,262
Cost of sales 25,215,265 24,390,224 21,378,973
------------------ ------------------ ------------------
Gross profit 14,506,479 13,608,592 13,087,289
Shipping, selling, general and
administrative expenses 10,778,271 10,618,337 9,702,838
------------------ ------------------ -----------------
Income before other expenses 3,728,208 2,990,255 3,384,451
----------------- ------------------ -----------------
Interest - net 415,528 443,830 215,313
Loss on disposal of assets - 73,612 -
---------------- ---------------- ----------------
415,528 517,442 215,313
---------------- ---------------- ----------------
Minority interest in income of
consolidated subsidiary - (76,499) -
---------------- ---------------- ----------------
Income before provision for income
taxes 3,312,680 2,396,314 3,169,138
Provision for income taxes
(Notes 1 and 8) 1,204,400 900,000 1,252,200
----------------- ----------------- -----------------
Net income $ 2,108,280 $ 1,496,314 $ 1,916,938
================= ================= =================
Basic net income per share $ .50 $ .36 $ .46
================= ================= ================
Diluted net income per share $ .50 $ .35 $ .43
================= ================= ================
Average shares outstanding 4,177,102 4,161,289 4,193,687
Dilutive effect of stock options 42,993 162,532 279,215
----------------- ----------------- ----------------
Average shares outstanding
assuming dilution 4,220,095 4,323,821 4,472,902
================== ================= =================
</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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------
AMOUNT SHARES
------ ------
<S> <C> <C>
Balance at January 31, 1996 $ 266,638 2,666,384
Exercise of stock options (Note 12) 21,555 215,545
Tax benefit from exercise of stock
options (Note 12) - -
Issuance of common stock to effect a
3 for 2 stock split (Note 3) 140,484 1,404,841
Issuance of common stock as
compensation 289 2,890
Amortization of note receivable (Note 10) - -
Net income - -
---------------- -----------------
Balance at January 31, 1997 428,966 4,289,660
Exercise of stock options (Note 12) 19,176 191,755
Tax benefit from exercise of stock
options (Note 12) - -
Shares repurchased and retired (Note 9) (41,526) (415,263)
Amortization of note receivable (Note 10) - -
Capital transferred to minority interest
(Note 11) - -
Net income - -
---------------- -----------------
Balance at January 31, 1998 406,616 4,066,152
Exercise of stock options (Note 12) 18,420 184,200
Tax benefit from exercise of stock
options (Note 12) - -
Shares issued - acquisition (Note 2) 5,000 50,000
Net income - -
---------------- -----------------
Balance at January 31, 1999 $ 430,036 4,300,352
================ =================
</TABLE>
<TABLE>
<CAPTION>
RETAINED EARNINGS
ADDITIONAL AND NOTE RECEIVABLE -
PAID-IN CAPITAL MEMBERS CAPITAL STOCK PURCHASE TOTAL
--------------- --------------- -------------- -----
<S> <C> <C> <C> <C>
Balance at January 31, 1996 $ 1,854,723 $ 8,179,402 $ (55,928) $ 10,244,835
Exercise of stock options (Note 12) 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) - - -
Issuance of common stock as
compensation 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 2,448,379 10,096,340 (27,428) 12,946,257
Exercise of stock options (Note 12) 67,953 - - 87,129
Tax benefit from exercise of stock
options (Note 12) 400,000 - - 400,000
Shares repurchased and retired (Note 9) (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 847,175 11,578,265 - 12,832,056
Exercise of stock options (Note 12) 231,374 - - 249,794
Tax benefit from exercise of stock
options (Note 12) 316,000 - - 316,000
Shares issued - acquisition (Note 2) 295,000 - - 300,000
Net income - 2,108,280 - 2,108,280
---------------- ----------------- ---------------- ---------------
Balance at January 31, 1999 $ 1,689,549 $ 13,686,545 $ - $ 15,806,130
================= ================== ================ ===============
</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, 1999, 1998 AND 1997
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 2,108,280 $ 1,496,314 $ 1,916,938
Adjustments to reconcile net income to
net cash provided by operating
activities:
Deferred compensation, postretirement
medical benefits and related
interest 149,252 34,015 114,113
Depreciation and amortization 964,839 964,170 915,888
Equity issued as compensation - - 21,930
Amortization of note receivable - 27,428 28,500
Deferred rent (11,250) 3,754 18,750
Deferred income taxes 92,400 (126,600) (82,300)
Changes in assets and liabilities:
Accounts receivable 56,847 (90,644) (719,721)
Inventories 177,994 (544,266) (918,945)
Prepaid expenses and other current
assets (124,884) (70,776) 41,680
Other assets (11,302) (79,846) (8,792)
Accounts payable (135,923) (531,284) 116,573
Accrued liabilities 136,774 (10,290) 46,870
Prepaid income taxes and income taxes
payable 487,593 551,282 1,118,221
Minority interest - 76,499 -
