<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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: 333-32041
---------------
PRECISE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1205268
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 Mosside Boulevard
North Versailles, Pennsylvania 15137-2553
(Address of principal executive offices) (Zip Code)
(412) 823-2100
(Registrant's telephone number, including area code)
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
--- ---
As of November 1, 1998, one share of the Company's Common Stock was
outstanding.
1
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 178,806 $ 560,059
Accounts receivable, net 13,479,199 12,944,644
Inventories 6,605,455 5,855,709
Prepaid expenses and other 933,196 589,156
Deferred income taxes 989,341 989,341
------------ ------------
Total current assets 22,185,997 20,938,909
Property, plant and equipment, net 43,229,467 44,830,561
Intangible and other assets, net 27,005,110 27,978,091
------------ ------------
Total assets $ 92,420,574 $ 93,747,561
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current maturities of long-term debt $ 6,167,302 $ 5,882,842
Accounts payable 6,589,551 5,805,598
Accrued liabilities 5,074,919 2,568,161
Tooling deposits 2,233,024 1,552,200
------------ ------------
Total current liabilities 20,064,796 15,808,801
Long-term debt, less current maturities 83,014,426 86,868,663
Deferred income taxes 1,431,162 1,431,162
Commitments and contingencies -- --
Stockholder's deficit:
Common stock, no par value; 1,000 shares authorized, and 1
share issued and outstanding at September 30, 1998 and
December 31, 1997, respectively 1,000 1,000
Additional paid-in-capital 3,554,711 3,554,711
Minimum pension liability (204,172) (204,172)
Retained deficit (15,441,349) (13,712,604)
------------ ------------
Total stockholder's deficit (12,089,810) (10,361,065)
------------ ------------
Total liabilities and stockholder's deficit $ 92,420,574 $ 93,747,561
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 24,718,321 $ 24,616,210 $ 72,882,652 $ 76,416,604
Cost of sales 19,364,775 20,144,786 57,989,140 63,009,510
------------ ------------ ------------ ------------
Gross profit 5,353,546 4,471,424 14,893,512 13,407,094
Selling, general, and
administrative 2,755,550 2,205,417 7,881,322 6,377,536
Plant closure costs -- 8,730 30,648 8,730
Amortization of
intangible assets 273,828 314,966 901,014 910,092
------------ ------------ ------------ ------------
Operating income 2,324,168 1,942,314 6,080,528 6,110,736
Other expense
(income):
Interest expense 2,578,589 2,522,025 7,778,093 6,409,672
Other 12,164 (13,163) (20,703) 987,437
------------ ------------ ------------ ------------
Loss before income
taxes and
extraordinary item (266,585) (566,551) (1,676,862) (1,286,373)
Provision (benefit)
for income taxes 291,883 (111,787) 51,883 502,832
------------ ------------ ------------ ------------
Net loss before
extraordinary item (558,468) (454,764) (1,728,745) (1,789,205)
------------ ------------ ------------ ------------
Extraordinary item,
net of tax -- -- -- (4,840,500)
------------ ------------ ------------ ------------
Net loss $ (558,468) $ (454,764) $ (1,728,745) $ (6,629,705)
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Operating activities
Net loss $ (1,728,745) $ (6,629,705)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary item, net of tax -- 4,840,500
Depreciation and amortization 5,801,929 4,942,798
Amortization of original issue discount and financing fees 418,951 513,152
Loss on sale of fixed assets 71,290 229,466
Deferred income taxes -- 127,907
Changes in assets and liabilities:
Accounts receivable (534,555) 576,271
Inventories (749,746) 2,519,464
Prepaid expenses and other (685,521) (92,214)
Accounts payable 783,953 (91,355)
Accrued liabilities 2,506,758 1,232,418
Tooling deposits 680,824 (370,697)
------------ ------------
Net cash provided by operating activities 6,565,138 7,798,005
Investing activities
Capital expenditures (2,019,243) (3,918,714)
Proceeds from sale of fixed assets 111,720 1,449,000
------------ ------------
Net cash used in investing activities (1,907,523) (2,469,714)
Financing activities
Borrowings on revolving line of credit 11,900,000 16,400,000
Payments on revolving line of credit (14,300,000) (11,700,000)
Proceeds from bond issuance -- 75,000,000
Repayment of long-term debt (2,638,868) (60,813,389)
Prepayment of debt premiums -- (2,398,940)
Payment of financing fees -- (4,292,309)
Redemption of common stock -- (3,314,617)
Redemption of preferred stock -- (8,250,000)
Dividends paid on common and preferred stock -- (6,814,317)
------------ ------------
Net cash used in financing activities (5,038,868) (6,183,572)
------------ ------------
Net decrease in cash (381,253) (855,281)
Cash at beginning of period 560,059 1,310,564
------------ ------------
Cash at end of period $ 178,806 $ 455,283
============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $5,275,582 $3,497,494
=======================
Income taxes $ 30,441 $ 390,461
=======================
Supplemental schedule of noncash investing and financing
activities:
Capital lease agreements for equipment $1,469,091 $1,644,541
=======================
</TABLE>
See accompanying notes.