---------------- ---------------- ----------------
Net cash provided by operating
activities 3,890,620 1,699,756 2,609,705
---------------- ----------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (1,113,969) (903,475) (1,098,318)
Purchase of minority interest (100,000) - -
Acquisition of net assets of Merrick
Packaging Specialists, Inc., - net
of cash acquired - (664,949) -
Purchase of intangible assets (104,201) (41,497) (76,059)
---------------- ---------------- ----------------
Net cash used in investing
activities (1,318,170) (1,609,921) (1,174,377)
----------------- ------------------ ------------------
</TABLE>
F-5
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------
Cash flows from financing activities:
<S> <C> <C> <C>
Proceeds of long-term debt $ 2,040,000 $ 2,912,000 $ -
Payment of long-term debt (4,316,455) (1,416,455) (751,650)
Payment for retirement of common
stock - (2,110,683) -
Proceeds from exercise of stock
options 249,794 87,129 234,652
Distribution to minority interest (76,499) - -
---------------- ---------------- ------------
Net cash used in financing
activities (1,738,068) (528,009) (516,998)
------------------ ----------------- -------------
Net increase (decrease) in cash and cash
equivalents 834,382 (438,174) 918,330
Cash and cash equivalents - beginning of
year 1,676,749 2,114,923 1,196,593
----------------- ----------------- -------------
Cash and cash equivalents - end of
year $ 2,511,131 $ 1,676,749 $ 2,114,923
================= ================= =============
</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, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS AND CONCENTRATION OF CREDIT RISK:
Uniflex, Inc. and Subsidiaries (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 wholly owned subsidiaries, Uniflex Southwest L.L.C.,
("Southwest"), Uniflex Southeast, Inc., ("Southeast"), and 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, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.):
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, 1999, the net
book value of goodwill and other intangible assets was $2,696,031 and $183,653,
respectively. Accumulated amortization was approximately $268,000 and $339,000
on January 31, 1999 and 1998, 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, 1999, 1998 and 1997 were approximately $459,000,
$434,000 and $482,000, respectively.
F-8
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'):
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. ACQUISITIONS:
MINORITY INTEREST IN UNIFLEX SOUTHWEST, L.L.C.:
Effective February 1, 1998, Uniflex purchased the minority interest in Uniflex
Southwest, L.L.C. for $800,000. The purchase price is payable as follows:
Cash at closing (paid June 10, 1998) $ 100,000
Notes payable in 48 monthly installments of
$8,333, plus interest at 7% per annum commencing
April 1, 1998 400,000 (A)
Issuance of 50,000 shares of common stock 300,000
------------
$ 800,000
============
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
$214,389. The excess of purchase price over assets acquired for $585,611 has
been assigned to goodwill and is being amortized over 40 years.
(A) In the event of a change in control of the Company, this debt becomes due on
a demand basis. In anticipation of the transaction, described in Note 17, this
debt has been classified as a current liability (Note 6).
F-9
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 2. ACQUISITIONS (CONT'D.):
MERRICK PACKAGING SPECIALISTS, INC.:
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 fifteen to
forty years. Of the purchase price of $2,370,000, $780,000 was paid at closing,
$600,000 was paid August 1, 1997, $600,000 was paid August 1, 1998, and the
balance is payable March 1, 1999 (Note 6).
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>
1999 1998
------------------ ------------------
<S> <C> <C>
Raw materials and supplies $ 1,754,787 $ 2,928,334
Work-in-process 317,076 133,008
Finished goods 2,305,441 1,493,956
----------------- ------------------
$ 4,377,304 $ 4,555,298
================= ==================
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Land $ 860,000 $ 860,000
Building and improvements 2,749,081 2,759,080
Machinery and equipment 11,505,623 10,616,307
Leasehold improvements 665,501 645,516
Plates and engravings 716,170 598,348
Furniture and fixtures 640,695 622,164
Delivery equipment - 34,462
----------------- ----------------
17,137,070 16,135,877
Less accumulated depreciation and amortization 9,821,041 9,107,185
----------------- ------------------
$ 7,316,029 $ 7,028,692
================= ==================
</TABLE>
F-10
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 5. PROPERTY AND EQUIPMENT (CONT'D.):
Depreciation and amortization expense, for the assets above, charged to
operations for the years ended January 31, 1999, 1998 and 1997 amounted to
$826,632, $836,719 and $833,438, respectively.