6
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
1. Financial Statement Presentation
The consolidated balance sheet at September 30, 1998, and the
consolidated statements of income and consolidated statements of cash flows
for the periods ended September 30, 1998 and 1997, have been prepared by
Precise Technology, Inc. (the "Company"), without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and changes in cash flows at September 30,
1998 and for the periods presented have been made.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete financial statements
prepared in accordance with generally accepted accounting principles. It is
suggested that these consolidated financial statements be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1997, which contains a summary of the Company's accounting
principles and other information.
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS No. 130 had no
impact on the Company's net income or shareholders' equity. SFAS No. 130
requires the adjustment to the minimum pension liability, which prior to
adoption was reported separately in shareholders' equity, to be included in
other comprehensive income. The Company had no comprehensive income for the
periods ended September 30, 1998 and 1997, respectively.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The results of operations for the period ended September 30, 1998 are
not necessarily indicative of the operating results to be expected for the
full year.
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation. These reclassifications had
no effect on net income or comprehensive income.
2. Inventories
The major components of inventories were as follows:
September 30, December 31,
1998 1997
(unaudited)
Finished products $1,697,425 $1,679,131
Raw materials 2,177,423 2,349,130
Tooling and dies 2,730,607 1,827,448
---------- ----------
Total $6,605,455 $5,855,709
========== ==========
7
<PAGE>
3. Long-Term Debt
On June 13, 1997, the Company issued $75,000,000 of 11-1/8% Senior
Subordinated Notes due 2007 (the "Notes"). The Company used the net proceeds
from the issuance of the Notes and approximately $8,200,000 of borrowings
under its New Credit Agreement ("NCA") to extinguish certain existing
indebtedness, redeem its redeemable preferred stock, repurchase certain
shares of its common stock, make a distribution to Precise Holding
Corporation, parent of the Company ("Parent"), and pay fees and expenses
related to these refinancing transactions.
The Notes are subordinate in right of payment to all existing and
future senior indebtedness of the Company and are guaranteed on a senior
subordinated basis by all of the Company's subsidiaries.
On June 13, 1997, the Company entered into a $30,000,000 NCA with a
financial institution. Borrowings under the NCA may be used to fund the
Company's working capital requirements, finance certain permitted
acquisitions and general corporate requirements of the Company and pay fees
and expenses related to the foregoing.
4. Commitments and Contingencies
(a) Litigation
The Company is involved from time to time in lawsuits that arise in the
normal course of business. The Company actively and vigorously defends all
lawsuits. Management believes that there are no pending lawsuits that are
expected to have a material effect on the Company's financial position.
(b) Collective Bargaining Agreement
In October 1998, the Company entered into a new collective bargaining
agreement with approximately 5% of the Company's employees. This new
collective bargaining agreement, which expires on February 2, 2002, replaces
the old collective bargaining agreement that expired on February 2, 1998.
The Company believes that its relationship with its employees is generally
good.
5. Financial Information for Subsidiary Guarantors
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
"Subsidiary Guarantees") by Precise Technology of Delaware, Inc., Precise
Technology of Illinois, Inc., Precise TMP, Inc., Precise Polestar, Inc., and
Massie Tool, Mold and Die, Inc., each a direct or indirect wholly-owned
subsidiary of the Company and each a "Guarantor." These subsidiaries
represent substantially all of the operations of the Company conducted in
the United States. In accordance with previous positions taken by the
Securities and Exchange Commission, the following summarized financial
information illustrates the composition of the combined Guarantors. Separate
complete financial statements of the respective Guarantors are not presented
because management has determined that they would not provide additional
material information that would be useful in assessing the financial
composition of the Guarantors. No single Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to
its assets in the event of a default on its Subsidiary Guarantees other than
its subordination to senior indebtedness described above in Note 3. The
principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
8
<PAGE>
Summarized Combined Financial Information
For the Nine Months Ended September 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries Eliminations Total
------ ------------ ------------ -----
<S> <C> <C> <C> <C>
Current assets $ 5,158,364 $ 63,498,271 $(46,470,638) $ 22,185,997
Non-current assets 83,917,307 55,149,176 (68,831,906) 70,234,577
Current liabilities 38,396,265 28,139,169 (46,470,638) 20,064,796
Non-current liabilities 77,410,972 7,034,616 -- 84,445,588
Net sales 10,960,732 62,244,827 (322,907) 72,882,652
Gross profit 2,024,634 12,868,878 -- 14,893,512
Net (loss) income (6,235,475) 4,506,730 -- (1,728,745)
</TABLE>
Summarized Combined Financial Information
For the Nine Months Ended September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries Eliminations Total
------ ------------ ------------ -----
<S> <C> <C> <C> <C>
Current assets $ 4,848,299 $ 55,659,446 $(38,255,768) $ 22,251,977
Non-current assets 84,236,708 56,095,674 (68,831,906) 71,500,476
Current liabilities 34,000,129 21,436,927 (38,255,768) 17,181,288
Non-current liabilities 80,575,878 5,801,059 -- 86,376,937
Net sales 13,554,517 63,168,581 (306,494) 76,416,604
Gross profit 2,491,027 10,916,067 -- 13,407,094
(Loss) income from continuing operations
before extraordinary item (11,234,203) 9,444,998 -- (1,789,205)
Net (loss) income (12,245,975) 5,616,270 -- (6,629,705)
</TABLE>
- ----------------------------------------------------------------------------
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's operating data for the three and nine months ended September
30, 1998 and 1997 are set forth below as percentages of net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 78.4 81.8 79.6 82.5
----- ----- ----- -----
Gross profit 21.6 18.2 20.4 17.5
Selling, general and administrative 11.1 9.0 10.8 8.3
Plant closure costs 0.0 0.0 0.0 0.0
Amortization of intangible assets 1.1 1.3 1.3 1.2
----- ----- ----- -----
Operating income 9.4 7.9 8.3 8.0
Other expense (income):
Interest expense 10.4 10.2 10.7 8.4
Other 0.0 0.0 0.0 1.3
----- ----- ----- -----
Loss before income taxes and extraordinary
item (1.1) (2.3) (2.3) (1.7)
Provision (benefit) for income taxes 1.2 (0.5) 0.1 0.6
----- ----- ----- -----
Net loss before extraordinary item (2.3) (1.8) (2.4) (2.3)
Extraordinary item, net of tax 0.0 0.0 0.0 (6.4)
===== ===== ===== =====
Net loss (2.3)% (1.8)% (2.4)% (8.7)%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 compared to Three Months Ended
September 30, 1997
Net sales. The Company's net sales increased to $24.7 million for the
three months ended September 30, 1998, an increase of $0.1 million, or 0.4%,
over the comparable period in the prior year. The increase in net sales was
attributable to increased volumes to certain customers due to a higher
demand for the customers' end product line and the addition of a significant
new product line for one of the Company's largest customers. These increases
were partially offset by: (i) customer insourcing, (ii) the loss of a
customer to a competitor with a closer "ship-to" point, (iii) lower than
anticipated volume requirements of certain customers' end product lines due
to product line maturity, (iv) two customers being involved with business
combinations that have slowed their volume requirements and (v) reduction in
resin prices which are passed through to the customer.