Assets held under capitalized leases, included above, are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Machinery and equipment $ 163,683 $ 163,683
Furniture and fixtures 126,762 126,762
--------------- ----------------
290,445 290,445
Less accumulated depreciation 97,182 72,870
--------------- ----------------
$ 193,263 $ 217,575
=============== ================
NOTE 6. LONG-TERM DEBT:
Long-term debt consists of the following:
1999 1998
--------------- ----------------
Bank loan (A) $ - $ 1,500,000
Term note payable - bank (B) 738,095 1,000,000
Mortgage payable - bank (C) 1,915,326 1,325,197
Acquisition debt - notes payable, due March 1, 1999 with
interest at 7.5% per annum (Note 2) 390,000 990,000
Notes payable - former minority interest holder (Notes 2 and 17) 308,334 -
Capital lease obligations (Note 16) 115,475 163,396
--------------- ----------------
3,467,230 4,978,593
Less current maturities 1,174,100 1,023,000
--------------- ----------------
$ 2,293,130 $ 3,955,593
=============== ================
</TABLE>
Interest expense on long-term debt, charged to operations for the years ended
January 31, 1999, 1998 and 1997 amounted to $329,716, $320,046 and $157,416,
respectively.
F-11
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 6. LONG-TERM DEBT (CONT'D):
Following are the maturities of long-term debt as of January 31, 1999, and for
each of the next five years and in the aggregate:
2000 $ 1,174,100
2001 456,554
2002 325,277
2003 140,005
2004 136,008
Thereafter 1,235,286
-----------------
$ 3,467,230
=================
(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 150 basis points 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 150 basis points
commencing March 1998. The term note is unsecured and is subject to the same
covenants and conditions as the credit agreement (See "A" above).
(C) On February 4, 1998, the Company obtained a mortgage loan. 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 rate
3) Variable at LIBOR plus 175 basis points
The mortgage loan agreement contains various covenants and restrictions relating
to net worth, financial ratios and rentals of the mortgaged property.
F-12
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 7. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
1999 1998
---------- ----------
Accrued commissions $ 236,806 $ 321,908
Accrued payroll and bonuses 596,634 320,425
Accrued vacation 155,800 198,900
Other 198,381 157,005
---------- ----------
$1,187,621 $ 998,238
========== ==========
NOTE 8. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
Current
<S> <C> <C> <C>
Federal $ 1,020,600 $ 957,000 $ 1,185,800
State 91,400 69,600 148,700
----------- ----------- -----------
1,112,000 1,026,600 1,334,500
----------- ----------- -----------
Deferred:
Federal 57,800 (20,700) (34,300)
State 46,600 (9,900) (22,000)
----------- ----------- -----------
104,400 (30,600) (56,300)
Change in valuation allowance (12,000) (96,000) (26,000)
----------- ----------- -----------
92,400 (126,600) (82,300)
----------- ----------- -----------
Total $ 1,204,400 $ 900,000 $ 1,252,200
=========== =========== ===========
At Federal statutory rates $ 1,126,300 $ 815,000 $ 1,077,500
Effect of:
Permanent differences 6,000 1,300 12,600
Over/under accruals and other 24,100 133,800 104,500
State income taxes, net of federal
benefits 135,000 104,100 98,600
State investment tax credits, net of
federal benefit (75,000) (58,200) (15,000)
Change in valuation allowance (12,000) (96,000) (26,000)
----------- ----------- -----------
Total $ 1,204,400 $ 900,000 $ 1,252,200
=========== =========== ===========
</TABLE>
At January 31, 1999, the Company has available for state income tax purposes
unused investment tax credits of approximately $316,000 expiring through the
year 2009.
F-13
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 8. INCOME TAXES (CONT'D):
The net current and non-current components of deferred income taxes recognized
in the balance sheet are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Net current assets $ 274,300 $ 310,400
Net non-current assets 298,500 354,800
--------------- ----------------
$ 572,800 $ 665,200
=============== ================
</TABLE>
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
Deferred tax assets:
<S> <C> <C>
Accounts receivable allowances $ 50,800 $ 50,800
Inventory - uniform capitalization 86,900 58,800
Vacation pay accrual 65,500 83,000
Deferred rent 56,300 60,900
Stock option compensation - 41,200
Deferred compensation and post-retirement
medical benefits 635,500 572,500
Investment tax credit carryforwards 317,000 350,000
--------------- ----------------
1,212,000 1,217,200
Valuation allowance (5,000) (17,000)
--------------- ----------------
1,207,000 1,200,200
Deferred tax liability:
Depreciation 634,200 535,000
--------------- ----------------
Net deferred tax assets $ 572,800 $ 665,200
=============== ================
</TABLE>
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.