Gross profit. The Company's gross profit increased to $5.4 million for
the three months ended September 30, 1998, an increase of $0.9 million, or
19.7%, over the comparable period in the prior year. Gross profit margin
increased to 21.7% for the three months ended September 30, 1998, from 18.2%
in the comparable period in the prior year. The increase in gross profit and
gross profit margin was primarily due to: (i) lower raw material costs from
aggressive purchasing tactics, (ii) increase in employee utilization and
(iii) a favorable change in product mix.
Selling, general and administrative. Selling, general and
administrative expenses increased to $2.8 million for the three months ended
September 30, 1998, an increase of $0.6 million, or 24.9%, over the
comparable period in the prior year. The increase in selling, general and
administrative expenses was primarily due to: (i) increased salaries and
wages for additional corporate personnel, (ii) costs associated with the
implementation of a new Enterprise Resource Planning system and (iii)
increased expenses due to a pursuit of potential acquisitions.
10
<PAGE>
Amortization. The Company's amortization of intangible assets decreased
to $274,000 for the three months ended September 30, 1998, a decrease of
$41,000, or 13.1%, from the comparable period in the prior year. The
decrease is due to the expiration of two non-compete agreements from
previous acquisitions during the three months ended September 30, 1998.
Operating income. Operating income increased to $2.3 million for the
three months ended September 30, 1998, an increase of $0.4 million, or
19.7%, over the comparable period in the prior year. Operating income as a
percentage of net sales increased to 9.4% for the three months ended
September 30, 1998 from 7.9% in the comparable period in the prior year
primarily due to: (i) higher gross profit resulting from lower raw material
costs from aggressive purchasing tactics, (ii) increase in employee
utilization and (iii) a favorable change in product mix.
Interest expense. Interest expense increased to $2.6 million for the
three months ended September 30, 1998, an increase of $0.1 million, or 2.2%,
over the comparable period in the prior year. This increase is primarily a
result of interest due on additional capital leases.
Provision for income tax. The Company's effective tax rates differed
from the applicable statutory rates for the three months ended September 30,
1998 and 1997 primarily due to nondeductible goodwill amortization.
Nine Months Ended September 30, 1998 compared to Nine Months Ended September
30, 1997
Net sales. The Company's net sales decreased to $72.9 million for the
nine months ended September 30, 1998, a decrease of $3.5 million, or 4.6%,
from the comparable period in the prior year. The decrease in net sales was
attributable to: (i) customer insourcing, (ii) the loss of two customers to
competitors with closer "ship-to" points, (iii) lower than anticipated
volume requirements of certain customers' end product lines due to product
line maturity, (iv) two customers' being involved with business combinations
that have slowed the volume requirements and (v) reduction in resin prices
which are passed through to the customer. These decreases were partially
offset by increased volumes to certain customers due to a higher demand for
the customers' end product line and the addition of a significant new
product line for one of the Company's largest customers.
Gross profit. The Company's gross profit increased to $14.9 million for
the nine months ended September 30, 1998, an increase of $1.5 million, or
11.1%, from the comparable period in the prior year. Gross profit margin
increased to 20.4% for the nine months ended September 30, 1998 from 17.5%
in the comparable period in the prior year. The increase in gross profit and
gross profit margin was primarily due to: (i) lower raw material costs from
aggressive purchasing tactics, (ii) increase in employee utilization, (iii)
a favorable change in product mix and (iv) increased margins from the mold
making facilities.
Selling, general and administrative. Selling, general and
administrative expenses increased to $7.9 million for the nine months ended
September 30, 1998, an increase of $1.5 million, or 23.6%, over the
comparable period in the prior year. The increase in selling, general and
administrative expenses was primarily due to: (i) increased salaries and
wages for additional corporate personnel, (ii) costs associated with the
implementation of a new Enterprise Resource Planning system, (iii) increased
expenses due to a pursuit of potential acquisitions and (iv) additional fees
for various management services and other corporate activities.
Amortization. The Company's amortization of intangible assets remained
constant at approximately $0.9 million for the nine months ended September
30, 1998 and 1997, respectively.
Operating income. Operating income remained constant at $6.1 million
for the nine months ended September 30, 1998 and 1997. Operating income as a
percentage of net sales increased to 8.3% for the nine months ended
September 30, 1998 from 8.0% in the comparable period in the prior year. The
increase in operating income as a percentage of net sales is primarily due
to the increase in gross profit margin which was partially offset by the
increase in selling, general and administrative expenses.