F-14
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 10. NOTE RECEIVABLE - STOCK PURCHASE:
In 1990, an officer of the Company, purchased common stock in exchange for cash
and a note payable bearing interest at 8.66% per annum. In accordance with the
agreement, since the officer has fulfilled the terms of his employment contract,
the seven annual installments required by the note have been forgiven annually
by the Company as additional compensation to the officer. At January 31, 1999,
note receivable balance was $-0-.
NOTE 11. MINORITY INTEREST:
In January 1995, Uniflex acquired an 80% interest in Uniflex Southwest L.L.C.
("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.
Effective February 1, 1998, the Company purchased the minority interest in
Southwest (Note 2).
In March 1996, Uniflex Southeast, Inc. ( a wholly owned subsidiary of Uniflex,
Inc.) acquired an 80% interest in Uniflex Southeast, L.L.C. 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 Uniflex
Southeast, L.L.C. Uniflex Southeast, L.L.C. ceased operations in July 1997.
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 204,500 shares have been
granted under the Plan at prices ranging from $1.42 to $9.75. During the year
ended January 31, 1999, options to purchase 9,000 shares were granted. Options
to purchase 88,700 shares remain unexercised at January 31, 1999.
The Company had 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 were
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. As of
January 31, 1999 all of the options 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 60,000 shares remain unexercised at January 31, 1999.
F-15
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 12. STOCK OPTIONS (CONT'D):
The following table provides information regarding stock option activity for the
years ended January 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
NUMBER OF SHARES RANGE WEIGHTED AVERAGE
---------------- ----- ----------------
Balance January 31, 1996
<S> <C> <C> <C>
(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
Granted 9,000 5.38 5.38
Exercised (184,200) .69 - 4.83 1.36
Forfeited (9,150) .92 - 3.58 1.78
---------------
Balance January 31, 1999
(128,700 exercisable) 148,700 .69 - 9.75 4.17
===============
</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, 1999, 1998 and 1997, 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, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
RANGE OF WEIGHTED AVERAGE YEARS WEIGHTED AVERAGE
EXERCISE PRICES SHARES REMAINING CONTRACTUAL LIFE EXERCISE PRICE
- --------------- ------ -------------------------- --------------
<S> <C> <C> <C>
$.69 60,000 1.9 $ .69
3.92 to 5.71 37,200 6.2 5.37
6.00 to 9.75 51,500 4.7 7.35
------------ ------------ ------------
Total 148,700 4.0 $ 4.17
============ ============ ============
</TABLE>
F-16
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
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,
1999, 1998 and 1997, 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, 1999, 1998 and 1997, respectively. Related interest
expense charged to operations for the years ended January 31, 1999, 1998 and
1997 approximated $165,000, $141,000 and $124,000, respectively.
Deferred compensation payable at January 31, 1999 and 1998 was $1,405,276 and
$1,248,483, 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, 1999, 1998 and 1997, respectively. Related interest expense
charged to operations for the years ended January 31, 1999, 1998 and 1997
approximated $8,000, $9,000 and $9,000, respectively.
F-17
<PAGE>
The recorded liabilities for these postretirement benefits, none of which have
been funded amounted to $107,228 and $114,769 at January 31, 1999 and 1998,
respectively. All participants were retired at January 31, 1999 and 1998,
respectively.
F-18
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 14. DEFERRED COMPENSATION AND POSTRETIREMENT MEDICAL BENEFITS (CONT'D):
POSTRETIREMENT MEDICAL BENEFITS (CONT'D):
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 during the years ended January 31,
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest $ 359,834 $ 274,041 $ 165,121
================ ================ ================
Income taxes paid $ 628,261 $ 528,923 $ 650,000
================ ================ ================
Income tax refunds received $ 2,339 $ 23,653 $ 435,000
================ ================ ================
</TABLE>
NON-CASH TRANSACTIONS:
YEAR ENDED JANUARY 31, 1999:
In connection with the acquisition of the minority interest of Uniflex
Southwest, L.L.C., valued at $800,000 (Note 2), the Company incurred debt of
$400,000, issued common stock valued at $300,000 and paid $100,000 in cash.
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.