11
- ----------------------------------------------------------------------------
<PAGE>
Interest expense. Interest expense increased to $7.8 million for the
nine months ended September 30, 1998, an increase of $1.4 million, or 21.3%,
over the comparable period in the prior year. This increase is primarily a
result of interest due on an increased level of indebtedness outstanding as
a result of the change in the Company's capital structure, which included
the issuance of the Notes.
Provision for income tax. The Company's effective tax rates differed
from the applicable statutory rates for the nine months ended September 30,
1998 and 1997 primarily due to nondeductible goodwill amortization.
Liquidity and Capital Resources
The Company generated cash flows from operations totaling $6.6 million
and $7.8 million in the nine months ended September 30, 1998 and 1997,
respectively. The decrease in cash flows from operations is primarily
attributable to an increase in working capital including an increase in
inventories associated with tooling projects, accounts receivable and
prepaid expenses.
The Company's cash flows used in investing activities totaled $1.9
million and $2.5 million, excluding capital lease agreements for equipment
totaling $1.5 million and $1.6 million, in the nine months ended September
30, 1998 and 1997, respectively. During the first nine months of 1998, the
Company expended approximately $0.5 million in cash capital expenditures
primarily for its new Enterprise Resource Planning system, $0.4 million in
cash capital expenditures on plant refurbishments and $0.5 million in cash
capital expenditures on machinery and ancillary equipment for a new project
for one of the Company's larger customers. The Company expects to incur
approximately $2.1 million of which $1.0 million will be in the form of cash
capital expenditures primarily on machinery and equipment and plant
refurbishment over the remaining three months of 1998.
The Company's cash flows used in financing activities totaled $5.0
million and $6.2 million for the nine months ended September 30, 1998 and
1997, respectively. During the nine months ended September 30, 1998,
regularly scheduled principal payments on the Company's capital lease
obligations of $2.6 million and repayments of revolving loans under the NCA
of $2.4 million contributed to the cash used in financing activities. During
the nine months ended September 30, 1997, the Refinancing Transactions
contributed to the cash used in financing activities.
Management believes that the Company's cash flow from operations,
together with borrowing availability under the NCA, of which $23.9 million
existed at September 30, 1998, will provide it with sufficient liquidity
necessary to fund capital improvements, service indebtedness and meet
working capital requirements for the Company's existing operations. However,
the Company is highly leveraged and, as a result, funds available for
working capital, capital expenditures, and other purposes may be limited or
unavailable in the event the Company does not generate cash flow at or above
expected levels, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See"-Cautionary
Statement on Forward-Looking Statements"
Year 2000
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of time-sensitive information by the Company's
computerized information systems. The year 2000 issue is the result of
computer programs being written using two digits rather than four to define
the applicable year. Any of the Company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or
engage in similar business activities ("Y2K").
State of Readiness
12
<PAGE>
In 1997, the Company began a program to assess the impact of the Y2K
issue on the software and hardware used in the Company's operations and has
identified various areas to focus its Y2K compliance efforts. They include
business computer systems, manufacturing and warehousing systems, end-user
computing, technical infrastructure, and supplier and service provider
systems. The program's phases include assessment and planning, remediation,
testing and implementation.
The Company's management has begun a program to prepare the Company's
computer systems and related applications for the Y2K. The Company believes
that a majority of its Y2K issues will be addressed by the installation of
an Enterprise Resource Planning ("ERP") system software package by BaaN. The
ERP system, which is Y2K compliant and will be used for the Company's
primary business application at its headquarters and manufacturing
facilities, currently is being installed. The Company has developed a
comprehensive plan to assist all departments and manufacturing facilities in
working towards compliance with Y2K issues for all other systems beyond
those being addressed by the ERP system. If the Company's systems or the
systems of other companies on whose services the Company depends or with
whom the Company's systems interface are not Y2K compliant, it could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Y2K Costs
Total costs for the Company's Y2K compliance efforts are currently
estimated to be approximately $3.0 to $3.5 million of which approximately $2.1
million has been incurred as of September 30, 1998. The majority of these costs
relate to the ERP system installations and upgrades of which a portion have
been or will be capitalized and charged to expense over the estimated useful
life of the associated software and hardware. The remaining costs have been or
will be charged directly to expense.