F-19
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 16. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASE COMMITMENTS:
The Company has the following lease commitments:
<TABLE>
<CAPTION>
PREMISES EXPIRATION DATE BASE RENTAL AND EXPENSES
- -------- --------------- ------------------------
<S> <C> <C>
Plant, Westbury, NY April 30, 2003 Graduated from $91,000 and
$205,000 per annum plus
real estate taxes
Plant, Albuquerque, NM July 31, 2005 $91,708 per annum including
real estate taxes and insurance
</TABLE>
Future minimum lease payments are as follows:
YEARS ENDING JANUARY 31,
2000 $ 279,200
2001 285,500
2002 290,500
2003 295,500
2004 143,000
Thereafter 45,900
---------------
$ 1,339,600
===============
Base rent and other occupancy costs charged to operations for the years ended
January 31, 1999, 1998 and 1997 amounted to approximately $459,000, $415,000 and
$418,000, respectively, including real estate taxes of $201,000, $115,000 and
$194,000, 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-20
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONT'D):
Future minimum lease payments under capital leases as of January 31, 1999 for
each of the next four years and in the aggregate are as follows:
YEARS ENDING JANUARY 31,
2000 $ 63,201
2001 39,275
2002 24,295
2003 4,050
---------------
Total minimum lease payments 130,821
Less amounts representing interest 15,346
---------------
Present value of net minimum lease payment (Note 6) $ 115,475
===============
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:
On March 8, 1999, the Company announced that Uniflex and an acquisition entity
("NEWCO") formed by RFE Investment Partners have signed an Agreement and Plan of
Merger and Recapitalization providing for the acquisition by NEWCO of all of the
outstanding shares of common stock and all the outstanding stock options of
Uniflex, (exclusive of the shares of common stock to be retained as described
below). However, there can be no assurance that the transaction will ultimately
be consummated.
The transaction is subject to certain conditions, including the successful
completion of the necessary financing and obtaining the necessary regulatory and
corporate approvals, including the approval of the shareholders of Uniflex. It
is expected that the transaction will be consummated no later than July 30,
1999.
The Merger Agreement provides for a statutory merger of Uniflex with NEWCO
pursuant to which the holders of Uniflex's issued and outstanding common stock
and stock options (exclusive of the shares of common stock to be retained as
described below) will be entitled to receive $7.57 per share of common stock and
an average of $4.09 per stock option for options the exercise price of which is
less than $7.57 per share based upon 128,700 such options currently outstanding
and a weighted average exercise price there of $3.48 per share. Upon
consummation of the merger, (i) CMCO, Inc. and its affiliates that currently own
300,158 shares of common stock of Uniflex will retain all of their shares of
common stock of Uniflex and (ii) certain officers, directors and employees of
Uniflex will retain no less than 322,000 shares of common stock of Uniflex owned
by them. The transaction is expected to be treated as a recapitalization for
financial reporting purposes.
F-21
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
DESCRIPTION
Allowance for doubtful accounts
<TABLE>
<CAPTION>
Balance at
Beginning Charged to
Of Year To Expenses Deductions (1)
------- ----------- --------------
<S> <C> <C> <C>
January 31, 1999 $ 121,366 $ 85,000 $ 85,235
============== ============== ===============
January 31, 1998 $ 160,061 $ 44,081 $ 82,776
============== ============== ===============
January 31, 1997 $ 174,500 $ 61,178 $ 75,617
============== ============== ===============
</TABLE>
(1) Write-off of uncollectible accounts.
F-22
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated March 5, 1999 included in this Form 10-K, into
the Company's previously filed Registration Statements on Form S-3 (File No.
333-15027) and Form S-8 (File No. 033-70754).
/S/ Patrusky, Mintz & Semel
---------------------------
Patrusky, Mintz & Semel
New York, New York
April 16, 1999
<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, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 2,511,131
<SECURITIES> 0
<RECEIVABLES> 4,641,608
<ALLOWANCES> 121,131
<INVENTORY> 4,377,304
<CURRENT-ASSETS> 12,471,599
<PP&E> 7,316,029
<DEPRECIATION> 9,821,041
<TOTAL-ASSETS> 23,547,995
<CURRENT-LIABILITIES> 3,802,481
<BONDS> 0
0
0
<COMMON> 430,036
<OTHER-SE> 15,376,094
<TOTAL-LIABILITY-AND-EQUITY> 23,547,995
<SALES> 39,721,744
<TOTAL-REVENUES> 39,721,744
<CGS> 25,215,265
<TOTAL-COSTS> 35,993,536
<OTHER-EXPENSES> 415,528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415,528
<INCOME-PRETAX> 3,312,680
<INCOME-TAX> 1,204,400
<INCOME-CONTINUING> 2,108,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,108,280
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