Y2K Risks
The reasonable worst-case scenario for the Company with respect to the
Y2K problem is the failure of a key system or supplier system that causes
shipments of the Company's products to customers to be temporarily
interrupted. This could result in the Company not being able to produce one
or more product lines for a period of time, which in turn could lead to lost
sales and profits for the Company and its customers. The Company has been
given a favorable risk assessment for Y2K compliance by a number of the
Company's suppliers and customers.
Contingency Plans
As a part of the Company's Y2K strategy, contingency plans are being
developed and any systems requiring remediation will have one or more
contingency plans. The Company's staff, independent accountants and the
Board of Directors are updated on a regular basis as to the Y2K status. In
addition, supplier site audits, where appropriate, are to be performed in
1999.
Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosure
about Segments of an Enterprise and Related Information, which changes the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reportable segments in interim financial
reports issued to shareholders. In accordance with SFAS No. 131, the Company
will be required to make expanded disclosures relating to its products and
markets. The standard will be effective for the Company for the year ended
December 31, 1998, and for interim periods in the year ended December 31,
1999.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure
about Pensions and Other Postretirement Benefits, which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
implementation of SFAS No. 132 is not expected to have a significant impact
13
<PAGE>
on the Company's financial statements. The standard will be effective for
the Company for the year ended December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, Accounting of Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
implementation of SFAS No. 133 is not expected to have a significant impact
on the Company's financial statements. The standard will be effective for
the Company for the year ended December 31, 2000.
Cautionary Statement on Forward-Looking Statements
This Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Investors are
cautioned that any forward-looking statements, including statements
regarding the intent, belief, or current expectations of the Company or its
management, are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in
the forward-looking statements as a result of various factors including, but
not limited to (I) general economic conditions in the markets in which the
Company operates, (ii) reliance on key customers and supply contracts, (iii)
volatility of customer demand, (iv) exposure to fluctuations in resin cost
and supply, (v) customer outsourcing decisions, (vi) reliance on key
manufacturing facilities, (vii) the impact of significant competition from
companies of varying sizes including divisions or subsidiaries of larger
companies and (viii) other risks detailed from time to time in the Company's
Securities and Exchange Commission filings. The Company does not intend to
update these forward-looking statements.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(i) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
Undersigned, thereunto duly authorized.
PRECISE TECHNOLOGY, INC.
(Registrant)
Date November 16, 1998 /s/ John R. Weeks
--------------------- ------------------
John R. Weeks
President and Chief Executive Officer
Date November 16, 1998 /s/ Gregory R. Conley
--------------------- ---------------------
Gregory R. Conley
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (1) THE
CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS OF PRECISE TECHNOLOGY, INC.
AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS THEN ENDED AND (2) THE
CONSOLIDATED FINANCIAL STATEMENTS OF PRECISE TECHNOLOGY, INC. AS OF DECEMBER 31,
1997 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 179 560
<SECURITIES> 0 0
<RECEIVABLES> 13,564 13,030
<ALLOWANCES> 85 85
<INVENTORY> 6,605 5,856
<CURRENT-ASSETS> 22,186 20,939
<PP&E> 60,060 57,026
<DEPRECIATION> 16,831 12,195
<TOTAL-ASSETS> 92,421 93,748
<CURRENT-LIABILITIES> 20,065 15,809
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (12,090) (10,361)
<TOTAL-LIABILITY-AND-EQUITY> 92,421 93,748
<SALES> 72,883 100,737
<TOTAL-REVENUES> 72,883 100,737
<CGS> 57,989 82,732
<TOTAL-COSTS> 66,802 93,005
<OTHER-EXPENSES> (21) 874
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,778 8,771
<INCOME-PRETAX> (1,677) (1,912)
<INCOME-TAX> (298) 228
<INCOME-CONTINUING> (1,379) (2,140)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (4,841)
<CHANGES> 0 0
<NET-INCOME> (1,379) (6,981)
<EPS-PRIMARY> 0.0 0.0
<EPS-DILUTED> 0.0 0.0
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